Danish meat manufacturers are at risk of future supply disruption
Livestock industry has been “forgotten sector” of climate change, but as soon as it attracts more attention serious issues for Danish manufacturers could emerge
Danish meat industry
Denmark is a relatively tiny country in the northern Europe with a population of 5.7 mln people [1]. But it is an agricultural giant, home to 30m pigs. In 2011 farm products made up 20% of its goods exports. The value of food exports grew from €4 billion ($5.5 billion) in 2001 to €16.1 billion in 2011. [2] The biggest manufacturers of meat are Danish Crown, Arla, Rose Poultry and DuPont Danisco, also there are plenty of smaller firms. Danish firms are thriving at the high as well as the low end of the business: Noma, a celebrated restaurant in Copenhagen, has helped to create a cult of Nordic food, including pig’s tails, supplied by Danish Crown.
Greenhouse emissions & meat supply industry
As far as reducing carbon emissions becomes a serious concern of policymakers and environmentalists, the food industry becomes more and more scrutinized. And it is justified by the facts. According to UN estimates global meat industry accounts for roughly 15% of greenhouse gas emissions. [3] It is more than all cars, trucks, ships and planes combined. Most of the emissions come from animal husbandry, the rest is from processing and distribution of meat. The first example of recognizing an issue with the food industry in Denmark is recommendation by the Danish Council of Ethics to impose an initial tax on beef with plans to extend the regulation on other types of meats. “The Danish way of life is far from climate-sustainable, and if we are to live up to the Paris Agreement target of keeping the global temperature rise ‘well’ below 2°C, it is necessary both to act quickly and involve food,” the council said. [4] In addition to environmental issues the ethical aspect is considered. “For a response to climate-damaging food to be effective, while also contributing to raise awareness of the challenge of climate change, it must be shared,” said council spokesman Mickey Gjerris. [4]
Disruptions in meat supply industry
Given the high attention from Danish and global authorities and policymakers towards greenhouse emissions associated with meat supply industry it is possible to outline several key consequences for pork suppliers in Denmark:
1. Additional tax burden and possible environmental restrictions
2. Brand and reputation risks as consumers become aware of environmental aspects of food supply industry
3. Shortage and resulting growth in prices of livestock as farmers might switch to other agricultural sectors in fear of future losses
4. Decline in demand for finished products as changes in consumer preferences, i.e. in an effort for healthier lifestyle consumers tend to switch to increasing proportion of vegetables in their diets
5. Shortage of water supplies as water becomes a scarce resource
The outlined above risks become even more serious considering future prediction for meat demand growth. For instance, it is expected that demand for food will rise by 60% by 2030. [2] Consequently, potential supply disruptions are a real threat.
Potential mitigation actions
In order to mitigate the risks of potential future food supply disruptions Danish food manufacturers could consider the following set of measures.
Firstly, they need to diversify livestock sourcing toward growing livestock in emerging markets where environmental regulations can be not as strict as in Western Europe
Secondly, in order to secure water supplies they need to either acquire licensees for guaranteed water resources, or hedge the risks of water supply disruptions using financial markets instruments.
Last but not least, they need start investing into building sustainable business models by i.e. developing environmentally friendly technologies of meat processing, investing into recycling of food products, replenish natural reserves of water, funding research in the area of mitigating environmental damage.
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Sources:
- https://en.wikipedia.org/wiki/Denmark
- The Economist, “Bringing home the bacon”, Jan 4th 2014, http://www.economist.com/news/business/21592605-tiny-denmark-agricultural-superpower-bringing-home-bacon
- Financial Times, “Cloned cows create a new beef over climate change”, Nov 26th 2015, https://www.ft.com/content/caebefb6-9378-11e5-bd82-c1fb87bef7af
- Business Insider, “Denmark is considering taxing red meat to fight the ‘ethical problem’ of climate change”, Apr. 28, 2016, http://www.businessinsider.com/denmark-planning-to-tax-red-meat-to-fight-climate-change-2016-4
Climate change presents challenges for farmers and rancher all over the globe however you have presented an interesting insight into the market in Denmark. One aspect of your argument I’d like to push back on is the idea that Danish farmers should consider out-sourcing their herd to an emerging market where environmental regulations are less severe. While I agree this would make sense from a short term financial point of view, it does not address the root problem which is current livestock practices are unsustainable. It is also likely not sustainable from a long term point of view as environmental restrictions will eventually make their way to emerging markets as well. I would also argue that the government of Denmark would likely apply a tax to any meat imported from emerging markets and if the general public learned the herd was moved to skirt environmental responsibilities there would be a negative impact on demand.
In my opinion the key to you solution is your final point that livestock businesses must invest in new technologies that work to mitigate the huge amounts of emissions produced in their industry. Only through this will the livestock industry actually make moves towards becoming a sustainable industry. Given that climate change will directly impact their ability to operate in the future (less water means less crops, warmer temperatures result in increased susceptibility of livestock to disease) I believe the livestock industry must invest now to mitigate the negative impact they are having on the environment.
Cowspiracy brought be here. Although the documentary was how I first learnt about the impact of animal agriculture on the environment, as well as the policies that are being put in place to manage the issue, I found your article to be very informative.
It was interesting to learn about the split of emissions in that sector came from (animal husbandry in relation to the rest of the value chain). The human population is growing faster than ever and so will the issues that arise to feed them. Some of these issues include other factors down the chain such as livestock fresh water consumption which goes up to 80-90% in the US! This very fact should put the United States at the forefront of discussions on sustainable agriculture especially in light of droughts in places like California.
Nice post. One of your proposed solutions is that you suggest meat producers shift production to developing markets where emissions standards aren’t as strict. Is that really an answer? Wouldn’t that still contribute to the underlying problem, but simply avoid the current regulatory environment? Moving production to areas with less regulation feels like a way to kick the can down the road even further.
There might be a demand side hedge here as well – perhaps investing in Soy or other high-protein substitutes for meat (if you believe consumers will shift away from meat, which is a big what if…)
Anton, animal husbandry is a huge contributor to climate as accurately pointed out by you in your note. I believe expecting consumers to shift to alternative or vegetarian preferences is unrealistic. A lot of emerging markets have experimented with this idea by introducing organic foods but haven’t succeeded in doing so. Additionally, I believe taxing beef or pork is a temporary solution to the problem since quite often producers shift that cost to consumers, which sees benefits but for a limited time frame. There are quite a few pharmaceutical companies that are producing feed and supplements for animals that aids in reducing greenhouse gas emissions, which basically speaks to your point of developing environmentally friendly technologies for sourcing etc. Additionally, a regulation on the quantity that farmers can produce will also help the cause of regulating consumption and thus production.
Interesting post Anton. I would have never guessed that the meat industry produces more greenhouse gases than cars, trucks, ships and airplanes combined. This is extremely alarming and with demand for meat unlikely to curtail anytime soon, I am even more concerned. However, I am not sure that some of the problems you recommend will address the issue. Diversifying livestock sourcing toward growing livestock in emerging markets will definitely not address the problem. This is merely a short-term fix and it is very likely that the Danish government will impose import taxes to discourage this behavior. In addition, it is only a matter of time for emerging economies to adopt some of the same regulations as those of the first-world. More importantly, this recommendation does not solve the root cause of the problem. I do like your third recommendation which focuses on using technology to find more innovative and environmentally sustainable ways to manufacture meat. Have you heard of any methods implemented by meat manufacturers in other regions that can be leveraged by those in Denmark?