Introduction
The agri-food industry operates in a rapidly changing and dynamic business environment, where farmers and food producers, from multinational to artisan, are continually required to innovate and adapt. Events such as the COVID-19 pandemic and the war in Ukraine have increased complexity, disrupting food-supply chains and threatening food security. These circumstances have an impact on food production processes and consequently require a focus on sustainability.
Sustainability is a key challenge facing all business sectors, not least the agriculture and food production industries. At a national and international level there is a huge focus on developing a sustainable food supply for a growing worldwide population. The United Nations (UN) forecasts a 34% increase in world population by 2050 and that an increase of 70% in food production will be required. Despite this, the UN reports that 30% of all food produced globally is lost or wasted.
Greenhouse gases (GHG) emissions globally have increased by more than 60% between 1990 and 2022. The impact on climate change has been well documented, including increases in the frequency of flooding, droughts and wildfires. Such climate-change effects have serious consequences on food production and necessitate collaboration between all sectors of society to address the challenges presented.
In Ireland, the economic importance of agriculture is clear. According to the Department of Agriculture, Food and the Marine, the agri-food sector accounted for 9% (€18.78 billion) of total exports in 2022 and 6.5% of total employment or 164,900 jobs, mostly in rural areas. Farms and farmers also provide valuable sources of environmental assets (e.g. hedgerows, wetlands and woodlands) and contribute to preserving natural habitats and biodiversity.
However, from an environmental sustainability perspective there is much debate about the high level of GHG emissions generated by the Irish agricultural industry and how this issue needs to be addressed. In this article, I do not debate the extent to which the agricultural industry contributes to Ireland’s GHG emissions problem, but rather focus on acknowledging that farmers and food producers need to be included in determining a solution.
I also believe that the accounting profession has a key role to play in assisting farm enterprises, and small and micro agri-food businesses, to create more sustainable enterprises and to contribute to a sustainable food supply.
Environmental sustainability in agriculture
Environmental sustainability is at the forefront of national and international policy development in agriculture and food production. This is primarily driven by the UN Sustainable Development Goals, as several of them relate to agriculture and food production.
At EU level, the European Green Deal, through its “Farm to Fork Strategy”, has set out plans on how to improve sustainability and the environmental impact of the agri-food industry. These are being incorporated into reform of the common agricultural (CAP).
At a national level, the Climate Action and Low Carbon Development (Amendment) Act 2021 introduced a framework of sectoral GHG emissions (‘carbon’) budgets, to be subsequently developed and proposed by the Climate Change Advisory Council (CCAC). In July 2022 (after much debate) the sectoral emissions ceiling for agriculture was set at a level requiring an ambitious 25% reduction by 2030.
Stakeholders acknowledge the fundamental challenge that environmental sustainability presents for the industry. They also acknowledge the key role that the industry must play in addressing the national environmental sustainability challenge.
A financial perspective on sustainability in agriculture
Sustainability in agriculture is multidimensional and is broadly comprised of three main pillars:
- environmental sustainability,
- social sustainability, and
- economic sustainability.
Environmental sustainability refers to how agriculture and food production processes impact our environment, and is the most widely discussed pillar of sustainability, the contribution of the industry to GHG emissions attracting significant debate.
Social sustainability in agriculture relates to farming communities, and the many challenges they face, and how the industry’s sustainability affects wider society.
Economic sustainability is generally viewed as economic viability, i.e. whether a farming system can survive financially in the long term in a changing economic context. It is perhaps to the economic sustainability of agriculture that the role and contribution of accountants is most relevant.
The National Farm Survey (NFS) is conducted annually by Teagasc, the Agriculture and Food Development Authority. Highlighting the economic vulnerability of many farm enterprises in Ireland, the 2022 report classes 43% of Irish farms as economically ‘viable’, 32% as ‘sustainable’, and 25% as ‘vulnerable’. At the root of this economic vulnerability is rising inflation and increases in the cost of farm inputs (e.g. fuel, fertiliser and feed), reducing the profit margins of food producers.
The challenge for farm and food production enterprises is to balance economic with environmental and social sustainability. A phrase used in the industry is “it’s hard to be green when in the red”. The NFS statistics reveal a situation of economic vulnerability for many farm enterprises. Therefore, financial viability may understandably be their top priority, with environmental and social sustainability of secondary importance.
However, despite the uncertainty of economic conditions in the short term, the long-term focus on environmentally sustainable food production and its positive social impact should not be forgotten. When a holistic perspective is brought to the concept of sustainability, we realise that the pillars of economic, environmental and social sustainability are intertwined and cannot be simply viewed in isolation.
While there are many scientific solutions (e.g. soil and grassland management, fertiliser use, changes to feed additives, alternative energy sources, shorter animal-to-slaughter periods, etc.) proposed to farmers on how to reduce GHG emissions, there appears to be little known about, or consideration of, the financial impact of such changes to farm practices.
The onus of identifying the changes required to farm practices to reduce GHG emissions on farms is placed on individual farmers, and farm advisory services are available to assist in this regard. However, many of the scientific solutions to reduce on-farm emissions require investment and involve a cost to farmers when making the transition. There appears to be little focus from the advisory services on assisting farmers to assess the economic cost or benefit for them when implementing such changes to farm practices.
Though many farmers want to adapt their work practices to contribute to a reduction in GHG emissions, many experience a knowledge gap regarding the financial impact on their livelihoods. This is an area where improvement in advisory services is required.
Bringing a focused financial perspective to sustainability, accountants can contribute to bridging this knowledge gap. I contend that the accounting profession must collaborate with stakeholders in the agriculture industry and lead the way in helping to create sustainable farm and food production enterprises.
A financial management perspective acknowledges that economic sustainability cannot be sacrificed, and is crucial for the survival of farming and food production. Rather, work practices need to change to meet the ‘triple-bottom-line’ agenda of economic, environmental, social sustainability. Farmers and food producers need to be supported and advised to achieve this more complex and yet balanced objective.
The role of the accountancy profession
It is paramount that farmers and food producers are educated about what sustainability means and the financial implications for their business. Accountants are one of the primary sources of trusted advice for small business owners, including farmers. Therefore, the accounting profession has the potential, and an existing platform, to lead on how farmers and food producers can improve their sustainability, in the broadest sense.
Accountants are unique in having a wide range of knowledge about sustainable work practices from dealing with a varied client base across multiple industries. They can share this with farmers and small agri-business owners.
Accountants could assist farmers and food producers by:
- identifying the business opportunities for farmers presented by the sustainability transition;
- conducting cost–benefit analyses of implementing environmental sustainability initiatives (e.g. alternative energy sources);
- calculating the payback or return on investments that reduce the GHG emissions of enterprises;
- helping business owners to avail of financial supports available to meet the cost of sustainability initiatives;
- advising farmers on how to develop sustainable work practices in a cost-efficient manner;
- sharing knowledge gained from SMEs and larger companies (e.g. on how to conduct sustainability audits).
Resources are available to support accountants to work with clients in this regard. For example, Chartered Accountants Ireland provide online resources in its
Sustainability Centre, where free-to-access publications such as
Sustainability for Small Businesses – A Guide provide practical insights.
Conclusion
There are many ways the accountancy profession can contribute to assisting farmers and food producers meet sustainability targets. These insights are not only important for food and agricultural businesses but are equally relevant and transferrable to how the accounting profession could rise to the challenge of assisting businesses in other sectors of the economy meet the increasing demand to strive for improved sustainability.
Dr Michael Hayden, FCA, is an Assistant Professor of Accounting at Maynooth University
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