Meat processors cannot wear ‘epicenter’ tags for long

Between June 19 and 20, news emerged of covid-19 outbreaks at meat-processing facilities in Germany and the UK.

In Britain, a combined 208 cases were confirmed at facilities in Cleckheaton, West Yorkshire and in Anglesey, North Wales. In Germany, more than 1,500 workers at a Tönnies facility at Gütersloh, North Rhine-Westphalia became infected.

The outbreak led to Germany’s virus reproduction, or R rate, jumping rapidly to 2.88 from 0.86 as recently as June 18. It forced the government to put about 7,000 people in the region back into lockdown.

From the outset of the pandemic, the need to work at close proximity within such processing facilities, combined with the cold and wet conditions required to keep goods sanitized, was identified as a major risk by companies and viral experts. These are ideal conditions for viruses to linger and be transmitted.

As early as April 15, a Smithfield Foods pork-processing plant in Sioux Falls, South Dakota had registered 518 cases – while total confirmed cases across the whole state stood at 1,100 – and became a hot spot for the virus in the US. Similar concentrated outbreaks have been reported at food-processing plants across the world throughout the pandemic.

For investors watching on as these clusters develop among facilities within their portfolios, first thoughts turn to employee welfare, contingencies and finding ways to ensure services are met, an investor with direct securities in meat processors and manufacturers – including Brazilian giant JBS – told Agri Investor.

At the same time, the investor said, the reputational cost that comes with being likened to wet markets in China’s Wuhan city, which have become synonymous with discussions of where the virus originated, must also be addressed rapidly.

“The leaders of these companies need to be on the front foot because now it’s surpassed the shareholder and company dialogue stage – it has gone into politics and society,” said the source. “If you are perceived to be the epicenter, you’ve got to move quick. I, as a security holder, expect affirmative action.”

What is more, the poor light in which such outbreaks paint employee welfare conditions has a further detrimental effect, said Claire Berthier, head of socially responsible investments at French asset management firm Trusteam Finance.

The firm is invested in retailers with meat processors in their supply chain and has logged increased consumer desire for higher-quality goods, responsible production and fairer worker and producer remuneration practices.

“There’s a risk here of losing market share for these [retail] companies,” Berthier said. “Meat sales is only a small part of their turnover. But in the mind of the consumer, it will be much more important. [When you switch to another retailer] you won’t just move your meat consumption, but all of your consumption.”

Berthier added the trend of the outbreaks has led Trusteam Finance to integrate the risk into its valuations, “not only for the direct meat processors, but also the investment case of the whole supply chain.”

A risk identified in one segment of the supply chain hardly ever acts as an isolated threat and will almost always have a domino effect – meat processing is clearly no exception to this rule.

Meanwhile, Agri Investor’s investor source was keen to highlight that as consumers have grown increasingly conscious of immunity-boosting foods and vitamins throughout this period, the healthy eating trend that predates the pandemic is likely to have gained further traction with a wider consumer base.

“Of course, investors are looking at that opportunity,” the source said. “They know this, there are people not at just at this firm, but everywhere, thinking about the next five years and which companies are going to be tapping into these offerings.”

This, too, will no doubt influence the segments of the food production system investors choose to play in.

Taken in tandem with the revenue loss enforced by forced closures, those with skin in the game will be hoping portfolio companies can find more robust ways to limit the virus transmission risks inherent in processing facilities.

An extended association with covid-19 outbreaks cannot be sustainable.

Write to the author at binyamin.a@peimedia.com

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