Why farm animal welfare poses a material risk

More than 70% of antimicrobials are used in animals, with the majority deployed to prevent disease and promote growth.^[1] This is in part because suboptimal husbandry practices in intensive agriculture systems can allow diseases to spread at pace.^[2]

The cost of zoonotic outbreaks can be significant, as COVID-19 has demonstrated. The global economic bill for the pandemic is expected to exceed USD $12 trillion by 2024. Although the origin of COVID-19 is currently unknown, pandemics like swine flu and avian flu have been transmitted directly from livestock to humans. In fact, over half of all zoonotic diseases arise due to agriculture,^[3] and they are more likely to occur and spread in intensive livestock systems.^[4]

In addition, intensive animal agriculture drives disease risk indirectly through deforestation and the expansion of agricultural land use. The proximity of wild animals and farmed animals increases when wild habitats are invaded – and so does the likelihood of disease spilling over.^[5]

Furthermore, poor animal welfare also reduces animals’ growth and ability to reproduce.^[6] This can reduce productivity and lower food quality.

The effect of climate change on animal health 

Climate change will further increase the risk of poor animal health. For instance, higher temperatures will reduce productivity, animal welfare and fertility and increase disease susceptibility and mortality.^[7] Cattle are particularly dependent on outdoor grazing (compared to intensive pork or poultry production), exposing them to the risk of heat stress. Producers assessed by the Coller FAIRR Protein Producer Index might be particularly susceptible as high-yielding cows, as often found in intensive systems, are more vulnerable to high temperatures and other sudden variations in climate.^[8]

Overall, heat stress costs the US dairy industry around USD $897 to USD $1500 million per year in revenue and the US beef industry USD $369 million per year.^[9][10] See more on how climate risks drive cost and impact the profitability of animal protein producers in the Coller FAIRR Climate Risk Tool. 

The impact of regulation and consumer demand 

Over recent years, farm animal welfare issues have been transitioning to the mainstream, posing a growing material risk for producers that do not respond. Regulations and commitments by manufacturers and retailers are changing fundamental production systems of intensive animal agriculture. This in turn, increases the industry’s cost base and drives capital expenditures.

The OECD, cites concern over animal welfare as one of the main drivers of a meat-free dietary shift in high-income countries.^[11] In China, consumer interest in higher-animal-welfare products is driven by food quality and safety concerns,^[12] with 77% of Chinese consumers saying they would choose retailers offering higher-welfare pork.^[13]

Consumers and regulatory pressures have largely focused on cage-free egg and chicken production and the abolition of individual crates for gestating sows. Many initiatives have led to change, and previously underrepresented production systems such as aquaculture are now being scrutinised more closely.^[14] Companies risk losing their societal licences-to-operate, along reputational damage and loss of customers. Additionally, companies may encounter substantial operational challenges and cost implications if swift adaptations are required to comply with new regulations. Moreover, the adoption of voluntary welfare requirements by consumer-facing companies supplied by Index protein producers further underscores the need for regulatory adherence and proactive adaptation to evolving industry standards and consumer trends.

Recent animal welfare developments

• Under the Farm to Fork strategy, the EU plans to eliminate the use of cages for all farm animals and update minimum standards for animal transport and slaughter.^[15]

• In January 2022, France, Germany, Austria and Luxembourg banned culling of day-old chicks.^[16] Italy has passed an amendment to prohibit the practice by December 2026,^[17] and the European Commission is considering an EU-wide ban.^[18]

• Dutch supermarkets have pledged to shift to slower-growing chicken breeds by the end of 2023.^[19]

• The Humane League has filed a judicial review against the UK’s food regulatory agency for allowing the use of fast-growing chicken breeds.^[20]

• Companies including Burger King, Kraft Heinz, McDonald’s and Target have committed to a shift away from gestation crates.^[21]

• California, which consumes 15% of US pork, voted in 2018 to join nine other states in banning gestation crates for all pork sold, with the ban coming into effect in 2022.^[22]

• Sow stalls have been banned in the UK and Sweden and partially banned in the EU.^[23]

• In 2021, the World Organisation for Animal Health (formerly the OIE) released its first aquatic animal health and welfare strategy.^[24]

• Welfare activism targeting the aquaculture industry prompted Waitrose and Co-op to halt supplies, with video footage exposing poor practices at salmon farms.^[25]

Overview of animal welfare requirements of retailers and food manufacturers supplied by Index companies 

How we evaluate Farm Animal Welfare 

Based on consultations with animal welfare specialists, FAIRR believes that industry leaders need to foster environments that promote positive states for animals, allowing them to thrive and naturally express their behaviours.

For companies producing land-based proteins, FAIRR assesses animal welfare policies and company performance on a comprehensive set of issues, including confinement, routine mutilations, transportation, slaughter, environmental enrichments, use of higher welfare breeds, and assurance and certification schemes. For companies producing aquaculture, FAIRR assesses whether the company discusses animal welfare issues specific to aquaculture, disclosure of welfare monitoring metrics, progress and measures to improve welfare. 

The five freedoms of animal welfare and beyond 

Enhancing animal welfare is a key mechanism for reducing the ESG risks arising from animal production. Under the Index’s methodology, the minimum requirement companies are assessed on with regard to animal welfare is to have policies covering the Five Freedoms.

The Five Freedoms 

1. Freedom from hunger and thirst: By ready access to fresh water and a diet to maintain full health and vigour. 

2. Freedom from discomfort: By providing an appropriate environment including shelter and a comfortable resting area. 

3. Freedom from pain, injury or disease: By prevention or rapid diagnosis and appropriate treatment. 

4. Freedom to express normal behaviour: By providing sufficient space, proper facilities and the company of other animals of its kind. 

5. Freedom from fear and distress: By ensuring conditions and treatment that avoid mental suffering. 

Source: BII’s ESG Toolkit 

Companies are primarily focused on creating “neutral” states for animals, where they are free of pain, have sufficient air quality to breathe and have enough food and water.

Index companies’ awareness is growing, as recognition of the Five Freedoms has increased every year since 2019. In 2022, there is still a lack of enforcement and follow-through to safeguard animal welfare, as only 55% of land-based protein producers have policies that cover key welfare aspects.

In 2023, 35% of land-based protein producers state they take action if policies are breached. However, as 45% do not have policies covering crucial welfare aspects, the scope of corrective measures available to companies is limited and only 22% disclose the type of measures implemented.. Aquaculture companies generally outperform land-based protein producers, with all such companies establishing policies addressing crucial welfare aspects.