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Сarbon footprint labeling
1. Understanding Global Warming Potential and Its Implications
We have the idea of having a status quo. Now certain countries, certain companies are admitting at a certain level. And if they admit more, they would be faced with actually having a negative global warming star label account. That's all we do here. And in general, some researchers have discussed this and that this is very harmful, because it would penalize new companies. And something we don't want in economics is this startups or new companies that do something differently are penalized because they don't have some historical rights here. This is called the market entry barrier, and it's not good for competitiveness. And if you look at it from a practical perspective, you would also which has emitted much less, would not get the rights to grow similar to Europe, to the US, right? Because they would be charged with something we have not been charged of in the past. But everything that they emit more in order to economize or to develop, this, of course, puts a barrier on their growth. While the ones that have been particularly bad in the past get now rewarded more
By actually showing that even if they just increase a bit, they get a very positive, if they just improve a bit, they will get rewarded with a very positive global warming potential star label. So I just highlight that because as clear as it might be with an iso- norm that is actually put into European law and a lot of agreement, And much more profound than for biodiversity, for water footprints, for any other environmental dimension, even there, there are still some debates going on, on how to best do it. Although they may not really lead to better ideas so far.
Because methane only stays in the atmosphere for a bit more than 10 years. So if you pollute methanin, this will not hurt people. If you now pollute methanin, it will not hurt people in 25 years, right? Because by then, methanin will be dissolved and will no longer play a role in warming our planet. However, CO2 that you emit now will still be in the atmosphere. It will still play a role.
You mean now why we actually want to compare math and CO2 in terms of global warming potential? Yeah. In the end, there are multiple reasons, right? That the accounting actually tries to simplify something here instead of having multiple dimensions just for, for climate change to report and try to condense it into one number. Thinking about the consumer domain and the labeling, imagine how complex it gets if you have for biodiversity five dimensions to report, for climate change three dimensions to report, for border footprint five dimensions to report. And then you also talk about other dimensions like health and social standards and so on. The complexity gets too high. And so they wanted to find a way on how to make actually meaningful comparisons here with the perspective on the natural sciences. So backed up by natural sciences. So that's why they actually needed to look at the corridor that they feel makes a meaningful comparison of methane and CO2 possible. And of course, this one is a meaningful comparison. As soon as you know that this is a 100 year global warming potential, this is a natural science backed up comparison of that methane over the course of 100 years
Each methane molecule will have a 28 times global warming potential to one CO2 molecule. That's something we can measure, right? There is a chemistry measurement behind that.
As well as this comparison now that is transparent with this 100-year agreement, is naturally science-wise backed up.
This is one part of the of the matter, right, that we have, at least in EU some agreement here, but still that agreement is not globally accepted. And the other side of the equation is when you look at the typical carbon footprint, what you see is something like, let's take legumes, for example, peas. If you look at peas, and peas have about 0.5 kilogram CO2 equivalent, they always say CO2 equivalent because that's how they condense methane and nitrous oxide into a CO2 score. It's better to talk about CO2 equivalent per kilogram of the product. That's a typical carbon footprint that you see here. So we talked about this global warming potential, which is now 0.5 kilograms CO2 equivalent, with how we actually put these different climate gases into one CO2 score. But we have not talked about the reference unit. And the reference unit that is being debated, you find kilograms, proteins, kilocalories, a nutrient index, that is the reference unit, or essential amino acids. And essential amino acids, for example, is pushed by the meat industry, like looking into specific amino acids that are predominantly available in meat products. Of course, cherry picking certain nutrients, right?
A more holistic nutrient index or a comparison by the calories, by weight or protein. So what... What do you think? What would be the best reference unit? How would you like to compare products to a product's global warming potential? By which reference, which functional unit? Any idea? Any preferences? To some degree, it is preferences, right? I'm talking about it because it's not a clear absolute best, but there are arguments for and against each of these functional units.
CO2 equivalent per nutrient index mean absorption of the actual food already by the person? This depends on your nutrient index, right? If you design a nice nutrient index that looks also into bio functionality, then yes.
I think maybe for me, this makes sense. The absorption of the nutrients. Yeah. But it's also, I think, depends on the customer, right? What they are focusing on. Because I'm focusing on nutrients, but if the customer focusing on, I don't know, calories, that would be different. It's different for different people, how they focus on what things. But I would also agree on nutrient index. If it's like very nice calculated and keeps in mind all important factors, then this makes the most sense.
2. Challenges in Nutrient Index and Carbon Footprint Labeling
Yeah, and this is exactly the shortcoming that we have here, right? Because we are hardly agreeing on global warming potential. Now we're talking about the nutrient index that there is absolutely no agreement whatsoever out there. Imagine the heterogeneity. It also means we have some simulation of diets and nutrients on what people need. And nowadays, the nutritional science, they're moving more into this so-called personalized nutrition model. They see that certain people need different kinds of diets. So how to do, even if you have an idea of what is the best diet, it would not be generalized, but you would again have like a normal distribution curve and how well this nutrient index fits for certain persons. And it might even be totally inappropriate for them. You have certain subgroups that demand in certain life situations like being pregnant or breastfeeding or kids or whatever. You have different demands. And again, all these debates we have in the end weighting something like biodiversity to climate gases to water footprints. These kind of weightings are also here, right? Do we have to weight iron to...
