The global food system is an impressive human accomplishment. Over the past five decades, its vast productivity gains have greatly improved food security and substantially reduced the share of income that people need to spend for food. The food system has become so productive that it is now also helping to address other global issues, such as energy supply, through the growing use of biofuels.
But, like virtually all other industries, food and agribusiness companies face mounting demands, from tackling the long-term health consequences of food products to fixing an outsized contribution to global climate and nature challenges. Today, agriculture consumes 70% of the world’s fresh water, and the food system more broadly contributes over one-third of all greenhouse gas emissions and is at the heart of the 20% of annual deaths attributed to poor diet. As a result, agriculture producers, consumer products companies, retailers, and others that make up the global food system are on the verge of coming under the same high-level scrutiny experienced by oil and gas companies.
Elevating the ambition
With this backdrop, food and agriculture companies have an urgent need to raise their ambitions on sustainability and health to build more future-proof and competitive businesses. There’s a lot at stake for companies that fail to take the aggressive steps required. Latecomers will face rising costs to address carbon requirements for their value chains, for example. Incumbent consumer goods companies will continue to cede growth to insurgents that are doing a better job of serving consumers’ rising demands for healthier food. Companies across the food chain will find themselves losing out amid the scarce supply of limited raw materials that meet environmental standards. They’re already lagging in the war for top talent. A telling fact: No agribusiness or food producer was named in the Fortune 100 Best Companies to Work For list in 2023.
Acting now allows companies to turn risks into opportunities—new products, categories, and markets, or increased share of growth. By our analysis, food companies that seize the initiative can benefit from a potential 15% five-year revenue uplift compared with a 43% revenue decline for companies that fall behind based on a scenario of increasingly aggressive regulation. By changing product and ingredient portfolios, as well as where and how foods are produced, large food and agriculture companies can shift the food system toward healthier and more nutritious food—and healthier populations—while tipping the environmental impact from negative to a net positive.
An integrated food systems ambition, once defined, will have strategic implications for agriculture and food businesses in three particularly critical areas: product portfolio, agricultural sustainability, and ways of working. Here are examples of winning approaches in each of those areas.
Reinventing the portfolio
Product portfolio reinvention will be a critical element of food system transformation for upstream and downstream companies alike. As an example of the scale of the issues at hand, one study determined that among 50,000 food products in the US, 73% is made up of ultraprocessed foods.1 Such foods are linked to a wide range of health issues, and reduced consumption is recommended in national dietary guidelines in places as diverse as Canada and Brazil. The need to transform portfolios is not limited to downstream players. For example, agricultural input portfolios may need to add seeds that support more diverse crops, or equipment and inputs to support more sustainable farming practices—in addition to supporting reduced fertilizer and chemical volumes through more precise application.
Facing mounting pressure to offer healthier and more sustainable goods, companies can reevaluate their portfolio strategy to determine the product mix that will best help them meet those new demands without dismantling a core that has delivered decades of profitable growth. That means identifying and exiting the unfixable parts of the portfolio and spending more time and energy on the brands and products that have the fundamentals that will allow them to satisfy consumers’ needs for delicious, healthy, and sustainable foods.
When it comes to shifting food product portfolios toward better health, a common refrain from food company executives is that the indulgent segments of consumer goods categories are growing faster than the “better for you” segments. Indeed, in the US, consumption of ultraprocessed foods increased from 53.5% in 2001 to 57% in 2018, and the consumption of whole foods declined over the same period.
However, many leaders are not accepting that such a shift is an either/or decision, and the winners of the future will likely have more balanced portfolios than most food companies today. They will offer products that reduce trade-offs for consumers, introducing ones that can be delicious, healthy, and affordable. PepsiCo took a step in this direction when it started gradually lowering the amounts of sodium, saturated fat, and sugar in its snacks and beverages, with plans to bring them even lower—and to do it without consumers noticing. The company already has reached its 2025 target of producing 75% of its food portfolio volume with 1.1 grams or less of saturated fat per 100 calories. It also is advancing on its targets for reducing sodium and added sugars.
This shift toward healthier portfolios will get a big push from sugar and salt taxes introduced, as well as from newly required health labeling on packages. Consider that around 85 jurisdictions around the world have implemented a form of sugar tax. Also at play: a flood of venture financing—roughly $13 billion—was invested into sustainable food systems technology and innovation globally in 2021. (By comparison, the total R&D budget for the top 10 global food companies was roughly $4 billion.) This magnitude of venture funding to solve the problems of health and sustainability shows these issues are already a major focus among private investors. Now, the question is whether food companies will get ahead of this imperative or be disrupted by it.
In addition to aggressively reducing salt and sugar content in its products, Nestlé has turned to M&A to transform its portfolio. In the years 2017–22 the world’s largest food company made more than 20 acquisitions and sold 10 business units. During that period, total shareholder return rose by an annual 9.5%. Nestlé also has committed substantially more funds to sustainability efforts, more than $1 billion annually, twice as much as the next competitor.
Accelerating agricultural transformation
Almost all food and agriculture companies are way behind in their Scope 3 emissions reduction. Agricultural production contributes two-thirds of those emissions, which could be substantially reduced through more sustainable farming practices, such as regenerative agriculture for crops (see Figure 1). But adoption of these practices is low, and until companies can solve the scaling problem, they will fail to achieve their Scope 3 commitments. Most important, they will fail to realize the opportunity that exists for agriculture to reduce its own climate impact and be a positive contributor on the path to net zero and in other areas such as water and biodiversity.
Addressing Scope 3 emissions through regenerative agriculture is a powerful opportunity to deliver on GHG commitments