Business models and strategies for the internalization of externalities in agri-food value chains

Abstract

Current food systems have significant negative environmental, social, and economic impacts. Externalized costs and benefits create false market incentives favoring less healthy and unsustainable options. Transitioning to sustainable agri-food systems requires that businesses internalize these externalities. Internalization of externalities (IOE) is often addressed through policy measures and regulatory initiatives. However, IOE can also be carried out through business models (BMs) and strategies which involve creating positive externalities, mitigating/preventing negative ones, as well as ensuring fair distribution of risks, costs, and benefits. Accordingly, sustainable and innovative BMs and strategies offer pathways to achieving IOE. This paper identifies existing sustainable and innovative BMs and strategies and explains how they can achieve IOE. Using an integrative literature review methodology, we reconcile both economics and business literature approaches. We subsequently carry out two levels of analysis including abductive coding and interrelationship evaluation. The paper explores the characteristics of BMs and strategies that address IOE, using the well-known concept of value and introduces a conceptual framework for categorizing business models and strategies for the internalization of externalities (BM4IOE). The article initiates a discourse on the role of BMs in the IOE within agri-food value chains and provides insights into how businesses can develop and implement models that effectively internalize externalities, thereby enhancing sustainability and driving innovation in the transition of agri-food systems.

Introduction

This paper analyzes existing sustainable and innovative business models (BMs) and strategies in the agri-food sector through the lens of externalities and proposes an integrative framework for the categorization of business models and strategies for the internalization of externalities (BM4IOE). Considering that current agri-food systems are responsible for creating significant negative environmental, social, and economic externalities, both globally and locally (IPBES 2022; IPCC 2022), the need to internalize these externalities has become increasingly important. The costs and risks of harmful food production, as well as the costs and benefits of healthful and sustainably produced food, are externalized (Mirzabaev and von Braun 2022), meaning they are not included in market prices and thus do not affect the decision-making processes of actors in food value chains (Rastoin 2022). Research estimates that if agri-food externalities are internalized globally, society could gain €4.9 trillion annually by 2030 and €9.1 trillion annually by 2050 (Gemmill-Herren et al. 2021).

Externalizing costs of harmful production and unhealthy food allows cheaper production of socially and environmentally unsustainable and unhealthy food, leaving little place for sustainable agri-food businesses to survive in highly competitive markets (Hendriks et al. 2021; Sipkens et al. 2014; Wbcsd 2021). For example, nitrate overuse, chemical pesticides, added sugar and sodium, refined grains, harmful fats, and unnecessary plastic packaging reduce production costs and/or increase production, sales, and profits for certain agri-food businesses, while generating negative environmental, social and health externalities for society (Stuckler and Nestle 2012). In addition, while some environmental externalities such as greenhouse gas emissions are very well-known, many environmental, social, and, health-related externalities are more complex and less apparent, such as the loss of ecosystem services due to the lack of biodiversity, illnesses, and loss of land use.

It should be noted that externalities are not always negative. Sustainable agri-business models may create positive externalities and mitigate or prevent negative ones. For example, in eco-innovative business models, agroforestry practices lead to biodiversity promotion, soil conservation, and carbon sequestration, as well as creating aesthetic visual appeal. In light of this, the cost of the creation of positive externalities should also be internalized rather than being solely borne by such farm or agri-businesses, since these positive externalities can benefit multiple actors in the value chain and society at large. However, the farmer or agri-business may not be rewarded with direct incentives for these contributions since the market does not fully account for these positive externalities and thus, arguably, the cost of externalities is not fairly distributed throughout the different stages of the value chain (Lord 2020; Sadovska et al. 2020; Sipkens et al. 2014; Wbcsd 2021; Zott and Amit 2007). Therefore, for there to be a transition to a sustainable agri-food system, both positive and negative externalities should be internalized.

Internalization of externalities (IOE) is “a process that, either through business models and strategies or regulatory policies, takes into account more complete costs and/or benefits in the composition of goods and services prices. This process may involve the reduction or prevention of negative externalities, or the creation of positive externalities, involving various actors of the value chain” (Abolhassani et al. 2024). Based on this definition, IOE requires that various actors—including the financial sector, policymakers, and businesses, understand externalities and design appropriate measures for internalization. Given the challenges associated with quantifying externalities and precise calculation of the true cost of food (KPMG International 2014) as well as the limitations of formal policies in achieving sustainable agri-food systems (Long et al. 2019), the role of BMs and strategies has become an essential area of research and practice. While we recognize that BMs and strategies need to be supported by policy for promoting sustainable transformation in the food system (Lord 2020), this paper focuses on the less explored role of BMs and strategies for IOE.

The BM perspective is particularly relevant in the context of IOE since it provides a holistic approach toward explaining how organizations within their value chain, create, deliver, and capture value (Zott and Amit 2007). As Evans et al. (2017) state, “sustainable value incorporates economic, social and environmental benefits conceptualized as value forms”. Likewise, the IOE approach aims to create social, economic, and environmental value for diverse stakeholders and in addition, to ensure the fair distribution of costs, risks, and benefits by incorporating the costs and benefits of externalities into the decision-making process (Folkens et al. 2020). As a result, we can observe a certain potential for shared goals between BM for sustainability innovation and BM4IOE. In light of this, BMs for sustainability innovation are expected to be areas rich with examples and case studies in which IOE may be found.

While BMs and value chain interrelations have been considered in reducing negative externalities and creating social and environmental value, the role of BMs in IOE in agri-food value chains has not yet been explored. To tackle this gap, this paper initiates a discourse on the role of BMs and strategies in the IOE in agri-food value chains, and introduces the concept of “BM4IOE”. The main research question posed is: Which BMs and strategies allow the internalization of both negative and positive externalities (BM4IOE), and how? Considering that the role of BMs and strategies for IOE is an unexplored area of research, to answer the research question, a semi-systematic (integrative) literature review was conducted on the existing qualitative research of innovative and sustainable BMs and strategies. Through the first levels of data analysis and coding, this paper proposes an integrative framework of BM4IOE comprising five main themes of: IOE by product and process innovation, IOE by rearranging the value chain, IOE by measurement and accreditation tools, IOE by consumer/market recognition, and IOE by innovative financing. Associated categorizations of these five main themes are explained thereafter. In the second level of our analysis, the relationship between different themes and categories illustrates the necessity of a combination of BMs and strategies for a more comprehensive IOE.

Key concepts of BM4IOE

To position our research within the field of BM4IOE, we focus on the main interacting key concepts explored in this paper: business models and strategies, sustainability innovations, and their relevance to the internalization of externalities (IOE). The term “business model” has been conceptualized in various ways. However, there is a consensus in the literature that BMs can be seen as a rationale for how a company creates, delivers, and captures value for its customers and itself (Teece 2010). Similarly, IOE, defined in Sect. “Introduction” above, can create economic, environmental and social value, including a more fair distribution of value (positive externalities), or reduce and prevent negative externalities.

In this context, BMs for sustainability innovation act as drivers and enablers of sustainable values for multiple stakeholders, including society and the environment, while also capturing value for the organization (Bagheri et al. 2020). Unlike traditional BMs, sustainable BMs emphasize the importance of social and environmental value, beyond financial metrics (Bocken et al. 2014). Moreover, a sustainable BM also “contemplates value destroyed to realize the negative effect on society and environment” (e.g., depletion of resources or social dislocation), and “value uncaptured” (e.g., food waste/ loss) (de Pádua Pieroni et al. 2018; Goni et al. 2021).

Sustainability is an evolving process that originates from experimental innovations, during which gradual organizational transformation happens (Adams et al. 2016). This process often extends beyond the boundaries of a single actor or entity as interaction between value chain actors plays a crucial role in reducing negative externalities and creating social and environmental values (Pajewski 2020). As Evans et al. (2017, p.5) state, “Internalizing externalities through product-service systems enables innovation towards sustainable business models”.

Business strategy, meanwhile, refers to the dynamic of the firm’s relationship with its environment and the actions taken to achieve its goals and improve performance through the rational use of resources (López and Martín 2013). BM and business strategies are closely intertwined. “BMs combine all the core components of business strategies and operations that create and deliver value to the customers as well as to the firm” (Machiba et al. 2012). Importantly, organizations often employ a suite of business models rather than a single BM, as these models coexist and evolve together to address different strategic needs (Aspara et al. 2013; Ramon Casadesus-Masanell and Jorge Tarziján 2012). Changes in strategy may lead to adjustments in the BM, and vice versa, as they evolve together. Therefore, considering BMs and business strategy together provides a holistic view of how organizations create, deliver, and capture value and ultimately internalize externalities.

