The US cattle industry is eating its own tail

The writer is a researcher at the Oxford Sustainable Finance Group 

The US cattle and beef industry is in a bad way. The megadrought currently plaguing the western states has been going on for 22 years, with no signs of abating. The quality of grazing land has declined, raising feed costs and driving the cattle herd to its lowest numbers since 1951. Meatpackers are paying high prices for live cattle, which would normally cause ranchers to increase herd sizes — but that’s not happening. Costs are passed on to consumers, but meatpacking plants are also closing.

Despite all this turmoil, there has been a stubborn refusal within the industry to acknowledge that it is the source of its own destruction. The longer this goes on, the greater the costs will be for everyone involved.

We are in this situation for two reasons: rising temperatures and groundwater depletion. Rising temperatures are the result of greenhouse gas emissions — a not insubstantial amount of which comes from cattle. Methane emitted from cattle has roughly 80 times the warming potential of CO₂ over a 20-year period.

It is true that livestock production makes up a relatively small portion of greenhouse gases globally — somewhere between 12-20 per cent. It is also true that US cattle contribute only a small portion to total emissions from agriculture, approximately 3.8 per cent. However, even with its shrinking numbers, the US still has the third largest herd size in the world after Brazil and India. Furthermore, the fact that methane has a much shorter lifespan than CO₂ (12 years vs hundreds) means it is critical in limiting global warming in the near term — putting cattle front and centre.

There is no silver bullet. Feed additives are only applicable while cattle are in a feedlot as opposed to grazing, and questions remain on their economic viability. Reports that the industry could reduce emissions by 30 per cent are based largely on sequestration rather than direct methane abatement. In short, the beef industry cannot be fully decoupled from its emissions.

Next, the long-running drought is exacerbated by the perpetual over-withdrawal of water from the Colorado River and the Ogallala Aquifer. Most of this goes to producing animal feed, with dairy and beef several times more water intensive than other sources of protein.

The reality is that the cattle industry is eating its own tail — using up the very resources it needs to sustain itself. It is a clear example of “double materiality” — whereby an industry is the victim of the physical risks it creates for itself. With warming and water depletion rates on their current trajectory, it will not be able to recover its former scale. Instead it will continue to phase down with more and more stranded assets including machinery, meatpacking plants and, if water levels can no longer sustain agriculture or development, land.

Reality has struck and its financial implications are both unavoidable and unattractive. There are two options from here. The first is that the cattle industry, policymakers and investors wait for the inevitable to be forced upon them. Or, more proactively, the industry could be supported through a well-planned transition process, in which both government and lenders make a concerted effort to support cattle ranchers in moving to alternative livelihoods.

More ranchers than we think may be ready. One farmer in Oklahoma told me he wanted to get out of cattle and plant stone fruit trees on his land but struggled to get a loan because it would take too long to generate cash flows. Creative transition finance mechanisms will be critical in supporting ranches through this process. Direct payments for retirement may also need to be considered.

The alternative is for the cattle industry to continue ignoring the climate risks already hurting it and be left with nothing at the end of it. This is a problem of our own making. Only by our own hands can we circumvent it.

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