The impact of climate change on the food and beverage industry

June 2, 2022
Written by
Sophie de Jonge
The impact of climate change on the food and beverage industry
Table of contents

Consumer views are shifting and evolving. We are living in a time where health awareness, ethics and sustainability are becoming increasingly more important. Brands therefore must evolve with this changing consumer behaviour. This shift is revolutionising the way in which brands behave. This is especially apparent in the food and beverage (F&B) industry, where these values are being most prominently reflected in a brands marketing and branding strategy. 

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Pressure brought on by climate-related risks, which are already having adverse effects on the F&B industry, have already gotten companies to pay more attention to the rising issue of climate change. Yet, the tightening regulations, guidelines, and frameworks are adding a much-needed fuel to the fire. Examples include the upcoming FLAG (Forest, Land, and Agriculture) SBTi guideline or GHG Protocol Agricultural Guidance. All of these regulations are designed to motivate companies to take action and influence consumers to put pressure on companies who are lagging behind. 

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This leaves the question, where do F&B's emissions come from, and why is decarbonization so important? 

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F&B's main climate dependencies

  1. Emissions
  2. Waste and pollution
  3. Deforestation and Resource Use

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It comes as no surprise that the F&B industry is one of the largest industries in the world, earning between 10.5 and 11 trillion USD in 2021. When it comes to manufacturing sectors, F&B is the EU's largest, by both jobs and value added. The food market alone is expected to be worth around €1.5 trillion at the end of 2022, growing 1.80% annually. As a result, F&B is responsible for 36% of global emissions.

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Emissions

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Even if fossil fuel emissions were halted immediately, the rising greenhouse gases emitted from an industry that accounts for a third of global emissions will make it difficult to limit global warming to the 1.5°C target of the Paris Agreement. If nothing is done to reduce the food industry’s emissions, their impact could nearly double by 2050 compared to today. 

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When it comes to food, some foods are more polluting than others. Meat accounts for nearly 60% of all food-production emissions, almost double that of plant-based foods. To relate this more to our daily life, 1 kg of beef emits 60 kg of greenhouse gases. Furthermore, livestock occupies almost three quarters of global farming land but only produces 18% of the world's calories. This is the reason that consumers are turning more and more to plant based alternatives. 

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Cocoa, coffee, soybeans, rice, maize, palm oil, and wheat have the largest plant-based food footprint per tonne. This is because a large portion of cropland and commodities (like soy or wheat) are used to feed livestock. The skyrocketing soybean demand has driven increased land-use and deforestation in Brazil's Amazon region: in Brazil, 95% of soy is used to feed animals; which is 77% globally. Some of these commodities are linked to deforestation, increasing the impact they have on our environment when they are not sourced sustainably. 

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Overall, the food industry can reduce emissions by shifting from heavy (meat and cheese) to light products (plant-based), reducing food waste, and increasing crop yields.

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Packaging and distribution also contributes to the F&B industry's emissions. Consumers are increasingly concerned about the sustainability of food and beverage packaging. In this context, what happens to the packaging after it is consumed is just as important as the impact of the production process. Food packaging accounts for 5.4% of food system emissions and was worth USD 301 billion in 2020. With more regulations and countries banning single-use plastics, the transition to a circular economy is already underway. F&B companies that want to be leaders should consider new packaging technologies or package-free options. 

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Furthermore, transport accounts for c. 5% of a product's footprint. While most products aren't shipped by air, fast-perishable foods like berries often are. Consumers don't know how their food is transported, which complicates the purchasing decisions when valuing ethical and sustainable products. This allows F&B companies to win over conscious consumers by increasing supply chain transparency and disclosing information. But also, it is currently quite easy to hide from consumers when products are being transported in a less sustainable way. 

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Supply chains

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F&B supply chains are complex and vary, but typically have 7 stages: Land Use Change, Farm, Animal Feed, Processing, Transport, Retail, and Packaging.