Methodology

The manner in which externalities are conceptualized varies across disciplines. Initially, the recognition of externalities and the more precise quantification of the true cost of food were addressed by economists (Barrett 2021) through numerous studies, measurement tools, databases, standards, and calculation methodologies for assessing, quantifying, and monetizing externalities (Sipkens et al. 2014). For calculating externalities, terms like “true cost”, “true price”, “external cost”, "real cost”, “true value of food”, “true cost accounting”, and “monetization” (Wbcsd 2021) are used in economic literature. However, IOE through BMs and strategies is a relatively unexplored and unconsolidated area. In the business field, externalities are often described with different terminologies. For example, positive externalities may be characterized as the “provision of ecosystem services” in environmental studies (Toro-Mujica et al. 2019) or “value for society” in business studies (Battisti et al. 2022). Given this fragmented landscape, an integrative semi-systemic literature review methodology has been selected, which aims to assess, critique, and synthesize the literature on diverse streams of research (in this paper, economics, with BM-related streams of research). This methodology can enable new theoretical frameworks and perspectives to emerge (Mahrool 2020). Data extracted from selected references were coded and categorized in the first level of analysis to identify the five main themes of the BM4IOE. In the second level of analysis, the interrelationships between categories and themes were examined for a more in-depth understanding.

Locating relevant research

Relevant research on agri-food businesses highlights a growing trend toward BMs that integrate social and environmental values alongside financial goals (Lynde 2020). Driven by stakeholders’ interest in sustainability and non-financial metrics (Bryson and Lombardi 2009), these sustainable innovations in BMs and strategies reduce and prevent negative externalities and respond to consumer demand for sustainable practices (Dhar et al. 2022; Vermunt et al. 2020). Consequently, studying the sustainability innovations of agri-food businesses provides insights into new pathways for more comprehensive IOE, benefiting both industry and society.

For locating relevant research, both global databases of Scopus and Web of Science were consulted, from 2000 (when the concept of sustainable business models began to gain academic attention), up to December 2023. These databases were chosen because they include indexed journals in the fields of business, management, accounting, economics, and social sciences in general. Two research queries were implemented as below:

In the research query 1, BMs-related were combined with internalization and other monetization terms, regardless of the agri-food sector (see Table 1). As expected, because the role of BMs in IOE has not been widely studied, fewer research items were found at this stage.

Table 1 Keywords and research query implemented in Scopus and Web of Science

In the research query 2, the aim was to identify qualitative research examples and case studies of BMs for sustainability innovation that could provide insights into how IOE occurs. To achieve this, a new set of keywords (see Table 1) was used specifically focused on the agri-food sector. This search sought to find case study examples of BMs and strategies for sustainability innovations that enable IOE within agri-food value chains.

Additionally, the forward and backward “snowball” method was implemented (Jalali and Wohlin 2012) together with reputable grey literature (e.g., reports from previous H2020 projects on the CORDIS database, FAO, OECD, reputable business press and consultancy reports, among others), related to the field. As a result of keyword searches and the use of backward and forward snowball methods, after review and refinements, 101 references were selected for data extraction and subsequent data analysis.

Inclusion/exclusion criteria

As mentioned above, the selected references include journal articles, book chapters, and conference papers found in Scopus and WOS from research queries 1 and 2. After removing duplicates, we conducted title, abstract, and keyword screening on all references. In the subsequent snowballing step, relevant reports and reputable grey literature were also included.

We noticed that references acquired from the research query 1 were predominantly focused on the monetization and assessment of externalities, including tools, formulas, and datasets, with fewer addressing BMs and strategies directly. At this stage, we selected references that analyze, explore, or present innovative business models with IOE potential, as well as those introducing technologies and policies that impact the business environment toward IOE. Although fewer references were directly relevant, the first query led to the identification of initial examples of business models and strategies with IOE potential, such as circular economy, short food supply chains, multi-stakeholder collaborations, impact financing, and social enterprises (see Fig. 1).

Fig. 1

Criteria of reference inclusion/exclusion

The initial list of BMs and strategies provided clear inclusion and exclusion criteria for evaluating references acquired from research query 2, as well as snowballing and grey literature, establishing a foundation for developing and refining the BM4IOE conceptual framework. References were excluded if they did not analyze, explore, or present an innovative BM that creates positive externalities and/or mitigates or prevents negative externalities, or if they were irrelevant to the monetization and assessment of externalities, or unrelated to technologies and policies affecting sustainable BMs strategies. Additionally, references were excluded if they focused solely on sustainability innovations in one stage of the value chain, or incremental changes, without collaboration among multiple actors in the process of IOE.

In the full-text screening, references that did not contribute meaningfully to the above-mentioned criteria were excluded. The flowcharts in Fig. 1 illustrate inclusion criteria in each steps of research query and number of included, excluded references in each decision point.

We ensured the divergence of references during the snowballing stage, in terms of: (i) the type of BMs (preliminary categories of BMs and strategies, found from Table 1 Research query 1), (ii) type of agri-food sector (SmartAgriHubs 2022), (iii) different value chain stage (TMG-Think Tank for Sustainability and WWF 2021), (iv) type of innovation (Adams et al. 2016; Bocken et al. 2014), (v) policy instruments affecting BMs (González-Eguino 2011; Mazaheri et al. 2022; Ren et al. 2018), (vi) collaboration partners and activities (Cholez et al. 2023), (vii) type of externalities (Baltussen et al. 2023, p.8), and (viii) different IOE approaches (FOODCoST 2023). Annex 1 shows the diversity of selected references for this paper.

Extracting data and coding

To facilitate data extraction from references, qualitative questions aligned with the research questions were designed as guidelines, ensuring a thorough and consistent review process that assessed all references on an equivalent basis:

• General description of the unique value proposition/solution offered by this specific reference. Describe how this specific case study or example of BM creates and delivers value for its customers, value chain members, or natural environment, and captures value for itself.

• Which actors/entities in the value chain of this specific BM are bearing the risk/cost and who receives the benefit? (if the reference is about a specific case study or example of BM)

• Describe the relevant contribution of the reference to IOE (if the reference is NOT a specific case study or example of BM).

• Is IOE somehow measured in this reference? If so, how?

Since the review criteria were defined broadly enough to cover diverse types of references, it was not expected that a single reference would completely cover or discuss all questions. Considering that IOE through BMs and strategies has not been adequately studied in either business literature or economic literature, the selected references, especially those that focused on specific types of BMs, did not explicitly use the term ‘IOE’. Therefore, the coding phase highly relied on the interpretive answers to the above qualitative questions, along with comments, explanations, observations, and direct quotations from the selected references.

Two-level data analysis

In the first level of data analysis, a multi-grounded theory was employed, which is an extended approach for data analysis and theory development, using multiple sources of data (e.g., empirical data from case studies, reports, projects, articles and theoretical references) (Goldkuhl and Cronholm 2010). This approach provides a dialectical synthesis between preexisting frameworks (e.g., existing categorization of sustainable business model innovation) while remaining open to emerging patterns during the analysis. By incorporating an abductive approach and using the MAXQDA tool for qualitative analysis, coding, categorization, and analysis were conducted.

Using the definition of IOE introduced above [in Sect. "Introduction"], first-order codes and subcodes were identified to capture instances of BMs or strategies. These BMs and strategies create positive externalities or mitigate negative ones while incentivizing the value creator and facilitating more comprehensive value capture for the immediate actor. The second order was a pattern (axial) coding which included “back-and-forth between data and theory iteratively”, leading to classification and categorization based on similarities between different BM examples (Gibbs 2012; Williams and Moser 2019). The five main themes of BM4IOE were proposed in this stage.

Finally, using theory match, the relationship between these themes was explained by the known concept of “value”, which is often used within business literature in relation to BMs. The three perspectives of “value creation and delivery”, “value measure”, and “value capture” clarify the themes and categories, leading to the creation of a novel concept and integrative framework for BM4IOE (Table 2).

Table 2 Result of open coding, axial coding, categorization, theme finding, and theory match

Considering that the research question aims not only to identify the BMs and strategies, but also to understand “how” these BMS and strategies enable IOE, while capturing the complexity, interconnectedness, and synergies of various BMs and strategies, the interrelation between the proposed categories was also analyzed in the second level of analysis. For the interrelationship analysis, the “code relationship browser tool” and “code matrix browser visual tool” of MAXQDA were used to analyze the co-occurrence of codes in the same reference [see Subsect. "Interrelation between themes and categories (second level analysis)"].

