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COVID-19 intensifies investor scrutiny of meat producers' operating methods

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COVID-19 intensifies investor scrutiny of meat producers' operating methods

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Slaughterhouses and meatpacking facilities have become major hubs of new COVID-19 infections.
Source: Anom Harya/Moment via Getty Images

As the COVID-19 pandemic unfolds, more than 200 slaughterhouses operated by the world's biggest meat producers in the U.S., Europe and Brazil have emerged as leading hotspots for new infections. Thousands of workers have caught the virus, dozens of meatpacking plants have closed and at least one meat producer has been sued.

The coronavirus pandemic has exposed the frailties of the global meat supply chain like no other event in history. Between Jan. 1 and July 31, shares of Tyson Foods Inc.; Sanderson Farms Inc.; Pilgrim's Pride Corp., the world's biggest meat processor; and Brazil's JBS SA, and its rival, BRF SA, each plunged 30% or more. Meanwhile, the S&P 500 index rose 0.4% over that same period. Stung by those losses, some investors are pushing the meat-production industry to revamp aspects of its decades-old, low-cost, high-intensity model, which they consider increasingly risky and unsustainable.

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This is the first story in a three-part series examining increasing investor concern with the meat industry's links to public health and environmental issues.

"It's an opportunity that has unfortunately come out of tragedy," said Maria Lettini, executive director of FAIRR, an investor network whose members manage $23 trillion and that researches the financial risks of industrial animal production. "The silver lining is that the pandemic [has exposed] the very risks we've been speaking about for four years."

Surging meat demand in emerging markets and global growth forecasts ought to make investors optimistic. Instead, they have become more skittish. Asset managers such as BlackRock Inc. and banks such as BNP Paribas SA are fretting about the meat industry's links to climate change, while Nordea Asset Management in July pulled about €40 million from JBS because of the meat producer's alleged connection to Amazon deforestation. Other investors are now seizing the COVID-19 moment to push meat companies to address other problematic practices entrenched in their supply chains.

One little-appreciated risk is that the meat companies' crowded, rapid-production pig farms and slaughterhouses could spark a much broader wave of COVID-19 infections or even trigger a new pandemic. Another worry is the meat industry's role in the pollution of America's waterways. A third material risk is the meat industry's widespread use of antibiotics and the consequent rise in antibiotic resistance, which is rendering many frontline treatments useless.

"Those are the key issues we see as a fundamental risk to operations of meat processors," said Peter van der Werf, engagement specialist at Dutch asset manager Robeco, which has about €155 billion under management and portfolio exposure to the five biggest meat companies and six others. "At some point, those externalities will be priced in, and that will have very difficult cost implications."

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Much is at stake. As of April, about 3,000 investors owned shares in the 35 largest meat and dairy corporations collectively worth $228 billion, according to data compiled by Feedback Global, a U.K.-based nonprofit group. BlackRock, Capital Group and Vanguard were the biggest investors.

In addition, 200 banks provided $167 billion in loans to those 35 meat and dairy companies, according to Feedback. The top three bondholders were BlackRock, Vanguard and Allianz SE. Banks headquartered in the U.S., France and the U.K. provided just over half of the credit to these meat and dairy companies, totaling $91.8 billion in loans and $45.9 billion in underwriting over the past five years. BNP Paribas, Barclays PLC and JPMorgan Chase & Co. were the largest creditors.

On Oct. 20, S&P Global Ratings published a report describing COVID-19 as a wake-up call for food processors, especially those with meat facilities. It expects the pandemic to spark "more rigorous global industry standards over the next few years. In particular, we see the main push for change coming from government agencies and regulators seeking to reduce risks to the population from contagious diseases."

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Lawmakers are adding to the pressure. In May, Sen. Elizabeth Warren, D-Mass., co-sponsored legislation seeking to phase out mega-scale meat facilities by 2040. "Large factory farms are harmful to rural communities, public health and the environment, and we must immediately begin the transition to a more sustainable and humane system," said Sen. Cory Booker, D-N.J., who proposed the bill.

The European Union wants to tighten its rules too. In April, environment commissioner Virginijus Sinkevičius said large-scale animal production played a part in the coronavirus pandemic, with "strong evidence that the way meat is produced, not only in China, contributed to COVID-19."

In large-scale meat production, animals tend to be densely packed together indoors, have low genetic diversity and consequently experience chronic stress and reduced immunity. Respiratory viruses that enter such facilities have a greater chance of multiplying, mutating and recombining into novel strains. Between 1985 and 2010, when global pork production increased more than 80%, scientists identified 77 new pathogens on pig farms globally. None of the pathogens had been discovered in the animals before 1985, according to a study from the University of Manchester in the U.K.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

As COVID-19 continues across the globe, investors in meat production companies are slowly becoming aware of the risk posed by zoonotic diseases — infectious diseases that jump from animals to people. In June, the FAIRR investor network found that 73% of the world's largest meat, fish and dairy companies, with a combined market cap of $220 billion, were at "high risk" on seven criteria deemed vital to prevent a future zoonotic pandemic, such as animal welfare and antibiotic use.

