Bloomberg — Forty of the world’s largest livestock producers may collectively see profits fall by almost $24 billion in 2030 from 2020 levels, as a result of climate change, according to an estimate by a large investor group known as FAIRR.
The forecast reduction in profits mainly reflects a jump in feed prices and carbon taxes. The group of 40 companies could see profit margins fall by 7%. Those in North America, including Tyson Foods Inc. (TSN) and egg producer Cal-Maine Foods Inc. (CALM), will be among the hardest hit as profit margins fall by 11% on average, the data indicate. Other large meat producers such as Brazil’s JBS SA (JBSS3) and China’s WH Group Ltd. will also be affected, according to FAIRR.
The forecast is based on an assumption that average global temperatures will increase by 2C by 2100. Under this scenario, and without mitigation, half of the 40 livestock companies assessed would be operating at a loss in 2030.
”There’s a lot of value at risk,” said Maria Lettini, executive director of FAIRR, a nonprofit focusing on ESG risks in the global food sector with the backing of investors managing $70 trillion in assets. “We want investors to have a clear voice” when persuading meat producers to assess and manage the risks of higher temperatures on their supply chains and eventual profitability. FAIRR was founded by Jeremy Coller, chief investment of officer of UK private equity firm Coller Capital.
A recent report by the UN’s Intergovernmental Panel on Climate Change warned that it’s likely the world will exceed 1.5C of warming “in the near term.” Livestock producers are vulnerable because the supply of feed crops such as maize and soybeans can be affected by excess heat, drought and shifting rainfall patterns. Currently, only six of the 40 companies analyzed have carried out climate scenario analyses.
”Most companies don’t have a climate-scenario analysis,” said Tovia Rosner, who manages Allianz Global Investors’ Food Security Fund, which has $69 million of assets under management. “It’s something we’d definitely push for in our engagements.”
The potential hit to industry profits is driven mainly by higher climate-related costs, which are forecast to increase by over 9% on average, according to FAIRR. Of that increase, 5% relates to higher feed prices and 4% to expected carbon taxes on livestock emissions. The nonprofit suggests large meat and dairy producers can mitigate the risk by diversifying products, using alternative feed ingredients and tilting portfolios toward plant-based alternatives.
North American companies appear to be the most exposed to potential losses. Of six companies analyzed, profit margins would fall by 11% on average by 2030, driven by a 15% average cost increase that mainly reflects higher feed prices, FAIRR said. “One key finding is that North America will face higher impacts because of the price of maize,” said Simi Thambi, climate economist at the nonprofit.
The carbon-tax impact can be harder to pin down. No country has yet imposed a carbon tax on agriculture, though carbon-pricing mechanisms for emissions in other industries have become more popular. New Zealand, where half of all emissions emanate from agriculture, is among the first countries to propose a levy on agricultural emissions.
The FAIRR data represent “a comparison across scenarios that can help livestock companies and investors understand the uncertainty that comes with climate change,” said Lettini.
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