Results and discussion

This section explains the integrative framework for categorizing BM4IOE which resulted from the literature review and the first level analysis. Subsections detail each of the five main themes which are further broken down into categories for each theme. Each subsection offers practical guidance with concrete examples of BM4IOE, based on existing literature.

The final subsection discusses the interrelation between themes and categories resulted from the second level analysis.

Theme 1 IOE by product and process innovation within the value chain

In Theme 1 BMs and strategies use sustainability innovations in products, services, and processes to create social and environmental value, generating positive externalities and mitigating negative ones. In line with the definition of IOE used herein, the examples in Theme 1 represent innovations beyond organizational boundaries, affecting various actors across the value chain. Thus, the costs, associated risks, and benefits of these innovations are internalized by reducing costs, providing a new source of revenue, increasing efficiency, and reducing risk for organizations, as well as redistributing benefits of innovations among value chain actors. The Theme 1 categories and examples are explained below.

Circular economy business models:

Circular economy BMs are increasingly widespread and popular. They can be considered as a subset of sustainable business model innovations (Bocken et al. 2014; Lagrasta et al. 2021). They are defined as “the rationale of how an organization creates, delivers, and captures value by slowing, closing, or narrowing resource loops” (Oghazi and Mostaghel 2018) and are emphasized as one of the few BMs that prevent the creation of further unexpected externalities (Gupta 2016; Luo et al. 2020). They reduce negative impacts by minimizing waste through reuse and recycling. They make use of closed-loop systems, reintroducing by-products and materials into production chains, leading to positive environmental, social, and economic outcomes (Cavicchi and Vagnoni 2022; Lagrasta et al. 2021).

Circular BMs internalize externalities by generating revenue from waste and creating eco-sustainable products (Zilia et al. 2023). For example, grape pomace in wine production can be used to make grappa, while seeds, peels, and stalks can create organic packaging (Sehnem et al. 2020). Also, in olive oil production, olive paste can be repurposed for cosmetics (Donner et al. 2022). Finally, farm waste can be turned into fertilizers (Hong et al. 2022; Kowalski and Makara 2021) or biogas energy from compost and manure (Jamieson et al. 2020). In the particular example of biogas energy production from waste, Capozzi et al. (2021) and Celli et al. (2022) assessed its sustainability performance through life cycle assessments, while Klein et al. (2022) and McGrail et al. (2012) estimated the return on investment and proved its economic performance, through calculating the value of produced energy based on open market prices. Karlsson et al. (2017) have emphasized the feasibility of its implementation if waste volume reaches the necessary economy of scale, which is achievable through the collaboration among different farmers.

Optimizing resource use and creating closed-loop systems are other strategies through which circular economy BMs reduce business costs and internalize externalities (Zucchella 2019). For example, water–energy–carbon nexus systems in greenhouses use biomass to produce heat and warm water. CO₂ from the process is collected and reintroduced into the greenhouse to enhance plant growth, creating a cyclical process where plants produce more biomass, contributing to sustainability. Additionally, water conservation is achieved by collecting and reusing drainage water, resulting in significant savings in water, energy, and land (Cavicchi et al. 2022). Technology is crucial for optimizing resources, such as big data for modeling and calculating optimal resource use (Ciccullo et al. 2022) or high-tech packaging for extending shelf life (Pohlmann et al. 2020).

Closed-loop systems reduce input costs by shifting from linear processing to regenerative BMs (Baungaard et al. 2021; Gaziulusoy and Twomey 2015). These systems often use waste from one value chain as an input for another. For example, composting and generating biogas energy for other value chains have been widely discussed (Cavicchi et al. 2022; Jamieson et al. 2020; Klein et al. 2022; McGrail et al. 2012). Another example is the integration of beef, sugarcane, and corn enterprises, where manure from beef companies fertilizes corn and sugarcane fields, providing 70% of the fertilizer needed and saving on mineral fertilizer purchases. The corn produced also feeds cattle, improving productivity while reducing exposure to input price fluctuations. This integration mitigates negative externalities associated with poultry processing, such as the dumping of waste on vacant land, cropland, and into river water, along with other costs related to odor pollution and loss of water quality (Scare et al. 2018).

Recycling, upcycling, and zero waste concepts are additional strategies used by circular economy BMs to gain competitive advantages, reduce reputational risks, and receive higher market prices (Amaral and Orsato 2023; Sedlmeier et al. 2019). Examples include using recycled materials for packaging to minimize waste and conserve resources (Cavicchi and Vagnoni 2022), as well as establishing zero-packaging grocery stores where products are sold without disposable packaging, utilizing bulk bins and reusable containers (Beitzen-Heineke et al. 2017).

Circular BMs are sometimes only economically feasible if income from one chain supports the others. For instance, Celli et al. (2022) describe a project reducing expired food and landfill disposal through two innovations, (i) expired food reduction, and (ii) expired food energy chains. The first innovation prevents waste via communication and donations, while the second generates biogas from inedible food waste. Both are economically interdependent. Feasibility calculations for these chains are crucial. Many authors stress the need for innovative methods and new indicators, like the energy accounting method, to measure circular BM impacts (Briguglio et al. 2021; Cavicchi et al. 2022; Cavicchi and Vagnoni 2022).

Eco/ green innovation business models:

Eco-innovation and green BMs are both defined in the literature as sustainable business model innovations (Bocken et al. 2014) with considerable overlap. Eco-innovations are defined by the OECD as “the implementation of new, or significantly improved, products (goods and services), processes, marketing methods, organizational structures and institutional arrangements which, with or without intent, lead to environmental improvements compared to relevant alternatives” (OECD 2010). Similarly, Green innovation BMs are defined as “BMs which support the development of products and services (systems) with environmental benefits, reduce resource use/waste and which are economically viable. These BMs have a lower environmental impact than traditional BMs” (Fora 2010). In the agri-food context, they are seen to be a creative response to the constraints of modern agri-food development (Li et al. 2021).

According to Barbieri and Santos (2020), although these innovations focus on the creation of new products and production methods, incorporating eco-innovation is fundamental for a company’s BM development. However, this incorporation can only take place if there is a management system in place to accept such innovation, assuming the company invests in enhancing its ability to eco-innovate across products, processes, and value chains. Thus, it goes beyond organizational boundaries and requires a sophisticated combination of different types of innovation to make a change in the value chain from input to consumer, aiming to create economic and environmental win–win benefits for both the supplier and the customer (Machiba et al. 2012). For example, alternative protein sources like insect production for animal feed illustrate this approach where a combination of innovations and value chain rearrangement is needed. Research on the edible insect value chain in Brazil demonstrates its potential to promote sustainable agriculture and food security (Gomes et al. 2023). Similarly, conservation agriculture BMs, mostly used by small-scale farmers, enhance social well-being by improving farm quality of life, ecological well-being by enhancing soil fertility and carbon sequestration, and finally economic well-being by boosting productivity, cutting input costs, and reducing poverty (Dyck and Silvestre 2018). Urban agriculture provides another example by integrating soil-less solutions to reduce the consumption of water use in irrigation, waste, land use, energy consumption, and CO₂ emissions (Elbardisy et al. 2021).

Eco-innovation and green BMs play a crucial role, not only in mitigating negative externalities and creating sustainable value (García-Granero et al. 2018), but also in enabling organizations to capture significant value for themselves. Embracing environmental sustainability is increasingly becoming a strategic choice for companies looking to differentiate themselves in the market and enhance their brand reputation. For example, a BM presented its core value proposition as “zero-impact pizza”, emphasized respect for nature and the importance of healthy food (e.g., using local fresh produce, biodegradable products and sustainable facilities to avoid producing CO2) (Franceschelli et al. 2018). Similarly, “Fontanafredda,” a prominent Italian winery, established itself as a green brand, commanding higher prices for its products and reaping additional economic benefits (Gromis di Trana et al. 2020). Roos (2014) also noted that companies adopting green BMs secure more stable sourcing, achieve resource-efficient production, and strengthen their brand through sustainable practices, which are critical for their operation and business impact.

