Initial damage estimates from Hurricane Matthew in North Carolina are in the billions of dollars. A portion of that damage will be from waterways polluted by dead animals and animal waste from large-scale hog and poultry operations. Many of those operations were located on flood plains, and nearly all were contracted to produce for agribusiness giants like Smithfield and Perdue. Should these companies have seen this coming?
Climate models tell us that the number and severity of climate-related extreme weather events like Hurricane Matthew will increase. As a result, corporations are entering into a new era of climate risk that requires a re-evaluation of business models, production methods and supply chains. Governments are struggling to find the resources to pay for clean-up and re-building when disasters strike. These emerging climate challenges are particularly relevant for agribusiness companies.
The big hog and poultry operations in North Carolina fit almost any definition of climate risk. North Carolina is the second largest hog producing state in the country, with much of the production concentrated in largely African American counties (a legal petition is pending with the EPA’s office of civil rights arguing that the poor regulation of CAFOs in North Carolina discriminates against people of color in rural areas). The proliferation of hog farms and associated manure lagoons prompted a moratorium on new hog operations in the state, passed initially in 1997, but operations that were already in place have been allowed to expand, and the hog moratorium did not extend to poultry. Environmental groups have mapped more than 6,500 CAFOs – a mixture of hog and cattle operations, and an additional 3,900 poultry operations – all in North Carolina.
North Carolina has already experienced a series of hurricanes that have overrun hog farms – with Fran in 1996 (loss of 16,000 pigs) and Floyd (30,000 pigs) in 1999, according to Grist. After Hurricane Floyd, the state spent more than $18.7 million to buy-out 42 farms located in flood plains. However, according to the Waterkeeper Alliance and Environmental Working Group, 62 hog CAFOs, 30 poultry CAFOs and 166 open air waste lagoons are still located on flood plains – with many more close to flood plains.
When I visited Duplin County, North Carolina earlier this year, I was startled by how many big hog farms there were in such a small geographic area. I was also surprised how frequently they were located right next to big poultry operations. Many of the hog farms had signs indicating the presence of the porcine epidemic diarrhea virus (PEDv), which caused the death of millions of piglets in 2014. Manure from nearby CAFOs was being sprayed on fields where cows were grazing. All were located right next to waterways and in some cases flood plains. The concentration of different types of animal operations right on top of waterways is very different than what is seen in the Midwest, which has its own CAFO challenges.
Aerial surveys and imaging by the Waterkeeper Alliance and Environmental Working Group found 140 pig and poultry barns had been flooded, along with more than a dozen manure lagoons, by Hurricane Matthew. The flooding has killed up to 5 million chickens, and fewer than 3,000 hogs, says the North Carolina Pork Producers. The scope of the flooding damage associated with manure from the lagoons is still being assessed, but one concern is that it could contaminate the groundwater that provides the drinking water for many North Carolina citizens.
Smithfield, purchased by the Chinese company WH Group in 2013, operates the world’s largest hog processing facility in Tar Heel, North Carolina, slaughtering 30,000 hogs a day. The company owns more than 250 farms, and contracts with more than 1,500 farms in North Carolina. According to the company, floodwaters reached the manure lagoons of three of Smithfield’s contract farmers, but no breaches (when the wall of the lagoon collapses) occurred.
The rising financial costs of climate change has spurred regulators to ask corporations to disclose the potential climate risks of their operations to shareholders. In 2010, the Securities and Exchange Commission (SEC) issued a guidance to include climate change as part of existing risk disclosure requirements. Companies were asked to consider how potential climate regulations and policies, but also physical risks like drought and flooding, would affect their business. Thus far, the level of climate risk disclosure, particularly from oil and gas companies, has not been sufficient, according to the shareholder and investor non-profit Ceres. The SEC is currently evaluating compliance with the guidance to determine whether tougher rules are necessary. House Republicans have passed a bill to block the SEC from enforcing its climate disclosure guidance. The Senate has yet to vote on a similar bill.
International regulators and investors are also emphasizing the importance of reporting climate risk. The Financial Stability Board has organized a task force on climate risk disclosure chaired by Michael Bloomberg to develop consistent rules for all G20 nations. Those new voluntary rules will be presented to the G20 in July 2017. And the world’s largest asset manager, BlackRock, issued a report earlier this year on how investors can no longer ignore climate change, and must adapt portfolios to reflect climate risk.
In the wake of Hurricane Matthew, we took a look at how a few of the major meat and poultry companies in North Carolina reported their climate risk. Smithfield does not explicitly mention climate risk in its SEC filing. The company does acknowledge that “Natural disasters, such as flooding and hurricanes, can cause the discharge of effluents or other waste into the environment, potentially resulting in our being subject to further liability claims and governmental regulation as has occurred in the past.”
