Nicky Amos and Rory Sullivan, architects of the Business Benchmark on Farm Animal Welfare, explain how companies such as Marks and Spencer and McDonald’s are driving higher standards through their supply chains
A growing number of major food companies have made farm animal welfare an integral part of their business strategies and brand propositions. The most recent Business Benchmark on Farm Animal welfare awards top marks to Marks and Spencer, Migros, McDonald’s, Noble Foods and Waitrose. Others, like Nestle, are not in the top tier of the benchmark, but have made formal announcements on specific animal welfare issues, such as a commitment to only use cage-free eggs.
So what has propelled farm animal welfare to such a significant position on the corporate responsibility agenda? The reasons cited by companies include the need to comply with legislation, to meet relevant voluntary and industry standards, to improve efficiency, margins and profits, to meet stakeholder, customer and consumer expectations, to access market opportunities (for example, for higher welfare products) and to enhance their brand and reputation.
Despite the compelling drivers for action, companies looking to adopt higher standards of farm animal welfare face significant challenges: many species are not covered by legislation; there are variations in the enforcement of legislation between countries; there is a disconnect between consumer concerns about animal welfare and consumer willingness to pay for higher welfare.
The most significant challenge relates to the nature of the food industry itself. The industry is highly cost-competitive, and companies are under intense pressure to reduce costs and improve efficiency. When making investment decisions, companies tend to focus most attention on the short-term financial costs and benefits of these investments. Indeed, many of the actions taken by companies on farm animal welfare can be explained simply by considering the direct financial costs and the financial benefits of the actions taken. This does not mean that companies do not realise other benefits from these actions (eg brand or reputational benefits). Rather, it is that these benefits are ancillary to the core financial case for investment. Furthermore, the required rates of return are demanding, with most companies expecting their capital investments to pay for themselves within two or three years.
In order to overcome the barrier of the business case, leading companies such as those listed above are adopting innovative techniques and adaptive strategies to encourage and incentivise their suppliers to upgrade existing facilities and invest in new facilities. In our book, The Business of Farm Animal Welfare, we present multiple examples of how these leading companies are encouraging suppliers to take a more holistic and longer-term approach to investment decision-making, to accommodate changing regulatory and industry standards and meet changing expectations around animal welfare.
Examples of the actions that have been taken include:
Aligning demand for new higher welfare products with suppliers’ financial cycles, ie introducing higher welfare requirements at the point when suppliers are establishing new production facilities is much cheaper than requiring them to retrofit existing production facilities.
Securing preferential lending rates for capital investments in infrastructure that is designed for higher welfare production.
Conducting trials with producers to evaluate the risks and benefits of improved welfare processes.
Adjusting contract conditions to encourage the supply of higher welfare products. These adjustments can include extended duration contracts for guaranteed levels of supply, contracts for higher volumes of supply, and contracts paying a premium price for higher welfare products.
Providing advice on issues such as animal handling, certification schemes and performance measurement. For example, Brazilian-based meat producer BRF’s view is that improving animal welfare standards does not necessarily require capital investment. By addressing welfare issues (such as over-crowding and poor hygiene,) suppliers can improve health and welfare, increase yields and raise profit margins.
Reformulating product recipes to use fewer but higher welfare ingredients.
Introducing labelling and/or brand marketing to promote higher welfare products to consumers.
These actions are being motivated by a keen sense of self-interest. Companies want to ensure their security of supply by ensuring the financial viability of their suppliers. Improved livestock management practices, processes and operations are seen as enabling suppliers to reduce costs and enhance returns.
Leading companies also recognise that they face collective challenges as a result of animals being reared in intensive systems designed to maximise farming output and competitiveness. These include public health issues linked to outbreaks of infectious diseases and the rise in antimicrobial resistance, which is attributed, in part, to the over-use of antibiotics to promote growth and prevent disease in overcrowded systems. Another important set of problems relate to the natural environment. The environmental consequences of intensive farming, such as the loss of natural habitats, and the impacts on biodiversity, soil degradation and climatic change, mean that current farming systems are not sustainable.
The manner in which the food industry – individually and collectively – responds to the challenges presented by farm animal welfare will be key to its future success. The consequences of intensive farming have profound implications for the business case for intensive production and, in turn, for the structure of the global food industry. Change of the scale required will take time, especially given the costs associated with training and educating employees in animal welfare, the costs of auditing and certifying products to recognised standards, and the capital investment required to modify or upgrade production systems.
This is clearly an ambitious agenda and one that may appear a long way from where we are today. Yet we are beginning to see leading food companies move away from aiming to outperform their competitors on regulatory compliance, production cost management and risk management to aiming to outperform through re-engineered product formulations, processes and whole systems that optimise higher animal welfare standards.
We are moving towards a point where innovation in animal welfare is becoming a major source of new revenue and growth, as companies shift toward offering products with provenance, traceability, quality, safety and animal welfare attributes. In the future, we expect more companies to regard animal welfare not simply as a risk to be managed but as a source of market differentiation and long-term value creation.
Nicky Amos and Dr Rory Sullivan are the editors of the new book The Business of Farm Animal Welfare and the architects of the Business Benchmark on Farm Animal Welfare, the globally recognised investor framework for assessing the quality of companies’ practices, processes and performance on farm animal welfare. The Business of Farm Animal Welfare is available to order hereanimal welfare intensive farming Marks and Spencer Nestlé Migros McDonald's Noble Foods cage-free eggs Waitrose