Child labour and staff shortages in the meat industry pose operational and reputational risks for investors

Recent investigations of child labour in a US slaughterhouse cleaning agency used by Tyson Foods and JBS USA highlight the risks of subcontracting. 6 of the 7 companies do not report data on their temporary or subcontracted workers despite associated reputational and operational risks.

Tyson, JBS USA, and Marfrig are the only companies to disclose information on sick pay. The pandemic exposed the need for stronger sick pay, yet only Tyson Foods reports making an enhanced sick pay policy permanent following the height of COVID-19.

Investors are concerned that no companies disclose current or projected staff shortages, despite the pressing operational risk posed by labour shortages in the industry.

The FAIRR Initiative, the fastest-growing ESG investor network representing over $70trln in combined assets, today published findings from an ongoing engagement between investors and seven major meat companies on working conditions. Investors are concerned that poor labour practices at leading meat firms are contributing to labour shortages in the sector which pose an ongoing financial risk, impacting business productivity and exacerbating production setbacks.The engagement is supported by 77 investors representing $16tn in assets collectively, including Pictet Asset Management and Wespath Benefits and Investments. It asks seven global meat companies to disclose, strengthen, and enforce labour policies that promote a stable, productive, and healthy workforce. Companies included in the engagement were Tyson Foods (US), JBS USA, WH Group (owners of Smithfield) (China), Marfrig (Brazil), BRF (Brazil), Sanderson Farms (US) and Cranswick (UK).Evidence shows that shortages are becoming more prevalent and are linked to poor working conditions, including plant-level health and safety risks faced by workers, which jeopardise companies’ ability to attract and retain willing workers. This is a major risk which is impacting production and profits.

Investors are concerned that poor labour practices at leading meat firms are contributing to labour shortages in the sector which pose an ongoing financial risk, impacting business productivity and exacerbating production setbacks.

In the US, job postings for meatpacking workers increased by 86% between 2017 and 2021. JBS subsidiary, Pilgrim’s Pride, states it is struggling to staff its plants at 100%, and this is impacting profitability. The British Poultry Council already reports that members have cut back chicken production by 5-10% due to shortages, and The British Meat Processors Association cites that its members are 15% short on staff. Belgian industry body Fevia cites labour shortages as one of the main challenges facing its members. However, companies targeted by the engagement fail to disclose current or projected staff shortage data or key actions being taken to attract and retain permanent staff, and Tyson Foods is the only company to have recognised labour shortages as a key business and operational risk.FAIRR’s report highlights that sick pay benefits introduced during the height of the pandemic have been largely repealed or weakened. Only Tyson implemented permanent sick pay provisions as a result of experience from the pandemic – although paid sick days are not available to hourly workers, which constitute up to 89% of its frontline meatpacking staff.Four firms have either repealed enhanced policies or do not report on sick pay. For example, Sanderson Farms offered enhanced sick pay during the height of the pandemic but has since reverted to legal minimum requirements.Marfrig stands out as the most improved company in the engagement, having upped its disclosure across four key areas: grievance mechanisms, sick pay, the distribution of its workforce across employment contract types, and worker representation.Of the 7 companies in the engagement, only WH Group publicly disclose metrics on how many subcontracted workers they employ. The meat sector relies on subcontracted and temporary labour, and these workers are typically at greater risk from their precarious contracts. A recent child labour scandal concerning a subcontractor used by JBS USA and Tyson Foods highlights the risk associated with indirectly employing workers.

The meat sector relies on subcontracted and temporary labour, and these workers are typically at greater risk from their precarious contracts. A recent child labour scandal concerning a subcontractor used by JBS USA and Tyson Foods highlights the risk associated with indirectly employing workers.

Jeremy Coller, Chair and Founder of FAIRR, and Chief Investment Officer of Coller Capital, said: “FAIRR’s investor members are increasingly concerned by the financial risks associated with poor working conditions in many of the leading global meat producers. Poor working conditions disrupt operations, erode health and safety standards and are a clear financial risk for investors in meat companies. During Covid, the meat sector stepped up to address labour risks, however many of these improved policies have been reversed.”Juan Salazar, Senior Engagement Specialist, Pictet Asset Management, said: “Issues around labour rights can represent a material operational, legal and reputational risks to meat producers. Staff shortages are plaguing the industry, owing in significant part to the challenging working conditions faced by workers and the way in which they came to light during the pandemic. This is just one example of many labour risks highlighted in FAIRR’s report.“Many meat producers reacted at the height of the pandemic to provide sick pay and other incentives to workers, but most are failing to make these changes stick. Investor action on working conditions in the meat industry should not falter as the threat from the pandemic reduces. It is imperative that focus is sustained on the poor industry conditions which were exposed by COVID-19, but are not confined to times of emergency.”Jake Barnett, Director, Sustainable Investment Stewardship, Wespath Benefits and Investments, said: “FAIRR’s second Working Conditions report sheds light on the need for continued company and investor action on human capital risk in the food and agriculture business. It also underscores the importance of an intersectional approach to supporting a more sustainable global economy. This report is a valuable resource for those seeking to understand how various sustainability considerations cut across a particular industry in material ways.”UFCW International Vice President Mark Lauritsen, said: “As America’s meat packing and processing union, the UFCW has worked alongside our members, amplifying their voices by fighting for improved safety standards and family-sustaining wages. Meatpacking and food processing workers were on the front lines during the height of the pandemic, risking their health every day to ensure families had food on their tables. Despite this, meatpacking companies have refused to act with the urgency needed to address the serious health and safety risks we continue to see at the plant level.“As FAIRR’s report highlights, it is time for the meatpacking industry to do their part. Pre-packaged statements of support for workers and their freedom of association are not enough. Workers’ rights are human rights, including the right to freedom of association, to organize a union, and to bargain collectively free from reprisal, as recognized in the United Nation’s Declaration of Human Rights and its International Labor Organization (ILO) Conventions. All companies should take immediate, concrete step to ensure that their packinghouse workers’ human rights are protected.“This industry owes it to their workers, their investors, and the public to be transparent about their approach to labor relations and worker safety. Amid a wave of unionization we have seen across the country, this report demonstrates that the diligent work done by the UFCW and unions across the world remains critical.” All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.