The profitability of eco-innovation and green BMs has also been extensively studied by articles found in our literature review. Some studies empirically demonstrate that sustainability activities in private enterprises contribute positively to long-term revenue (Isada and Isada 2014). However, concerns have been raised that farmers adopting green BMs may not earn sufficient income to fully compensate for their efforts, suggesting the need for subsidies to bridge this income gap (Gołębiewska and Pajewski 2018). To qualify for subsidies, some authors emphasized the need for precise KPIs (e.g., labor productivity, vital resource usage, soil maintenance, output quality, and revenue) to examine the sustainability impacts of these practices (Hong et al. 2022).

Health-adjusted products and service

Health-adjusted products provide positive externalities for society and the environment and prevent or mitigate negative externalities, while enhancing income through higher prices and improved brand reputation (TMG-Think Tank for Sustainability and WWF 2021). For example, plant-based foods in healthy products generally result in lower negative externalities compared to animal-based products (Pieper et al. 2020). These products help reduce diet-related diseases like obesity and diabetes, resulting in lower healthcare costs and better public health outcomes. Healthier populations are also more productive, with fewer sick days and higher work performance (Eosta et al. 2017).

Sustainable products, such as whole foods, vegetarian foods, organic products, sugar-free items, and organic products, are seeing ever-increasing consumer demand. Businesses focusing on health can use differentiation strategies to attract health-conscious consumers and potentially command higher prices for their products (Dagilienė et al. 2021).

However, challenges remain regarding both the affordability of healthy diets and consumer knowledge. The minimum costs of a healthy diet are approximately double the global poverty level income, with estimates indicating that 3 billion people cannot afford it (TMG-Think Tank for Sustainability and WWF 2021). This constitutes a significant barrier to creating BMs that can deliver affordable food, while at the same time prioritizing healthy food as their core value proposition. The lack of trustworthy and transparent information about healthy food is another barrier. One study showed that the majority of Europeans find eating healthy challenging, and 90% of Britons would appreciate retailers simplifying a healthy diet (Beitzen-Heineke et al. 2017). Addressing these barriers is crucial to ensuring equitable access to healthy diets and avoiding false market incentives favoring less healthy or more polluting options. In the analysis of the true costs of sustainable and healthy food conducted by TMG, it was found that if positive externalities of healthy diets are not incorporated into the market price, sustainable and healthy producers cannot compete in the market. True cost accounting (TCA) was suggested as one of the solutions to increase the affordability of healthy food (TMG-Think Tank for Sustainability and WWF 2021).

Complementary products and services

Complementary services and products, including diversification and multifunctionality strategies, provide opportunities for agri-food businesses to diversify their revenue, increase awareness, and ultimately capture value for their organizations. For instance, in the fishery industry, “pesca-tourism” enabled fishermen to diversify their income, created jobs, and reduced fish stock pressure, thereby mitigating negative and creating positive externalities (Prosperi et al. 2022). Through agro-tourism, farmers generated new business lines by attracting tourists and leveraged their environmental stewardship, created new revenue streams and received incentives for their environmental management efforts (Pajewski 2020). Raising awareness of farmers’ roles in maintaining rural landscapes also reassessed the role of agriculture in society (Baum and Kozera-Kowalska 2019). In the Netherlands, a group of farmers cooperated with an environmental conservation group to promote agri- and eco-tourism as complementary services on their farms while raising awareness for threatened birds by featuring them on their labels and providing information during farm visits. The conservation group acted as independent monitors of environmental practices, lending the brand environmental credibility (Macewen et al. 2008).

Studies have also examined the coexistence of complementary sustainable activities, emphasizing their social, environmental, and economic benefits. For example, combining coffee and mushroom production created new revenue from mushroom sales and valorized coffee by-products (Lagrasta et al. 2021). Similarly, in the Italian Alps, the coexistence of the silvo-pastoral agroforestry system and tourism activities preserved cultural heritage, attracted ecotourists, and allowed numerous outdoor sports to be associated with cultural and gastronomic tourism, building integrated tourist packages for valley stays (Genovese et al. 2017).

Theme 2 IOE by rearranging the value chain

Collaboration with other value chain actors and/or rearranging the traditional linear value chain is a prerequisite for implementing sustainability innovations and IOE. Inter- or intra-value chain collaborations also provide new opportunities for innovations and create further positive or negative externalities. Some businesses emerge from value chain rearrangement, meaning they are born out of new opportunities, while established businesses must react to these changes by making structural adjustments to fit into the new narrative of the value chain and seize opportunities. Examples in Theme 2 include BMs and strategies that rearrange the value chain to provide opportunities for IOE, regardless of whether the rearrangement was the prerequisite for the sustainability innovation or the innovation which resulted from the rearrangement.

Sharing economy business models

The sharing economy was established as a new BM based on offering multiple users (i.e., individuals or companies) temporary access to underutilized resources, often through digital platforms (Li et al. 2019). Since its inception, the sharing economy phenomenon has revolutionized many sectors; for example, Airbnb and Uber are famous for introducing disruptive innovations in the hospitality and transportation industries. In agri-food systems, the sharing economy includes sharing transportation logistics between agri-food companies, which can reduce externalities throughout the chain and generate other positive externalities. Li et al. (2019) explained a new BM based on logistics operations that reduce externalities throughout the value chain. Collaborating with "flexible" logistics companies can turn logistics costs into opportunities, diminishing environmental impacts and generating business value, such as serving new markets.

Some other examples of the sharing economy in agri-food are online marketplaces and logistics platforms. Gaziulusoy and Twomey (2015) studied a peer-to-peer innovation “Open Food Foundation” that developed free and open software to support fair and sustainable food systems, functioning as an online marketplace and logistics platform. The platform’s core defining feature is transparency, allowing end consumers to see who grew their food, how it was grown, and how much the producers were paid.

Some studies highlight the potential of the sharing economy for creating further sustainable values. Litvinova et al. (2020) highlighted that digital platforms, in a narrow sense, are digital enterprises providing services to other agricultural producers. In a broad sense, they are ecosystems ensuring interaction between stakeholders. Information technology and software solutions embedded in the digital platforms determine the benefits for the participants, which are enhanced by network and synergistic effects. The introduction of digital platforms in the agro-industrial complex aims to solve government issues of ensuring transparency and efficiency in the management of industries, food, and environmental safety, as well as increasing the efficiency of production and sales activities for individual manufacturers (Sehnem et al. 2020).

On the other hand, authors like Verboven and Vanherck (2016) raise the sustainability paradox of the sharing economy. They studied a food-sharing online platform where home cooks share leftover meals. This study critiqued the food-sharing platform for potentially increasing consumption and negative externalities, showing that not all sharing economy innovations are inherently sustainable. Lagrasta et al. (2021), also noted that such innovations can increase social inequalities.

Short food supply chains and local markets

By reducing intermediaries and geographical proximity, short food supply chains and local markets provide the potential for IOE. These chains can be digital platforms that connect producers directly to consumers, reducing food waste (Amaral and Orsato 2023), or they can be physical local markets in regional, rural, or urban areas. Positive externalities provided by these BMs have been emphasized by many authors. Some examples include reduced transportation costs and associated negative impacts (Bocken et al. 2020), positive impacts on cultural heritage, revitalization of community and environment (Elbardisy et al. 2021), personal well-being (Wiśniewska-Paluszak et al. 2023), and a sense of place and environmental responsibility (Mehrabi et al. 2022). The efficient use of unique local resources, such as landscapes, has been raised as a positive impact of local production (Macewen et al. 2008). It has also been suggested that product origin and associated labeling not only provide awareness about the local area but also benefit the business brand (Fernqvist et al. 2022).

Drejerska et al. (2019) compared the benefits of local markets and indirect retail markets, highlighting that local markets provide greater flexibility for consumers, while large retail supply chains offer more convenient options and greater market penetration for producers. In this regard, some studies proposed the concept of hybrid BMs, which aim to promote environmental and/or social values without decreasing economic capacity (Díaz-Correa and López-Navarro 2018). Local food hubs are an example of a hybrid BM. Mejía et al. (2021) showed that well-coordinated local food hubs decrease transportation and GHG emissions, reduce food waste, and give direct market access to producers. Located in existing public facilities, these hubs help small farmers reach larger markets and underserved areas, with the hub concessionaire bearing transportation costs.

Community-supported agriculture

Community-supported agriculture (CSA) can be considered a rearrangement of the value chain where society actively participates in food production, as opposed to being relegated to the role of the final consumer. CSA has been recommended as an alternative to mitigate the environmental burdens related to agricultural production through the appropriate design of ecological systems and management of biological processes based on minimizing external inputs (Migliorini and Wezel 2017).

