This is Tom Rowland's Reese, and you're listening to Switched on the podcast brought to you by B and EF.

The agriculture transition is showing signs of stalling.

Since twenty twenty one, venture capital and private equity funding for agricultural technologies has dropped by a wapping seventy six percent, with numerous agtech startups and companies declaring bankruptcy.

While we've also seen some larger and established corporations going back on their green commitments.

It's not all doom and gloom, however, as down on the farm, rising input prices for products like fertilizers and pesticides has actually led to more sustainable practices as farmers are forced to seek greater efficiencies to balance their books.

And while investment in alternative proteins has declined eighty seven percent since twenty twenty one, consumers themselves are leading a move away from high emissions red meat, with growing numbers buying lower impact meats like chicken and fish.

To discuss the connection between agricultural markets and the climate transition further today, I'm joined by a cohost, Bloomberg enief's global head of Strategy, kobad bav Nagri and together we review findings from our inaugural Food and Agriculture Transition Indicators Report with Alexander Liddington, an analyst from our Food and Agriculture Team bn theF clients find this report and other agriculture related material at BNF go on the Bloomberg terminal or on BNEF dot com.

All right, let's get to talking about the Food and Agriculture Transition Indicators with alex.

So.

I know if you've been listening to Switched On lately, it will feel like I say this every single time that today's episode is extra special.

But in my defense, there's always a reason that the episode is extra special.

It's always a different reason.

And the reason.

Today's episode is extra special is for the first time I have a co host, Cobad.

Cobad, do you want to say high quickly?

Well, thank you, Tom.

That's one when hell of an introduction and yes, hello to all the listeners out there.

So Cobat is going to be joining me for this podcast on agon food as a co ho, but this actually a topic he knows a lot about.

And then our main guest today Alexander Liddington, who focuses on food and agriculture questions.

So welcome on board.

Good afternoon, It's a pleasure to be here.

So, as the person on this podcast who is the least knowledgeable on this topic, I'm going to start with a very basic question about the report you've just published, the Food and a Transition Indicator's Note.

What is it?

Tell us a little bit more about it.

So this is our inaugural edition of the Food and ag Transition Indicators Research Note, and it aims to bridge the connection between egg commodity markets and the climate transition.

Through that, we aim to provide an annual update on the sort of status of the food and agg transition to a low carbon, nature positive food system.

And within the note we drill down on each of our research pillars within the food and ag world and dive into emerging technologies, startups, corporate initiatives, policy development, and financing boot.

So, Alex, do you want to start at the high level for us?

What are the big challenges facing the agricultural system?

What's the landscape for this piece?

So, the food and agg industry as a whole is responsible for around thirty thirty five percent of global emissions, depending on how and where you draw your boundaries.

And there are some key contributors to those global emissions, and they are fertilizers, the protein system, rice and on farm transport, and the agricultural system is showing signs of climate vulnerability.

USK coffee drinkers will know that coffee and cocoa prices have been skyrocketing.

That's as a result of poor harvests brought along by drought.

US who are a fond of an eggs on toast for breakfast will know that the cost of eggs has risen over the last twelve months due to predominantly a spread of Avian flu and droughts across the US are leading to a surge in insurance issuances for farms for crop insurance.

I just want to clarify something in what you're saying.

So there's kind of there's two sides of this coin that we're looking into.

Is both the food and agricultural system as a source of emissions and more broadly environmental stress on the planet.

And then there is the impact that climate change and other environmental stresses are having on food and agriculture system.

Are you saying that in the report you're looking at both of those facets.

Absolutely.

I think that's something key to take note of about the agricultural system as a whole.

Is it not only there are emissions and a heavy amount of emissions that are hard to abate within the agricultural sector, but also the industry is potentially one of the most prone to changes induced by climate change and global warming.

And then I mean the broader swite of impacts that the agricultural system has apart from climate or an enormous aren't they.

So when we talk about what inputs go into cropping and into growing protein like beef or chicken or pork, we talk about deforestation for opening up pastures, We think about pollution into waterways by crop chemicals, be it fertilizers or pests the sides.

So the impacts are heavy, both on the emissions front but also the nature front.

This is really interesting because in the time I've been involved with bn EF, there's always been this kind of narrative around climate change that, you know, if you don't believe the environmentalists think of it in terms of the dollar cost of dealing with this, this climate change versus the dollar cost of avoiding climate change, and that was always a slightly abstract idea because it's so hard to quantify.

But the hemic rationalists view of the world right now.

Yeah, exactly, the economic rationalist, the people who are sort of ignored, like, you know, who'd want to dismiss the environmentalists as a bunch of hippies.

