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Obliged blending of
sustainable food products
Krijn Poppe
Presentation for OECD. February 1, 2023
Towards a sustainable food system
a position paper on the framework law
Today’s challenges: climate, biodiversity, healthy
eating - not ever-lower food prices
Farmers and consumers cannot change the
system
• Difficult to apply the Polluter pays principle
(for true costs) to farmers (political economy,
huge income effects due to time needed for
innovation, slow outflow of labour)
• Consumer behaviour difficult to change, low
uptake of private standards (and some are
“very-light green”)
A system approach is needed to address all
actors
• Can policies force food processors to make
their process more sustainable (including on-
farm effects)?
Identify sustainable products / farms
 Define Key Performance Indicators (KPI) that are relevant
in a region:
 E.g. GHG emissions per ha / kg, N-surplus/ha, P2O5-surplus
per ha, pesticide use per ha, water use, animal welfare, work
conditions etc. PEF-methodology could help
 Digitization helps. Provide farmers with a digital dashboard
(most data can be calculated from (digital) invoices)
 See EU- projects FLINT and MEF4CAP
 Certification of all commercial farms (as in organic, the
French HVE, private standards like GlobalGap etc.)
 With the certification, sustainable farms can be identified
Identify sustainable products / farms
Two options for identification of sustainable farms (and products):
 A. To classify all farms in dark green, light green, yellow, orange
and give a sustainability certificate to dark and light green farms
 If sustainable farms have higher cost prices than others, they loose
out in the land market and market for emission rights. Support them
with CAP eco-schemes, tax advantages, in managed land markets
(like SAFER in France)
 B. To define as government the sustainability targets 2035 at farm
level. Those farms that now already meet the criteria, classify for
a sustainability certificate
 In addition to A], food processors can now be obliged to buy in a
certain % of agricultural products from farms with a sustainability
certificate (and pay them a price that reflects their higher costs)
How blending works technically
 The (EU/NL) government obliges all (European / Dutch) food
processors (e.g. dairy companies, slaughterhouses) to source e.g.
20% of their agricultural inputs (milk, live animals) from farms
that are certified as being Sustainable
 This splits the market, with a higher price for the Sustainable
farmers – that offsets their higher costs
 Over time the % that has to be sourced sustainably could grow to
100% (and then consumers pay a true cost)
 An option for food processors to swap their obligation (like in the
car industry) makes sense. An (organic) dairy company that
sources 90% sustainable, would then swap part of its obligations
with a less sustainable processor (that only has 15%) and be paid
for this
Physically sustainable products can be
blended in existing private brands
 The blending obligation to buy products from certified sustainable farms
is a business to business arrangement. It is not a proposition to
consumers
 Food processors can physically blend the products with their existing
private brands or sustainability schemes (including organic), as well
blend them with the mainstream conventional products
 Or they can create a new brand with these sustainable products
 This means that dedicated supply lines are not disrupted
 Especially if consumers become aware that a conventional product is
getting more sustainable (due to this system), niche labels and private
brands for sustainability have to stay ahead of the mainstream and have
higher levels of KPI than in the (future) minimum that the government
demands
Intended effects:
Food industry gets an incentive to:
 Create a market for sustainable food that is as large as possible
 Link private standards to the most sustainable farms, no risk of greenwashing
 Pay the most sustainable farms a premium: reward front-runners in sustainable farming
(and if a lower volume leads to higher prices, it prevents the price increase is not
distributed to unsustainable farms)
 Help those farmers to innovate, as this reduces their cost of sourcing
Farmers get an incentive to innovate in sustainability as:
 They now have a carrot (higher prices) and do not have to wait until the stick of
regulation hits them
 They see their policy risks lowered: clear KPI on sustainability from the government
(needed for long term investments)
 Do not have to set up new marketing arrangements like producer organisations, short
supply chains or new brands to try to tap into consumer’s willingness to pay for more
sustainable products
Exports and imports ?
