This article was originally published on Agri Investor, here.

The emissions intensity of agri-food value chains is under significant scrutiny- and for good reason. The agri-food system accounts for 25-35% of global GHG emissions. The scale of this impact, combined with an increasing focus on agriculture as a major source of Scope 3 emissions, has driven significant levels of investment in decarbonization along the value chain. This is a huge task. To be consistent with a 1.5C scenario by 2050, McKinsey estimates that agriculture will need to deliver further reductions of up to 80% of the estimated 14.4 metric gigatons (Gt) of CO₂ equivalent (CO₂e) it generates.

As important as these investments in decarbonization are, the impact won’t be fast enough to help us avoid many of the extremes of a 1.5-2.0C warming scenario, and this poses an enormous challenge to agricultural production itself. No other sector is more exposed to the impacts of climate change than agriculture. The opportunity for impact and returns is to expand our focus to ensure we also invest in solutions for climate adaptation and resilience in agriculture.

Climate’s Impact on Agriculture

The need for climate adaptation and resilience solutions in agriculture is urgent. According to the FAO, agriculture is the sector most affected by climate change. Over the last three decades, agricultural losses accounted for an average of 23% of the total impact of disasters across all sectors, and 40% of countries reported economic losses due to climate change. Droughts caused over 65% of these losses, amounting to approximately $3.8 trillion in crop and livestock production losses.

We're feeling this acutely in Australia, too, with ABARES reporting that 2023-24 Australian agricultural production is expected to decline due to significantly hotter & drier conditions.

Daytime temperatures from August to October were higher than average, including in some major cropping areas that experienced temperatures at least 5°C above average.

Three opportunity areas for adaptation & resilience

While technology solutions are only one tool in the much-needed climate adaptation and resilience toolkit, they do hold significant potential. We see opportunities to invest in solutions across three categories.

Meeting the challenges of growing food and fiber outdoors

Growing food and fiber outdoors will become even more risky. Crops and livestock will be exposed to more frequent and extreme abiotic stresses, and we’ll see increased incidences of pest and disease risk for agriculture globally. In an industry where timing is everything, more variable weather will increase the risk of loss and damage.

Fortunately, technology can speed up genetic improvement, enhancing resilience to new extremes. Better genetics can also provide backup solutions: if an initial crop fails, faster growing, more drought resistant substitutes can help reduce losses. And smaller, more nimble, autonomous equipment will allow farmers to lower their exposure to weather related interruptions and damage.

The reversal of globalization

The impacts of climate change won’t be limited to challenges on-farm. The past few years have clearly shown that agri-food value chains are extremely vulnerable to global shocks, whether induced by pandemics, or armed conflict, and  climate change will likely increase the incidence of supply-chain shocks.

Innovations in renewable energy, waste, and resource recovery, and the falling costs of technological infrastructure will make it possible for new economic models to emerge at regional scale. Local and regional energy and input production (like Jupiter Ionics), modular waste recovery solutions (like Goterra) and agrivoltaic renewable energy infrastructure are just a few examples of promising solutions.

The digitally driven financialization of risk

Whilst it is widely expected that climate change will drive up agricultural insurance costs globally, there will also be opportunities to create more specific and tailored risk management solutions for farmers. As agri-food value chains become more digitally connected and increasingly observable, there will be ever greater opportunities to create risk, credit, and insurance solutions, and to embed them into contractual flows, lowering the costs of administration and payout.

We must invest in climate adaptation and resilience

There is no point having a decarbonized food system that can’t produce food. Yet, perhaps because the risks of inaction are borne differently between decarbonization and adaptation, we have seen far more emphasis on decarbonization so far.

As the climate shifts, and farming in many parts of the world requires more resilience to increasingly extreme conditions, there are grave risks of inaction. The impacts of a failure to increase the pace of investment in adaptation and resilience will be felt most directly on farms, but they will multiply, impacting regional economies and eventually severely diminishing production capacity and sovereign food security.

Investment in climate adaptation and resilience for our agri-food system is a massive opportunity, and it’s time we give it the priority it deserves.