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The Real Price of Food

Posted on October 16, 2020

Tytti Kaasinen
Tytti Kaasinen
Director, Stewardship Services

Today, October 16, is World Food Day, a campaign created in 1981 to raise awareness of hunger and poverty. With an estimated nine percent of the global population reported as undernourished in 2019, hunger and poverty remain a reality for millions of people with the situation being exacerbated by the COVID-19 pandemic.[1],[2]

Without a course correction, the inherently unsustainable production and consumption patterns can make it challenging to feed the growing population within planetary boundaries. Environmental depletion and climate change will make the cultivation and sourcing of certain commodities potentially more complicated, unpredictable and expensive.

Food is central to our interactions with one another. It unites us as people, but our food system is also linked to a myriad of social and environmental issues, from negative consequences to health and social justice to environmental concerns like water stress, deforestation, land degradation, biodiversity loss and plastic pollution. Understanding and addressing the water-energy-food nexus is critical for a sustainable trajectory for the world. It is therefore not unsurprising that food underpins all 17 Sustainable Development Goals (SDGs) and is linked to the most pressing global risks in terms of both impact and likelihood as outlined by the World Economic Forum.[3] [4] Most recently, the food system’s relevance to global stability was underlined by the 2020 Nobel Peace Prize being awarded to the World Food Programme.

Given the multitude and magnitude of the issues related to our food system, investors are increasingly seeking to understand what this means for their portfolios and what they can do to contribute to more positive outcomes while managing the associated investment risks.

From Material Crises to Business Opportunity

Beyond the substantial environmental and humanitarian concerns, failure to manage related impacts comes with significant business risks to food companies. Current agricultural practices not only place unsustainable demands on the global ecosystem, but they also jeopardize the sector’s ability to operate by contributing to the diminishing quality and availability of land and other natural resources. Furthermore, the concept of stranded assets not only applies to fossil fuels: there is a risk that land and forest investments can decrease in value or become liabilities because of environmental or regulatory developments. 

Pricing is one of the many deep-rooted structural problems in the global food industry that conflict with sustainable development objectives throughout the value chain. The inputs, environmental and social externalities and costs of cultivating food are not appropriately internalized in food prices. As part of this, farmers’ income is such a small proportion of the agricultural product’s final price that this doesn’t allow for a decent living, let alone investment in productivity.[5] It is crucial to ensure that suppliers have access to relevant technology and resources and are appropriately compensated for what they produce. This incentivizes a long-term view of land and resource use as well as making agriculture a more attractive career choice. Greater income security of suppliers helps address the associated social issues and enables more sustainable and stable food supply chains.

The convoluted valuation of food is mirrored on the consumer side, with shoppers expecting low prices and policymakers driving them down further.[6] When groceries are cheap, people may be less concerned about throwing it away, contributing to food waste. The economic cost of food waste adds up USD 1 trillion annually, but when including the environmental and social costs associated with the production increases the price tag to USD 2.6 trillion, roughly equivalent to the GDP of France.[7] 

Regulators are starting to act. As part of the European Green Deal, the European Commission’s Farm to Fork strategy proposes that tax systems should “…ensure that the price of different foods reflects their real costs in terms of use of finite natural resources, pollution, GHG emissions and other environmental externalities.” [8]  Regarding food waste, the Commission is committed to halving the per capita food waste in the EU by 2030. With a plan to propose legally binding targets for member states, such developments can have material implications for the food sector.

However, many of the emerging regulations and post-pandemic responses addressing environmental and social shortcomings are framed as growth strategies. In other words, they do not only pose potential risks, restrictions and costs on food companies; they also provide incentives and opportunities for those that proactively align their products and practices with sustainability objectives.[9] One example of ‘green’ revenue streams is the global demand for plant-based foods, projected to continue increasing rapidly. The alternative meats market is estimated to reach USD 140 billion by 2029.[10]

Investors’ Role in Shaping the Future of Food

There is much that investors can do to address issues related to the food system in a way that can contribute to the sustainability of both society and portfolio companies. A key component is an integrated approach that encourages a system-wide transition to more sustainable business models, incorporating the concerns of all stakeholders from suppliers to consumers. Food companies are central to this strategy, as they are widely held in investment portfolios worldwide. These companies also have a clear business imperative to mitigate their negative ESG impacts as well as improving their resilience to natural, regulatory and societal changes.

To support financial institutions in understanding and to integrate environmental dependencies, many of which are connected to agriculture, the Task Force for Nature-related Financial Disclosures (TNFD) has been set up with the view of providing a reporting framework that will most likely be ready in 2023.[11]

In the meantime, investors can consider systematically assessing the resilience of their food-related investments in light of the emerging structural vulnerabilities. There are also opportunities to align both financial flows and active ownership efforts to the challenges that lie ahead. 

Engagement is a powerful tool that investors can leverage to encourage the transition to a more sustainable food system that benefits society and can also create a more stable long-term investment environment. Recognizing this need, Sustainalytics recently launched Feeding the Future. This three-year Thematic Engagement will encourage food companies to proactively internalize externalities, shift to more sustainable business models, conduct science-based contingency planning and strategically assess the impacts of consumer trends and regulation on their product portfolios.

Sustainalytics is hosting a panel discussion on October 28, 2020, at 3:00 p.m. CET/10:00 a.m. EDT exploring the links between the food and financial sectors. Register here or contact us for more information.



[1]  Action Against Hunger, “World Hunger: Key Facts and Statistics 2020”, accessed (16.10.20) at

[2] Oxfam, “The Hunger Virus: How COVID-19 Is Fuelling Hunger in a Hungry World”, accessed (16.10.20) at

[3] IISD, “Why Fixing Food Systems is Crucial for Meeting the Sustainable Development Goals”, accessed (16.10.20) at

[4] World Economic Forum, “The Global Risks Report 2020”, accessed (16.10.20) at

[5] The Food and Land Use Coalition, “Growing Better: Ten Critical Transitions to Transform Food and Land Use”, accessed (16.10.20) at

[6] The Guardian, “True cost of cheap food is health and climate crises, says commission” (16 July 2019), accessed (16.10.20) at

[7] Food and Agriculture Organization of the United Nations, “Food Wastage Footprint – Full-cost Accounting”, accessed (16.10.20) at

[8] European Commission, “A Farm to Fork Strategy for a fair, healthy and environmentally-friendly food system”, accessed (16.10.20) at

[9] Apart from the EU’s Farm-to-Fork strategy (ibid.), these include OECD’s “Building back better: A sustainable, resilient recovery after COVID-19” , accessed (16.10.20) at:

[10] Barclays, “Carving up the alternative meat market”, accessed (16.10.20) at

[11] Task Force on Nature-related Financial Disclosures, “Timeline”, accessed (16.10.20) at

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