 Exports: the same obligation to buy a certain percentage of
products from certified sustainable farms holds for exporters
 Imports should have the same level of sustainability
 Research on border adjustment mechanisms / WTO aspects is
needed: can border restrictions not only be on human and
phytosanitary health, but also on ecological health?
 In case of a Dutch scheme, imports could probably be left out of the
scheme (as we are a big net exporter), but then retail should not
increase imports
 Alternatively an additional, similar obligation for retailers (and out-of-home
catering companies) could be considered
 If export markets do not want to pay the true price for food, and the local
community neither (by offering eco-system service payments) nor willing
to accept emissions, the production is at risk of moving elsewhere. That
enhances welfare and should be welcomed
Effect on consumer prices ?
 A just transition is important, but price increases could be compensated
(if needed) with changed income taxes, social security, minimum
wages: food banks are due to low incomes not due to a lack of food or
food prices that are too high
 The effect on the prices for consumers is manageable. As an example:
 Assume sustainable production with the standards of 2035 would increase
the farm cost price of milk from 50 to 60 cents (+20%)
 With a blending rate of 20% the sourcing costs for the dairy industry increase
with 2 cents for an average litre of farm milk (+4%).
 The farm prices is about 20 to 25% of the consumer price. 4% increase at
farm level is about 1% at retail level
 In reality there will be innovation that reduces costs
 The current frame is that the farmer is marginalised in the chain. The
benefit of low margins is the option to have the food industry paying the
farmers for sustainability and the consumer his/her true cost of food
consumption
In conclusion
 Innovation has to be redirected from ever-lower prices to the current
issues of climate, biodiversity and healthy eating
 Identifying sustainable products starts with KPI, digitalisation and
certification of all farms (except those with less than 25,000 euro sales)
 This helps to direct government support
 Obliged blending by food processors could be an attractive method to
reward (sustainable) farmers by the market, compared to a polluter
pays principle of regulating farm production processes or taxes on
inputs or emissions
 Issue of imports/exports needs more (legal) research
 In the Netherlands the Ministry of Agriculture has requested a study by
Wageningen UR on the topic (also on request of Dutch Parliament).
Results are foreseen in summer 2023
krijn.poppe@wur.nl
www.wur.nl
kjpoppe@hccnet.nl
Thanks for
your
attention

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Sustainable Blending OECD Seminar.pptx

  • 1. Obliged blending of sustainable food products Krijn Poppe Presentation for OECD. February 1, 2023
  • 2. Towards a sustainable food system a position paper on the framework law Today’s challenges: climate, biodiversity, healthy eating - not ever-lower food prices Farmers and consumers cannot change the system • Difficult to apply the Polluter pays principle (for true costs) to farmers (political economy, huge income effects due to time needed for innovation, slow outflow of labour) • Consumer behaviour difficult to change, low uptake of private standards (and some are “very-light green”) A system approach is needed to address all actors • Can policies force food processors to make their process more sustainable (including on- farm effects)?
  • 3. Identify sustainable products / farms  Define Key Performance Indicators (KPI) that are relevant in a region:  E.g. GHG emissions per ha / kg, N-surplus/ha, P2O5-surplus per ha, pesticide use per ha, water use, animal welfare, work conditions etc. PEF-methodology could help  Digitization helps. Provide farmers with a digital dashboard (most data can be calculated from (digital) invoices)  See EU- projects FLINT and MEF4CAP  Certification of all commercial farms (as in organic, the French HVE, private standards like GlobalGap etc.)  With the certification, sustainable farms can be identified
  • 4. Identify sustainable products / farms Two options for identification of sustainable farms (and products):  A. To classify all farms in dark green, light green, yellow, orange and give a sustainability certificate to dark and light green farms  If sustainable farms have higher cost prices than others, they loose out in the land market and market for emission rights. Support them with CAP eco-schemes, tax advantages, in managed land markets (like SAFER in France)  B. To define as government the sustainability targets 2035 at farm level. Those farms that now already meet the criteria, classify for a sustainability certificate  In addition to A], food processors can now be obliged to buy in a certain % of agricultural products from farms with a sustainability certificate (and pay them a price that reflects their higher costs)
