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COP26: Price impacts, as countries agree to beef up climate promises?

Posted by minteclimited on Nov 16, 2021 2:30:23 PM


As cows are the No. 1 agricultural source of greenhouse gases worldwide, it is surprising that the carbon hoofprint left by cattle was not widely addressed at last week’s Glasgow Climate Impact (COP26). 

While energy sources, deforestation and transportation were on the agenda as areas where countries need to strive for improvement – attending governments pledged to cut methane emissions 30% by 2030 –  farming’s contribution to climate change and the need to create sustainable food systems was largely absent from the discussion, The Guardian reported.

Agriculture Earns Cursory Acknowledgement as a Contributor to Climate Change

The Council on Foreign Relations did mention the topics of industrial farming as a contributor to methane emissions but the reduction strategies it proposed, including preventing the burning of fields after harvests, adjusting feed for livestock and draining rice paddies, did not directly address the biggest culprit  – cattle production  –  head-on. Nevertheless, a blueprint for cutting cattle-generated methane emissions did surface briefly from the UK government when it proposed levying a carbon tax on food with a high-emission footprint. The research was withdrawn, but it is not the first time that the idea of taxing beef has come up in Britain. In 2016, Oxford University researchers suggested a 40% tax on beef as a means to offset the climate impacts generated by the cattle industry.

While a tax would directly impact the price consumers pay for beef, political policies supporting sustainable agriculture will also have a hand in compounding the price increases that the beef market has experienced in recent months. Combined restrictions from the pandemic and a shortage in cattle production has led to a 1% increase in EU beef prices against the previous average from May 2021 to July 2021, according to Mintec Data. In the U.S., prices increased 2% within the same time frame.

Policies Cost Money

Experts argue that governments will need to broadly reconsider farming subsidies to cultivate sustainable practices. In a UN report, research showed that nearly 90% of the $540 billion spent in global agricultural subsidies contributes to the climate crisis. Removing these policies, however, has the potential to catapult production prices into the stratosphere, which will directly affect consumers. 

Securing sustainable farming practices to feed the ​​projected population of over 9.6 billion people by 2050 will require more than land use change. During the COP26 conference, President Joe Biden partnered with the UAE to commit $4 billion for agricultural innovation aimed at reducing emissions. Similarly, an alliance between farmers and policy bodies called Regen10 committed to ensuring that approximately $60 billion is dispersed annually to assist in transitioning farmers to sustainable farming practices.

Governments like the UK are even outlining ambitious net zero strategies that champion rapidly decarbonizing its agriculture practices that contribute to 17% of the country’s total emissions. As part of it’s strategy, the nation is advocating that food and beverage manufacturers work toward energy efficiency, decarbonising the heat processes, sourcing 100% renewable electricity, and switching to sustainable refrigerants. 

Although admirabile in the face of an impending climate crisis, all of these solutions will require additional investment on the part of manufacturers that will affect company bottom lines and, likely, the base price that consumers and procurement teams pay for basic commodities.

Feed Me More Green

Governments are not the only ones looking to cattle husbandry as a category in which additional investment has the potential to offset emissions. Already, the world’s largest meat packer has taken up the issue and has worked independently to curtail methane emissions in its own supply chain. JBS recently announced it is partnering with the Netherlands’ nutrition company Royal DSM to incorporate the feed additive Bovaer which it says can cut up to 90% of the methane emissions from its cows, the Brazilian company said, citing a recent study conducted in Australia.

However, animal feed prices have been on the rise in recent months, and these higher costs combined with lower cattle supplies have contributed to the upward movement of EU beef prices, Mintec data found. Introducing a more specialized feeding program has the potential to inflate those prices further.

Similar to JBS, other animal protein companies, including Tyson, Danish Crown and the WH Group have committed to achieving net zero targets, but research from the Institute for Agricultural and Trade Policy found “none of the major meat and dairy companies planned on reducing the number of animals in their supply chain, the source of 90% of their emissions. On the contrary, most have plans to significantly expand production and market share.” Instead, these companies are looking to incorporate renewable energy into their facilities and employ regenerative agriculture practices that will sequester carbon.

Commitments to more sustainable practices will require a substantial initial outlay of capital from meat manufacturers that will likely trickle into final product pricing. Already, supply chain bottlenecks in the food industry and labor shortages have led to major meat manufacturers increasing the price of basic products. Mintec data shows that prices for U.S. meat and poultry spiked 23.5% between January and September of this year.

Despite increasing prices for beef, consumers have yet to curtail their demand. Currently, a third of global human protein consumption comes from animal products and ruminants, which generate methane in their gut and expel hundreds of pounds per year into the atmosphere. And that trend shows little sign of altering. As urbanization and general population wealth has risen globally, the demand for meat products has increased steadily. From 1960 to 2010 demand for meat has risen over 200%, with some studies even putting that figure as high as 500%.

As demand continues to remain high and cattle supply chain constraints persist, prices will likely continue to increase, but how much they rise remains to be seen. Whether the reasons are economic or political, Mintec Analytics closely tracks all the factors impacting the beef market to provide current pricing snapshots and future price forecasts. No one can predict the future, but purchasing departments can prepare themselves with real-time knowledge to make the best decisions for the here and now – even as the world wrestles to secure the future.

What to get the clearest picture of price forecast combined with advice on when to hedge exposure to price risk?

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Topics: Mintec Analytics