28. February 2020
New, sustainable networks for old countries
A review of the discussion at the Farm & Food conference 2020
From farm to fork, sustainable networks are emerging, distances are becoming shorter, supply chains more flexible and food products more traceable. The food market of the future is decentralised and functions as a digital network that brings consumers and producers closer together again, as the “point of production” moves ever closer to the “point of consumption”. At the same time, new digital instruments allow modern forms of cooperation. Farmers join forces, network with scientists, produce together and eliminate intermediate trade through direct marketing.
Members of the panel: Dr. Rolf Sommer (WWF), Prof. Dr. Thomas Herlitzius (TU Dresden), Georg Mayerhofer (Mayerhofer Agrar), Julia Köhn (PIELERS), Jörn Holluba (EDEKA). The discussion was hosted by Heike Zeller (aHeu).
By Michael Vedder and Sarah Liebigt
Introductory questions
Mr Mayerhofer, what are the traditional networks between town and country, and to what extent do we need new ones?
Mayerhofer: There are two tasks of modern agriculture: to develop technical expertise and to create a dialogue with the consumer. There is a difference between production in the country and consumption in the city. Both parties are drifting further and further apart. Farmers make up for an ever-smaller share of society, currently only 1.5 percent. The connection between farmers and consumers is getting worse, the appreciation of their work is decreasing, which can also be seen in the current demonstrations. New, sustainable networks require more communication to achieve greater appreciation, and farmers must be able to make a good living from their work.
Prof. Herlitzius, How are old and new, sustainable networks and technical means mutually dependent?
Herlitzius: Value creation networks are a problem for developers. The requirements in the last hundred years of agricultural machinery development have essentially always been the same: more power, more productivity, constant growth. But productivity alone is no longer enough. If value-added networks and consumer habits do not change, agriculture has a fundamental problem. It must be determined what the agriculture of the future must look like in order to ensure a balance between economy and ecology.
In recent years, agriculture has been characterized by a focus on economics. We need to know what the agriculture of the future will look like in order to know what machinery will be needed. Making agriculture more sustainable costs a lot of money. In principle, it could be implemented, but farmers cannot implement it economically for the time being. A paradigm shift in agriculture will not work without a change in the behaviour of consumers, who need to understand what is in food, what is more valuable and what is more sustainable.
Mrs Köhn, what would agriculture look like today if PIELERS had already existed in 2000?
Köhn: PIELERS shows the consumer how much money the farmer receives. So if a farmer puts an added value into the production of food, he is able to show this transparently to the consumer through PIELERS and to charge a higher price. If PIELERS would have been around for 20 years, farmers’ protests would not exist in their present form, because this communicative gap between agriculture and customers would not exist. The customer would know the farmer, the farmer would know and understand the customer better. It is a mutual problem. Farmers on the one hand do not understand their customers, consumers do not understand the farmer and cannot perceive and appreciate what the farmer does for nature. Greater transparency will improve communication, and it will make it economically possible to practise agriculture and not to give such protests any breeding ground.
Mr Sommer, what can German agriculture learn from other countries?
Sommer: Networks, or rather digitalization and greater efficiency in agriculture, are accelerators, they lead to a faster use of resources. More soils are degraded if the frames are not set correctly. The problem goes beyond urban-rural relations. Buying from regional farmers does not necessarily mean that you don’t produce an ecological footprint somewhere in the world, for example through imported soy.
Sustainable agriculture in Austria and Switzerland has a much higher priority than in Germany. Austria has 25 percent organic farming. The appreciation of consumers towards food and farmers must increase. What we need, is a clearly defined legal situation and a stronger regulatory law. We should look at what Switzerland and Austria are doing.
Mr Holluba, what role does the traditional food retail trade (LEH) play in a new world of new networks between producers and consumers?
Holluba: The retail trade looks different today than it did a few years ago. The amount of bureaucracy has increased enormously. The task of the food retailer is to inform the consumer. The retailer takes responsibility for where meat and apples come from. Especially in the Berlin region it is historically difficult to find the classic small farmer, there are large agricultural cooperatives. It is therefore difficult to establish an emotional connection between the consumer and the farmer. On the other hand, with small farmers, it is not possible to meet the customer’s expectations of having products available around the clock, all year round. The price must be adjusted so that everyone in the value chain gets what they deserve.
“On the one hand, there are the social demands of a country with a high standard of living on agriculture, on the other hand, German farmers are left alone in the global market.”
Georg Mayerhofer (Farmer)
Discussion about sustainable networks
All speakers highlighted communication as a central theme. Is communication a necessary “network” in today’s world?
Köhn: We communicate via facts. Facts are transported as data. Data can be produced and stored inexhaustibly. But nowadays this data is hardly used. Although they are produced on a large scale, they are not made available to the next partner in the network because no interfaces exist, or existing interfaces are not used. If we were to network the existing data to derive information, i.e. to interpret data, extreme efficiency gains would be possible.
To what extent would consumers have access to this data? Would we have insight into field data, the machine driving on the field, the calculation of a merchant?
Köhn: It is already possible, for example in China, to trace which seed was used and which machines are used on the farm by scanning barcodes.
Mayerhofer: The problem of agriculture is a different one. On the one hand, there are the social demands of a country with a high standard of living on agriculture, on the other hand, German farmers are left alone in the global market. Farmers must compete with cheap imported products but have to meet higher standards. We must find a system that enhances agriculture in terms of expertise and quality, but also takes as many farmers as possible along with it. Otherwise, production will migrate abroad. The problem must be raised to a political level. How do we manage to have a sustainable agriculture on the one hand, but on the other hand, how do we ensure that this is reflected in the farmer’s operating results? Even farmers who have not put the emphasis on marketing, who concentrate only on production, must be included.