  • 5. How blending works technically  The (EU/NL) government obliges all (European / Dutch) food processors (e.g. dairy companies, slaughterhouses) to source e.g. 20% of their agricultural inputs (milk, live animals) from farms that are certified as being Sustainable  This splits the market, with a higher price for the Sustainable farmers – that offsets their higher costs  Over time the % that has to be sourced sustainably could grow to 100% (and then consumers pay a true cost)  An option for food processors to swap their obligation (like in the car industry) makes sense. An (organic) dairy company that sources 90% sustainable, would then swap part of its obligations with a less sustainable processor (that only has 15%) and be paid for this
  • 6. Physically sustainable products can be blended in existing private brands  The blending obligation to buy products from certified sustainable farms is a business to business arrangement. It is not a proposition to consumers  Food processors can physically blend the products with their existing private brands or sustainability schemes (including organic), as well blend them with the mainstream conventional products  Or they can create a new brand with these sustainable products  This means that dedicated supply lines are not disrupted  Especially if consumers become aware that a conventional product is getting more sustainable (due to this system), niche labels and private brands for sustainability have to stay ahead of the mainstream and have higher levels of KPI than in the (future) minimum that the government demands
  • 7. Intended effects: Food industry gets an incentive to:  Create a market for sustainable food that is as large as possible  Link private standards to the most sustainable farms, no risk of greenwashing  Pay the most sustainable farms a premium: reward front-runners in sustainable farming (and if a lower volume leads to higher prices, it prevents the price increase is not distributed to unsustainable farms)  Help those farmers to innovate, as this reduces their cost of sourcing Farmers get an incentive to innovate in sustainability as:  They now have a carrot (higher prices) and do not have to wait until the stick of regulation hits them  They see their policy risks lowered: clear KPI on sustainability from the government (needed for long term investments)  Do not have to set up new marketing arrangements like producer organisations, short supply chains or new brands to try to tap into consumer’s willingness to pay for more sustainable products
  • 8. Exports and imports ?  Exports: the same obligation to buy a certain percentage of products from certified sustainable farms holds for exporters  Imports should have the same level of sustainability  Research on border adjustment mechanisms / WTO aspects is needed: can border restrictions not only be on human and phytosanitary health, but also on ecological health?  In case of a Dutch scheme, imports could probably be left out of the scheme (as we are a big net exporter), but then retail should not increase imports  Alternatively an additional, similar obligation for retailers (and out-of-home catering companies) could be considered  If export markets do not want to pay the true price for food, and the local community neither (by offering eco-system service payments) nor willing to accept emissions, the production is at risk of moving elsewhere. That enhances welfare and should be welcomed
  • 9. Effect on consumer prices ?  A just transition is important, but price increases could be compensated (if needed) with changed income taxes, social security, minimum wages: food banks are due to low incomes not due to a lack of food or food prices that are too high  The effect on the prices for consumers is manageable. As an example:  Assume sustainable production with the standards of 2035 would increase the farm cost price of milk from 50 to 60 cents (+20%)  With a blending rate of 20% the sourcing costs for the dairy industry increase with 2 cents for an average litre of farm milk (+4%).  The farm prices is about 20 to 25% of the consumer price. 4% increase at farm level is about 1% at retail level  In reality there will be innovation that reduces costs  The current frame is that the farmer is marginalised in the chain. The benefit of low margins is the option to have the food industry paying the farmers for sustainability and the consumer his/her true cost of food consumption
  • 10. In conclusion  Innovation has to be redirected from ever-lower prices to the current issues of climate, biodiversity and healthy eating  Identifying sustainable products starts with KPI, digitalisation and certification of all farms (except those with less than 25,000 euro sales)  This helps to direct government support  Obliged blending by food processors could be an attractive method to reward (sustainable) farmers by the market, compared to a polluter pays principle of regulating farm production processes or taxes on inputs or emissions  Issue of imports/exports needs more (legal) research  In the Netherlands the Ministry of Agriculture has requested a study by Wageningen UR on the topic (also on request of Dutch Parliament). Results are foreseen in summer 2023