Supply chains within the agri-food sector are extremely complex, with stakeholders spanning downstream food retailers, restaurants and manufacturers through to the farmers and protein producers upstream.
This global network of direct and indirect suppliers exposes investors, companies and broader society to material sustainability risks that can derail investment returns and threaten the long-term viability of our global food system if they are not addressed.
The increase in supply chain losses has exceeded expectations over the last two years, according to 73% of food, beverage and agriculture senior decision-makers surveyed by WTW.
Moreover, the food sector suffers from greater exposure to supply chain risks compared to other industries. Morningstar found that from 2012 to 2023, food products companies, which comprised just 11% of the 1,351 firms sampled, were responsible for 1,638 supply chain incidents with adverse ESG outcomes — more than a quarter of all incidents identified.
This Insight discusses some of the material risks prevalent in global food supply chains and highlights how conducting supply chain analysis, using FAIRR’s Supply Chain Analysis tool, for example, can help investors make more informed investment decisions, mitigate risk and improve the effectiveness of company engagement.
Why supply chain risks matter to agri-food investors
The performance of food retailers is highly dependent on the meat, dairy and fish suppliers whose products make up a significant proportion of the industry’s revenue, with meat being the largest individual market within the food sector, accounting for US$1.55trn in revenue in 2025.
As such, the commitments, targets and policies set by manufacturers and retailers often hinge on the practices of these upstream suppliers – if protein producers do not address sustainability risks in their businesses, it can affect the entire value chain.
Furthermore, the feed used in livestock and aquaculture cultivation creates an additional layer of risks and opportunities that downstream retailers need to account for.
The substantial material risks prevalent in food retailer supply chains range from child labour and modern slavery to deforestation-linked beef and soy production in protected regions such as the Amazon rainforest and the Cerrado, as highlighted by the 2024 Coller FAIRR Protein Producer Index key findings.
Ignoring these risks could be costly to investors and their portfolio companies, with the potential to affect their financial performance due to the range of adverse outcomes they can lead to:
Operational disruptions
Retailers may face rising costs, pricing constraints, restricted stock and product defects and recalls if suppliers suffer production and delivery disruptions or fail to meet quality standards due to unaddressed sustainability risks. BNP Paribas raises operational risk due to nature loss as a concern in a shareholder resolution it filed at McDonald’s Corp, for example.
Reputational damage
The CSR controversies of suppliers can negatively impact the market value of their buyers, as this study highlights.
Regulatory sanctions
Suppliers' failure to comply with existing regulations could affect their financial performance and that of retailers through legal actions, fines, market bans and restricted access to capital.
The introduction of wide-ranging ESG disclosure regulations, such as the EU Corporate Sustainability Due Diligence Directive, also elevates the need for companies to understand and address supply chain sustainability risks.
Examples from the protein sector exemplify the negative financial impacts associated with supply chain risks. Poor working conditions in US meatpacking plants during COVID disrupted production and made it difficult for retailers to meet consumer demand.
More recently, UK protein producer Avara Foods is facing a potentially multi-million-pound lawsuit for damaging the River Wye through its suppliers spreading manure in the surrounding area.
To help investors in food retailers and restaurants understand their exposure to supply chain risks, FAIRR has launched the Supply Chain Analysis tool.
It highlights the active supplier-customers relationships between 21 large, global food retailers and restaurants, including Walmart, McDonald’s, Costco and Tesco, and some of the protein producers, covered by the Index, that supply them.
Driving allocation decisions, engagement strategies and company value
Being aware of supply chain risks and opportunities in their agri-food portfolios can help investors allocate capital accordingly.
Investors can also leverage supply chain analysis to inform company engagement strategies by identifying which companies are most exposed to risks and which risks are most pressing.
For example, the Index shows that 29% of the suppliers evaluated in the Supply Chain Analysis tool are categorised as high risk, 47% as medium risk and 24% as low risk, highlighting the variation in supply chain risks across the sector.
Furthermore, any advanced practices identified during supply chain analysis can be used by investors to promote better risk mitigation and incentivise positive change across supply chains, as Allianz highlights.
Critically, it can also help investors generate long-term, sustainable value. An EY survey of 525 executives found that 98% had experienced or expected to see an increase in shareholder value over the next five years as a result of sustainability initiatives in their company supply chains.
Analysing human rights risks using FAIRR’s Supply Chain Analysis tool
On human rights risks, the Index analyses protein producers on their public policy commitments to internationally recognised human rights such as those outlined in the Universal Declaration of Human Rights, on their approach to assessing, monitoring and mitigating risks and on whether they disclose actions taken to address such risks.
Examining a sample of food retail companies – Amazon (Whole Foods), Carrefour, Costco, Kroger, Tesco and Walmart - FAIRR’s Supply Chain Analysis Tool demonstrates that, although these retailers have policies outlining their expectations of suppliers, human rights risks in their supply chains remain high.
These companies are supplied by 22 producers covered by the Index, 16 of which have a medium- or high-risk rating on human rights.*
Figure 1: Supply Chain Analysis tool company example
Note: Human rights risk levels at Walmart suppliers covered in the 2024 Coller FAIRR Protein Producer Index
Only six of these 22 protein producers disclose using a robust human rights due diligence framework that reviews country dynamics and ranks risks by severity and likelihood to assess human rights risks in their operations and those of their suppliers.
Just two publicly report details of the risks found and how these are remediated, including Danone, a supplier of the retailers in the sample, which has a best practice rating on its human rights disclosure.
Investors with exposure to these multinational retailers could highlight this approach in their engagements as a positive example for other suppliers to follow or adopt.
Child labour in US meatpacking |
The case of child labour in the US meatpacking industry highlights how material risks can quickly escalate, as FAIRR has previously discussed. In 2023, two suppliers common to all these companies, JBS and Tyson Foods, were found by a Department of Labour (DOL) investigation to have employed children illegally through their sanitation provider, Packers Sanitation Services Inc (PSSI). Since the investigation, JBS has issued a public response, cut all contracts with PSSI and reached an agreement with the DOL to pay US$4 million to assist those affected by child labour in the US. Tyson Foods faces a separate investigation but has not issued a public statement or reported corrective actions beyond terminating PSSI services where DOL investigations were confirmed. As of September 2024, the Index found that neither JBS nor Tyson Foods have disclosed having robust human rights due diligence procedures, suggesting there is room for improvement in how both companies identify and address human rights risks. |
Future-proofing portfolios and food systems
Supply chain analysis is critical for investors within the agri-food sector to mitigate risks that threaten the financial stability and long-term sustainability of the world’s food system.
By leveraging FAIRR’s Supply Chain Analysis tool in their research and due diligence, investors can gain deeper insights into these risks, improving their investment decisions and engagement strategies.
Integrating robust supply chain analysis can safeguard portfolios against pitfalls and crucially, can contribute to sustainable value creation within the food industry for the coming years.
The Coller FAIRR Protein Producer Index and Supply Chain Analysis tool are available to FAIRR members. If you would like more information on joining the FAIRR Investor Network, click here. |
*The Supply Chain Analysis tool only includes a subset of retailers’ suppliers and does not give retailers an overall sustainability score.
FAIRR insights are written by FAIRR team members and occasionally co-authored with guest contributors. The authors write in their individual capacity and do not necessarily represent the FAIRR view.
