Investors Warn Asian Factory Farms Risk ‘Financial Food Poisoning’ of Global Food Supply Chain

  • Use of antibiotics in Asian chicken and pigs projected to increase over 120% by 2030 - despite global push to reduce antibiotic use in livestock.
  • Three years after tainted meat scandal in China – new research says poor Asian food safety and environmental standards pose major risks to chains like McDonalds, KFC.
  • 19% growth in Asian meat demand by 2025 projected, driving deforestation due to animal feed. China’s demand for animal feed is responsible for 35% of Brazil’s soybean production.
  • “Threats could revolutionise how we buy food” says FAIRR founder Jeremy Coller – citing use of barcodes scannable by mobile phones to buy eggs in Taiwan.

LONDON--()--A major new report has warned that global pensions and savings funds could face a serious bout of ‘financial food poisoning’ due to poor standards of food safety, antibiotic use and environmental management in the Asian meat, dairy and seafood sector.

“Simply put, a failure to reform the Asian meat and dairy industries in areas like food safety, could spell a nasty bout of financial food poisoning for global investors. Investors must step up to the plate.”

The report from investor network FAIRR and specialist consultancy ARE (Asia Research and Engagement) highlights OECD predictions that Asian meat supply will grow 19% by 20251, and urges investors to treat the rise of intensive factory farming across Asia with extreme caution. The report finds:

  • Asian factory farming is booming: Its growth is fueling a predicted 19% growth in Asian meat demand with Chinese meat and feed producers such as New Hope Group and Wen’s Group now among the ten largest animal feed manufacturers globally. In addition, half of seafood in Asia is now produced in intensive factory farms. However, Asia’s meat, seafood and dairy industries face a range of badly managed sustainability risks including food safety, antibiotic overuse and environmental risk.
  • Antibiotics: The World Health Organization has declared the rise of antibiotic resistant superbugs one of ‘the biggest threats to global health today’. Despite this, Asia is predicted to increase antibiotic usage in chicken and pigs by 129% and 124% respectively. China already consumes almost half the world’s antibiotics.
  • Food safety: Exactly three years after the supply of expired meat from Shanghai resulted in a $10.8 billion loss of market cap for McDonalds and Yum! Brands Asia is still beset by food safety scandals such as dioxin-tainted eggs in Taiwan.
  • Environment: China’s demand for animal feed is responsible for 35% of Brazil’s soybean production, driving deforestation. Meat production is very greenhouse gas (GHG) intensive and Asian producers could be exposed to growing low carbon regulation, including the introduction of a new of carbon pricing scheme in China. Ruminant meat (beef and lamb) produces on average 280 times more emissions per calorie than legumes.
  • Alternative protein opportunity: Excellent investment opportunities are emerging as innovative Asian companies create sustainable food products and China’s new dietary regulations encourage reduced meat consumption. Leading meat substitute producer Quorn, owned by Asian food giant Monde Nissin, reported unprecedented global growth in the first half of 2017 with sales up 19% worldwide. The FAIRR report also cites innovations such as a Taiwanese biotech company using QR codes to help consumers check the quality of eggs.

Jaideep Panwar, Manager of Sustainability & Governance at Dutch pension giant APG Asset Management Asia said:

“Today’s research reminds investors to keep a close eye on the long-term risks of food assets in Asia. Antibiotic resistance is a serious global health risk with long-term potential economic consequences. The evolution of what are now early-stage domestic regulatory moves in Asia, supplier conditions introduced by international brands and import restrictions in response to the misuse of antibiotics in animal production can impact the productivity of Asian producers and their access to markets. Investors will assess the ability of companies in the meat supply chain to position themselves ahead of these risks.”

Jeremy Coller, Founder of the FAIRR Initiative and CIO of Coller Capital, said:

"Simply put, a failure to reform the Asian meat and dairy industries in areas like food safety, could spell a nasty bout of financial food poisoning for global investors. Investors must step up to the plate.

“Investors have a big appetite for Asia’s animal protein sector. But growth is driven by a boom in factory farming which tends to mean more emissions and more epidemics, abuse of antibiotics and abuse of labour. All risks to returns.

“It’s exactly three years since McDonalds and KFC reeled from a $10.8bn loss of market cap due to the expired meat scandal in China. But lessons have not been learnt. Far sighted investors are looking to alternative proteins for future growth, with the likes of Asian-owned Quorn growing 19% in the first half of 2017.”

