Our Nature Team connects the dots on rising food prices, climate change, and ecosystem destruction – and what this means for investors. 

by David Sternlicht and Amelia Sadler

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Trader Joe’s 23-Cent Banana

In March of this year, Trader Joe’s found itself embroiled in controversy when it raised the price of bananas by four cents. For twenty years, the popular grocery chain had managed to keep the price at 19 cents per banana. Raising the price led some Trader Joe’s fans to proclaim this the “end of an era.” 

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While the uproar over a 4-cent price hike may seem like a disproportionate reaction unworthy of much attention, this price increase symbolizes a consequential new reality of global agriculture. For many consumers, food inflation has contributed to an increase in economic pessimism. For investors, this story is a window into trends that may impact long-term investment decisions: climate change and ecological degradation. 

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As of June 2024, US families were paying 26% more for groceries than they were before the pandemic, outpacing the 21% overall inflation. While food inflation isn’t evenly distributed across every aisle, the impacts of climate change directly contributed to supply shocks in fresh fruits and vegetables, poultry, and beef. Severe droughts and extreme weather events, exacerbated by changing climate conditions, are reducing crop yields and disrupting livestock grazing, leading to higher prices for meat, produce, and other essentials. 

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America’s Fruit Basket

It’s not only domestic disruptions that are impacting domestic food prices. While the United States’ food supply appears remarkably self-sufficient – by volume, we only import 15% of our food – the majority of our fresh fruit and near majority of our fresh vegetables are imported. As of 2021, 60% of fresh fruit in the United States was imported, up from 30% in 1981. Put otherwise, imports play a tremendous role in US nutrition. 

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These fruit and vegetable imports overwhelmingly come from one region: Latin America. In fact, in 2023, 68% of US fresh fruit imports came from just five countries: Mexico, Costa Rica, Guatemala, Honduras, and Colombia. Nowhere is this dependence on Latin America more pronounced than with the banana: 98% of the US banana (and plantain) supply is imported from Latin America. Fresh fruit imports (in dollars) have increased by a 6.9% compound annual rate from 2014-2023. Nearly 70% of fresh vegetable imports come from Mexico, and that number has grown at a comparable 6.2% annually over the past 10 years. Latin America provides Americans the year-round access to fresh fruits and vegetables to which many consumers have become so accustomed.

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However, environmental degradation, the process through which the natural environment is compromised in some way, which reduces biological diversity and the general health of the environment​​, is heavily impacting farming in this region. According to the United Nation’s Convention to Combat Desertification, there are more than 2 billion hectares (4.9 billion acres) of degraded land in the world, of which 14% is in Latin America. In Mexico, which supplies the majority of fresh fruit and vegetable imports to the US, 72% of the land surface area has been affected by degradation. In Costa Rica, Panama, and Colombia, roughly 40% of the total land area has been degraded. The UN World Food Program lists the Dry Corridor (a region spanning Guatemala, El Salvador, Honduras, and Nicaragua) as one of the eight regions most affected by climate change. The Intergovernmental Panel on Climate Change maintains that climate change and continued land degradation make Central and South America particularly vulnerable to further decreases in crop yields, leading to widespread hunger and forced migration.

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What can be done?

The resilience and affordability of global food systems is at risk of considerable decline. There is no silver bullet solution to such a complex web of problems, but implementing regenerative agriculture is one promising ingredient. Regenerative agriculture refers to a set of practices that include minimizing soil disturbance, planting vegetative cover, increasing the frequency of crop rotation, and eliminating synthetic chemical use, among others. Its purpose is to restore soil health, water retention, biodiversity, and overall ecological function on farmland that has been degraded by decades of increasingly intensive conventional agriculture. 

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Regenerative agriculture has demonstrated the following impacts:

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• Sequester carbon in soils - Organic carbon in soils is nearly three times as abundant as atmospheric carbon, and soil depletion due to agriculture has accounted for roughly ¼ of all carbon emissions since the Industrial Revolution. Healthy soils can remove up to 1.5 Gt per year of carbon from the atmosphere.
• Restore degraded land - Building up the organic matter in soil can help retain water, nurture biodiversity, and reduce soil erosion, all of which assist landscape recovery and promote resilience.
• Produce healthy food - Preliminary evidence suggests that regenerative agriculture produces not just healthier soil but also healthier food. Regeneratively grown food has more vitamins and minerals than conventionally grown food.

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Adapting to increasing climate pressures means promoting resilience. The aforementioned impacts of water retention, soil health improvements, food health improvements, and biodiversity uplift all improve ecological stability through improved drought, flood, and disease resistance. This is important for the stability of vulnerable communities across the globe, US nutritional supply, and the affordability of fresh fruits and vegetables.

As Phil Lempert, a consumer trend-watcher and analyst, commented, “Trader Joe’s didn’t do a great job in sharing why the price went up … I wish we could bring the conversation to a broader place and really talk about the impact that climate change has on our food supply.” Sooner or later, investors, consumers, and market players will be forced into these wider conversations. The deleterious effects of climate change and environmental degradation on the global food system are fast becoming too great to ignore.