Sommer: The transparency from new, sustainable networks has an incredible number of consequences. For example, WWF is looking at sustainable soy in pig and poultry production. Often there is no traceability here whether pork has been fed with sustainable soy or not. By providing more information and education, a customer can make the decision not to buy pork from non-sustainable soy. Consumer education is necessary. The government must be willing to enforce this. Current agreements will lead to a “pawn sacrifice” if German exports are outweighed by imported soya. German farmers who produce sustainably must be remunerated accordingly. Politicians must act here, not just name conflicting goals.
Köhn: “True Pricing” would help. A litre of milk produced in Germany is not much cheaper than a litre of milk produced in Russia, although here in Germany much higher standards are observed and the environmental impact is much lower. Not only must the price of products be higher, but the farmer must be rewarded by the Society for Nature Conservation. “Milk” must no longer be the same as “milk”: there must be clear, differentiated product labelling that makes it clear what added value has gone into the production of this milk. Only then will there be a prerequisite for competition. With a generic product as it is currently available, no market-based organisation of the market will work.
Who would make this calculation, i.e. calculate the “true pricing”?
Köhn: It could be a government agency, that would at least be desirable. It would be a regulatory task to define what must be included in true pricing. Now, it looks more likely that an industry standard will prevail, as politicians are holding back.
Sommer: In principle, the figures are known. Sustainable soy, for example, would make pigs 6 to 10 Euros more expensive. This is similar for other environmental improvements.
Who ultimately calculates the prices? What are the tasks of the food retail trade?
Holluba: The customer must be prepared to inform himself and pay a higher price. It is not only the problem of the retail trade. It already starts in the primary school. Children must be shown where food comes from. It is difficult to adopt a new system in the LEH (retail trade) alone, the foundations must be laid earlier. But it is wrong to give the responsibility to the customer alone. Food retail must always remain competitive. It is therefore not possible to take the initiative alone; it is rather a regulatory task of the state. The primary task of the retail trade is to inform the customer. Higher prices are only possible through regulatory policy, through a generally coordinated price increase.
Köhn: External effects in production must be priced. A pig from intensive husbandry fed with soy from an unknown origin would then be the most expensive product on the shelf, due to increased social costs. A comparable organic product would then be the cheapest. This requires a regulatory solution.
Are there already solutions as to what this should look like in practice?
Sommer: WWF has been cooperating with EDEKA for several years. “Agriculture for Biodiversity” rewards farmers for protecting biodiversity on their land. The payment is made via the product. This means that the farmers receive an additional price for the fact that they protect species.
The performance of the machine developers must also be included in the value chain. In what form does this succeed?
Herlitzius: Trends show that more and more people want to buy better, healthier. But they have difficulty finding their way around the store. They do not know what is healthier and more sustainable. Transparency can help a great deal here. But it must not become too complicated. The introduction of labels etc. takes a long time and is complicated, but it is better than nothing at first. A better solution would be a system with block chain to track the manufacturing process. This would be safe and would in theory increase trust. However, most consumers do not know that blockchain is the most trustworthy means because they do not understand it.
One alternative is direct marketing. With short distances, the consumer is close to the farmer and has confidence in sustainable production. Nowadays we are able to accompany every step of the process with data technology, and this will become more widespread in the coming years. However, data is valuable within the production process. Transparency should not mean making all data available. It is necessary to differentiate which data is required by the consumer. The manager should have responsibility and control over which data he discloses, which data remain a trade secret and are not disclosed. Completely open data will not work.
From the point of view of the practical farmer; which data are available so far, which would you like to give away, which are sensitive?
Mayerhofer: One must ask oneself whether it is decisive for the consumer to know where exactly each individual product came from. The products in the supermarket are not all bad. Organic milk is very good, but conventional milk is not bad either. There are many different designations and labels, but no understanding of which product ultimately best meets one’s own expectations. Not only must individual labels be improved, but conventional production must become more sustainable. The consumer must also be able to buy the cheapest milk without feeling bad about it.
Köhn: Price is the most important label. In theory, this summarises all available and hidden information contained in the product. In certain markets that deal in public goods, the state intervenes, for example through emission certificates. This is not the case in agriculture. We stay out of one of the most important markets trading in public goods for regulatory reasons. We should finally apply the economic theory that we have had since the 1970s to agriculture. That means including environmental effects in prices. Then we would have a price that would provide the information that the customer can use as a guide.
Questions on sustainable networks from the audience
Including external costs leads to an overall price increase of all conventional products. Another solution would be import restrictions. Neither of these is something politicians want; how do you solve the problem?
Köhn: The problem shows a problem between a static and a dynamic view of the market. The static view only sees the short-term price increase. In a dynamic view, however, the short-term price increase leads to new competition, which in turn leads to new technologies that enable falling prices with higher environmental standards. This creates innovation areas with a competitive advantage over conventional farmers. Trade restrictions would be necessary for products with negative externalities. This negative effect must be added to the price through taxes and tariffs in order to protect the internal market.
There are many farmers with little market power, few retail chains with great market power. Austrian organic farmers sell their products in Germany as non-organic products. Shouldn’t the market power of trade be smashed?
Holluba: That would be the task of regulatory policy, which one would submit to. Of course, the trade must not agree on prices, but by jointly renouncing certain lower qualities, an increase in quality can be achieved.
