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IPCC’s Sixth Assessment Report is Red Flag to Investors in Food Sector

3 May 2022

The IPCC’s Sixth Assessment Report (AR6) has revealed that animal protein production is under significant and accelerating pressure from climate change – representing a significant material risk for investors. The FAIRR Initiative, an influential investor network supported by investors managing $52 trillion of assets, warns of an ‘Apollo 13 moment’ for the meat and dairy industry. FAIRR has published a new issue briefing for investors, following analysis of the IPCC’s findings.

“Investors will be concerned that the global animal agriculture sector could face an Apollo-13 moment – a near disaster that will take urgent innovation to survive – as the low-carbon transition forces investors to shift capital.” says Maria Lettini, Executive Director of FAIRR

Two reports published recently by the IPCC – the UN body for assessing the science related to climate change – have concluded that:

  • Livestock is the main source of agricultural greenhouse gas emissions – through enteric fermentation primarily, and also manure storage and deposition on pasture

  • Heat stress among livestock in a warmer world set to wipe 20% of the global value of beef production (-$38 billion) and 7% off dairy production (-$22bn) by end of century

  • IPCC finds “diets high in plant protein and low in meat, in particular red meat, are associated with lower GHG emissions. Emerging food-chain technologies such as microbial, plant, or insect-based protein promise substantial reductions in direct GHG emissions from food production.”

  • 10% of land currently suitable for major crops and livestock will be unsuitable by mid-century under most serious projections. Animals reliant on natural grasslands for food are particularly vulnerable

  • IPCC states that “Realising the full mitigation potential from the food system requires change at all stages from producer to consumer and waste management.”

Maria Lettini, Executive Director of FAIRR, said:

“Investors are already well aware of the regulatory and financial risks facing the livestock sector when it comes to climate, for example FAIRR has calculated that a carbon tax by 2050 would increase costs for beef companies by up to 55% of current average EBITDA. Now the science is clear that there is physical risk too, predicting that 20% could be wiped off the value of the beef sector by extreme heat stress in animals.

An Apollo-13 moment refers to the near-disaster on the Apollo 13 lunar mission, 52 years ago this month, when engineers had to help three astronauts reconfigure their CO2 filter system in order to ensure enough air for all three to survive the journey back to Earth. The sort of innovation required by the meat industry is likely to require a broad embrace of alternative proteins, with FAIRR analysis suggesting that alternative proteins could amount to 64% of the global protein market by 2060

According to the IPCC, the impacts of warming will differ across regions, but events negatively affecting livestock and agriculture – such as drought, heavy rainfall, and fire – will increase in frequency and severity. This chimes with recent findings from the Coller FAIRR Protein Producer Index, which found 7/60 companies analysed have reported climate-related financial impacts. For example, Tyson Foods’ (US) operating income decreased $410 million year-on-year in the first nine months of 2021 partly due to severe weather disruptions. BRF (Brazil) estimates changes in precipitation rates will result in annual losses of up to R$800 million.

Heat stress already costs the US dairy industry around $897 to $1500 million per year in revenue, and the US beef industry $369 million per year according to FAIRR’s research. The USDA this month also found unseasonable heat had contributed to likely increase in wholesale beef prices in the US of between 4% to 7%, and up to 5% for dairy prices.

The IPCC adds that the increase in heat stress in livestock is likely to be a particular challenge for large outdoor livestock producing nations such as Australia and Brazil. The report finds that for every degree of warming the average animal eats 3-5% less, harming productivity and fertility. The USA, UK and West Africa are projected to lose up to 17% of milk production by end of the century.