How do we reinvent the business and investment case for farm animal welfare?

The short- and long-term finance dynamics need to be examined carefully.

The prima facie arguments for companies to act on farm animal welfare are reasonably clear. These include legislation, consumer concerns, media attention, civil society pressures, and the financial costs and benefits of taking action. However, these drivers for action are often not particularly strong or dependable. For example, legislative requirements may be incomplete or poorly specified, the penalties and sanctions for non-compliance may be relatively limited, and the enforcement of legislation may not be a regulatory priority.
The most significant issue, however, is that the financial arguments (or the business case) for higher standards of farm animal are weak. While there is some evidence that higher standards of farm animal welfare can deliver better production outcomes, there have been relatively few robust studies on the relationship between higher animal welfare and production outcomes. This is important because, when making investment decisions, food companies tend to focus most attention on the short-term financial costs and benefits of these investments. In fact, many of the actions being taken by companies on farm animal welfare can be explained simply by considering the direct financial costs and the direct financial benefits of the actions taken, with most companies expecting their capital investments to pay for themselves within two or, at most, three years. This does not mean that companies do not realise other benefits (e.g. improved brand or reputation), but it does mean that these benefits are generally ancillary to the core financial case for investment. The framing of the business case as being about relatively short-term financial performance means that companies tend to be reluctant to invest in situations where the returns will take several years to materialise or where there are questions about consumer or customer willingness to pay for higher welfare products. It means that the majority of companies only invest in higher welfare systems if such investments deliver clear financial returns (e.g. improved efficiency) or if buyers (i.e. manufacturers, retailers, wholesalers) and, ultimately,consumers are prepared to pay a premium for higher welfare products. While the discussion above may provide limited comfort for those concerned about farm animal welfare, a more encouraging picture is starting to emerge. There is growing evidence that companies can encourage and incentivise their suppliers to introduce higher welfare standards of farm animal welfare. Leading companies, such as those ranked in Tiers 1 and 2 of the Business Benchmark on Farm Animal Welfare, do this in a variety of ways including providing low interest rate financing to suppliers, helping build suppliers’ capacity and knowledge, providing extended contracts that guarantee levels of supply, allowing for time lags between higher production costs and higher prices paid by the market, providing preferential contracts with guaranteed higher volumes of supply, and paying a premium price for higher welfare products. Investors have an important role to play in this process. They can signal to food companies that farm animal welfare is an issue that is of concern to investors, and that investors expect companies to manage these issues effectively. They can also engage with companies, encouraging them to strengthen their practices, performance and reporting on farm animal welfare. An example is the Global Investor Collaboration on Farm Animal Welfare, where the 19 participating institutional investors have written to the Chief Executives of every company covered by the Business Benchmark on Farm Animal welfare, either commending their companies for their performance in the Benchmark or encouraging them to raise their game. In 2017, 37 of the 99 companies engaged through this process formally responded to the investor letters. Many of them indicated that they would be improving their disclosure on farm animal welfare and would be looking to proactively engage with investors on this issue. A number also confirmed that this engagement had provided an important impetus for them to strengthen their approach on farm animal welfare. It is clear that we need to get much better at defining the business case for action, and at educating companies about the business benefits of adopting

higher standards of farm animal welfare. Specifically:

  • There is a need for sustained, detailed research and case-studies examining the relationship between higher standards of farm animal welfare and business performance.
  • There is a need to identify the low cost actions that can be taken by companies. Most companies will be able to identify a range of cost-effective actions they can take to improve their business simply through applying a farm animal welfare lens to their practices and processes. For example, they may be able to deliver significant improvements through better training of staff involved in animal handling, through better purchasing processes, through deeper supplier engagement and through better processes and systems.
  • There is a need to identify the improvements that could be delivered in partnership with clients. By being able to offer products and solutions that meet or exceed the demands from their clients, companies may be able to establish better relationships with these clients. For example, companies and clients could work together to align investments in higher animal welfare systems with client marketing efforts, in turn making higher welfare standards an integral part of new infrastructure builds aligned with the lifespan of existing capital investments, rather than requiring expensive and disruptive retrofits or upgrades of existing facilities.Another example could be through encouraging clients to support investments in higher animal welfare as part of wider contract negotiations. Ultimately, the business case for food companies to adopt higher standards of farm animal welfare is not set in stone. Notwithstanding the pressures to reduce costs, there is much that can be done through awareness-raising, better dialogue with clients and thinking carefully about how and when capital is invested. These efforts are likely to provide wider benefits. If we look at other sectors and other sustainability issues, we see that companies tend to start with relatively modest objectives, often focused on improving business efficiency. As they see evidence of the business case, and as they build their knowledge and understanding, they not only see more opportunities but are more confident about taking advantage of them. This is also true in the case of farm animal welfare. Many of the companies that we now consider leaders began with a focus on risk management and cost reduction. Over time, this has led them to explore and develop new strategies to create business value, moving beyond simply reducing costs and increasing value to adopting strategies focused on product quality, brand and product differentiation, and innovation. Looking to the future, we expect more companies to regard animal welfare not simply as a risk to be managed but as a source of long-term value creation.

Nicky Amos and Dr Rory Sullivan are the editors of The Business of Farm Animal Welfare (Routledge, 2018) and the architects of the Business Benchmark on Farm Animal Welfare