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Agriculture, livestock, and land-use practices cause most F&B emissions. Scope 3 emissions make up 90% of the industry's emissions, but many F&B companies don't have a Scope 3 reduction strategy or an overall reduction strategy aligned with the 1.5 °C scenario. The food supply chain is on track to overtake farming and land use as the largest emitter of greenhouse gases from the agri-food system, according to the FAO.

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Oxfam found that the 10 largest F&B companies' supply chain and operations emissions equaled all Scandinavian countries combined in 2014. Despite changes, the industry has a long way to go. Transparency over the supply chain footprint is essential for decision-making as consumers demand more information about product origin and impact. The European Commission's "Farm to Fork" strategy calls for an EU sustainable labelling framework by 2024 to make food systems more environmentally-friendly, fair, and healthy. F&B companies should support and encourage their agricultural producers to reduce the climate impact of livestock and crop production to transform the sector.

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Sustainability and transparency in the supply chain can also help F&B companies with legal compliance, regulatory pressure, talent attraction and retention, customer loyalty, and investor interest.

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Waste and pollution

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F&B uses a lot of energy and water. Agriculture uses 70% of the world's water. 1 kg of cheese requires 5,000 l of freshwater, or 5 years of drinking water for one person. In addition, livestock effluents, pesticides, and fertilisers contribute to groundwater and waterway pollution. About 78% of global eutrophication is caused by agriculture.

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Food waste contributes about 6% of global greenhouse gas emissions to the industry's carbon footprint. Food waste would be the third-largest emitter in the world, after China and the US. One-third of food produced worldwide is wasted. 24 percent of food industry emissions come from food lost in supply chains (due to poor storage, spoilage in transport, etc.) or wasted by consumers - as previously discussed in our Academy article on waste.

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Future food industry water risks include climate-related droughts. A sector so dependent on water must improve resource efficiency. F&B should set holistic corporate climate reduction strategies, focusing on Scope 3 emissions, to ensure food system resilience.

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Deforestation and Resource Use

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In recent decades, agricultural emissions have grown significantly. These emissions are predicted to climb by 30 percent by 2050 as a result of an expanding global population and consequently, the rising food demand. 

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Tragically, the rate of deforestation continues to rise globally as the demand for agricultural commodities rises. About 1.3 million square kilometers of forest have been lost since 1990, which is roughly the size of South Africa. GHG emissions from deforestation were found to be the highest source of GHG emissions in 2019, with livestock manure, food waste, home consumption, and fossil fuels used on farms and in the food retail sector coming in a close second. Deforestation is linked to a variety of industries, but the food and beverage industry contributes to a disproportionately large share of the problem. Deforestation in the tropical rainforests is mostly driven by the production of agricultural commodities including palm oil, soy, coffee, cocoa, and pasture area for cattle and other animals.

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In addition, low wages and poor working conditions for the employees often motivate farmers to deforest even more land in order to boost yields and thus generate more revenue - a vicious circle that calls for government action.

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How the food and beverage sector is dependent on climate change

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Food firms' supply chains are being adversely impacted by climate change and the rise in unpredictable (severe) weather occurrences, which have a detrimental effect on agricultural productivity. Droughts, floods, and other natural disasters have already disrupted the sector's raw material supply, causing prices to rise and crop yields to fall. For example, farmers in India are predicting a reduction of up to 25% in wheat crop yields as a result of the current heatwave.

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Developing countries would be the hardest hit by climate change, according to the Fifth IPCC Assessment Report published in 2014. These countries are major raw material suppliers for the food and beverage industry, therefore this has serious ramifications for them. An example to this are countries in West Africa, where agricultural yields are expected to decline by 70% by 2050, while bean, banana, and maize yields are expected to decrease by 50%.

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The World Economic Forum ranks climate action failure and extreme weather as the most severe threats to the next decade; this should serve as an even stronger wake-up call for businesses, which will be severely impacted in the future in a variety of ways, to begin acting now.

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