You know, there was this case being made to the the as you say, the economic rationalist, and it sounds like in the food and agg system that is now becoming a reality or you know, economically it's a Canarian the coal mine in terms of these impacts being felt and in a way that is costing money.

And it sounds very cold to put it like, but is that a fair way of looking at it?

So we mentioned coffee and coco earlier.

Some of the key players in the confectionery industry like Mondolez are looking towards coco alternatives as a solution, and they've put millions of dollars of funding towards seeking out alternatives for grown coco, be it through cellular agriculture or through alternatives that may provide a substitute in chocolate.

Yeah.

So what we're saying is that consumers are already paying for climate change in their food prices in coffee and cocoa eggs.

Absolutely, and not only that, but also through the subsidies that underpin the agricultural system.

This year saw a record amount of insurance insurance premiums taken out by farmers in the US raising cattle, and a vast majority of those insurances are backed by subsidy.

So the taxpayer is paying to ensure the farming industry against these climate shocks.

And so what's being done about this in the industry is what are we seeing in the data?

Is there money flowing, are their new technologies being developed?

Where's the progress at well?

To answer that, the case is slightly different from what's happening on farm to what's happening in the boardroom.

On farm, we're seeing efficiencies delivered by precision technology, by better agronomy that's growing crops, and by smarter choices that cost the farmer less.

As we have these sort of price shocks within both from crop inputs but also the price of the crop that's produced itself.

But the opposite I just ask, I just want to understand that a bit better, because everything you've described sounds to me like coping mechanisms rather than solving the problem of this uncertain climate scenario.

Is that a fair reflection or is we're going in a bleak direction right now.

I'm sure we're going to turn around with some good news.

But am I right in saying that that's just how they're coping with the problem, or are they actual adaptations that make those farms more resilient climate change?

Yes.

In short, reducing the amount of fertilizer that's spread on field, reducing the amount pesticide that is used on crops, and integrating smarter agronomy practices like no or local agriculture or using a cover crop actually do improve the quality of the soil that you're cropping on and hence extending the lifetime, the usable lifetime of that soil and its inherent nutrient richness.

Got it so anyway, I interrupted you.

That was part one that you were about to say.

Then in the boardrooms, the opposite cannot be said.

For what's happening in boardrooms.

We're seeing a reversal in climate and sustainability targets from some of the key players in the food and ag world.

We are also seeing a receding in the amount of venture capital that's being plowed into emerging technologies that may solve the climate crisis that we were currently experiencing.

Yeah, you've got you've got a nice chart on that in the report Alex where you step through some of the food company targets.

And when we look at that, it seems like, I mean, the company is not walking away altogether, right, They're not saying to hell with, we're done trying to be sustainable.

They're just recalibrating them.

Is that read correct?

That's true.

So they're dropping some of the trickier targets to achieve a lot of the recycling, sustainably sourced ingredients targets, but actually really drilling down on things like regenitive agriculture.

So PepsiCo has up to their regenerative agriculture targets from seven million acres to ten million acres by twenty thirty.

So that's five crops left until that deadline.

And what regenaive agriculture is is it boils down to improving the health of your soil and that's through a number of different interventions, both agronomic in terms of how you farm, but also in terms of technology, so utilizing precision technologies, yield mapping, and many more to improve the health of the cropping system.

One of the things that I also noticed in the report is that although the investment in new technologies as you talk about, has gone down, there's also been more investment in land itself.

Can just talk us through what that's all about.

We are seeing more and more futional investors plowing capital into buying up agricultural assets, growing assets, whether they be cropping or to a lesser extent, livestock farms.

A lot of this capital globally is coming from Europe and North America, and it's being spread amongst farms across Latin America, North America and Australia, where the size and scale of these farms really allows for a good investment opportunity.

They also, investment into farmland is not strongly correlated with equities, and therefore it provides a hedge against inflation to these investors, and so.

That's one of the bright spots really in the investment picture.

Right.

We're seeing this a growing share of investment from institutional investors into land, but we're also seeing a real downturn in venture capital investment into the new technologies which are really needed to make the food system more sustainable, right, what's sort of driving that?

What's happening there?

So in terms of the downturn in venture capital, private equity flows into sustainable ag tech, essentially we've seen on two parts a real poor performance from some of these technologies.

So sustainable proteins, that being plant based and sustainable and cellular agriculture have not performed on the global level.

Companies like eat just, which delivered a cell cultivated chicken protein for Singaporean consumers, actually pulled that out of the market and has pivoted towards a plant based egg substitute, signaling a poor performance of the end product.

So it really hasn't tantalized the taste buds of consumers who would otherwise make them move towards a more sustainable diet.

