Outlook 2021: A critical year for the European Commission’s plan for a sustainable food system

• The European Commission to release eight proposals from its Farm to Fork (F2F) strategy in 2021
• A carbon farming initiative hopes to reward food producers that adopt more environmental action
• Details will also emerge about the F2F's vision for guaranteeing EU food security in the future
• Revised EU plant protection rules hope to give farmers more low-risk pesticides
• The Commission is expected to press the agri-food industry to integrate sustainability into corporate strategies
• New EU import, marketing and procurement rules will also reinforce sustainability trends

From new rules on animal feed to measures that scale-up carbon farming and increase corporate action, the European Commission is working on a range of proposals in 2021 to shape a more sustainable food system within the EU and beyond.

These actions stem from its Farm to Fork (F2F) strategy, the EU executive's 2030 plan to balance the agri-food sector's economic, social and environmental performance - and the next 12 months are set to be a decisive period. At least 8 of the F2F strategy's 27 planned actions are scheduled for release and together they provide the most detailed picture into how the EU executive hopes to achieve its new sustainability vision to date.

But the Commission also faces a challenging dynamic - it cannot lean too hard on environmental action since it could fuel domestic and international criticisms over the F2F's economic and social impact. On the other side, if these actions are not green enough then the Commission could undermine its own commitment to make the EU climate neutral by 2050.

The EU executive must think carefully on where to draw the line, but if the right balance is struck then 2021 could be the year the Commission laid the groundwork for a successful transition to a sustainable food system and began to bring new value to agri-food supply chains.

Farm focus

Critics of the F2F strategy claim the policy's environmental ambition risks food supply and farmers' income, but the Commission will put forward two actions in late 2021 that may ease some of these concerns.

The 'EU carbon farming initiative' hopes to create a direct commercial link between environmental protection and farmers' bank accounts. It centres around food producers adopting a set of agriculture practices that reflect a certain amount of carbon stored in soil, which can then be sold as credits. The proposal arrives in the third quarter of 2021 and is likely to be accompanied by EU incentives to take up carbon farming practices such as zero plough and no-till, rewetting peatlands, preserving grassland, and establishing diverse landscape features, like hedges, buffer strips and non-productive trees.

Unfortunately for the Commission, an EU-wide carbon farming scheme is still some way from being set up as it notably lacks a platform where respective credits can be bought and sold. This requires stronger data collection and monitoring alongside more robust national auditing and the creation of trusted marketplaces. Expect the EU carbon farming initiative to include measures that encourage member states to address these weak spots.

Several months after the carbon farming initiative is released, the Commission will put forward its 'contingency plan for ensuring food supply and food security'. This aims to ensure crises affecting the food system do not threaten consumers' access to safe, nutritious, and sustainable food. The Commission is currently collecting feedback on this proposal, with farming organisations highlighting the need to develop protocols that keep supply chains running and consumer groups wanting greater protection against food fraud.

The EU executive has said it will establish a crisis response mechanism when the bloc's food security is threatened and build on the lessons learnt during the COVID-19 pandemic, which could see its 2020 measures replicated, such as creating 'green lanes' that kept EU supply chains open alongside guarantees over the movement of seasonal farm labour.

If member states and the European Parliament back the above proposals, it could go a long way in negating the EU policymakers that use food security fears to oppose increased environmental action. That could then pave the way for the Commission to push ahead with stronger F2F proposals at the farm level and add some needed green momentum to the implementation of the next Common Agricultural Policy (CAP) - and its €55.8 billion annual budget.

But these proposals will probably not go far enough for the agri-food groups that want an impact assessment on the F2F strategy before it is aligned to national polices, notably the consequences of the pesticide target on food production and farmers' income. The Commission can begin to ease some of these concerns when it revises rules that regulate placing plant protection products on the EU single market, expected in the last quarter of 2021.

This is part of another F2F plan to reshape the bloc's pesticide market by trying to make it easier to place more sustainable pesticides onto the single market. Such an initiative would be welcome reprieve to the plant protection sector which has long complained about the regulatory obstacles to get new products on the EU's single market. However, the EU executive will have to tread lightly not too block existing solutions or undermine its Biodiversity Strategy, which is a complimentary policy to the F2F that has several of its own goals, such as reversing pollinator decline.

Business expectations

The cost of sustainability has stopped some businesses from adopting more environmentally friendly practices, with many farming groups accusing them for not paying their fair share to raise their sector's green standards.

