TODAY’S STUDY: The Threats To Climate In Food Production

Coller FAIRR Protein Producer Index 2019

August 2019 (Coller Capital)

Executive Summary – Introduction

The age of man could, in fact, be defined by the chicken.

At any given time, there are nearly 23 billion domesticated chickens around the world. Humans consume nearly three times that number – 65 billion – every year.

Domesticated chickens have been part of the human diet for over 8,000 years. However, it is only in the last 60 years, with the birth of industrial farming, that chickens have become pervasive. The industrial chicken’s lifespan is five to nine weeks. These birds have been bred to gain weight rapidly on a primarily grainbased diet. As a result, they weigh four to five times what their ancestors did in the 1950s, and their bones have a unique chemical signature. They cannot survive without human intervention. Scientists have argued that these factors make chicken bones – ubiquitous and fossilised in landfills – a leading contender as an index fossil for a proposed Anthropocene Epoch.

The industrialisation of agriculture is not confined to chickens. Intensive farming – which prioritises feed efficiency and rapid weight gain – is now standard practice across all farmed species. It has helped to increase meat, egg and milk production by 140% since 1961, and make farm animals, led by cattle and pigs, the largest mammalian biomass on the planet. Farm animals now have 33 times the rapidly dwindling biomass of wild land mammals.4,i The rapid growth of this sector has transformed the availability and accessibility of cheap protein sources and resulted in economic and social benefits. However, these benefits have come at a steep cost: the sector is one of the primary drivers of the most serious environmental and social risks facing our planet and society (see case study). Global multinationals that breed, grow, slaughter and process livestock and fish are ultimately on the front lines of managing and mitigating these risks. The lack of scrutiny on the sector has meant that these companies have been allowed to scale their operations, markets and production volumes without clear controls. This creates systemic risks: not just for companies, but also their global food customers, investors, consumers and society at large.

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The FAIRR Initiative is working to leverage the power of institutional capital to effect change in the livestock and farmed fish sectors. One of our key research initiatives is the Coller FAIRR Protein Producer Index. This ranks 60 of the world’s largest protein producers on their disclosure and management of material environmental and social risks. The Index is the world’s only benchmark dedicated to profiling animal protein producers and showcasing critical gaps and areas of best practice in the sector.

The primary purpose of this Index is to enable and support investor decision-making on the protein sector. We hope investors will integrate the data and analysis on the performance of these global listed assets into their stewardship and investment decisions. The Index is also a benchmark to help animal protein companies assess themselves against their peers in the sector and improve their management and reporting of risks. Wherever possible, we have tried to contextualise our analysis to compare companies against their closest peers, based on business model and product composition.

Ultimately, what these companies produce ends up on the tables and supermarket shelves of consumers around the world. Global food companies, from McDonald’s and Nestlé to Walmart, procure their meat, fish and dairy from many of the Index constituents. The Index serves as a powerful engagement tool to help food companies work with their suppliers to minimise reputational and operational risks.

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The impacts of processing 70 billion animals every year for human consumption

Climate change: Livestock supply chains account for 7.1 gigatonnes (Gt) of carbon dioxide (CO2 ), equivalent to 14.5% of global anthropogenic greenhouse gas emissions.6 The biggest sources of emissions are enteric fermentation from cattle, feed production and manure storage.

Biodiversity loss: Livestock production “is the single largest driver of habitat loss”.7 This loss is incurred through direct land conversion: 80% of all agricultural land is used for grazing and to produce monocrops such as corn and soy for animal feed. Some of the world’s most biodiverse regions such as the Amazon and the Cerrado are at the centre of an aggressive agri-industrial expansion that threatens millions of native plant and animal species. Inputs into feed and animal agriculture, including fertilisers, pesticides and veterinary drugs, degrade local ecosystems and water sources. Finally, prioritising fastgrowing ‘competitive’ breeds has led to a significant erosion of genetic diversity, even within livestock and aquatic species.8