And on the flip side, we also have poor performance from controlled environment agriculture, so that is growing crops indoors in racks scaled high to the ceiling.

They're incredibly costly to run.

They require a lot of energy, ideally that would be sourced from renewable energy, but currently connected to the grid.

They really are a high cost base and they're not able to solve the real problems which I mentioned earlier in the podcast, being rice, being protein and being fertilizer.

And that's because they can only grow a really small selection of crops, something like a lettuce or a strawberry.

A company called Plenty went from being a one point nine billion dollar valuation to simply double digit million dollar company and has pivoted to solely growing strawberries from henceforth.

They emerged from Chapter eleven bankruptcy around two or three months ago.

Now, so that sort of dream that we often see in the futuristic visions of a sustainable future of food grown in skyscrapers with the no land footprint is not the one that is emerging.

Is it.

That's simply not played out.

And some nations, those land scarce nations, have poured a lot of capital into it, so sovereign wealth funds in Singapore, for example, they have a thirty x thirty target that is to reach thirty percent food security by twenty thirty.

These technologies just simply haven't scaled, they haven't taken off, they haven't been economical.

When we're competing against broad expansive open field agriculture.

I'm going to ask a dumb question about this because I mean, I think you've highlighted all the reasons why vertical farming doesn't work and why it struggled, But then why was at one point this company what was it one point nine billion dollar valuation?

Is it just the entire point of it was just to save space and reduce land, Like, what was the point?

So in terms of controlled environment agriculture, it was touted as being a low emissions, low crop input, and space efficient solution to growing crops.

And it just hasn't managed to deliver on that potential so far.

Yeah, and it hasn't managed to deliver on that potential so far.

It was a bit of a shiny object, right of venture capital investors, something that sounded like it fixed a lot of problems and looked like a novel and exciting way to do things.

But really it hasn't played out.

So we're going to need farmers in large fields forever, really, aren't we?

I mean it is kind of cruel in a way.

The way the narrative has played out is that investment in that has ebbed, just as investment in just buying land is boot.

Meaning it seems like there's a vert in there.

Somewhere absolutely, and that's not to say that buying this land is a dirty form of agriculture.

We're seeing more and more of these investment firms signing up to the principles of Responsible Investments the UNPRI.

They're also signing up to frameworks on how to manage that land more sustainably.

So they really are bringing a professionalism to farming that maybe isn't or hasn't been there conventionally.

One of the things I wanted to ask you about just yeah, you touched on a little bit with eat just is the alternative protein sector.

Plant based meats.

And this is the topic really close to my heart because I'm vegan, was vegetarian actually most of my life, and one of the things that I think helped me take the leap into veganism was the sort of the invention of based meats.

So I'm in this like living in this personal bubble of like the golden era of being a vegetarian or vegan, and then I'm reading these headlines and it's not just here that this whole sector is failing and sales are sliding.

So venture capital flows and equity flows into the sector have dropped eighty seven percent since their twenty twenty one high.

But we also have seen a stagnation in growth in the sector, and I think a lot of this boils down to how many consumers are willing to switch away from meat products.

What we haven't seen is a vast swave of meat eating or flexitarian consumers switching as was previously thought to these plant based meat or alternative proteins.

But is it just that these are not good enough yet?

They don't taste good enough, they haven't become cheap enough.

The performance of plant based meats in particular hasn't really been good enough to win over the hearts of a meat eating consumer.

However, we are seeing a shift away from beef towards a less emitting protein source, and that protein sauce is chicken and fish white meats.

Alex Is that a conscious move.

Are consumers moving away from red meat to white meat because they're looking to reduce emissions or what's behind that trend?

So the story is different all over the world, but it really boils down to a few things.

Firstly, price chicken has stayed relatively low cost, and in fact that gap is widening when you compare it to beef over time, so beef is becoming more expensive and chicken is providing a cheaper source of protein for the consumers.

The second is health it's perceived to be healthier.

We see a lot of consumers in China and an Asian market switching away from pork meat towards chicken or fish.

And the third is to do with ethics, so particularly consumers in Europe switching away from what used to be the pork bastion of the world, high levels of pork consumption, away from pork and towards either plant based or chicken meats.

It's one of the most impactful things we do as human beings on the planet actually is eating meat, and we're still seem to be pretty far away from reducing our footprint.

There is is.

That, right, I would say so, the alternatives to conventional meat consumption are just not there yet and we haven't seen that adoption.

As we've previously mentioned, there are an emerging class of methane inhibitors that reduces the emissions that ruminant animals like cows and sheep have and as they digest release These products are being delivered slowly rolled out, but they also have had a backlash from consumers.

