We are pleased to launch the third edition of our News Feed newsletter, which provides news, opinions and advice on risk and insurance topics affecting food & agri companies. Our main feature looks at how food and agri firms operating internationally should consider how more challenging trading conditions could impact their operations.
ARTICLES COVERED IN THIS EDITION
Business interruption from all angles
Food and agri companies face business interruption exposures in virtually every aspect of their operations. For example, disease affects crops, animals and harvest yields, and it can decimate supply chains in a very short space of time. In recent years outbreaks of avian flu and foot-and-mouth disease have wreaked havoc. Distribution problems have brought many major companies to their knees and the recent problems experienced by fast food giant KFC demonstrate just how quickly issues can escalate.
Understanding the reality of a product recall event
You can’t shift a car from sixth gear straight into reverse, but that’s exactly what a major product recall incident demands of your business. Businesses focus on selling products and/or services to customers. A product recall event reverses that focus and, instead of pushing product out, you’ve suddenly got to pull it back. Few companies understand the practical implications of a product recall event or have the skills to execute one effectively.
Insurance market update
It was an ill wind that blew through the natural catastrophe market last year. But even the losses from the most expensive hurricane season on record haven’t delivered the corporate insurance rate hikes that many expected. The bottom line is that for investors, insurance remains attractive. At a macroeconomic level, global interest rates remain low, and the returns offered by insurance stand up well.
Food and agri companies import and export huge volumes of product around the world. A lot of it passes through centralised transport hubs and third parties look after it for most of the journey. The old adage says that possession is nine tenths of the law but, in reality, the third parties who transport and warehouse your goods don’t own them. But when they’re handling such large quantities of valuable products, how do you make sure they’re not misappropriated?
Preparing for a major food & agri claim
Businesses in the food and agri sector are meticulous about their proposition. They would never launch a new product or service without first testing it extensively. Why, therefore, do so many companies not stress-test their insurance programmes before they ever have to make a claim?
Product contamination sits right in the middle of the risk radar for the food and agri sector, but not enough attention is given to the business interruption losses that can flow from a contamination and recall event. By failing to prioritise the business interruption exposure associated with a contamination and recall event, companies are often ill-equipped to respond appropriately and mitigate a loss that can escalate quickly into administration proceedings.
M&A activity is on the increase
Industry figures show there were 727 food and drink acquisitions in 2017. This was up on the 626 deals recorded in 2016. In the five years from and including 2013, the number of deals completed annually has jumped by 53%.The food and agri sector hasn’t always been the first port of call for investors. Some were concerned about the continued capital expenditure needed to maintain premises, plant and machinery. Others felt simpler, more attractive returns were available elsewhere.
Food & agri claims case study
It operates from port-based premises receiving input material for fertiliser, which is then processed for wholesale UK distribution. Given its dockside location, it was vulnerable to a tidal surge and, when one struck, it found itself with a major flooding event on its hands. There was widespread damage to raw material, work in progress, finished goods, plant, machinery and building assets.
An unprecedented shortage of carbon dioxide has already put bakers on the back foot and threatens to see British beer taps run dry. This is a bad state of affairs at the best of times but, in a World Cup year when the UK is basking in a tropical heatwave, it is only a whisper away from being a national emergency.
For further information contact Simon Lusher, Head of Food & Agri for JLT Specialty on +44 (0) 20 7459 5550