Food Security Through an ESG Lens

Consumers in emerging markets are demanding more meat. But with virulent animal diseases threatening some traditional sources of their meat proteins, they are having to look beyond their domestic and regional markets to sate the demand. In this article, Franklin Templeton’s James McGiveran uses environmental, social and governance (ESG) analysis to uncover some wide-ranging implications for the global food sector.

As analysts, we spend much of our time assessing material issues that can affect the availability and price of food across the world. Those issues might be economic or political, but increasingly environmental, social and governance (ESG) factors are having an impact.

Food safety and security, for example, is an important ESG consideration in the context of meeting growing demand.

Changing global demographics and international supply chains, coupled with unpredictable global relationships, mean that small changes in one part of the world can have amplified effects elsewhere.

One of the most interesting considerations today is the impact that African swine fever (ASF) in China may have on the global supply of meat proteins.

What Is ASF?

ASF is highly contagious, difficult to track and even more difficult to contain and eliminate. The disease is deadly to animals and no vaccine currently exists.

While the disease is concentrated in China, it has also appeared in Africa, Eastern Europe, Cambodia and Vietnam.

The most effective approach generally is to liquidate the affected herd and, potentially, the surrounding herds.

China’s Domestic Pork Supply Under Threat

China’s domestic pork supply is currently facing a virulent strain of ASF.

Pork is the most consumed meat protein in China, and the country accounts for around 50% of the worldwide hog supply.

However, even with that size of domestic supply, China consumes nearly all of the meat that it produces and has no meaningful pork exports. Its imports have grown in proportion to the growth of its middle-class population.

China’s regulators have not released official reports on the magnitude of this infection, but current estimates put the affected size from 10% to 30%. That would imply an impact of around 5% to 15% of the world’s supply of pork, according to our analysis.

As a result, we expect China will have to import proteins to fill that gap left by ASF. Most of that will be pork. However, other proteins will also likely be used, such as beef and poultry.

Chinese imports of meat-based proteins spiked during the last major outbreak impacting livestock (avian influenza from 2015 to 2017) and the US Department of Agriculture now expects that China will have to increase imports of meat-based proteins by around 30% in 2019 to account for the impact of the ASF.