Soil degradation, extreme weather events, global heating and water scarcity are leading the food industry toward a crisis as significant as Covid, as it is unprepared to deal with the resulting volatility in food supply, according to a memo published by an anonymous group of food industry professionals.
Owners, bondholders and investors are warned that sub-scale risk mitigation strategies are being assured by major audit and assurance firms, and are therefore giving false confidence to investors.
The anonymous group, known only as Inside Track x Food, is reportedly made up of professionals with senior roles in many of the UK’s major food production, manufacturing and retail businesses, as well as the UK arms of global businesses. Most have “decades” of experience in the sector and together the companies they work for or have worked for represent more than half of all UK grocery sales.
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The memo adds that, beyond environmental degradation, several key factors have allowed the risk to reach a level where the insiders have been compelled to write to their investors directly. These include the competitive nature of UK food companies, ill-equipped senior teams and boards, insufficient consideration given to ‘long-term’ issues and a bias toward pleasing, rather than being honest with, directors, shareholders, owners and creditors.
It further suggests food companies are presenting three strategies to investors – finding alternative sourcing regions, investing in the resilience of current sourcing regions and investing in alternative food sources. However, these strategies “are sub-scale or wishful, light on details and not sufficient to mitigate risk to business”.
Investors, therefore, are urged to ask a series of questions to try to explore the resilience of the companies they own as well as their disaster preparedness levels.
Ned Younger of Inside Track, who coordinated the memo, said: “The food industry is heading into a crisis that those within can clearly see coming. If investors want to build resilient portfolios and future-proof their investments – and simultaneously protect the communities major companies source from and the public who rely on them for food – then they are going to have to help drive corporate action on these issues.”
Investment industry reaction
Amy Browne, director of stewardship at CCLA, said: ‘The memo suggests that rising food sector risks demand increased attention by investors throughout their voting and engagement activities. We urge our colleagues in the investment industry to leverage their unique capabilities as investors to address this otherwise intractable sustainability challenge. We encourage them to consider the recommendations in the memo to ask critical questions about sustainable sourcing practices, evaluate Industry Association memberships and support initiatives aimed at strengthening the resilience of food supply chains.”
Mark Campanale, founder of Planet Tracker and Carbon Tracker, continued: ‘This memo should be a wake-up call to investors concerned about how decisions are made inside corporations, the influence of board members and what impacts these will have on the value of their investments, let alone the natural world.
“Investors may not be getting all the information they need nor have the most relevant questions to hand. While it is coming from professionals working within the industry rather than external experts, it does echo research coming from Planet Tracker’s recent reports on food and agricultural companies, where we analyse these issues through a financial lens.
“The ability to produce food on the land we currently use for it is reducing and productivity shocks are increasing. This memo proposes to investors that food prices won’t just go up as a result of these shocks but the very ability to produce food supply sustainably could itself be in jeopardy.
“The idea of a soil and food systems collapse is real and, hopefully, investors will ask the questions the memo indicates and test their confidence in the strategies of the companies they own.”