Antimicrobial resistance: More than 73% of all antimicrobials sold in the world are used in livestock and fish.9 For decades, protein companies have used antibiotics – including those critically important to human health – to help animals achieve slaughter weight and as a way to prevent infection from unhygienic crowded conditions. This indiscriminate use of antibiotics has increased the risk of drug-resistant infections, prompting the World Health Organization (WHO) to urge farmers to stop using antibiotics in healthy animals.10

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Food security: By 2050, it is estimated that the world will require 56% more crop calories, and additional agricultural land area equivalent to nearly twice the size of India, compared with 2010.11 The resource intensity of meat and dairy make them inefficient sources of calories and proteins. The livestock sector consumes around one third of global cereal production and uses 40% of global arable land. “Producing 1 kg of boneless meat requires an average of 2.8 kg human-edible feed in ruminant systems and 3.2 kg in monogastric systems.”12

Obesity and cancer: Various studies have linked the overconsumption of animal protein, especially red and processed meat, to a variety of non-communicable diseases. A British Medical Journal study of half a million Americans found the risk of dying from cancer, heart disease, stroke, diabetes, infections, kidney disease, liver disease or lung disease all increased with the amount of meat consumed.13 On average, consumers in OECD countries consume around 164 kg of red meat, poultry and dairy products each year – 450 g per day. In Europe, the average consumer eats over 180 kg of red meat, poultry and dairy products each year – nearly 500 g per day.14 This is approximately five times the amount recommended by most national dietary guidelines.15

Water use and pollution: One third of the fresh water that is used for agriculture today goes towards livestock, primarily to produce feed.16 Agricultural runoffs – from excessive fertiliser use in corn and soy feed farms to manure from animal farms – is overwhelming local water sources. According to the United States Environmental Protection Agency, manure is the primary source of nitrogen and phosphorous to surface and groundwater.17 The US is one of the world’s largest producers of beef, pork, poultry and dairy. Nitrate and phosphorus loads from animal and feed agriculture along the Mississippi River is thought to have created a the largest ever ‘dead zone’ in the Gulf of Mexico.18 This refers to overgrowth of algae from excessive nutrients that kills all aquatic life…

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Key Findings

The 2019 Index demonstrates that the vast majority of companies have yet to meaningfully address even the most basic sustainability risks. Thirty-nine (of 60) companies, valued at $175 billion and with combined revenues of over $116 billion, are ranked as high risk (worst performers) by the Index…

GREENHOUSE GAS EMISSIONS

• The 60 companies scored an average of 17% on managing greenhouse gas emissions.

• Forty-six companies (77%), valued at $222 billion and with revenues of $138 billion, are categorised as ‘high risk’ – i.e. they have little to no disclosure on greenhouse gas emissions targets across their operations and supply chains.

• Tyson Foods is the only company with a science-based target for emissions reduction. But it has yet to disclose some of the biggest sources of emissions, such as enteric fermentation, feed production and manure management.

• Seven companies have disclosed on-farm sources, including feed production, within their emissions inventory

• Companies are reporting losses linked to climate change. Australian Agricultural Company (AACo), Australia’s biggest beef company, lost over $100 million in 2018-19, partially due to extreme flooding, yet it discloses no climate change mitigation or adaptation strategies.

• A holistic strategy on climate management requires companies to go beyond setting targets: they must complete their emissions inventory to include all significant on-farm sources and demonstrate year-on-year reductions on absolute emissions across all three scopes.

WATER USE AND SCARCITY

• The 50 meat and dairy companies that have critical dependency on freshwater resources scored an average of 13% on managing water use.

• Forty-three companies (86%), valued at $211 billion and with revenues of $156 billion, are categorised as ‘high risk’, including 12 producers who provide no discussion on how they manage water use.

• Where companies do address water scarcity, these initiatives are focussed on their direct operations, with companies receiving average scores of 5% and 9% on water saving measures in feed and animal farming respectively.

