The Time Is Now for Climate Smart Supply Chains
How Corporate Offtake Agreements Are a Critical Step
We need to take climate action now, and it needs to happen in every direction possible, including within our supply chains. We are connected to our earth and each other in so many ways and the issues affecting us, created by us, are all connected as well. This becomes evident when we follow our supply chains to the source and analyze impact along the way. It is time to build intentional climate smart supply chains and collaborative action is essential. An important part of this action is for corporations to make purchase agreements for guaranteed offtake.
Our current linear take-make-waste style of commodity production is unsustainable and creates major societal and environmental risks. Global supply chain systems are complex and the drivers of unsustainable production will be challenging to fully overcome. These underlying factors are related to policy, financing, and market demand and pose numerous challenges for companies and financial institutions who truly seek to improve their social and environmental impact. Collaboration across all sectors and industries is critical to drive sustainability, climate action, and reduce deforestation.
Complex Systems Require Multi-faceted Actions
Most of the issues that we need to confront are not under the control of a single producer, aggregator, or actor in the supply chain. Therefore, entities in different parts of the chain can play different roles. There are many actions that all companies can take. There are others that depend on their position in the value chain.
For example, financial institutions play a particular role in supporting and incentivising commodity transformation, while corporations can guarantee offtake. An offtake agreement is an arrangement between a producer and a buyer to purchase or sell portions of the producer’s upcoming goods.
Collaboration efforts between private sector companies and financial institutions must begin engaging with sustainability efforts beyond their value chains. They should also include different levels of government. This type of cross-chain collaboration should generate business benefits and more importantly, positive systemic impact.
How does guaranteed offtake support climate action?
Basically, the idea is that corporations can make long-term obligations to purchase crops from the agriculture sector in order to generate more sustainable production practices, many of which can be used to deal with a changing climate.
Food companies that are looking to lower supply chain risk and reduce their carbon footprint have new strategies that can increase the adoption of sustainability and low-carbon practices among farmers, ranchers and forestland owners.
Multi-year agreements help provide assistance for major capital investment, and therefore, promote more sustainable agricultural practices.
What Are the Actual Steps?
Several companies have begun using these types of long-term contracts or purchase agreements guaranteeing offtake over several years. Agreements like this stabilize costs and allow both growers and buyers to plan further into the future. And since multi-year agreements provide more assurance for major capital investment, they also lead to more sustainable agricultural practices and other conservation benefits, such as low-carbon production.
Simply put, guaranteed offtake can potentially drive sustainable agriculture and climate smart agriculture practices.
Companies Who Are Putting Offtake Agreements Into Action
A noteworthy example of this concept in practice is Bunge Limited, which is the largest agricultural exporter in Brazil. Bunge uses 10-year loans to secure zero-deforestation soy crops by loaning to farmers who are willing to commit to producing soy without further deforestation or conversion of native vegetation.
Conservation practices and sustainability efforts are certainly in demand. They aren’t always easy and they have led some companies to engage in greenwashing. However, guaranteed offtake agreements present a mechanism that traverses the supply chain and encourages implementation at the farm level. This is the idea behind the programs at Pipeline and Bunge. When implemented correctly, these long-term contracts help farmers use and promote sustainable production.
At Producers Trust, we are hopeful that these efforts, combined with many others, can serve as a promising model for agriculture at large.