Large parts of the global economy have shut down in a bid to contain the COVID-19 pandemic, with attention from Capitol Hill to capital markets on saving lives as a pre-condition to saving livelihoods. But even in the eye of the current storm, forward-looking investors must begin planning for the future.
The global shutdown is painful for almost every sector of the economy. But in some industries the real damage will begin after the pandemic ends.
Once coronavirus has been brought to heel, policymakers will have to grapple with kickstarting economic recovery. They will also have to implement potentially radical restrictions on some to reduce the likelihood of future pandemics.
Some of the sectors likely to face disruption are obvious. The oil industry will suffer from near-term destruction in demand, and the air travel industry may face a double whammy from new policies to prevent passengers from spreading infections and people asking, “why fly when you can Zoom?”. Meanwhile, unemployment will rise dramatically and no-one knows how the world is going to pay for it and the effects on industry.
But other disruption may be less obvious with the animal agriculture sector a case in point.
COVID-19 is the most significant of a string of ‘zoonotic’ pathogens – infections transmitted from animals to humans – to emerge recently. These include SARS (2002), H1N1 swine flu (2009), MERS (2012), ebola (2014), zika (2015) and dengue fever (2016). Researchers say these infections will become more common and deadly in the future. Thomas Gillespie, an associate professor in environmental sciences at Emory University, has said he is “not at all surprised about the coronavirus outbreak. The majority of pathogens are still to be discovered. We are at the very tip of the iceberg.”
So, just as the response to the 2008 financial crash built stronger barriers to protect main street from Wall Street, so the response to COVID-19 is a stronger wall between animal-based industries and human health.
Building a wall
Scientists suspect that COVID-19 emerged at a wildlife market and restrictions on such markets are already being discussed. But the wildlife trade is not the only problem. The UN has highlighted the role of intensive agriculture as a factor in increasing zoonosis emergence.
Industrial animal farming puts 70 billion animals, including some ‘wild’ animals, in close confinement with poor sanitation, while heightened stress levels and unnatural diets weaken immune systems. “This is a textbook situation for driving evolution of bacteria or viruses,” according to Professor Ellen Silbergeld at the Johns Hopkins School of Public Health.
But the threat is not limited to theory. Scientists have traced the genetic lineage of the H1N1 swine flu virus, which killed more than 12,000 Americans from 2009 to 2010, to US factory farms. While the industry resisted substantial regulatory change after that outbreak, it is harder to imagine business as usual after this global pandemic. As such, factory farms are likely to come under intensive scrutiny.
Antimicrobial resistance in the spotlight
The world has been surprised by how quickly this coronavirus has spread and how brutal it has been. We will not be able to say the same should the next pandemic stem from antibiotic-resistant bacteria.
Scientists have been warning for years that over-use of antibiotics on farmed animals is a driver of anti-microbial resistance (AMR) and is already responsible for 33,000 deaths in Europe annually. The EU has banned the routine use of antibiotics on farm animals from 2022 and COVID-19 may accelerate similar bans globally.
Other preventative measures include more frequent and rigorous testing for pathogens along the food supply chain, greater reporting and disclosure on health-related issues and tougher food safety standards.
In 2018, a rise in incidences of campylobacter and salmonella in the US led the CDC, the US Centers for Disease Control and Prevention, to call for ‘targeted prevention measures’ on farms, such as vaccinations of animals. This may be a portent of the significant costs to come for the industry.
Research by the FAIRR investor network in 2019 found that among 60 of the world’s largest meat, fish and dairy firms only 57% of Asian food producers are certified by a scheme recognised by the Global Food Safety Initiative. That is compared with 82% in Europe. Improving these standards is urgent. A ban on live exports, already supported by a group of MEPs may also be on the agenda.
Death by a thousand cuts?
For the animal farming industry the long-term outcome of COVID-19 is to be an unrelenting spotlight on critical safety issues in our food system. New regulations will come with costs and, with margins already under pressure from rising feed prices and decreasing access to land, some producers will struggle.
And that is even before the demand side is considered. The rise of plant-based meat and dairy was already squeezing traditional meat producers, as evidenced by the recent bankruptcies of US dairy firm Dean Foods and Borden Dairy Co. It is possible that health concerns could accelerate the trends towards plant-based diets.
Combined with regulatory changes and the pace of technological progress in lab-grown meat, the industry is facing a perfect storm that threatens to undermine its profitability permanently.
While investors have many urgent issues to deal with, those with a long-term perspective have always kept one eye on the future, even as the present demands their full attention. Although animal agriculture is by no means the only sector to face change in the COVID-19 aftermath there are few industries that are as close to our lives and as precarious as the factory farming sector finds itself.
Investors would do well to recognise this sooner rather than later, before a new crisis is upon them.
Jeremy Coller is chief investment officer at Coller Capital and founder of the FAIRR investor network