Animal diseases routinely emerge from factory farming operations and put them at significant financial risk.
Overcrowding and unmanaged waste as well as animal illness, infection, and stress all rank among the standard factory farming conditions that diminish animals’ ability to fend off disease and enhance the inevitability of outbreaks and spread. As of mid-2020, the Paris-based World Organisation for Animal Health (OIE) has identified 117 infections and transmissible illnesses affecting factory-farmed animals around the globe.
A number of financial risks are associated with animal diseases. Outbreaks can result in costly livestock losses as a result of both infection and the intentional culling of flocks or herds as well as supply chain interruptions, cessation of import/export activity, decreased consumer demand, diminished market prices, and significant reputational damage—even to factory farming operations whose livestock has not been directly affected.
A single outbreak of recurring Highly Pathogenic Avian Influenza (HPAI) devastated U.S. markets
In 2015, an outbreak of Highly Pathogenic Avian Influenza (HPAI) that originated on a turkey farm in British Columbia spread to the northwestern U.S. and ultimately resulted in the disease-related deaths or culling of approximately 50 million birds on 200 farms in 21 states. Iowa, Minnesota, Nebraska, and Wisconsin all declared states of emergency as the USDA called the outbreak “arguably the most significant animal health event in U.S. history.” The outbreak had a negative material impact on all U.S.-based poultry and egg producers, including those whose flocks had not been affected by the virus, when China, Japan, Mexico, Saudi Arabia, South Korea, and other countries halted $6B worth of collective annual imports of U.S.-produced poultry products and eggs and sent international demand and market prices tumbling to historically low levels. Some of these import bans remained in place for years. The last, China’s, was not lifted until November 14, 2019.
In early 2016, the USDA confirmed Highly Pathogenic Avian Influenza had struck bird stocks in Indiana. Within months, the FAO was tracking a strain of Highly Pathogenic Avian Influenza spreading across Africa, Asia, Europe and Middle East “with pandemic potential.” That strain has resulted in the deaths of millions of birds and thousands of humans who came in direct contact with them. As of early 2020, the World Health Organization (WHO) was tracking a Highly Pathogenic Avian Influenza outbreak across Eastern Europe. In April of that year, the USDA discovered the highly pathogenic H7N3 strain in a flock of turkeys in South Carolina. Producers depopulated tens of thousands of birds as the National Turkey Federation assured the outbreak “pose[d] no threat to public health” and that “turkey products remain[ed] safe and nutritious.” Despite these assurances, China, Canada, and Mexico banned poultry imports. The EU also expanded its relevant import restrictions.
A 2018 African Swine Fever (ASF) outbreak continues to wreak havoc across global markets
In 2014, an outbreak of the more than century-old, incurable African swine fever virus (ASF) took hold in Eastern Europe. By late 2018, the virus had spread across Europe and Asia and resulted in the deaths of roughly a quarter of the global pig population. The Organisation for Animal Health (OIE) declared the disease “the biggest threat to any commercial livestock of our generation.” China suffered the greatest livestock losses. Home to the world’s largest pig population, the country lost more than half its herd—an estimated 300 million hogs—to the virus or extermination.
Since 2018, African swine fever has taken a toll on factory farming operations around the world. In August of that year, shares of the Hong Kong-based WH Group, the world’s largest pork producer, fell 11% on the announcement that infected swine had been found at one of the conglomerate’s slaughterhouses. In August 2019, the company reported its profits were down nearly 17% from a year earlier, and even the conglomerate’s global presence could not shore up its stock price. As of late September 2020, this continued to languish at less than $6.50 HKD, down nearly 30% from its January 2018 high of $9.69 HKD.
Hormel is another international factory farming conglomerate on the financial performance of which African swine fever has had a significant negative impact. A producer of commodity meats and consumer packaged goods operating a series of factory farms in China, Hormel’s International business in particular was negatively impacted by weak exports and uncertainty among global markets. Across the board, however, three of Hormel’s four businesses saw their 2019 profits drop by between 4 percent and 15 percent, owing in part to higher prices on the pork-based inputs (bellies, trim) on which the company relies to create several of its products. Looking ahead to 2020, the company noted it expected higher input prices and market volatility to persist and warned this could diminish the performance of its Refrigerated Foods, Grocery Products, and International segments “until pricing can be passed through [to consumers].” The company also warned investors, “The global trade environment, potential impact of African swine fever, and market volatility pose the largest threats to the Company’s profitability.”