In CSA, consumers and farmers engage in a reciprocally supportive relationship by sharing the risks and benefits of food production. Consumers provide financial capital, and in some cases, social capital (network of relationships, trust, knowledge exchange and resources) necessary for running the farm. They also participate in farm decision-making by participating in board meetings where shareholders (consumers) have input into what they would like to see from the farm (Macewen et al. 2008). Thus, the coexistence of social capital is directly relevant to increasing social-ecological resilience and improving the economic viability of businesses by overcoming a lack of cooperation and scarcity of financial resources (Prosperi et al. 2022).

CSA fosters a sense of commitment to the social community engaged in it. Drejerska et al. (2019) emphasize CSA’s role in local economic development and fostering close relationships between producers and consumers, which imbues food with value beyond its physical form (de-commodification). Similarly, Elbardisy et al. (2021) highlight how CSA, in the form of shared urban farms, reconnects communities and enhances local economic resilience, fostering a sense of environmental responsibility and community loyalty.

A study by Zhen et al. (2021) carried out a monetized comparison between the negative externalities of CSA, organic farming, and conventional farming and demonstrated that CSA farms exhibit the highest positive and the lowest negative externalities, while conventional farms showed the lowest positive and the highest total negative externalities.

Collaboration, integration and networks

Considering that IOE is characterized by interaction between different stakeholders and the pivotal role of collaboration between members in the implementation of sustainability innovations (Dagilienė et al. 2021; Spicka 2022), this subsection discusses collaborations, integration and networks for the implementation of innovations and their IOE effects. Collaborations are explained in the form of vertical integration, horizontal integration, and a combination of both strategies.

IOE through collaboration is motivated by temporary or permanent resource ownership (Karlsson et al. 2017). For instance, Papoutsis et al. (2018) illustrate how multi-stakeholder collaboration, in the form of urban consolidation centers, reduces external costs of urban freight systems, targeting externalities such as pollution and infrastructure strain. This logistics innovation, known as “tethering”, leverages large supermarkets on city outskirts as fulfillment centers for retailers in less accessible urban areas, using public transport for freight delivery. Similarly, Karlsson et al. (2017) showed that single actors, such as family farms and SMEs, rarely have sufficient resources alone to innovate in areas requiring substantial investment in infrastructure, expertise, and knowledge. In this study, a network of farm biogas producers in Sweden collaborated to produce and transport raw biogas via a pipeline to an upgrading plant for conversion into vehicle fuel. Taron et al. (2023) and Hong et al. (2022) also highlighted the role of networks involving public and private actors, particularly in the biogas industry.

Vertical integration involves partnerships between actors at the same stage of the value chain, such as competitors, and is crucial for implementing sustainability innovations. For example, in waste valorization schemes (mentioned in Sect. "Circular economy business models:"), achieving economies of scale requires significant infrastructure investment. For instance, Jamieson et al. (2020), highlighted the vertical integration of rice farmers in a bioenergy system, where community collaboration led to new business activities like mushroom production and local retailing of mushroom burgers. Vertical integration was also mentioned by Klein et al. (2022), in the valorization of by-products. In the same vein, Núñez-Cacho et al. (2018) also discussed a system of relationships between suppliers and retail companies to facilitate the circular economy. In this case study, the supermarket Mercadona as a hub leader invited collaboration from its 2000 suppliers so that the waste generated in one activity served as an input for another. Shared values and common goals among like-minded partners are vital in vertical integration, as emphasized by many authors (Genovese et al. 2017; Pohlmann et al. 2020; Sebastiani et al. 2013; Zucchella 2019). Bowe and der Horst (2015) suggested that the positive externalities generated, and the negative externalities reduced through knowledge exchange between a corporation (brewery) and its suppliers (farmers) encouraged the best agronomic practices, resulting in increased income and reduced water extraction and greenhouse gas (GHG) emissions.

Horizontal integration includes collaboration between different but complementary actors in the value chain or intersectors. This form of integration, including consolidation, mergers, and acquisitions, is essential for implementing sustainability innovations, particularly circular economy BMs (mentioned in Sect. "Circular economy business models:") (Pajewski 2020; Scare et al. 2018). Close intersectoral collaboration is crucial for the circular economy’s success. According to Kowalski and Makara (2021), the implementation of a circular BM in the meat value chain required a consortium of companies. This horizontal integration covers the full lifecycle of products, from cereal cultivation through the production of industrial feed to poultry and pig breeding for the production of meat products. It also includes the use of meat waste, waste from consumed food, the production of meat and bone meal, and waste from pig and poultry farming for fertilizing purposes. Other examples of horizontal integration include collaboration between tourism companies and farmers in small communities, creating positive externalities (Baum and Kozera-Kowalska 2019; Macewen et al. 2008).

Internalizing governance and management externalities also requires the involvement of multiple stakeholders such as communities, businesses, governments, and intergovernmental institutions. Novkovic (2019) suggested that multi-stakeholder cooperatives internalize these externalities by incorporating diverse stakeholders into decision-making processes. Positive externalities from such cooperatives can outweigh the increased governance costs, as members collaborate in solidarity for common goals rather than short-term cost savings. However, worker ownership, which includes labor's participation in governance and promotes self-management, can lead to IOE but often reduces profit margins. Borzaga et al. (2014, p.6), argue that “giving precedence to people and labour over capital might preserve employment and quality of service to members and customers but at the expense of profit margins”.

Collaborative networks can also combine elements of both vertical and horizontal integration, where actors at the same stage of the value chain cooperate rather than compete, forming, cooperatives (Galdeano-Gómez et al. 2015). This enhances their ability to capture value by increasing bargaining power, influencing legal changes, securing financial support, and sharing marketing and distribution channels while generating positive social and environmental externalities through shared knowledge and capabilities. Cooperatives are mostly formed by small-sized organizations aiming to reach economies of scale and gain access to the market (Valentinov 2007). Out of this collaboration, new IOE opportunities can emerge due to their structural (legal) obligations to share benefits equally among their members. Cooperatives empower members so they can gain collective bargaining power, reducing unit transaction costs in production, marketing, and distribution, and mitigating risks like low farm prices (Cantino et al. 2019; Nganwa et al. 2010). Cooperatives facilitate business expansion by obtaining loans and providing necessary training and consultations. Individual farmers, by adopting a cooperative form of BM, might be able to access funds, donations, and other benefits from the government, as well as pool their land to gain size economies, and hence resolve the issue of land acquisition and start-up capital (Nganwa et al. 2010).

Associations, consortiums, and working groups also combine vertical and horizontal integration strategies, providing IOE opportunities. (Folkens et al. 2020) introduced an Agriculture Working Group (AGLW) case study advocating for financial support from the municipalities in its region. In this model, all agri-businesses and farmers in the municipalities receive year-round agrotechnical consulting services. The working group has led to a reduction in external water costs resulting in the harmonization of private and social costs which can therefore be considered IOE. The study concluded that collaboration among interest groups is essential to achieving sustainable agriculture and can promote more sustainable practices and help ensure the long-term health and viability of both the environment and the agricultural industry. Similarly, a study about an association of producers called “The Santa Catarina Association of Fine Wine Producers of Height” showed that, by promoting the production and consumption of fine wines, they subsequently create a market demand for high-quality products, which benefits the local wine industry. They also help to foster a sense of community.

Social enterprise

The legal structure of an organization and its obligations to its shareholders for prioritization of profitability may pose a significant barrier to IOE. In certain jurisdictions such as the United States, courts have even found that enterprises which prioritize certain sustainability actions have not carried out their duties to their shareholders under corporate law (Giagnocavo 2023). Social enterprises and other similar stakeholder interest companies, such as community interest/contribution companies, and cooperatives, lay the groundwork for a broader consideration of stakeholder interests and benefits. Social enterprise BMs can therefore be an efficient and effective way of creating social value by internalizing externalities (Gertner 2023). For instance, consumer-led initiatives [e.g., solidarity purchasing enterprises, and associations for the maintenance of peasant farmers (Díaz-Correa and López-Navarro 2018)] are sustainably born BMs where their value proposition is formed by aiming to prevent and mitigate negative social and environmental impact and create positive externalities (Gaziulusoy and Twomey 2015). The same may be true for the legal structure of cooperatives, which are member owned, and certain B-Corp initiatives. On the one hand, cooperatives may be oriented toward maximizing value for their members, while also pursuing social and environmental goals. On the other hand, B-Corps may be profit-maximizing enterprises, while still having obligations under their bylaws for social responsibility (Gertner 2023; Stubbs 2019).