That dynamic could face a big change with the F2F strategy's 'Corporate Governance Framework', expected in the first quarter of 2021. This EU proposal hopes to transform the way businesses operate in the food system and is likely to require the food industry to integrate some degree of sustainability into their corporate strategies, with mandatory supply chain due diligence, clarification of directors' duties and changes to directors' remuneration all being considered by the Commission.

Some agri-food giants have already campaigned EU policymakers to introduce legally binding rules to speed up the transition to a more sustainable economy. In 2019, Barry Callebaut, Mars Wrigley and Mondelez called for EU-wide regulations to strengthen compliance with human rights and environmental law when sourcing their raw materials, citing a lack of legislation in creating an even-playing field for their sector's sustainability and bringing long-lasting change. Some businesses have faced market barriers when trying to increase sustainability, like being undercut from less ambitious competition.

This industry support will give the Commission a boost of confidence when it puts forward the framework, particularly since there already seems to be hunger for legally binding requirements from other EU policymakers. Members of the European Parliament (MEPs) recently adopted a position that recommends a series of mandatory sustainability obligations for companies rather than continuing to rely on voluntary measures.

These F2F proposals could give the Commission some needed ammunition to fight back against some of the louder criticisms from agricultural groups which argue that the F2F is too focused on the farm and not enough on the fork. If not, the EU executive can turn to another F2F proposal designed to push the food industry more towards making healthy, sustainable food options. Towards the end of 2021, the Commission will launch an initiative to 'stimulate reformulation of processed food', which is expected to include setting maximum levels for certain nutrients in products and will likely see some demand grow for more sustainable ingredients.

The Commission has designed these F2F actions to combine and create a stronger commercial link between farmers and agri-food businesses, but that connection also depends on consumers' pockets. Demand for sustainability does seem to be growing, despite the ongoing coronavirus pandemic, with two-thirds of EU citizens prepared to pay at least 10% more for agricultural products made in a way that limits their carbon footprint, according to a recent Eurobarometer survey. That is a welcome trend for the F2F, but Commission will have to wait to see if consumers put more of their money where their mouth is.

Market forces to watch

Where the F2F strategy's more direct actions fall short, the Commission will hope other measures targeting the EU single market will succeed. Several other proposals will attempt to add additional market forces that create greater sustainability momentum, such as plans to revise EU marketing standards expected in late 2021.

This proposal aim to establish a minimum quality for agri-food products through definitions and criteria for factors like labelling, production methods, and packaging. The Commission wants to reinforce these standards by incorporating new sustainability factors like food loss and waste generated. If adopted, this could help raise the general bar of sustainability in the EU and go some way towards levelling the sector's playing field.

The Commission will also hope its Q3 proposal to set minimum mandatory criteria for sustainable food procurement in schools and public institutions will galvanise the market further. According to the EU's Joint Research Centre, the European social food service market is worth €82 billion. Tapping into this value could cause a big surge in demand for sustainable EU food and incentivise more producers to adopt greener practices.

It is still unknown what this procurement plan will expect from member states, but the proposal will likely garner support from the national governments hoping to boost demand for domestic sustainable food production, such as Ireland and its 2050 plan to reach net zero emissions from its agriculture sector. Some environmental groups want member states to exclude unsustainable livestock production from this procurement plan, but the Commission has so far been unwilling to omit any domestic sectors from these new rules. Time will tell if the EU executive gives certain sectors preference over others.

Trade will be another tool the F2F plans to use to send further sustainable forces into the EU market. In the last quarter of 2021, the Commission will put forward a revision of the EU's feed additives regulation, aimed at reducing the environmental and climate impact of animal production, avoiding carbon leakage through imports, and supporting the transition towards more sustainable livestock farming. This is likely to push for greater domestic feed sources, which the Commission hopes will not only increases the bloc's self-sufficiency, but also give farmers a greater share of the animal feed market. Momentum for this is already building with France recently launching a plan to increase the country's plant protein production by 40%.

The feed additives regulation will be further reinforced by new EU rules that limit unsustainable imports on the EU's single market, like the Commission's plan to curb third country agri-food products that are linked to deforestation - with one of the main commodities being soy for animal feed. This is likely to manifest in EU due diligence rules before the summer of 2021.

That would see at least nine separate proposals that could drive the sustainable food transition in 2021. And if these separate market measures effectively combine to complement each other, then the Commission will have gone a long way in meeting its 2030 sustainability commitments. But if the EU executive fails to balance economic stability with environmental action then any proposal could fuel enough criticisms from the agri-food sector that the F2F's long-term success is destined to fail. What is clear - it's all to play for over the next twelve months.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.