Finance, Agricultural Products, And Climate Change

This paper highlights these two essential aspects of modern life - focusing on sustainability within agricultural products and production. It also delves into externalities of the food industry concerning climate change and finally considers the physical and regulatory risks to the industry along with potential adaptations. 

The global food industry

The majority of the food consumed by the world's population is provided through a vast network of enterprises connected to the food industry. Food production, distribution, processing, transportation, certification, and packaging are some of the activities covered by this industry.

All multiple activities can be segregated into five groups for easier understanding: 

• Production 

• Processing 
• Packaging 
• Retailing 
• Consumption 

These divisions are inter-connected through:  

• Transportation  
• Storage 

Climate change impacts each segment differently, causing shortages and an increase in the cost of foodstuff. 

Foods, textiles, fuels, and raw materials can be categorized generally as the main agricultural products (such as firewood and rubber). Food classifications are cereals (grains), fruits, vegetables, oils, meat, milk, eggs, and fungus. Besides, fertile land, fertilizers, animal feed, labor, fuel, and clean storage facilities are used in production and cultivation.

Agriculture's contribution to national wealth

In contrast to the average GDP contribution of 4% in prosperous countries, the agricultural sector accounts for as much as 60% of GDP in several developing nations. According to the World Factbook, in 2019, the agricultural industry contributed 1.6% and 0.9%, respectively, to the EU and US regional GDP. 

More than 80% of jobs in the least developed countries and less than 2% in the most developed ones, respectively, can be attributed to the agricultural industry. In many nations, it employs the highest proportion of women in any industry and accounts for over 70% of employment worldwide.

Agriculture's contribution to climate change

The demand for food is rising due to changing diets and a growing worldwide population. However, production is straining to keep up due to decreasing food yields in many regions of the world, along with depleting ocean health and natural resources.

The severe susceptibility of agriculture to climate change has made this worse. Increased temperatures, weather variability, shifting agro-ecosystem boundaries, invasive plants and pests, and an increase in extreme weather events are just a few of the adverse effects that are already being felt.

A significant contributor to the issue of climate change is agriculture. It produces 19–29% of the world's greenhouse gas (GHG) emissions. If nothing is done, this percentage might significantly increase as other industries cut their emissions. Additionally, a third of the food produced worldwide is lost or squandered. Addressing food loss and waste is essential to meet climate goals and lessen environmental stress. Growing greenhouse gas emissions are primarily attributed to increased agricultural production.

Side-effects of agricultural production include: 

• Biodiversity loss 

• Desertification and soil degradation 
• Water pollution 
• Greenhouse Gases (GHGs) 
  

According to the UN's Food and Agriculture Organization (FAO), over a third of all GHG emissions are attributed to the global food supply chain. The Food and Drug Administration (FDA) and European Food Safety Authority (EFSA) have regulated food safety rules to safeguard consumers' health due to regulatory hazards brought on by rising emissions.

Risks when financing agriculture

When determining credit risk, banks must consider agricultural product financing concerns. Banks that neglect or fail to consider these could experience unforeseen credit losses.

Learn how GreenCap's 'Risk as a Service (RaaS) solution helps banks create and populate climate-based scenarios to reflect the impacts of the Intergovernmental Panel on Climate Change (IPCC) pathways when financing agricultural production.