Theme 3 IOE by measurements and accreditation tools

Actors involved in the food system lack sufficient information and knowledge on how to internalize externalities and the consequences of doing so (Riemer et al. 2022), which can lead to a failure in achieving sustainable food systems. Theme 3 encompasses diverse sustainability assessment and monetization tools designed for the precise calculation of the true cost of food by considering both positive and negative externalities. These tools not only assist businesses in their cost–benefit analysis, decision-making, control, and strategic planning to optimize and design the best value creation and delivery strategies, but also, most relevant to this paper, provide businesses with a reliable and transparent evaluation of real food costs (monetized value, which is the most understandable language of business). Real cost calculation reports provide the required information for an organization to communicate its sustainability performance, get recognition, and receive accreditation and innovative financing, which are discussed in Themes 4 and 5.

Sustainability assessment tools and databases

Life cycle analysis (LCA) is the most widely adopted approach for assessing and reducing the negative environmental impacts per unit of product (Barbieri and Santos 2020; Celli et al. 2022). There are also various complementary approaches, methods and tools for sustainability assessments including social life cycle analyses (sLCA), environmentally extended input–output analysis, environmental economics (Sipkens et al. 2014), environmental priorities strategies (ESP) (Zhen et al. 2021), travel cost method (TCM)(Baum and Kozera-Kowalska 2019), integrated profit and loss statement (IP&L)(Holcim 2020), and environmental profit and loss (EP&L) (Kering n.d.). The results of these assessments and methodologies also shape indicator databases such as the Tru-cost, the social hotspots, KANTAR, CIQUAL, and AGRIBALYSE databases which are widely used by researchers (Sipkens et al. 2014). The advancements in science and technology, along with the emergence of the aforementioned tools and methodologies, have not just made monetization calculations, such as TCA and true pricing, possible, but also more accurate.

Monetization and reporting tools

TCA has been introduced as a solution to measure the total true costs of companies’ activities, considering natural, social, human, and produced capital (TMG-Think Tank for Sustainability and WWF 2021). TCA aligns with the megatrend of sustainability, encouraging modern economic principles like the ‘economy for the common good’ or the ‘doughnut economy,’ and serving as one of many necessary tools to counteract the multidimensional crises global society faces today (Gemmill-Herren et al. 2021). Capital coalition case studies and the “True Value of Food” project by Wbcsd are leading multinational practices for assessing the true value of food (Hendriks et al. 2021; Wbcsd 2021). There is a consensus on the need for an integrated evaluation of externalities (Phelan and Jacobs 2016) and the need for the incorporation of TCA within a collaborative framework, where different stakeholder initiatives progress in harmony (El-Hage Scialabba et al. 2021; Gemmill-Herren et al. 2021). Although different actors have varying scopes for TCA assessments, agreement on the TCA baseline is crucial. “Networks are forming but they need to link up with other networks and scale up their efforts” (El-Hage Scialabba et al. 2021). Another consensus highlights the importance of considering positive externalities in TCA quantification. Without incorporating positive externalities into pricing, healthy and sustainable producers would not be incentivized (Santagata et al. 2020).

Agri-food businesses use these assessments not only to minimize negative impacts, enhance positive benefits across value chains, and manage their externalities (Hendriks et al. 2021; Serafeim et al. 2019; Wbcsd 2021), but also to increase awareness about food externalities (Fitzpatrick 2019) and that the impact they create reaches far beyond the boundaries of their operations, impacting diverse stakeholders and the environment both positively and negatively (Gemmill-Herren et al. 2021). These companies differentiate themselves as being responsible and pioneering in TCA reporting, thus improving their brand image. A report by Harvard Business School in 2019 found that at least 56 companies disclosed monetized information about their impact, four of which were in the food industry including, Algix, which offers full lifecycle impacts for two types of plastic; Arla Foods, which implements a full cradle-to-grave company assessment; Nestlé, which limited TCA to a subset of employment pathways; and Coca-Cola, which offered eight replenishment projects. Additionally, the Wbcsd (2021) reported international food companies such as OatWell®, Olam, and Danone, all of which included TCA as part of their value proposition.

Theme 4 IOE by consumer/market recognition

IOE by consumer and market recognition encompasses a range of strategies and tools that enable businesses to capture value for themselves and receive incentives from their sustainability innovations. Such efforts require companies to establish themselves as sustainable entities and effectively communicate this positioning. This may contribute to the development of a distinctive brand image, thereby increasing the willingness to pay premium prices and mitigating reputational risks associated with social and environmental degradation. Certifications and third-party accreditation tools serve as a means of communication with diverse stakeholders, whether for communication with consumers, or proof of compliance with environmental and social requirements issued by internal or external audits. Considering that regulation and policy affect the BM environment, compliance with regulatory requirements can be a value capturing strategy, by internalizing their positive externalities.

Communication and transparency with stakeholders

Many studies emphasize the crucial role of transparent communication with stakeholders as a core value proposition of the BM, particularly those focused on sustainability and ethical practices. For example, Mercuri et al. (2021) highlighted the role of blockchain-based BMs in enhancing communication and trust with stakeholders through traceability, security, and non-manipulability of information. The study showed that the absence of intermediaries not only reduces transaction costs but also speeds up the process of establishing relationships between a business and its stakeholders. In the agri-food sector, this transparency and safety are particularly valuable, ensuring that stakeholders can trust the origins and handling of their food products. Närvänen et al. (2021) discussed how communication with stakeholders is essential for creating, sharing, and sustaining beliefs and ideas, particularly in small-sized organizations like startups. These organizations use marketing communication and workshops to promote positive, creative, and ethical messages about their sustainable practices, such as food waste reduction. Unlike more common guilt-inducing strategies, these approaches focus on inspiring stakeholders and consumers to participate in sustainable practices, thus fostering a more supportive and proactive community around the business. Similarly, studies by Sebastiani et al. (2013) and Sedlmeier et al. (2019) focused on BMs and strategies with proactive engagement of stakeholders, not just disseminating information but co-creating the BM with stakeholders. In these studies, social supermarkets and slow food stores adopt proactive communication strategies that not only inform, but also engage the community, building a shared sense of responsibility and facilitating the formation of a strong network of like-minded individuals, which in turn supports the BM's aims.

Transparency and communication with stakeholders are being increasingly supported by the adoption of reporting and disclosure regulations, coupled with certification standards, which indirectly foster IOE. For example, environmental, social, and governance (ESG) reporting serves as a medium of communication and transparency to stakeholders, particularly investors. It involves businesses disclosing their ESG practices and performance to demonstrate their commitment to sustainable and ethical operations. Moreover, there is a growing awareness of business externalities, prompting stakeholders such as NGOs, civil society groups, communities, and workers to actively protect their interests. Additionally, businesses, industry organizations, and NGOs have introduced voluntary certification schemes as a means of self-regulation (KPMG International 2014). This presents an opportunity to integrate the true value of food into food and agri-business reporting and investor communication, leveraging capital markets to promote sustainable food businesses and systems (Wbcsd 2021). Many organizations, including EOSTA (Eosta et al. 2017), OATWELL (True Price 2015), OLAM (OFI 2024), Kering (Kering 2024), and Holcim (Holcim 2020), have already incorporated TCA and other social and environmental impact measurements into their formal reporting systems to communicate their social and environmental externalities to stakeholders.

The process of IOE through voluntarily implemented certification schemes includes financial gains, consumers’ willingness to pay a premium price, entering new markets, e.g., exporting to foreign countries, gaining competitive advantage, differentiating the brand, and the ability to collaborate, hire, and work with the ‘right’ networks (da Rocha Oliveira Teixeira et al. 2023; Dagilienė et al. 2021; Fernqvist et al. 2022; Zilia et al. 2023). Certification schemes allow organizations to capture value for themselves and communicate effectively with their stakeholders. For example, Isada and Isada (2014) conducted an empirical analysis supported by a case study, demonstrating how certifications provide benefits and differentiation for both producers and the industry. Certified companies that address social issues, while creating positive externalities, receive high social praise and achieve sustainable competitive advantages. Similarly, Hong et al. (2022) highlighted the role of certification in increasing the export volume of farm products for domestic and international markets through statewide implementation of organic farming. Stubbs (2019) also discussed the motivation behind adopting the B-Corp certification scheme: “Certification is a means to codify practices and signals to internal and external stakeholders, enhancing the organization’s credibility in economic and social motivations”, which helps businesses attract the “right” employees who align with B-Corp values.