Lauren Compere, Director of Shareholder Engagement at FAIRR member Boston Common Asset Management said:

"As active investors in Asia, we see both the potential and the pitfalls of the animal protein sector in Asia. The 19% growth predictions and global supply chain make the sector seem an appetising prospect, but that is not the full story. Growth in Asia is driven by the rise of intensive factory farming and that has led to generally poor standards of food safety, animal welfare and environmental management. Given the global footprint of the Asian meat sector that puts returns at risk for investors here in the US and across world markets."

Melissa Brown, a partner at Hong Kong based Daobridge Capital said:

"Few issues are as politically sensitive in Asia as food safety. And yet, far too many food sector equities have been priced as if ESG risks don’t matter and that good risk management won’t be recognised in the market. This report makes it clear that the ESG issues afflicting factory farming in Asia are material and growing. It’s time for long-term investors to get on the right side of this trade."

Stuart Palmer, Head of Ethics Research at Australian Ethical Investment, said:

“Population growth, urbanisation and rising incomes in Asia have resulted in a mass shift from traditional farming to industrial farming. But the model is broken. From antibiotics to animal feed, the inputs that Asian factory farms rely on to do business are proving catastrophic for public health and the environment. Global investors are exposed to these risks in myriad ways and in multiple sectors through investments operating in and outside of Asia. It is crucial that investors understand the rapidly evolving Asian food landscape in order to safeguard the value of their investment portfolios and to support development of sustainable food production and consumption models.”

FAIRR’s Asian Factory Farming report also discusses risks in areas such as labour rights, animal welfare and the level of livestock epidemics in the region. This includes the outbreak of avian flu in South Korea in 2016/17, which resulted in culls of more than a fifth of the poultry population, reducing the egg-laying hen population to a 12-year low. The report also shows that all four Chinese and Thai companies assessed by the Business Benchmark on Farm Animal Welfare in 2017 were ranked in its bottom two tiers.

It is just over 18 months since FAIRR released its landmark report ’Factory farming: Assessing investment risks’, which highlighted 28 ESG risks facing the global factory farming sector. That analysis opened the flood-gates on investor concerns in this area and since its launch investors representing over $3 trillion of assets have participated in FAIRR activities. This has included engaging with over 36 global food multinationals on issues such as antibiotics and the sustainability of their protein supply chain.

Notes to editors

For more information or for exclusive interviews with Maria Lettini, Director of FAIRR, please contact:

About FAIRR

The FAIRR Initiative is a collaborative investor network. It aims to raise awareness of the material impacts factory farming and poor animal welfare can have on investment portfolios, and works to help investors share knowledge and form collaborative engagements on these issues. www.fairr.org

About ARE

Asia Research and Engagement (ARE), based in Singapore, works with financial institutions, companies, and civil society organisations to understand and communicate the financial relevance of sustainability and governance issues. ARE provides specialist research, consultancy and engagement services to help these organisations reach their goals.

FAIRR investor members include: Acrux Partners, ACTIAM, Active Earth Investment Solutions, AEGON Asset Management, Appleseed Capital, Auriel Capital Limited, Australian Ethical Investment, Aviva Investors, Barrow Cadbury Trust, Boston Common Asset Management, Callidus Capital Corporation, Calvert Investments, Christian Super, Clean Yield Asset Management, Coller Capital, ColorStone Co.,Ltd, Cornerstone Capital, Cruelty Free Super, Dana Investment Advisors, Dignity Health, Domini Impact Investments, Equity Investment Corporation, Etho Capital, Farmland LP, Green Century Capital Management, Health Foundation, ICCR, IFM Investors, Impax Asset Management, Industriepartner Capital, Joseph Rowntree Charitable Trust, Man Group, Neuberger Berman SRI Team, Quantum Financial Planning LLC, Robeco, Scotiabank Wealth Management, Sonen Capital, SRIC South, Strathclyde Pension Fund, Stray Dog Capital, Sturgeon Ventures LLP, Swift Foundation, The Bard Family Trust, Treebeard Financial Planning, Trillium Asset Management, Triodos SRI Fund, UFF African Agri Investments, Ultra Capital, VaR Capital, VegInvest Trust, Wellesley Group, Zevin Asset Management, LLC.

1 From 2013 levels

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