The answer to rising agri-food supply risks? Get horizontal with your peers

Every now and then an event comes along that shakes a sector so profoundly that the old solutions no longer feel right. The unprecedented surge in cocoa prices in 2024 felt like one of those moments for the agri-food industry, after extreme weather and disease significantly reduce production and increase prices five-fold.  

Procurement from different sourcing sheds, cocoa storage and the futures markets did not protect food manufacturers from sky-high prices. Cocoa production is still relatively concentrated in West Africa, where drought and swollen shoot disease hit hard, but coffee grows much more widely, and yet it also saw a fourfold increase in prices as a result of weather disruption across the world. Cocoa and coffee may not be staple foods but the speed and size of changing supply in 2024 heralded a new era of supply anxiety in food value chains.  

Weather-related supply risks may be growing fast but donor government budgets for co-funding value chain transformation are declining. Simultaneously, business expectations to change agriculture for the better appear to be increasing. We have to avoid deforestation, decarbonise supply, and make it more resilient to extreme weather. We must make it more regenerative whilst also grow small farmer incomes. 

The typical business response to such pressure is to review policies and priorities, and then cascade them through traders or third parties, using vertical instruments like procurement contracts or environmental certification.  

But we have tried this for deforestation and it was expensive and only partially successful because the spillover effects to other forest areas, and because the signals sent from corporate headquarters rarely count for much in individual sourcing sheds. It’s a long way from the board room to the field, and it’s unlikely that these vertical tools will be sufficient for a more complex set of interrelated outcomes connected to supply risk, farmer livelihoods and climate resilience.  

Which is why at IDH we are convinced that getting horizontal with your peers is a big part of the answer. We have been developing collaborative landscape initiatives to achieve alignment in specific sourcing sheds for over a decade now.   

In the highlands of Northern Kenya, we were asked by tea companies to help them protect and restore the forest on the mountain above their plantations and upon which they depend for water and rainfall. It was being degraded and lost to poor subsistence farmers on the other side of the forest, but with a little help from IDH three tea companies shared the cost of raising their productivity, tripled small farmer income and reduced their need to encroach on the forest. It is now regenerating fast, its elephant population is growing and the water supply for the tea growers is secured for the future. 

The best landscape collaborations do not just increase aggregate impact and reduce spillover effects, but also reduce company costs by encouraging some cost sharing for common needs amongst the sourcing businesses.  

In the Central Highlands of Vietnam, the second largest coffee sourcing-shed in the world, we have worked with European and Vietnamese coffee companies for many years, initially to reduce very high pesticide input without reducing yields. Having made good progress in this goal a new shared priority was to improve compliance with the EU Deforestation Regulation, building on the dialogue and data sharing that was already the norm. Independent analysis of this work shows that the cost of achieving regenerative outcomes together at landscape level was up to fifteen times cheaper than when companies did it alone.

To have an impact on supply resilience these landscape collaborations have to be at a scale to influence a significant sourcing area, so IDH is increasingly working at provincial or state level.  

In Aceh, the most Westerly part of Indonesia, we have been collaborating with Unilever,  PepsiCo and local partner FKL for nearly a decade, initially to prove that district level forest monitoring systems can dramatically reduce deforestation, and now to secure support from the government and a bigger coalition of companies to implement a deforestation free roadmap for palm oil at provincial level. 

There are now over sixty such agri-food landscape initiatives reporting publicly on SourceUp where it’s possible to see what is already happening by country or commodity, up from twenty-five last year. We expect the new push for regenerative agriculture will drive a new wave of collaboration in existing and new landscapes, and that there will be a hundred reporting on the site by this time next year.  

Company climate commitments and the surge of interest in regenerative agriculture provide a new opportunity to make landscape initiatives work for climate resilience, small farmer income and secure supply.  

By operating in large sourcing sheds, we can reduce the risk of wasted business investment because its less likely it will disappear from a company’s procurement portfolio, and we have a higher chance to protect natural ecosystem functions and water sources that will make agricultural production more resilient. Tackling the risk to core business value should also allow companies to justify their investment in financially constrained times. They can use both contractual relationships with producers to improve farm resilience and work collectively to share the costs of monitoring and verification systems, and to support beyond-farm natural system protection and restoration. 

The experience of the coffee sector in recent years shows that a diverse sourcing footprint is not sufficient to protect businesses from climate change disruption.

Going horizontal and collaborating with your peers in key sourcing sheds may feel more complicated than operating alone but our experience shows that it can lower fundamental business risk by tackling their route causes. It should also reduce the costs of adapting to much more volatile weather and an increasingly uncertain operating environment.