Antibiotic Resistance

Factory farming’s heavy reliance on antibiotics is putting the industry at significant financial risk.

With few exceptions, commercial dairy, egg, meat, and seafood operations prophylactically administer antibiotics to accelerate growth and prevent the spread of bacterial infections among animals living in overcrowded and inevitably unsanitary conditions. In the United States, 80% of all antibiotics sold each year are administered to animals living on factory farms. Globally, this figure is between 70% and 80%.^[1] 

Antibiotic resistance kills 700K people each year. By 2050, the number could be 10M.

The administration of antibiotics to factory farmed animals is one of the primary causes of antimicrobial (and antibiotic) resistance (AMR), prompting the World Health Organization (WHO) to call it “one of the biggest threats to global health, food security, and development today.”^[2] In the United States, antibiotic-resistant infections currently give rise to 2.8 million illnesses and 35,000 deaths in the United States each year at a cost of between $50B and $70B.^[3] Globally, drug-resistant diseases kill 700,000 people each year. According to the UN General Assembly, “If no action is taken, drug-resistant diseases could cause 10 million deaths each year by 2050 and damage to the economy as catastrophic as the 2008--2009 global financial crisis.” ^[4] 

The World Bank has predicted that the economic fallout from AMR will “likely” be even worse. “And unlike the financial crisis of 2008,” writes the organization, “there would be no prospects for a cyclical recovery in the medium term, as the costly impact of AMR would persist.”^[5] The World Bank’s projections include that by 2050, global GDP and total global exports will decline by 1.1% to 3.8%, healthcare costs will increase by $300B to $1T, and livestock production will decrease by 2.6% to 7.5%.^[6]

Investors are increasingly concerned about the impacts of AMR

Investors are taking note of the economic risks associated with factory farms’ reliance on antibiotics--particularly as these risks accrue not only to the factory farming industry but also the wider food and beverage sector as well as the pharmaceutical, healthcare, and insurance industries. As Aviva Investors Global Head of Responsible Investing Abigail Herron has explained, “[I]t isn’t just health that’s at risk from the spread of drug-resistant ‘superbugs’. Dangerously high levels of antimicrobial resistance (AMR) risk wiping $100 trillion off potential global output by 2050. Investors who ignore the threat of AMR to asset valuations do so at their peril.”^[7] Other investors share Herron’s concern. During the last several years, shareholder advocacy and proxy advisory firms including As You Sow, Farm Animal Investment Risk and Return (FAIRR), and Institutional Shareholder Services (ISS) have supported the engagement of major food producers, retailers, and hospitality corporations on the issue of the overuse of antibiotics by factory farming operations in the companies’ supply chains. Engaged companies include: Costco, McDonald’s, Walmart, Wendy’s, and Yum! Brands. Some of these major buyers have committed to reduce the level of antibiotic use in their supply chains, which will put pressure on factory farming supplier conglomerates including Cargill, Hormel, JBS (including Pilgrim’s Pride), and Tyson.^[8]

The factory farming industry is facing increasing regulatory pressure to limit the use of antibiotics

In part, these shareholder proposals reflect regulatory shifts in favor of increased regulation of the administration of prophylactic antibiotics to farmed animals. In September 2018, the Food and Drug Administration (FDA) released its “Supporting Antimicrobial Stewardship in Veterinary Settings: Goals for Fiscal Years 2019-2023.” The five-year action plan “builds upon the important steps the [agency’s Center for Veterinary Medicine] has taken to eliminate production uses of medically important antimicrobials (i.e., antimicrobials important for treating human disease)” and “is driven by the concept that medically important antimicrobial drugs should only be used in animals when necessary for the treatment, control or prevention of specific diseases.”^[9] 

In October 2018, the European Parliament expanded restrictions that had been in place since 2006 when it approved legislation banning the prophylactic use of antibiotics in animal farming by 2022. The ban also applies to imports.^[10] One month later, China announced a timetable for its plan to eliminate the inclusion of antibiotics in animal feed by 2020.^[11] 

Of particular concern for investors in factory farming is that the prophylactic use of antibiotics is not something with which the industry can easily part. In particular, reducing reliance on antibiotics will require that factory farms decrease stocking densities and raise slower-growing livestock breeds.^[12] As global agriculture lending leader Rabobank has explained, they expect reductions in antibiotic-use on factory farms will lead to higher livestock mortality rates, lower feed conversion rates, and higher costs of production.^[13] This is why FAIRR warns comprehensive bans on antibiotics will require nothing less than “a complete restructuring of the infrastructure of the animal factory farm model” and therefore cause meat and dairy producers significant financial harm.^[14] According to industry estimates, a U.S. ban similar to the EU’s would cost producers $4.50 per animal during Year 1 and the industry $700M between Years 1 and 10.^[15]

Footnotes and Sources