Rethinking agricultural sustainability from a supply chain perspective

Sustainability is increasingly a market expectation that shapes consumer demand, investment decisions, and trade opportunities. Many associate agricultural sustainability with food labels such as environmentally friendly, organic, grass-fed, or locally grown. While these labels signal environmentally friendly production and/or alignment with community values, they also create a common misperception that sustainability is simply about what happens on the farm.

In practice, these labels often set requirements as to how farming should be done, placing the responsibility for sustainability on farmers. Yet research shows that even when sustainable products sell at a premium, farmers do not always see greater returns (Glover 2020; Boroushaki et al., 2025). So, where is the disconnect?

Supply chains: The missing middle

Like most industries, agriculture operates within complex supply chains. Beyond the farm-gate, processors, exporters, and retailers often dominate pricing, trading terms, and market access. Farmers, by contrast, retain only a small share of the final sale price (Matthews, 2015).

Genuine sustainability must go beyond environmental practices to encompass economic and social equity. Farmers need stable and fair economic returns to invest in better practices, support their families, and build resilient communities. In short, sustainability requires supply chains that share value with, and reduce volatility for, farmers.

From why to how: The role of contracts

Adequate and fair contract design is one pathway forward. Well-structured contracts can significantly improve outcomes for farmers by incorporating incentives for sustainable practices, compensation for disruptions, risk-sharing mechanisms, and better access to information (e.g., Federgruen et al., 2019; Zhang et al., 2023).

For example, Wens Foodstuff Group in China provided safety compensation to
farmers during the 2020 African swine fever outbreak, helping them to recover from losses (Minakami, 2021). Such mechanisms are particularly valuable when food chains face climate volatility, price shocks, and rising sustainability expectations.

Technology further strengthens these arrangements. AI-driven forecasting, on-farm monitoring, and digital traceability tools can provide early warnings about weather, pests, and market changes. For example, Land O’Lakes integrates pest prediction into farm systems to support disaster response and yield planning (Microsoft, 2025). These tools are most effective when paired with contracts and supply chains that ensure fairness, transparency, and trust.

Co-ops as a collective solution

When contracts fall short and farmers face too much pressure from big buyers,
agricultural co-operatives (co-ops) offer another model. By pooling resources, farmers reduce transaction costs and exert greater control over marketing, branding, and distribution.

New Zealand illustrates the scale of the impact of co-ops: the top 30 co-ops, most in agri-food, accounted for 12.5% of GDP in 2024 (Cooperative Business NZ, 2025). Successful examples such as Zespri and Fonterra demonstrate how co-ops can achieve global reach and brand recognition.

But co-ops also face structural challenges. Reliance on export markets, limited access to capital, and intense global competition can leave them vulnerable.
Zespri has faced recurring shipping and fruit quality issues (RNZ, 2022). Fonterra recently scaled back its global consumer business, selling its Mainland Group (Fonterra, 2025). Meat processing co-op Alliance is weighing plant closures and even a potential move away from its 100% co-op structure (Wallace, 2025), as it seeks to position products as premium offerings in international markets.

These pressures stem partly from co-ops’ member-owned structures, which can limit capital flexibility and create capacity imbalances. Strategic decisions around financing, governance, operations, and market entry are therefore critical. Studying co-op models from a supply chain lens (e.g., Qian et al., 2024; Qian and Olsen, 2022) provides insights into how they can finance and manage not only entry and but also sustainable growth, ensuring long-term value for their members.

Sustainability cannot rely solely on farmers, nor can it be reduced to purely marketing claims. It requires collective effort to redesign supply chains through
well-designed contracts, resilient co-op models, and innovative partnerships,
so that farmers are rewarded fairly. This calls for innovation not just in technology, but also in governance, finance, and coordination across the supply chain. Ultimately, for agriculture to deliver on sustainability, the challenge is not only adopting new technologies, but fundamentally rethinking how value is shared, risks are managed, and resilience is built across the chain.

References

Boroushaki, M., Olsen, T. L., & Zhou, Q. (2025). Green premiums or economic pitfalls? Unraveling the profitability puzzle of credence attributes in agricultural supply chains. International Journal of Production Economics, 289, 109718.

Cooperative Business NZ. (2025). New report shows co-ops and mutuals pack a punch, and keep prosperity close to home.  Retrieved 19 September from https://nz.coop/the-cooperative-economy-report-2025-release/

Federgruen A, Lall U, Simsek AS (2019) Supply chain analysis of contract farming. Manufacturing & Service Operations Management 21(2):361–378.

Fonterra (2025) Fonterra agrees sale of Consumer and associated businesses to Lactalis for $3.845 billion. Available at: https://www.fonterra.com/nz/en/our-stories/media/fonterra-agrees-sale-of-consumer-and-associated-businesses-to-lactalis.html

Glover, J. (2020). The dark side of sustainable dairy supply chains. International Journal of Operations & Production Management, 40(12), 1801-1827.

Kennedy, R. (2025) Co-ops last five times longer than limited liability companies. Available at: https://businessdesk.co.nz/article/primary-sector/co-ops-last-five-times-longer-than-limited-liability-companies-report

Matthews, A. (2015) Farmers’ share of food chain value added. Available at: http://capreform.eu/farmers-share-of-food-chain-value-added/

Microsoft (2025) Azure Data Manager for Agriculture. Available at https://azure.microsoft.com/en-us/products/data-manager-for-agriculture

Minakami, K. (2021) NIKKEI Asia: China's recovery from swine fever pushes up
international corn prices. Available at: https://asia.nikkei.com/business/markets/commodities/china-s-recovery-from-swine-fever-pushes-up-international-corn-prices

Qian, X., & Olsen, T. L. (2022). Contractual coordination of agricultural marketing cooperatives with quality provisions. Manufacturing & service operations management, 24(6), 3269-3282.

Qian, X., Zhou, Q., & Olsen, T. L. (2024). Financing and Farm-Gate Pricing Strategies for Agricultural Cooperatives with Cash-Constrained Farmers. Production and Operations Management, 33(8), 1641-1658.

RNZ (2022) Shipping disruption, quality issues challenge kiwifruit exports.
Available at: https://www.rnz.co.nz/news/country/478752/shipping-disruption-quality-issues-challenge-kiwifruit-exports-zespri

Wallace, N. (2025) D-Day looms for Alliance – and meat sector. Farmers Weekly. Available at farmersweekly.co.nz/news/d-day-looms-for-alliance-and-meat-sector/   

Zhang W, Gao L, Zolghadr M, Jian D, ElHafsi M (2023) Dynamic incentives for
sustainable contract farming. Production and Operations Management
32(7):2049–2067.