With just seven years to halt and reverse biodiversity loss, policymakers will begin ratcheting pressure on the agri-food sector to address animal waste, says Max Boucher, Senior Manager, Research and Engagements, Biodiversity at the FAIRR Initiative.
The agri-food sector is heavily dependent on healthy ecosystems, yet it is damaging the natural environment on which it relies. It is highly exposed to falling soil quality and access to clean water amongst others, and faces transition risks as market and regulatory instruments are introduced to protect biodiversity.
However, companies have been slow to address the growing crisis, which will become worse the longer they delay. Investors have generally found a lack of top-down vision from company boards, which could drive protection for nature and biodiversity through clear plans and targets.
The FAIRR Initiative, a collaborative investor network focused on the risks and opportunities of intensive animal agriculture, engaged with 10 pork and poultry companies to track progress on vital action to identify, assess and respond to nature-related issues around manure and animal waste management. While the engagement found some signs of progress, there is still a very a long way to go.
Uncovering the scale of meat sector mess
Livestock farming produces 3.1 billion tonnes of nutrient-rich manure every year – four times the volume of human sewage. US slaughterhouses, which still operate under 1970s regulations, are responsible for 27% of nitrogen discharged into waterways by US industry. Too often, the animal waste’s nitrogen of phosphorous is lost to the environment. It is a vastly exceeded planetary boundary and a key driver of the 50% of freshwater biodiversity loss attributed to food systems.
While the need for change is evident, FAIRR’s Waste & Pollution engagement with the pork and poultry sector found only pockets of action to mitigate the risk from nutrient pollution, or better yet – to capture the full economic value of this circular source of fertilisers. These actions were usually driven by local authority initiatives and litigation rather than by any consistent strategy to recognise the risks and take action to minimise them.
The need to plan and build for best practice, instead of merely meeting regulatory minimums, is becoming increasingly urgent. Governments are showing signs of addressing the industry’s contribution to the issue with increased regulation, or as in the case of the Netherlands considerable cuts to herd size, which may mean companies are forced to respond with urgent capital expenditure and be subject to write-downs on poorly planned assets.
For example, six of the 10 companies engaged by FAIRR had water quality risk assessments, but all treated the issue as one of regulatory compliance rather than a possible cause of biodiversity loss and damage to community health.
Given this is a vertically fragmented sector, very few companies were able to discuss the risks in their value chains and most only had a basic understanding of the impact beyond their own facilities. The exception was US-headquartered Hormel Foods, which showed some willingness to improve, saying it aims to include all third-party pig suppliers in its water quality risk assessments within two years.
The lack of information beyond companies’ own gates was also reflected in poor visibility on the use of their own waste. While all companies said some manure and sludge from their own farms and processing facilities is spread on fields locally, there is slim data on where waste goes. It was also clear there was little awareness of the pollution risk resulting from over-spreading and run-off into watercourses. Economic factors regularly trumped environmental concerns.
Turning waste to wealth
The pursuit of circularity – using animal waste to produce the crops that feed the animals – has seen some progress, driven in part by financial considerations. Number 1 and 2 pork producers by market share globally WH Group and JBS (also #1 poultry producer), as well as Yara (one of the largest makers of fertilisers globally) all said they see the economic opportunity in processing and pelletising the nutrient contained in agricultural waste, making it easier to transport and more accurately use as fertiliser on fields. The market for organic fertilisers is expected to grow by around 6.3% annually through 2032, creating opportunities for those companies willing to make the necessary capital investment. JBS almost trebled its investment in nutrient capture and cycling to US$28 million in 2022.
Meat and dairy production is likely to continue intensifying in the near term, further increasing the pressure its animal waste puts on water quality and biodiversity. As the risks grow, so too does the case for investor engagement on this topic – driving support on stronger governance, action plans and nutrient cycling in these value chains.
When talking to companies, FAIRR engaged in more productive and open dialogue by using concrete case studies on drivers of biodiversity loss —in this case water quality — than from discussing companies’ understanding of their exposure to biodiversity and nature-related risks. This could develop as the Taskforce on Nature-Related Financial Disclosures (TNFD) and Science Based Targets Network (SBTN) gain traction in the sector.
Investors also need to be aware of the difficulty of understanding if site-level examples of positive initiatives are driven by a company-wide strategy. They need to see beyond the window dressing and seek clarity on biodiversity and nature governance, and understand how this drives company-wide assessments of nature-related risks and opportunities, and the identification of priority areas for action and investment.
A mounting supply chain risk
Food production is deeply fragmented and, aside from a handful of outliers, companies tend to buy animals and feed from a wide range of smaller farmers and companies. This creates risks for businesses that don’t have full visibility over their supply chains, and findings of accountability in US courts have demonstrated the importance of investors pressing for the integration of suppliers in risk assessments.
Just last year at COP15, the Kunming-Montreal Global Biodiversity Framework was signed, committing countries to halting and reversing biodiversity loss by 2030 – a truly ambitious target. Specifically, they have agreed to halve excess loss to the environment of nitrogen and phosphorous, both of which are major components of manure and animal waste.
With just seven years to reach the target, governments and regulators will begin ratcheting the pressure on companies to act. Investors will want to know which have properly assessed the risks they face.
