Meat companies have a long way to go when it comes to water management

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These are difficult times for the meat industry. Global sales are expected to exceed $1 trillion by 2025, but companies face enormous challenges: changing consumer behavior; supply chain issues; and wild swings in commodity prices, to name a few. Yet there is a fundamental financial risk that it faces and that it can manage – if it chooses –: water risk.

Ceres and our partners recently conducted an analysis that found that by spending just over 1% of their revenue per year – or less if they worked together – meat companies could eliminate water impacts from their operations and their supply chains.

Ceres looked at six meat companies and the specific water impacts they were creating in their value chains and the water-related risks they were exposed to considering business operations, geography and water needs. water. We calculated the cost to mitigate the negative impacts of water-related practices within their own value chain and the potential change in valuation. According to the company in question, eliminating these impacts could cost companies and investors between $57 million and $301 million per year, which would impact the earnings before interest, taxes, depreciation and amortization (EBITDA) of minus 4.7% to minus 7.5%.

1% of annual revenue seems like a reasonable price to pay to protect the company’s valuation and future.

The study shows how meat companies’ existing water management practices exacerbate their water risk – and how the cost of taking the necessary steps to mitigate these impacts could be lower than expected. Changing fundamental business practices in meat packing, such as eliminating polluted runoff, reducing wastewater discharges and limiting withdrawals, is generally considered cost prohibitive by companies – but the cost of inaction could be five times higher, according to CDP estimates. In total, 1% of annual revenue seems a reasonable price to pay to protect the company’s valuation and future.

Water risks created by corporate practices are very real for meat companies. Feed grains require irrigation, fertilizers, herbicides, pesticides and land conversion, which can mean significant water extractions and the generation of runoff filled with nutrients and chemicals. Animal husbandry involves providing animals with water, pasture and managing manure. Which, when mismanaged, can lead to overgrazed land, high water consumption, runoff containing nutrients and pharmaceuticals, and manure leakage.

These unsustainable practices lead to surface algal blooms, water stress and toxicity to water resources, which can have significant consequences for businesses, including increased grain costs, expenses for water supplies alternatives, disputes over adverse environmental impacts and possible loss of operating licenses.

Given the risks of water-related impacts and the meat sector’s relatively low costs to address them, it should act now. But despite meat companies’ commitments and targets, most are still falling short of the target to mitigate their water risks.

Companies must take action to address the impacts of their business practices on water throughout their value chain. The first strategic step is for companies to understand where exactly the water impacts are – by measuring water use and pollutant releases in the supply chain and direct operations – and by assessing the status of local water conditions. Unfortunately, most companies fail to even get past that bar.

Some companies are starting to change their practices. Tyson Foods has gone beyond conducting water risk assessments in its direct operations only to include its own operations, and Smithfield Foods provides educational programs and indirect incentives to their producers to keep water for more than half of its suppliers. But most of the meat sector is slow to deal with its water risk.

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At present, companies and their investors significantly underestimate the widespread physical, regulatory and reputational danger that their own practices create and may be exposed to higher than expected losses.

The disconnect here is clear. Meat companies need to engage with water beyond the levels they have reached in the past to fully address this growing problem.

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