One of North Carolina’s largest poultry companies is Sanderson Farms, who said it lost about 250,000 chickens from Hurricane Matthew. In its SEC filing, Sanderson Farms openly acknowledges climate risk to its operations: “Extreme weather in the Gulf South and Mid-Atlantic regions where we operate, such as extreme temperatures, hurricanes or other storms, could impair the health or growth of our flocks or interfere with our hatching, production or shipping operations. Some scientists believe that climate change could increase the frequency and severity of adverse weather events. Extreme weather, regardless of its cause, could affect our business due to power outages; fuel shortages; damage to infrastructure from powerful winds, rising water or extreme temperatures; disruption of shipping channels; less efficient or non-routine operating practices necessitated by adverse weather or increased costs of insurance coverage in the aftermath of such events, among other things. Any of these factors could materially and adversely affect our results of operations. We may not be able to recover through insurance all of the damages, losses or costs that may result from weather events, including those that may be caused by climate change.”
Tyson Foods, which has five food plants in the state, does mention extreme weather in its SEC filing, but not “climate change”: “Natural disasters, fire, bioterrorism, pandemic or extreme weather, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of livestock or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors could have an adverse effect on our financial results.”
As corporate compliance with the SEC’s climate risk guidelines evolves, new areas of climate litigation are also emerging. In the U.S., current climate-related litigation is largely focused on efforts by the oil industry to mislead the public about climate change. Earlier this year, 20 States Attorney General launched an investigation of Exxon and other fossil fuel companies, looking into allegations of fraud and suppression of climate science (Exxon is aggressively fighting back). A lawsuit from the Conservation Law Foundation charges that Exxon knew about the effects of climate change, but did not act to protect its facility on Mystic River from the coming effects of climate change, putting residents at risk.
The next phase of climate litigation is drawing from the ability to attribute historic pollution to specific companies, and efforts to deny climate change itself when companies knew better. “What is emerging is a new wave of climate litigation which, as was the case in tobacco litigation, benefits from enhanced scientific analysis and unequivocal revelations,” write attorneys Sharon Eubanks and Allison Cole.
Internationally, litigation around climate liability is largely focusing on polluters in the energy and fossil fuel industry. A Peruvian farmer is suing German energy giant RWE, one of Europe’s largest historic emitters, for its contribution to climate change as a giant glacier melts and threatens his farm. Pacific Island leaders are exploring legal action targeting leading fossil fuel companies. And the Commission on Human Rights in the Philippines has filed a legal complaint against 47 of the world’s biggest industrial polluters associated with the human rights impacts of climate change.
The backdrop of issues like climate risk and legal liability is the rapidly rising costs to governments of dealing with climate-related events like Hurricane Matthew (initial estimates are $1.5 billion in damages). At the UN climate talks, these costs are called “Loss and Damage.” There is a broad range of estimates on the costs of Loss and Damage, including up to a staggering $400 billion annually by 2030. Measuring loss and damage is inherently difficult, with hard to measure issues like loss of life, or loss of community, or loss of biodiversity, for example.
The Paris climate agreement includes a full article on Loss and Damage, considered a victory for countries vulnerable to, or already experiencing, climate-related losses. The Paris article calls for increased action and support for efforts associated with Loss and Damage – and distinguishes that aid from climate adaptation. In other words, we can invest in more resilient infrastructure and agricultural systems – but events like Hurricane Matthew still will cause immense damage. Developing countries have been particularly vulnerable to extreme weather events (see for example the devastation in Haiti from Hurricane Matthew). The U.S. government resisted the use of the terms “loss and damage” in global climate talks because of concerns about liability exposure. In the Paris article on Loss and Damage, the U.S. won language explaining that the article “does not involve or provide a basis for any liability or compensation.”
As countries gather in Marrakesh this week at the next global climate meeting following Paris, the challenge of providing adequate resources for “loss and damage” is returning. Many developing countries and civil society groups argue that it is developed countries, particularly those with the most historic greenhouse gas emissions, who are most responsible for causing climate change – and thus have a particular responsibility to finance “loss and damage” efforts at the global level.
Climate-related loss and damage is already very real for many parts of the U.S. Earlier this year, an Alaskan community voted to move from a barrier island because of increasing storms and flooding linked to climate change. In January, the U.S. government helped to move the Native American community of Isle De Jean Charles, Louisiana because of continued flooding connected to climate change. On the eastern shore of Virginia and Maryland, government agencies are starting to confront decisions about which outlying communities are worth investing in to save, and which may disappear (including Virginia’s Tangier Island where my grandmother grew up).
In the case of the CAFO model for large-scale animal production, the contracting companies, their investors, regulators and local governments should be assessing the climate risk posed by a system that produces giant manure lagoons vulnerable to intense rainfall. The rapid spread of animal disease, an expected by-product of climate change, is another costly risk that CAFOs have experienced in the last several years, with the PEDv in piglets (2014), and avian flu in poultry (2015).
As with Hurricane Sandy in 2012, the clean-up and re-build in North Carolina will rely on significant public dollars. It is in the public’s interest to assess climate risk, and invest in resilience as re-building efforts begin. But corporations who invested in, and profited from, systems of production that are clearly risky, also bear some responsibility for clean-up costs and re-building damaged farms and communities. Acting now to reduce known risks, including those posed by CAFOs, can help limit the damage from the next hurricane.