Creating Operational Resilience Amid Growing Risks in the Food, Agribusiness and Beverage Industry

Creating Operational Resilience Amid Growing Risks in the Food, Agribusiness and Beverage Industry
January 10, 2024 24 mins

Creating Operational Resilience Amid Growing Risks in the Food, Agribusiness and Beverage Industry

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To feed a growing global population, FAB organizations must build operational resilience to overcome supply chain, cyber, geopolitical and climate risks.

Key Takeaways
  1. Companies face business as usual risks and additional disruptors, which threaten their ability to deliver to customers, safely and on time.
  2. Improving operational resilience goes deeper than safeguarding known supply chains — it requires building a resilient workforce and implementing solid risk financing and insurance strategies.
  3. Identifying and approaching key disruption scenarios at an enterprise level enables businesses to be proactive, increasing the ability to manage critical disruption events and avoid reputational harm.

The food, agribusiness and beverage (FAB) industry must scale to feed a growing global population.1 However, organizations face rising operational risks that critically impact their ability to supply products to customers on time and in safe condition.

The coronavirus (COVID-19) pandemic spotlighted operational resilience in the industry, catalyzing the need to reassess traditional practices and risk strategies. While 42 percent of FAB organizations experienced supply chain acceleration due to forced improvements during the pandemic, 40 percent of businesses faced raw material supply issues.2

Multiple forms of disruption continue to threaten supply chains. From traditional transport and logistics risks to additional disruptors, such as cyber threats and climate change impacts, organizations and their people face challenges today that demand adaptability and agility.

As growing geopolitical tensions and rising consumer expectations strain material availability, production and output, food costs continue to rise. Food price inflation now exceeds overall economic inflation in 78 percent of 163 countries, including the African, North American, Latin American, South Asian, European and Central Asian regions.3

To feed an increasing global population and achieve the aspirational United Nations goal of eradicating world hunger by 2030,4 FAB businesses and their people are confronted with the vast responsibility of building operational resilience. This will allow businesses to not only withstand critical disruptions and avoid reputational harm, but also thrive in the face of unpredictability.

Avenues of Operational Risk in Food, Agribusiness and Beverage

While operational risks are manifold, they can be attributed to two main categories: business as usual and additional disruptor risks. Across both avenues of risk, organizations are challenged to meet consumer expectations, ensure supply chain efficiency, respect wider corporate social responsibilities and achieve sustainability targets.

Business As Usual Risks

Production and operations in the FAB industry are perpetually challenged by business-as-usual risks:

  • Disease

    While the pandemic brought disease risk in human capital terms into sharp focus, the FAB sector has long been accustomed to viral threats. From crop failures to bird flu outbreaks, diseases are devastating for food production — an estimated 20 to 40 percent of crop yield is lost to pests and diseases globally.5

  • Logistics

    Supply chains in the FAB industry are complex, automated, global and fast-moving, operating on a “just in time” (JIT) basis. Whether transporting goods by land or by sea, there are many risks associated with shipping, such as fuel shortages, weather events causing road infrastructure issues, port blockages, collisions, stranding and more. These delays all severely impact JIT delivery.

  • Employee Availability

    From warehouse operatives in production facilities and truck drivers in logistics, to operations directors in global organizations, a shortage in staff across any link in the supply chain drastically impacts JIT operations.

  • Supplier Insolvency

    An insolvent supplier can send shockwaves through supply chains. While businesses should have a process to identify red flags — for example, a supplier missing shipping dates or where quality control issues arise — it is challenging to track insolvency in complex supply systems.

Additional Disruptor Risks

Whether through technology advancements that create digitized, end-to-end operations or the impacts of climate change, new risks are emerging that demand greater resilience from businesses and their people. Without embedded operational resilience, major financial, human capital and reputational harm is possible.

  • Cyber Risks

    Supply chains are increasingly exposed to external cyber and ransomware attacks. As many organizations adopt artificial intelligence (AI) to increase operational efficiency, the complexity of supply chain expansion and the cross-use of AI within them are introducing new threat profiles that are just starting to be understood from a risk perspective. In addition, the use of AI to engage consumers with tokenized assets/NFTs is also increasing the risk of potential personal customer data exposure.