Although certifications are essential, particularly for small companies to compete and sell to large retailers, there are significant criticisms reflecting concerns about the alignment of certification practices with genuine sustainability objectives, as well as issues related to the accuracy and transparency of reported compliance costs. For instance, Jones et al. (2011) argued that major food retailers primarily promote sustainable consumption to further their commercial interests. Their strategies prioritized efficiency gains across economic, social, and environmental aspects rather than focusing on preserving ecosystems and reducing resource consumption. Additionally, a study by (Ragasa et al. 2011) on the Hazard Analysis and Critical Control Points (HACCP) certification revealed that reported firm-level expenditures do not accurately reflect the actual costs, and findings indicate a substantial underestimation of reported costs.

Corporate social responsibility (CSR) is another communication measure companies use to increase transparency (Oginni and Omojowo 2016). CSR practices enhance the quality of agri-food products, leverage competitiveness for entering international markets, and build customer loyalty (De Chiara 2021). The importance of CSR communication in shaping consumers’ positive attitudes and behavioral intentions is well-documented (De Chiara 2021).

Compliance with regulatory requirements

The ways in which BMs internalize externalities and capture value for themselves and stakeholders are affected by regulatory environments and state actions. They influence the BM ecosystem through policies and regulations in the market, for example, those that aim to restore, preserve, and enhance ecosystems upon which agriculture is dependent [e.g., Common Agricultural Policy (CAP) support] (Baum and Kozera-Kowalska 2019; Bocken et al. 2020). As such, optimal government intervention might involve the establishment of institutional frameworks that enable proper incentivization and bargaining among parties involved in IOE (Helbling 2022). According to Buttel (2003), regulation mainly refers to state (national or subnational government) practices aimed at supervising and controlling private economic activities to accomplish social goals such as ensuring competition, reducing externalities, promoting fairness, and ensuring health and welfare. Regulatory prohibitions, such as fines, taxes, company closures, or remediation, affect BMs' value capturing. For instance, in a study by (Dagilienė et al. 2021), plastic bag prohibitions, waste sorting obligations, packaging regulations, and limited use of sugar were enforced by the German government, compelling retailers to provide sustainable products to consumers. In another study, non-compliance with specific hygiene rules for food of animal origin resulted in company fines and closures (Drejerska et al. 2019).

On the other hand, market incentives, stemming from regulatory initiatives rather than the direct dictating of specific behavior, significantly modify price signals, thereby indirectly affecting the BM environment. Market incentives encourage producers to engage in appropriate behavior, directly affecting how organizations capture value through subsidies, tax exemptions, access to investments, and contracts [e.g., (Baum and Kozera-Kowalska 2019; Klein et al. 2022; Macewen et al. 2008)].

Theme 5 IOE by innovative financing

IOE by innovative financing refers to value capturing strategies to receive funds, investments, and other types of financial resources or support for sustainability innovations that create positive externalities and prevent or mitigate negative ones. Currently, both the public and private sectors provide venture capital which plays a crucial role in addressing externalities and promoting sustainability innovations in the agri-food sector. However, successfully capturing value from innovative financing necessitates rigorous measurement and third-party evaluation to obtain the required accreditations. Given the nature of funding sources and investments, agri-businesses must adopt specific value creation and measurement strategies to meet the criteria for securing these funds, investments and support.

Bank financing and private investing

Investors and financial institutions are increasingly looking to support businesses that demonstrate a commitment to sustainable practices (KPMG International 2014). Particularly for banks disclosing their ESG information, the sustainability profile of their investee is of great importance to determine the sustainability risk of their investment (Krantz and Jonker 2024). The United Nations Environment Programme Finance Initiative (UNEP FI) requires its participants within the financial service sector to integrate environmental risks into their credit risk management procedures (Sipkens et al. 2014). A wide range of financing initiatives are available at European, national and regional levels [e.g., see the list of initiatives offered by Cunha et al. (2021, p.3822)]. Applicants need to meet conditions and demonstrate their sustainability impacts such as through socially responsible investing, environmental, social and governance investing, eco-investing, green investing, and ESG investing which are central for financial institutions nowadays. Private bank investors also require accreditation in order to reduce their risk of investment. In this regard, the measurement tools for calculating externalities introduced in Theme 3 (IOE by value measurement) provide the necessary information for investors. However, the point has been raised that most of these investing funds actually seek risk-return profiles that are equivalent to those of conventional venture funds (Gertner 2023).

Considering that agri-food businesses are mostly small-sized organizations with insufficient financial structure (Paoloni et al. 2023), and the fact that investing in sustainability innovations are “substantive risky investments” (Scrase et al. 2009), the necessity to access alternative investment sources and finances has become even more relevant for capturing value from innovative BMs. To improve access to financing for sustainability innovation, the European Investment Bank’s Advisory Service recommended three types of innovative financing models suitable for small-sized agri-food businesses (Gaziulusoy and Twomey 2015; Verbeek et al. 2019).

First, crowdfunding is becoming increasingly popular as a source of capital and investment (Gaziulusoy and Twomey 2015). It allows individuals to support sustainable practices in the agri-food sector by funding specific projects. Entrepreneurs benefit by accessing funds from like-minded supporters rather than traditional financial institutions (Bruton et al. 2015). This direct financial support aligns with IOE because it encourages businesses to account for and mitigate their environmental impacts, thus incorporating these considerations into their financial planning and operations (Ciccullo et al. 2022). For instance, Bettervest, a German platform, funds energy efficiency projects through small investments from many individuals, who receive returns based on project energy savings. This approach not only benefits investors and businesses financially, but also contributes to environmental preservation by reducing harm. Second, mini-bonds encourage collective responsibility and collaboration in managing environmental and social impacts. This collaborative approach supports IOE by fostering financial structures that reward sustainable practices and accountability. For example, in 2016, the Italian cooperative “Faro Società Cooperativa Agricola” issued mini-bonds, demonstrating their ability to attract finance in the agri-food sector. Similar mini-bond markets exist in the UK, France, Spain, Germany, and Norway (Verbeek et al. 2019). Third, risk-sharing financial instruments such as micro-credit systems, pre-financing, impact funds, and impact investing models all incentivize organizations according to their compliance with mitigating social and environmental externalities, according to the required quantity defined by the investor (Gaziulusoy and Twomey 2015; Verbeek et al. 2019).

Interrelation between themes and categories (second level analysis)

Among the BM4IOE categories identified in our review, collaborations, integration and networks, monetization tools, communication and transparency, and circular economy business models were among the most frequently mentioned in the literature [Annex 2]. Given that the research question seeks to both identify the BMs and strategies and understand “how” these enable IOE, capturing the complexity, interconnectedness, and synergies of various BMs and strategies, the interrelation between the proposed categories was deemed necessary. To capture their relationship, a “code overlap” analysis was conducted to examine the co-occurrence of categories in each reviewed reference (Table 3). This analysis demonstrated that the categories of BM4IOE introduced in the framework are not mutually exclusive, and their co-occurrence underscores the necessity of a suite of BMs and strategies that work in tandem. Below the highlights of the co-occurring categories are explained:

Table 3 Co-occurrence of categories in each reference and binarized frequency of categories

“Collaboration, integration and network” and “Circular BMs” are the most frequently co-occurring categories in the reviewed references. It can be deduced that the implementation of the circular economy is complex and exceeds the capacity of individual companies, meaning a holistic view incorporating a relationship with other value chain actors is necessary. Collaborations play a pivotal role in the implementation of sustainable innovation in pursuit of the IOE within the context of the reviewed references. Our results highlight the importance of the diverse types of collaborations in the implementation of sustainable innovations and BM4IOE in the agri-food systems. Our results are in alignment with Geissdoerfer et al. (2017, p.1219) that emphasize the role of collaboration in implementation of sustainable business models: “sustainable business model is a simplified representation of the elements, the interrelation between these elements, and the interactions with its stakeholders that an organisational unit uses to create, deliver, capture, and exchange sustainable value for, and in collaboration with, a broad range of stakeholders.” Similarly, Evans et al. (2017) highlighted mutual value creation among stakeholders, suggesting that collaboration is a key mechanism through which sustainable value is co-created. Examples of collaborations, integrations, and networks varied significantly in terms of formality. Some were characterized by contractual and legal obligations, while others were informal collaborations with no binding commitments (mentioned in Table 2). Although circular BMs are categorized within Theme 1 (Innovation in product and process), this does not preclude their potential to contribute to value chain reconfiguration and rearrangement in the value chain (Theme 2). The same holds true for other categories of BMs and strategies discussed within the context of IOE by innovation in product and process such as eco/green innovations, complementary products and services, as well as health-adjusted products. Different types of value chain rearrangements for the successful implementation of innovations in products and processes are also evident in Fig. 2. The red triangle in Fig. 2 shows that value is created and delivered by product and process innovation, and rearrangement in the value chain, as well as the most implemented value capture strategy is consumer/market recognition.