At the same time as African swine fever has resulted in major losses for some food producers, the disease has also resulted in gains for some that have rushed to address China’s pork shortage. As one writer noted, “There just isn’t enough pork in the world to fill the gap.” In early 2020, Tyson reported its pork exports to China had skyrocketed 600% amidst the easing of import and export tariffs and other restrictions on trade between the U.S. and China. As the company’s CEO noted, Tyson’s beef and pork segments “performed well as the effects of African swine fever are beginning to materialize.” EU-based meat producers also saw their exports to China significantly rise against a backdrop of easing trade restrictions. As Bloomberg reported, “Europe’s pig farmers are becoming some of the biggest winners from Asia’s hog crisis.” During the first four months of 2019, EU pork exports to China surged 37%. Exports to hard hit Vietnam nearly doubled, while EU farmgate pig prices soared to their highest levels since late 2013.
Amidst these surges, however, fears that African swine fever would spread among herds in industrialized operations in Europe and the U.S. were also taking hold. African swine fever has infected pigs in eastern Europe and been identified in wild boars in Belgium. France and Denmark erected fences in an attempt to prevent the disease from entering their countries, while factory farming companies in Germany, the EU’s largest pork producer, were reportedly “sweating” as diseased pigs were found along the country’s border with Poland. Meat producers in the U.S. are also concerned African swine fever will take hold among its herds. The USDA and agricultural economists have predicted an African swine fever outbreak in the U.S. would cost the swine industry an estimated $50B over ten years.
In July 2020, researchers at the Kansas State University’s Department of Animal Sciences & Industry reported they’d discovered the African swine fever can survive on surfaces for days to months. This characteristic is atypical for viruses, which typically die outside their hosts. Discussing the finding, the team’s lead scientist noted, “That’s probably the scariest thing that I have seen with this disease thus far, and our research associated with it.” In an August 2020 speech, U.S. House of Representative Agriculture Committee Chairman Collin Peterson (D-Minnesota) discussed the likelihood of an outbreak of African swine fever or other disease in the United States and stressed the need for the federal government to provide bailouts to factory farmers forced to kill pigs they have bred and reared and then must cull and dispose of rather than sell for slaughter. “What I’m trying to do is get things in place so…we actually have rules and we give the authority to the [government owned and operated Commodity Credit Corporation] to deal with African swine fever, to deal with foot-and-mouth disease, to deal with these things that we know are going to come…”, Peterson noted.
World’s largest meat producers warn investors of animal disease-related risks
Several publicly traded meat producers have ranked animal diseases among the business risks they list in their SEC filings. In its 2019 10-K, Hormel warned investors the company was subject to risks associated not only with African swine fever but also other diseases including Bovine Spongiform Encephalopathy (BSE, or “mad cow” disease), pneumo-virus, Porcine Circovirus 2 (PCV2), Porcine Reproduction & Respiratory Syndrome (PRRS), Foot-and-Mouth Disease (FMD), Porcine Epidemic Diarrhea Virus (PEDv), and Highly Pathogenic Avian Influenza (HPAI), at least some of which are transmissible to humans. “The outbreak of such diseases could adversely affect the Company’s supply of raw materials, increase the cost of production, reduce utilization of the Company’s harvest facilities, and reduce operating margins,” the filing read. “Additionally, the outbreak of disease may hinder the Company’s ability to market and sell products both domestically and internationally,” it went on. Hormel concluded its assessment of this risk factor with this warning to investors: “The Company has developed business continuity plans for various disease scenarios and will continue to update these plans as necessary. There can be no assurance given, however, that these plans will be effective in eliminating the negative effects of any such diseases on the Company’s operating results.”
Despite the benefits that African swine fever had accrued to Tyson, the company nonetheless emphasized animal-disease related financial risks in its 2019 10-K filing. “Outbreaks of disease and other events, which may be beyond our control, either in our own livestock or livestock owned by independent producers who sell livestock to us, could significantly affect demand for our products, consumer perceptions of certain protein products, the availability of livestock for purchase by us and our ability to conduct our operations,” the filing read. “Moreover, the outbreak of livestock diseases, particularly in our Chicken segment, could have a significant effect on the livestock we own by requiring us to, among other things, destroy any affected livestock. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our products to or from our suppliers, facilities or customers. This could also result in negative publicity that may have an adverse effect on our ability to market our products successfully and on our financial results.”