The research "highlights for investors that factory farming is both vulnerable to zoonotic outbreaks and guilty of creating them," wrote Jeremy Coller, a British private equity executive and founder of FAIRR.

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Van der Werf of Robeco, which has loaned $5.7 billion to meat and dairy companies, according to Feedback Global, found the danger lurking on his doorstep. In the spring of 2020, animals at several industrial mink fur farms in the Netherlands contracted COVID-19 and then, in an alarming development, transmitted the virus to two farmworkers. A million mink were culled.

"It means the mink could also be a reservoir and pass the virus to humans later on," van der Werf said. "There should be more surveillance."

Those worries have been amplified in recent weeks. On Nov. 6, more than a quarter-million people in northern Denmark went into lockdown after it was discovered that a mutated variation of the coronavirus had infected farmed minks, leading to an order to kill 15 million of the animals kept on more than 1,100 farms. At a Nov. 5 press briefing, Denmark's prime minister, Mette Frederiksen, said the mutated virus posed a "serious risk to public health and to the development of a vaccine."

Some scientists are now calling for a more intensive monitoring system in the supply chains of big meat producers, which control the largest swath of animals and employ thousands of people at farms and slaughterhouses. In particular, they want improved COVID-19 testing in pigs, whose biology is similar to that of humans. The worry is that the COVID-19 virus could infect pigs, as it did mink in the Netherlands, then jump back to humans, exacerbating the current pandemic or sparking a new one.

In an interview, David Morens, senior adviser to Dr. Anthony Fauci of the U.S. National Institutes of Health, who is the public face of America's response to COVID-19, said: "It's very important to do the surveillance and to do this soon. But the big meat companies don't want someone to uncover a problem."

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Greg Gray, an infectious disease expert at Duke University, has developed a test to detect SARS-CoV-2, the virus that causes COVID-19, and most other coronaviruses. He has informally offered it for testing pigs in Iowa, the nation's largest pork-producing and exporting state, whose 6,200 animal farms supply the likes of Tyson Foods and Smithfield Foods, a unit of China's WH Group Ltd. But so far, no one has taken him up on the offer.

"Meat producers are completely resistant to the idea of pathogen discovery," said Gray. "They're afraid if we find anything it will damage their reputation and business profile."

In an emailed response, a spokesman for JBS said: "We conduct random, routine surveillance testing at all of our facilities to ensure our COVID preventive measures remain effective as the pandemic continues. I am not aware of any proposal for zoonotic pathogen monitoring, nor of any resistance to such monitoring."

Smithfield, the biggest U.S. pork producer, referred questions to the National Pork Board. In an email, the board's chief vet, Dave Pyburn, said: "The U.S. pork industry has one of the strongest commitments to animal and public health in the world, and that begins with the biosecurity efforts on America's pig farms. Even though research shows pigs are not susceptible to SARS-CoV-2, farmers take significant precautions to minimize the chance their pigs will be exposed to anything that could make them ill."

In an email, a spokesman for the U.S. Agriculture Department added: "Peer-reviewed studies do not indicate that swine are susceptible to SARS-CoV-2 infection, therefore, the USDA is not actively pursuing increased surveillance for COVID-19 at pig farms. The USDA is working very closely with its One Health Federal and state partners to prevent, detect and respond to SARS-CoV-2 infection in other animals."

Nonetheless, some researchers say the links between industrialized animal production and COVID-19 cannot be ignored. The spread of African swine fever in 2018-2019 destroyed half of China's 400 million pigs, while a concurrent avian flu destroyed millions of chickens and caused a national meat shortage.

More recently, health experts have become concerned about a Chinese study, published by the Proceedings of the National Academy of Sciences in June, which identified a new pig-borne virus, G4, that has "all the hallmarks of a candidate pandemic virus." The pathogen has many physical features that would allow it to infect people. It grows well in human lung cells and can spread via respiratory droplets and direct contact in an animal model.

So far, there are no reports of G4 spreading person-to-person, which would be necessary to create a pandemic. But the U.S. Centers for Disease Control and Prevention is sufficiently worried that it asked for a virus sample from China and is also studying whether existing flu antiviral drugs can protect against the G4 virus. In a July 2 report posted on its website, the agency said: "G4 viruses are different enough that seasonal flu vaccines would be unlikely to provide protection or prevent onward human-to-human transmission. ... CDC and its public health partners around the world will continue to monitor this situation closely."