To calcium, to protein, to macro and micronutrients, whatever you can find, to vitamins. And these kind of weightings, they are not agreed on. There could probably be a spectrum of where people could see these weights to be. And there might be some scientific consensus on the general spectrum that they should be weighted in. But this is highly difficult. So usually this is not done by science, but this is only by company initiatives that just decided to do it. So there's a company that actually does carbon footprint labeling with the nutrient index. You can have a look later how this is Swiss startup. And they just made decisions here. They said like, we don't care. We know having nothing is better, is worse than having something here. So they wanted to just do a nutrient index. And this nutrient index will not be accepted by most companies. This will never be accepted by policy probably. But I said before we don't have it, I think the risk is higher of not giving any orientation here. What you see, if you go by calories, right, what would happen then? You would have products with more sugar would have the best climate score. This might be justified.
But in the end, the more energy dense the product, the better its climate score gets because it has a lot of calories here. And these calories might be empty calories, which nutritionists have argued against for decades now. So in the end, protein might be a good fit if that is what you're after, right? For certain subgroups, it doesn't feel like something that you can put on a retailer level because not for all protein is the most important criteria here. But certainly if you talk about a comparison maybe of legumes with a pork meat or something, then maybe you can make this comparison by protein, then it might make sense. Although, of course, ignoring that there's some other stuff in pork meat that legumes cannot have, while of course, there's also iron in legumes and some other things that might be interesting on that side again. But in general, you could, of course, dumb it down to protein. But what we see actually is that kilograms and calories are being used at the moment for one simple reason that they actually do not have this issue of making a normative judgment here.
But because we have a nutrient index on the back of each product, you would actually see per a hundred gram or as well as per a hundred calories or whatever. And by actually looking at this table, you would actually see, okay, with With the CO2 footprint of 0.5, I can already cover my sodium demand, my protein, or I get 22 grams of protein with that kind of footprint. But theoretically, although no consumer is actually doing that in return for that, I'm pretty sure about that. Theoretically, you could make the calculation yourself by the nutrient table in calories and weight to actually think about how much for that CO2 It's just the most unbiased approach to use these two and put such a score always together with the nutrient table that is of course mandatory in the EU. All right. That shows you again. So on both parts of that kind of score, you have debates and for some of it, It's not the most relevant thing, right? If you talk about comparisons of legumes and beef in terms of climate footprint, then of course that's an easy task because you would see that per weight, you talk about 36 to 71 times that much of a more CO2 emissions or CO2 equivalent emissions.
For protein, it's a bit less. You talk about, I don't know, let's say 5 and 50 or 100. Let's talk about 20 times that CO2 footprint for the same amount of one kilogram protein production. And per calories, it's again a similar story here. So some comparisons, it doesn't matter how we do the reference unit. But of course, there are. where depending on the reference unit, to change the outcome of what would be the more climate friendly product. So far, these kind of SDA measurements have mostly just showed us that animal based products have a very much higher CO2 emission accounts than plant based products. That's the only real takeaway at this point. All right. That was the last one. But this, of course, is in the context of being another driver here, a driver of integration, because we know that, again, this might lead to companies, retailers actively thinking about how to organize value chain. quite some, some burden on the whole value chain. Although it might in the long run be too much better value chains. There's another thing here in there, but I will not discuss this now. We'll skip that. This is challenges in audits.
Looked at the challenges you have in audits because we talked about before that audits are one thing how it's organized like we saw that for global gap of fair trade where we have audits on farm looking into whether how safety worker safety was dealt with and all these kind of measure management things Of course, there are of course challenges in the audits. They are also known in the organic sector, where often you have very young and inexperienced auditors, opposed to people that have been longer in the sector producing organic. The way this is set up, that the farmers can actually choose their certifiers and so on, does not actually build up the most trust here. Nothing that cannot be solved. It's just additional challenges or value chains that you need to consider when looking into this. But in general, that is the whole perspective that I have here. And I really want you to keep the context in mind that we have these levels of integration and we have certain drivers that come with a need for more and at some point again, less integration. And in the past, we have seen rather less integration. with globalization by using the advantages of specialization. Okay.
3. Future Perspectives on Food Value Chains and Competition
Let me just give you an idea of what you have to expect tomorrow. We will talk about concentration in food value chains. So now it's not so much a perspective into how companies organize upstream, downstream, but now it's more about horizontal competition. And this is, you know, the ones in the value chains vertically, these are your partners, right? These are people that supply something you do not want to supply. Now we look more into competition, which is, of course, also a key factor for an economic sector on how well it functions, how much it functions in the interest of consumers. So therefore, we will look actually at input providers as the first step. We will not look at the farm sector because the farm sector we know is what they call atomic structures. So many small players. But we will talk briefly about how much this farm sector
Ideal for competition because spoiler alert it is not ideal and because it's much better if you have like market leaders that you can see that you can look to in order to improve and work on your competitive advantage compared to when there are just so many that everybody basically builds up their own niche or their own speciality and therefore makes them less competing with each other at least there's economic theory yeah can talk about the implications around that as well. And we talk about the traders, which we said before is probably the most concentrated part of the value chain in the world, which especially holds for food value chains. Globally, it's just five companies that you have to think about. Nevertheless, we will talk about how they impact fair chains and that they are not necessarily doing it at the moment by hurting consumers in that sense. And yeah, processors and retailers, right? They also come with their retailers often have also quite some concentration, but this is more on national levels often or on common market level. And yeah, before we get into that, we actually talk about the ideas that come with that, which is how these actually compete.
And this is two structures that are two theories that go hand in hand. So this is workable competition and competition intensity. We'll start with them. And it's a bit similar to before where we had vertical value chains. We started with these transaction cost theory, where it comes from, and then something more practical, these actually that we dealt with the theory behind that and here's also similar that start with a very general idea of how companies compete on a horizontal level and then we talk about competition intensity on how to optimize that and then we will look at these sectors to see a bit on how competition and sensitivity intensity actually plays a role in our global food chains at the moment
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