ACTIVE ENGAGEMENT, BIODIVERSITY, BIODIVERSITY RISK, ENGAGEMENT, FOOD WASTE, GLOBAL BIODIVERSITY FRAMEWORK, SBTN, SUPPLY CHAIN RISK, SUPPLY CHAINS, SUSTAINABLE AGRICULTURE, TNFD
With just seven years to halt and reverse biodiversity loss, policymakers will begin ratcheting pressure on the agri-food sector to address animal waste, says Max Boucher, Senior Manager, Research and Engagements, Biodiversity at the FAIRR Initiative.
The agri-food sector is heavily dependent on healthy ecosystems, yet it is damaging the natural environment on which it relies. It is highly exposed to falling soil quality and access to clean water amongst others, and faces transition risks as market and regulatory instruments are introduced to protect biodiversity.
However, companies have been slow to address the growing crisis, which will become worse the longer they delay. Investors have generally found a lack of top-down vision from company boards, which could drive protection for nature and biodiversity through clear plans and targets.
The FAIRR Initiative, a collaborative investor network focused on the risks and opportunities of intensive animal agriculture, engaged with 10 pork and poultry companies to track progress on vital action to identify, assess and respond to nature-related issues around manure and animal waste management. While the engagement found some signs of progress, there is still a very a long way to go.
Uncovering the scale of meat sector mess
Livestock farming produces 3.1 billion tonnes of nutrient-rich manure every year – four times the volume of human sewage. US slaughterhouses, which still operate under 1970s regulations, are responsible for 27% of nitrogen discharged into waterways by US industry. Too often, the animal waste’s nitrogen of phosphorous is lost to the environment. It is a vastly exceeded planetary boundary and a key driver of the 50% of freshwater biodiversity loss attributed to food systems.
While the need for change is evident, FAIRR’s Waste & Pollution engagement with the pork and poultry sector found only pockets of action to mitigate the risk from nutrient pollution, or better yet – to capture the full economic value of this circular source of fertilisers. These actions were usually driven by local authority initiatives and litigation rather than by any consistent strategy to recognise the risks and take action to minimise them.
The need to plan and build for best practice, instead of merely meeting regulatory minimums, is becoming increasingly urgent. Governments are showing signs of addressing the industry’s contribution to the issue with increased regulation, or as in the case of the Netherlands considerable cuts to herd size, which may mean companies are forced to respond with urgent capital expenditure and be subject to write-downs on poorly planned assets.
For example, six of the 10 companies engaged by FAIRR had water quality risk assessments, but all treated the issue as one of regulatory compliance rather than a possible cause of biodiversity loss and damage to community health.
Given this is a vertically fragmented sector, very few companies were able to discuss the risks in their value chains and most only had a basic understanding of the impact beyond their own facilities. The exception was US-headquartered Hormel Foods, which showed some willingness to improve, saying it aims to include all third-party pig suppliers in its water quality risk assessments within two years.
The lack of information beyond companies’ own gates was also reflected in poor visibility on the use of their own waste. While all companies said some manure and sludge from their own farms and processing facilities is spread on fields locally, there is slim data on where waste goes. It was also clear there was little awareness of the pollution risk resulting from over-spreading and run-off into watercourses. Economic factors regularly trumped environmental concerns.
Turning waste to wealth
The pursuit of circularity – using animal waste to produce the crops that feed the animals – has seen some progress, driven in part by financial considerations. Number 1 and 2 pork producers by market share globally WH Group and JBS (also #1 poultry producer), as well as Yara (one of the largest makers of fertilisers globally) all said they see the economic opportunity in processing and pelletising the nutrient contained in agricultural waste, making it easier to transport and more accurately use as fertiliser on fields. The market for organic fertilisers is expected to grow by around 6.3% annually through 2032, creating opportunities for those companies willing to make the necessary capital investment. JBS almost trebled its investment in nutrient capture and cycling to US$28 million in 2022.
Meat and dairy production is likely to continue intensifying in the near term, further increasing the pressure its animal waste puts on water quality and biodiversity. As the risks grow, so too does the case for investor engagement on this topic – driving support on stronger governance, action plans and nutrient cycling in these value chains.
When talking to companies, FAIRR engaged in more productive and open dialogue by using concrete case studies on drivers of biodiversity loss —in this case water quality — than from discussing companies’ understanding of their exposure to biodiversity and nature-related risks. This could develop as the Taskforce on Nature-Related Financial Disclosures (TNFD) and Science Based Targets Network (SBTN) gain traction in the sector.
Investors also need to be aware of the difficulty of understanding if site-level examples of positive initiatives are driven by a company-wide strategy. They need to see beyond the window dressing and seek clarity on biodiversity and nature governance, and understand how this drives company-wide assessments of nature-related risks and opportunities, and the identification of priority areas for action and investment.
A mounting supply chain risk
Food production is deeply fragmented and, aside from a handful of outliers, companies tend to buy animals and feed from a wide range of smaller farmers and companies. This creates risks for businesses that don’t have full visibility over their supply chains, and findings of accountability in US courts have demonstrated the importance of investors pressing for the integration of suppliers in risk assessments.
Just last year at COP15, the Kunming-Montreal Global Biodiversity Framework was signed, committing countries to halting and reversing biodiversity loss by 2030 – a truly ambitious target. Specifically, they have agreed to halve excess loss to the environment of nitrogen and phosphorous, both of which are major components of manure and animal waste.
With just seven years to reach the target, governments and regulators will begin ratcheting the pressure on companies to act. Investors will want to know which have properly assessed the risks they face.
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