    Organizations need to protect themselves from internal cyber threats and attacks. Since 2020, the number of insider cyber threats, both inadvertent and malicious, has risen by 44 percent.6

  • Geopolitical Risk

    Business can be impacted by political instability in regions where material sourcing, production and supply chains operate. The inflation of raw materials and energy supply following the Ukraine conflict has forced businesses to raise prices, placing a subsequent strain on consumers. Commodity prices can rise when countries impose trade restrictions and barriers, for example India’s ban on non-basmati rice exports has raised prices in key exporting countries by around 20 percent.7

  • Human Capital Risk

    Organizations struggle to access and retain talent across their enterprise, from production operatives to leadership positions due to shifting expectations from employees and employers.

    The evolving demands from purpose-driven Millennials and Gen Zs call for authentic action from companies. From communicating environmental values to developing company culture, employees are drawn to join — and belong — at organizations that express genuine purpose. Individuals within a workforce are voting with their feet and walking away from roles when their lived experience doesn’t match what was promised.

    In today’s connected world, businesses use digital and social media to increase customer awareness of how they treat their people. If their values are not aligned, or a story about the poor treatment of employees arises publicly, customers are prepared to switch brand allegiances. When a negative story breaks out about an organization, its investor worth and talent pipeline are impacted. In fact, in the year following a major reputational crisis, organizations face a 26 percent loss in shareholder value, while the impact on prospective talent pools can linger well into the future.8

  • Climate Change Risks

    Raw Material Availability

    For climate-sensitive products from a specific area, such as grapes from champagne, changing weather patterns put provenance and produce quality at risk.

    Greenwashing

    As the potential for climate-related greenwashing cases increases, businesses must be more transparent when publicly communicating their environmental, social and governance commitments, and the progress they are making to deliver on their promises. Through social media, consumers have a bigger, more accessible platform to hold firms accountable to their commitments.

    Emission Reduction Costs

    If businesses do not adhere to new government policies on carbon emissions and adapt to sustainable consumer behaviors, such as reducing meat consumption, their value could decline by an average of 7 percent by 2030.9 Across the industry, this equates to around $150 billion in investor losses.10

Quote icon

Creating resilience in people, processes and risk financing means that when a business experiences disruption, irrespective of what the cause is, muscle memory across the organization kicks in."

Ciara Jackson
Food, Agribusiness and Beverage Industry Practice Leader at Aon

The Recipe for Operational Resilience

If organizations in the FAB industry aren’t inherently resilient, business as usual risks and additional disruptors will cause major setbacks. Operational resilience is critical to thrive despite known and unpredicted risks. The following tips will help guide the way forward for a stronger business future.

1. Assess and Integrate Cyber Solutions

Whether from insider or external threats, all leaders need a digital game plan to withstand malicious cyber attacks. As cyber attacks become more sophisticated, organizations must invest in cyber resilience that extends throughout their whole enterprise — from supply chains to internal communication systems. Effectively managing the full risk life cycle will move them toward sustainable cyber resilience.

2. Prioritize Sustainable Solutions

Organizations across the FAB industry are adopting sustainable practices like regenerative agriculture and renewable energy partnerships. Prioritizing the reduction of environmental impacts and investing in climate-positive innovations will help build a more resilient and profitable future, improve organizational reputation and align with employees' ethical values.

3. Map out Key Disruption Scenarios and Risks at the Enterprise Level

Mapping out potential disruption events and running response tests will help to build a resilience muscle within an organization. These events should be treated as enterprise risks and responded to by cross-functional teams. Operations risk is no longer the sole responsibility of the operations manager or insurance department, nor should human capital risk fall solely on the shoulders of HR managers. Today, risks must be addressed by the executive leadership agenda and rolled out across the entire enterprise.

4. Use Captives to Mitigate Unknown Risk

Organizations must look ahead to mitigate unknown risks that are almost certainly going to impact their business at some point. Through a captive, organizations can incubate that risk and start to build a risk profile informed by data. By using a captive, organizations can cover specialized or emerging risks that the insurance market may not yet have an appetite for.11

5. Overcome Insolvency with Supply Chain Finance

Supply chain finance solutions allow suppliers to be paid earlier — alleviating cash flow difficulties. In this way, a business can optimize its working capital without negatively impacting its suppliers. Supply chain finance can also enhance brand reputation — by paying suppliers earlier, they can limit the damaging reputational harm of late payment.

6. Leverage Risk Tools and Resources

Engaging with actuarial modeling through Aon’s proprietary Risk Finance Decision Platform 2.0 will help organizations better understand their risk appetite and risk tolerance. Once a tolerance level is understood, existing insurance can be assessed, enabling the purchase of the optimal level of insurance.

