First Movers Release Climate-neutral Products Onto Shelves

Rabobank’s beef report asks whether consumers will pay for price increases due to net-zero-carbon beef.

According to Rabobank’s latest beef report, companies are taking next steps to meet goals for reducing emissions. With consumers already paying more for beef, the big question is: Will the market be able to support a further lift in beef prices to offer a “premium payment” for net-zero-carbon beef?

Cattle prices across the seven major exporting countries remained strong through the first quarter of 2022. Low inventory and favorable seasons in Australia continue to support cattle prices, while firm consumer demand supports U.S. prices, despite the higher-than-expected production and cattle-on-feed numbers in the first quarter resulting from dry conditions.

Meanwhile, we are starting to see positioning of low-emission and climate-neutral beef products on shelves around the world. Yet it is not an easy time to translate sustainability and emission commitments into action. Consumers aruund the world are paying more for beef now than at any time in history.

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“In our view, the full cost of production (sustainability initiatives aside) is not currently being passed on to consumers. Consumers’ willingness and ability to pay is likely to be tested in 2022 as inflation levels climb around the world,” explains Angus Gidley-Baird, senior analyst of animal protein at Rabobank.

The first signs of softening consumer confidence are already apparent in most markets, with wholesale prices for beef coming under pressure even though production costs are higher. A downward adjustment of cattle prices and upstream input costs will be needed to restore processor margins and to maintain beef’s competitiveness with consumers.

“We expect ongoing adjustments of consumption and margins in all markets as we head into [the third quarter of] 2022,” states Gidley-Baird.

A return on this investment may take many different forms
Regardless of whether the economic outlook makes it a favorable time to invest in production system changes, action is required to deliver on commitments. Several of the first movers in the carbon-neutral beef space are using offsets to generate their carbon-neutral status. These offsets add costs to the supply chain. Yet the reduction of emissions, while saving the costs of offsets, has its own costs. For businesses to implement carbon-reduction practices, a return on investment or revenue to cover these costs is going to be needed.

“We see five possible forms of return, many of which will occur simultaneously: access to the market, access to finance, improving productivity, premium prices, and new revenue streams. Theoretically, such a return needs to sit somewhere above business as usual to incentivize change but below the cost of purchasing offsets to maximize efficiencies,” concludes Gidley-Baird.

Read the whole report here.

Editor’s note: This article was provided by Rabobank. Photo by Kasey Brown.