Future of Food: Changing the Economic Incentive

Originally published in The Citizen here

Horse-carts served us well, till the necessity to travel in less time drove the need for cars. So did typewriters, till the necessity for faster processing drove the need for computers. Even our food-system, designed over the last century to meet the food security of billions, served us well. But it may now be a necessity to explore alternate food-systems. As research shows, our current food-system is at the heart of land, soil and water degradation, biodiversity issues, diet-related health challenges and widening of the economic inequality amongst farm communities. It is imminent to invest in systems that protect our social and natural ecosystems from climate vagaries, explore agroecology and regenerative farming, re-establish the soil’s role in the soil-food-web and use multi-layer farms as a carbon sink. A challenge indeed, but at the crux of tackling this challenge is the need to alter the economic incentive.

I spent a decade in traditional financial services before joining a sustainable finance organisation. The finance sector in India underwent a similar situation. For ages, the economic incentive for advisors was the commission he received on the sale of a new product. It was profitable to churn the same client by making him buy a new product irrespective of the performance of his previous products (assets). And it is common wisdom that financial products perform better if held for the long-term. The result – advisors minted while clients repented! The business was restricted to a narrow client pool with more dropouts than additions. Then some firms, following the experiences of peers in the US and UK, altered the incentive. The advisors’ remuneration was based on a percentage of the assets held by the client, not on new sales. It became profitable to keep the client monies stable in a few good products than force him to churn it periodically. Long-term holding helped the clients’ assets move north, which boosted the advisors’ remuneration!

Similarly, our current food-system needs to alter its incentive. The economics must shift from a sole focus on output and productivity irrespective of its impact on food quality, natural capital and society. It needs to combine the criteria of output and productivity with quality, nature and people solutions. This means looking at the cost of growing food more holistically, to include indirect costs on our natural and social ecosystems. An example is the ESG (environment, social, governance) criterion picking up in the investment sector, as against the traditional criteria of solely looking at economic returns. One need not let go of output and productivity, rather it’s about “Productivity + Sustainability”.

The structure of subsidies and loans in our countries also incentivises chemical fertilizers and pesticides, the rampant use of which by largely uneducated farmers is the moot cause of cropland degradation. They also end up incentivising excess processing of food (with health impacts) and making electricity free to use polluting diesel pumps in the farm rather than incentivise off-grid solar power for farmers. These need a relook as well.

Of course, a criticism to this thought is any dilution of the incentive model solely from output and productivity would cause a dip in food output and hence, a potential shortfall to meet the food needs of our 7-billion plus population.

However, alternate solutions need not always cause a long-term drop in output, albeit a short-term dip may occur as in any normal transition. Examples of agroecology and climate-smart agriculture solutions globally demonstrate this, and such workable examples should be scaled up in reasonable time. Secondly, the arithmetic would need a relook. A reduction in fertile cropland, or cropland degradation, is visible due to our current food-system. Take the case of India, a country of 1.3 billion, where almost 30% of land is estimated undergoing degradation. Similarly, over 70% of Africa’s drylands are degraded. Hence, the continuity of the incentive solely on output would then imply a commensurate pressure to increase the productivity from the remaining land each year to produce the same, or more, output. And every year, the usable land is only shrinking further. Alternate solutions that convert unusable cropland into productive landscapes, would maintain the output without placing additional pressure on productivity. For instance, an agroecology solution in India’s Andhra Pradesh, Zero Budget Natural Farming, showed initial results through a spike in output and converting unusable land in a desertified district into green-cover.

But at the same time, altering the economic incentive would also necessitate the provision of traceability and certification of the produce and audited monitoring reports so that stakeholders are confident that the impact is measurable and migration is worthwhile. Alternate food-systems should be ready to meet that!

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