Fig. 2

Relationship between themes

Table 3 also highlights the great relevance of the “Monetization tools” with both “Communication & transparency for stakeholders” and “Bank financing and private investing”. Brand reputation and higher income associated with such reputation, as well as access to innovative financial resources, are dependent on the availability of measurement and monetization tools. For example, receiving accreditation through certification and third-party entities requires sustainability measurements and monetization tools, which serve to both improve reputation and enable access to innovative financing. The higher co-occurrence of these three categories within the same document suggests an interrelatedness among them. This triangular relationship is also more evident in Fig. 2, the blue triangle.

The necessity of “Technology” is transversal in all categories, while the role of technology in IOE, particularly in promoting circular economy BMs, is paramount. Technologies are employed to convert waste materials into valuable products or processes, such as bio-based energy resources, utilizing by-products from agri-food waste. Prolonging the shelf life of fresh produce is also a requirement of technology. Additionally, in communication and transparency for stakeholders, advancements in agricultural digitalization revolutionize economic relations within the industry by integrating digital technology and platform solutions. These solutions optimize business processes and management through data-driven insights, enhancing efficiency and decision-making validity, while creating transparent and trustworthy information for stakeholders. The benefits accrued by participants in digital platforms are further magnified through network effects and synergies, underlining the pivotal role of technology in fostering sustainability and circularity.

Conclusion

The IOE through BMs and strategies in agriculture is a nascent and unconsolidated field of research bringing together disparate areas of study. Although sustainable BMs and sustainability innovations in BMs could be a solution for mitigating negative externalities and providing positive social, economic, and environmental externalities (Dyllick and Hockerts 2002; Verboven and Vanherck 2016), not all such BMs necessarily play a role in IOE. It is not clear from the literature which sustainable businesses can be considered as BM4IOE.

In this regard, by integrating the value perspective of BM and strategies within the lens of IOE, this paper addresses the research question of “Which BMs and strategies allow the internalization of both negative and positive externalities (BM 4 IOE), and how? “ To answer “how” identified BMs and strategies achieve their IOE goals, we identified examples of BMs and strategies that externalized externalities in the literature and extracted categories which explain how they did so and how they are interrelated. These categories shaped the BM4IOE framework and consist of five main themes, including IOE by product and process innovation, IOE by rearranging the value chain, IOE by measurement and accreditation tools, IOE by consumer/market recognition, and IOE by innovative financing [see Fig. 3]. The rationale and relationship between these themes are explained using the common business concept of “value”:

• Value creation and delivery encompass product and/or process innovations accompanied by diverse rearrangements in the value chain. The implementation of new or significantly improved products and/or processes such as the circular economy, eco-innovation, green innovation, healthy adjusted products, and complementary products or services, requires transformation of traditional, linear value chains and their rearrangement. Examples of such rearrangement include the sharing economy, short food supply chains, community-supported agriculture, collaborations and social enterprises, which not only support innovations but also foster further opportunities. These BM4IOE aim to decrease negative environmental impacts, optimize resource use, reduce waste, and conserve natural resources. Additionally, they create new revenue streams for the BM, reduce costs, and enhance organizational reputation.

• Value measurement encompasses measurements and accreditation strategic tools including monetization and accounting tools, along with other sustainability assessments and indicators that play a vital role in IOE. They serve a dual function, (1) contributing to decision-making and cost/benefit analysis for the selection and control (feasibility calculation) of the value creation and delivery strategies and (2) providing trustworthy information to obtain the necessary recognition which is crucial for value capturing. Although numerous studies and initiatives in the field of economics and accounting for monetizing the true cost of food have been performed to reduce market price distortions, the absence of an integrated reporting system leads to diverse interpretations and, in some cases, fails to accurately portray the real sustainability performance of businesses. This can inadvertently create false incentives. Our study also showed a significant relationship between monetization and measurement tools, innovative financing, and consumer/market recognition.

• Value capture by BM4IOE is not limited to new sources of revenue or cost reduction. Agri-food businesses can also increase awareness about externalities and be incentivized by (1) receiving recognition from consumers and the market and (2) facilitating access to innovative financing. Our results indicate that capturing value is challenging without effectively communicating the value of externalities. Companies aim to comply with regulatory requirements and convey their value creation to stakeholders and consumers. They use various methods, such as certifications and corporate social responsibilities, to increase their brand reputation. Being recognized as a company that does not externalize its negative externalities is socially and environmentally responsible (i.e., positive externalities) not only raises awareness about these externalities, but also influences consumer demand and their willingness to pay premium prices for sustainable products. Additionally, this recognition reduces perceived risk among diverse stakeholders, facilitates access to various types of innovative financing, and may lead to better financing conditions.

Fig. 3

Framework of BM4IOE with examples

Contributions, limitations, and future research

By initiating the discourse on BM4IOE, this paper highlights the importance of the design and implementation of BMs and strategies that internalize both negative and positive externalities, which result in a more equitable and sustainable distribution of costs and benefits. This discourse adds to the more common economic description of IOE and policy measures which are usually proposed to address them. The paper enhances our understanding of how various types of BM4IOE interact and illustrates the necessity of implementing a combination of them, or the use of a suite of IOE approaches. It also highlights the role of collaborations among diverse value chain stakeholders and emphasizes the importance of a holistic and systemic approach to IOE by BMs and strategies. These elements illustrate that system building is necessary for a more comprehensive IOE and for transforming agri-food systems toward sustainability.

In addition, it provides insights for agri-food strategic decision-makers/entrepreneurs, encouraging them to take into account IOE perspectives when developing their BMs. The examples and cases of agri-food businesses and innovations introduced in Fig. 3, showcase numerous BM4IOE and provide practical examples of diverse value capture and measurement methods. Given the technical, organizational, and financial barriers to accurately measuring externalities (KPMG International 2014)—such as the lack of robust methodologies, the complexity of administrative processes, and the high investment required for assessment, calculation, and reporting—IOE through BMs and strategies gain increased importance. Therefore, the examples of business models provided in Fig. 3 offer a more holistic perspective on how agri-food businesses can capture value for themselves by combining different types of business models and strategies.

This paper also contributes to the understanding of how policy measures can support BM4IOE. By analyzing the cases found in the literature and examples provided, we offer insights into how policymakers can shape business environments to foster responsible agri-food practices. The findings highlight the critical role of public policies—whether through incentivizing mechanisms, prohibitive or preventive regulations, or voluntary initiatives—in influencing business operations and steering them toward greater accountability for negative externalities (Lord 2020; González-Eguino 2011; Mazaheri et al. 2022). The paper underscores the importance of policies that enable businesses to overcome market challenges and seize opportunities for recognition and reward. Specifically, we argue that establishing standards for monetizing and reporting externalities, enforcing transparency regulations, and encouraging innovative financing solutions are essential for supporting BM4IOE. Themes 3, 4, and 5 in our results provide concrete examples of how such policy interventions can facilitate the adoption of sustainable business practices. This contribution aims to guide policymakers on what to prioritize in their agendas and how to effectively monitor and control the implementation of regulations.

In the integrative literature reviews, published articles, reports, and case studies from existing literature with various research objectives are analyzed. The business cases found in the integrative literature review were also not necessarily studied from an IOE perspective. So, typical barriers and lock-ins, which are often case-specific, were not fully considered, although some mention is made in the discussion of the Themes in the subsections under Sect. "Results and discussion" herein. Future empirical research using our proposed framework of BM4IOE could provide clearer insights into the success of IOE through specific business models and strategies and the barriers and lock-ins they may face. Additionally, quantitative data on the degree of IOE within the selected business models and strategies were unavailable. Future research is needed to compare the degree of IOE among the introduced categories of BM4IOE and to further understand how such BMs and strategies can be combined to create synergies. A more complete systems-oriented approach to BM4IOE in the agri-food value chains would help to clarify the transition to more sustainable and equitable agri-food systems.