September 27, 2017

 

Asian meat, fish, dairy industries face investment risks

 

 

The Asian meat, egg , fish and dairy industries face a range of poorly managed sustainability risks that could derail returns. These include threats to food safety, public health, the environment and labour rights, according to the latest report of the investor initiative FAIRR (Farm Animal Investment Risk & Return).

 

The report, entitled "Factory Farming in Asia: Assessing Investment Risks", said that while the increasing meat demand in 12 leading Asia-Pacific markets looks like an attractive prospect for investors, the range of risks associated with meat production has the potential to significantly damage returns. 

 

For example, many companies, such as Yum! Brands have already suffered significant brand damage from food scares-particularly in China.

 

Specific issues include expired meat and rising foodborne illnesses such as E. coli. Beyond this, nutritional guidelines increasingly reflect health concerns related to eating too much meat and, in countries such as China and Australia, are being used to reduce meat consumption. At the same time, ageing populations across Asia may reduce growth in per capita meat demand.

 

In response, consumers are demanding, and manufactures are increasingly highlighting, products with healthy labels, including vegan and vegetarian products.

 

Public health risks

 

Major public health risks associated with the livestock sectors in the markets include overuse of antibiotics in livestock production, which is contributing to the growth of antibiotic-resistant bacteria in humans and animals.

 

China and India have both introduced national action plans to limit antibiotic use, which will affect livestock productivity. At the same time, viral infections and livestock epidemics are increasing in frequency and severity-with strains of avian and swine flu a key concern. These can result in significant livestock culls. For example, more than 35 million birds were culled in South Korea during 2016/2017, which depressed prices and lowered demand for the product.

 

Environmental risk

 

Environmental risk is another thing to consider by investors. The report said that beef and lamb have the highest greenhouse gas (GHG) emissions and water footprints compared with other proteins. Even chicken, the least carbon-intensive meat, generates 65 times more emissions per calorie produced than legumes.

 

This impact is starting to be reflected in new regulation. Water pollution from concentrated feeding operations is increasingly subject to higher regulation in China. In New Zealand, the rapid conversion of land to dairy operations is putting significant strain on local waterways.

 

In addition to the growing risks of direct regulation on pollution, there are concerns of price volatility and continuity problems in feed supply.

 

Animal welfare risk

 

The report noted that the prioritisation of animal welfare for consumers depends on the country. For example, there have been a number of recent news reports highlighting poor animal welfare practices in Vietnam, while in India animal welfare concerns are linked to religious and cultural preferences and fundamental to the structure of the market.

 

There is also growing momentum behind higher welfare farming in China. Elsewhere in Asia, healthy eating trends are driving a rapid increase in the production of vegetarian products, but from a low base, while animal welfare concerns are growing in importance for exporters.

 

Labor standards risk

 

With regards to labour standards risk, the report stated: "We expect forced labour risks to increasingly materialize for livestock and seafood companies that sell to reputation-sensitive customers, such as European importers or multinationals with operations in Asia".