GLOBAL – Major dairy companies could lose up to US$23.7 billion in lost profits by 2030 due to an increase in climate-related costs, FAIRR has predicted.
The FAIRR Initiative is an investor network focusing on ESG risks in the global food sector. According to information on its website, it represents over US$70tn in combined assets.
Its prediction on climate change impact was made during the launch of a tool that seeks to give investors company-level data on how climate risks may impact businesses in the meat and dairy sector.
In the report, FAIRR presented a “2°C business as usual scenario” in which 40 livestock companies would suffer a 7% reduction in profit margins compared to 2020 levels, equating to US$23.7bn overall.
The scenario was created by FAIRR in partnership with IPCC scientists and models climate impacts in line with a 2°C global temperature rise by 2100.
“Potential hits to profits are driven largely by an increase in climate-related costs which are forecast to rise by over 9% on average,” FAIRR said in a statement.
“Climate change will impact agricultural production, contributing to higher feed prices, which account for 5% of the cost rise, with expected carbon taxes on emissions from livestock production making up 4%.”
FAIRR argues companies should be more transparent in the disclosure of information on their climate scenario analysis and improve their climate mitigation and adaptation strategies.
“As investors start to factor climate risk into their long-term valuations of livestock companies, the allure of investing in meat and dairy could be approaching an expiration date unless companies take action to address climate risk,” Jeremy Coller, chair and founder of FAIRR, said.
According to the report, pork and poultry giant Tyson Foods could see profits plummet by over $4.3bn in 2030 compared to 2020, resulting in a net loss with a profit margin of negative 0.9%.
Cal-Maine, the largest egg producer in the US, is forecast to see a profit margin of negative 13.1% due to a 15% cost increase from rising feed prices in 2030.
“These figures highlight the urgent need for meat companies to adapt swiftly, or pay the financial price with investors increasingly not willing to bear the financial risk of investing in these companies,” Jemmy Coller added.
Looking forward to 2050, the “2°C ‘Business As Usual’ scenario” showed that sector profits are set to fall by $38bn when compared to 2020.
The climate risk tool accumulates its data through the annual Coller FAIRR Protein Producer Index, which concluded at the end of 2021 that the sector is unprepared for the “decade of transition” on climate change.