Many of you will remember a few months ago a trial with a product called Bovia, which was a methane inhibitor that was fed to cattle.

Now, I won't judge the science there, but consumers don't like it when you play with their food.

The term franken food is thrown around quite a lot, and I think the same sort of impression is placed upon a lot of the alternative proteins that are available today.

That's when we saw that sort of social media craze of people pouring milk down their drains.

Right, absolutely absolutely backlash the world over for the introduction of methane inhibitors in our milk.

So let's talk about regenitive AG.

So that's been talked about for years.

Funny enough, during the pandemic, me and my wife stayed in Italy at a vegan hotel.

There this brief window where you could go go places.

There are a few red flags about this place.

They also said they signed a special contract that none of their energy came from nuclear, which, as a power sector guy, I was like, there isn't any nuclear energy in Italy anyway.

But they also made a huge deal.

About their regenerative ag that they were doing on the farm, and it seemed at the time very performative.

So what real progress has been made that is just beyond the talk and the performative aspect of this.

So we've looked at around one hundred and fifty five companies that have either regenitive or sustainable agriculture targets and there's an area of around seven point five million hectares that are currently being deployed under these regenitive agriculture projects.

But one thing that we've really got a question is what is regentitative agriculture?

And that question is really tough to understand and to draw consensus upon, because every single one of these companies that has a regentive agriculture project defines regenitive agriculture differently.

Some of them look at it as a method of achieving an emissions reduction in their carbon accounting.

Others look at it as a establishing a more resilient supply chain.

And one of the crops that we see a lot of attention towards from regentiave agriculture projects is potatoes, and potatoes are really hard to replace in a supply chain should the impacts of climate change take hold.

And we lose some of their hectes of potato crop to drought or to floods, as it may be.

Right now in twenty twenty five, every podcast around any industry, someone asks the question, what about Trump and what about tariffs?

How are they impacting the thing that you are an expert in?

So alex that question to you, what is your version of this story?

The picture is ever changing as new tariffs are brought in, the amount of tariff is being changed, but essentially we can see really strong impacts on the global beef and the global soy supply chains.

On the soy front, the vast majority of US soy goes to China, where it is processed.

Further, in twenty eighteen, there was a similar tariff, albeit lower tariff, put in place on US exports, and China switched their suppliers to the Brazilians.

Under these new tariffs, By our calculations, a large amount of that soy that is grown in the US will be left unprocessed.

There is not enough processing capacity to turn that soy into soybean oil and soybean meal.

That oil is really important for not only feeding us, but also for powering some of our renewable fuels, so a disruption in both the food and the fuel supply chain, and that meal that I mentioned before goes to livestock to help them grow on to slaughterable weight.

The beef situation is slightly different.

The US has placed tariffs on Brazil and Australia, who are some of the biggest beef exporters too the United States.

The US herd of beef cattle is actually shrinking at this is lowest points since the nineteen seventies, So all they are doing is increasing the cost of beef for the consumer in the US.

So familiar story with many of the tariffs, though, isn't it where really just the cost of things is likely to go up for little domestic benefit, it seems.

So what are the signs that climate change is already affecting the agricultural system and farmers.

So one of the oldest climate indicators on record, starting from the early eight hundreds, is actually the Kyoto cherry blossom maturation.

So that's when the cherry blossoms in Japan are at their peak, and that the average date of that occurring has become earlier and earlier and earlier.

As we've seen the concentration of CO two arriving in the atmosphere.

Now, what that means is that crops, if they start to mature earlier, they're at risk of shock from frosts, they may not reach the full yield potential, and this has heavy impacts on the quality and the yield of crops.

So, Alex, what are the good news stories here?

Well, the good.

News, I suppose is that farms are becoming more sustainable inherently as the economics drives farming decisions.

We see that farmers are using less fertilizer and less pesticide, which is inherently environmentally damaging to grow the same amount of crops.

So whilst we're increasing the amount of food that we're producing, we are on an intensity level using less of these synthetic inputs.

So the agriculture transition is making progress, it's just not in the sort of sexier ways that people were hoping.

Absolutely, it's not in what most people thought were going to be the north star of the agriculture transition five or so years ago.

So we found a little ray of sunshine in here that there is still progress being made, and I think that's a positive note for us to wrap On.

Thank you Cobad co hosting today, and thank you Alex for coming and sharing all of your wisdom on this topic.

Thanks for having me, Thanks very much for coming to talk to us, Alex.

Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling.

Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates.

This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy.

Bloomberg ANIF should not be considered as information sufficient upon which to base an investment decision.

Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any

Liability as a result of this recording is expressly disclaimed.