7. Collaborate Across the Value Chain

Sharing your challenges with others and pulling together to overcome the problem is at the core of what it means to be resilient. Organizations can benefit from partnering across their value chain, and even collaborating with competitors where there is a common problem that needs to be addressed.

8. Address Human Capital Needs Across the Enterprise

With a shifting talent profile, employees have expectations around benefits, flexibility and their work environment. At the same time, stakeholders demand an up-to-date picture of the risks and opportunities around human capital. Using a digital business insights (BI) tool that tracks what employees are saying, and how they perceive the company in real-time, enables an organization to dynamically adapt to changes and meet the needs of its people.12 A BI tool provides a unified view for decision-makers to set strategies and priorities around human capital.

9. Define and Communicate EVPs for Diverse Workforces

As employees have different needs at work and in life, it’s crucial to define and communicate an employee value proposition (EVP) that caters to the diverse people within an organization. This is not only in terms of gender, ethnic background or age, but also the diverse skills needed for the innovative and sustainable future of work. Diversity of thought and expertise brings with it a diverse approach to ways of working. Global organizations should identify talent pools and their locations, assessing talent needs to build attractive EVPs through benefits, reward strategies and flexible working models.

10. Integrate Wellbeing for Better Operations

Integrating a wellbeing strategy and benefits solution across an enterprise not only increases employee satisfaction and improves employer reputation, but it also improves efficiency. Even during times of change, innovation and uncertainty, organizations that targeted wellbeing solutions benefited with a 20 percent increase in performance.13 Improving employee wellbeing factors can enhance business performance by at least 11 percent and up to 55 percent.14

11. Connect Risk Capital and Human Capital

Connecting risk capital and human capital can improve the ability to deal with risk. When organizations work on improving their human capital strategies, risk capital will also benefit, as human capital claims reduce. A captive is an ideal risk financing vehicle to retain risk, incubate emerging risk, and diversify portfolios by including other lines of cover, such as employee benefits or pensions.

Preparing for Tomorrow’s Challenges Today

The FAB value chain is constantly evolving. It aims to improve business through sustainable and efficient operations that meet the needs of the planet's growing population. To achieve these ambitions, the industry must scale its processes to keep up with demand, while carefully balancing the needs of workers and the challenges of daily operations in the face of increasing threats.

While shocks to the supply chain are difficult to predict, they occur regularly. Solely safeguarding known supply chain processes won’t protect businesses from the growing risks associated with food production, whether that’s the impact of climate change on supply chains or human capital challenges. When it comes to people, businesses must clearly define and communicate their EVP and make good on their people promises. If not, employees' loyalty will be challenged, amplified by values-driven consumers. Building a resilient, happy and healthy workforce, and implementing risk financing strategies are fundamental for creating operational resilience that mitigates business as usual and additional disruptor risks.

Failing to establish inherent resilience across an organization leaves businesses vulnerable to significant financial and reputational harm. By approaching risk proactively rather than reactively, businesses can unlock optimized operational resilience.

Preparation is everything. By identifying key disruption scenarios before they happen and mapping out risk responses at an enterprise level, organizations can thrive and grow in the face of inevitable uncertainty — securing a better future for the business, its people and the planet.

Improving employee wellbeing factors can enhance business performance by at least 11 percent and up to 55 percent.

Source: Aon’s 2022-2023 Global Wellbeing Survey

Learn More
Quote icon

Failing to establish inherent resilience across an organization leaves businesses vulnerable to significant financial and reputational harm. By approaching risk proactively rather than reactively, businesses unlock optimized operational resilience."

Richard Waterer
Global Risk Consulting Leader, Commercial Risk Solutions

1Aon’s Climate Change Challenges the Food, Agriculture and Beverage Industry
2Aon’s Operational Resilience in the Food, Agribusiness and Beverage sector
3 Food Security Update | World Bank Response to Rising Food Insecurity, The World Bank, 2023
4 This is the state of food security in 2023, World Economic Forum, 2023
5 Global Burden of Crop Loss, CABI
6 2022 Ponemon Cost of Insider Threats Global Report, Proofpoint, 2022
7 Global rice supplies tighten after India's July export ban, Reuters, 2023
8Pentland Analytics’ and Aon’s Respecting the Grey Swan
9 Farm and food investors face $150 billion loss on climate change, report says, Reuters, 2022
10 Ibid.
11Aon’s Captive Insurance
12Aon’s Digital Business Insights (DBI) Platform
13Aon’s HR Plays a Pivotal Role as People Risks Become Business Risks
14Aon’s 2022-2023 Global Wellbeing Survey

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