• 12 meat and/or dairy companies have set specific timebound water use targets for their facilities, but only two companies, Hormel Foods and Tyson Foods seem to have targets that are ‘risk differentiated,’ i.e., based on local context.

DEFORESTATION & BIODIVERSITY

• The 50 meat and dairy companies exposed to deforestation risks in their soy and/or cattle supply chains scored an average of 8% on managing these risks.

• Forty-four companies (88%), valued at $229 billion and with revenues of $160 billion, are categorised as ‘high risk’, including 31 which provide no disclosure on deforestation.

• None of the 50 meat and dairy companies in the Index have a policy to address or mitigate deforestation that covers all regions in which they source soy and/or cattle.

• The US-China trade war is contributing to increased Chinese imports of Brazilian soy, intensifying deforestation rates in the Amazon, already up by 278% since last year.43,44

• 88% of Asian companies – potentially some of the largest soy buyers from Brazil – have no discussion on deforestation risks. This includes the eight Chinese conglomerates that produce pork.

• All 10 pure aquaculture companies are fully certified or working towards full certification by aquaculture certification schemes, indicating certification has become a core business requirement.

ANTIBIOTICS

• The 60 companies in the Index scored an average of 20% on responding to antibiotic risks

• Fourty-six companies (77%), valued at $250 billion and with revenues of $260 billion, are categorised as ‘high risk’, including 22 who have no policy on antibiotics use and do not disclose the quantities or types of antibiotics used on their farms.

• Just four companies - Bakkafrost, GFPT, Lerøy Seafood, Marfrig Global Foods – have committed to ending routine use of antibiotics in farm animals.

• McDonalds and Yum! Brands have recently committed to reducing antibiotics use in their beef supply chains. But Marfrig is the only beef company that has a policy limiting antibiotics use. McDonald’s and Yum! Brands purchase from at least 14 other Index companies, including JBS, Hormel Foods and Tyson Foods. Figure 16 77% of companies are ranked as ‘high risk’ on antibiotics

ANIMAL WELFARE

• Meat companies score an average of 22% on welfare commitments and even lower on third-party auditing and assurance of welfare (14%).

• Thirty-eight companies (75%), valued at $217 billion and with revenues of $201 billion, are categorised as ‘high risk’.

• Customers such as McDonald’s and Kraft Heinz have developed cage-free commitments, but Cal-Maine, one of the US’s largest egg producers does not have a policy to produce cage-free eggs.

• Only 53% of fish farming companies discuss the importance of animal welfare to the company.

• The discussion remains at a high-level as the discussion tends to focus on basic metrics such as stocking densities, housing conditions and reducing mortality rates.

• Mowi is the only producer to have some of its operations (in Scotland) certified by RSPCA Assured.

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WORKING CONDITIONS

• Fifty companies (83%), valued at $264 billion, do not discuss human rights due diligence processes to identify, prevent and remedy human rights abuses in business operations.

• No company discusses how it is meeting the UN Guiding Principles of Business and Human Rights.

• In the US, serious injuries to meatpacking workers are three times higher than the industrial average.

• Sixteen companies (32%) provide no disclosure of workrelated injury and fatalities.

FOOD SAFETY

• Forty companies (67%), valued at $250 billion, have food safety management certifications recognised by the Global Food Safety Initiative (GFSI), which indicates compliance with international food safety standards.

• 82% of companies headquartered in Europe and Russia have some level of certification, compared to only 57% of Asian companies.

• Only two of the four Chinese dairy companies have some operations certified by a GFSI-recognised scheme – which is significant given the focus on food safety in China.

SUSTAINABLE PROTEINS

• Fifteen companies (25%) show evidence of some work to diversify protein products to alternatives. In the last year, eight meat and dairy companies have introduced plant-based products or announced plans for plant-based ranges.

• Eleven companies have announced investments to grow their alternative protein portfolio. Maple Leaf Foods leads the sector, with £320 million invested in expanding alternative protein production..,

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