The need to face endemic risk
Extreme weather, labour shortages and rising cyber threats have dominated the agribusiness industry the last two years. But in 2022, technology and a fresh risk management approach will help manage these challenges.
In 2022, better preparation will help agribusinesses better cope with the immense level of endemic risks in the industry.
Labour shortages have affected multiple points of the supply chain from the field to warehouses to logistics
If there’s one word that can describe agribusiness, it would be “unpredictable.”
The whims of Mother Nature and the pricing volatility created by abrupt shifts in supply and demand are constant in the industry. But in 2021, farms and food manufacturers also had to contend with record weather-related catastrophes, chronic labour shortages and growth in cyberattacks — none of which were entirely foreseeable.
Labour shortages have affected multiple points of the supply chain from the field to warehouses to logistics. As the COVID-19 pandemic continues to pressure the labour market, some businesses have offered incentives for vaccinated employees. The labour shortage in agribusiness — like in most industries — is pushing the industry toward automation.
Underwriting guidelines have tightened and insurers have been reluctant to negotiate more favourable renewal terms. Among other developments, the number of underwriting questions has substantially increased, requiring additional lead time for agribusinesses to secure coverage.
The mantra for the industry: plan and prepare, plan and prepare. Whether it’s a family farm or a major food manufacturer, industry players and their partners will need to lean on all of their experience to cope with risks.
Here’s what to expect in agribusiness in 2022:
Weather conditions worldwide slammed farms and food manufacturers in 2021
The specter of catastrophic weather will make risk management measures critical for securing coverage
1. Risk management will ramp up to cope with weather events
Predicting the exact timing and location of extreme weather events is a fool’s errand.
But it’s no stretch to say that droughts, floods and violent storms will strike again, with profound effects on agribusiness — and through catastrophe (CAT) modelling, it’s possible to assess a farm’s overall vulnerability to extreme weather, if not the exact time and date.
Weather conditions worldwide slammed farms and food manufacturers in 2021, including fires and drought reducing yields in the northern U.S. and southern Canada, frost damaging Brazil’s arabica coffee crop and floods in China affecting livestock and meat processing.1
Floods that hit British Columbia in November 2021 were particularly devastating on area farms, causing hundreds of millions of dollars in damages. It may take a year or longer for farmers to resume operations, if they are able to get back into business at all.2
These continuing weather conditions make risk management measures critical. This includes securing adequate insurance coverage through government programs or private markets; farmers may have to consider parametric coverage for crops that are otherwise uninsurable.
Working with brokers to develop catastrophe (CAT) modelling capabilities can help secure insurance, helping show underwriters just how vulnerable a farm is to extreme weather.
For food processors, it’s incumbent upon them to secure adequate supplies in the face of weather catastrophes, requiring stronger supply chains, alternate materials sourcing and proper insurance to guard against shortages.
1 Bloomberg, “World’s Food Supplies Get Slammed by Drought, Floods and Frost,” July 21, 2021.
2 CBC, "Flood damage could cost farmers hundreds of millions of dollars, B.C. Agriculture Council says," November 26, 2021.
Water conservation efforts will grow based on scarcity related to extreme weather
2. Conservation measures — especially for water — will continue to affect operations at all levels
The drought in western Canada has highlighted the need for water conservation.
The record-setting drought, which has hit nearly every province across the country, is the worst nationwide in nearly 20 years.3 The drought has had major implications for farmers, with less rain and warmer temperatures than usual affecting crop yields as much as 26%.4
Drought has always been a concern in agribusiness. But the focus on water conservation will likely grow in the coming years based on recent scarcity related to ongoing weather extremes.
There’s also a push for energy conservation. Attention to costs and addressing climate change will lead agribusiness to minimize its use of fossil fuels.
3 Statistics Canada, “Impacts of the drought on crop quality indicators,” July 29, 2021.
4 Bloomberg, “Canada Sees Supply of Main Crops Dropping 26% on Drought Impact,” August 26, 2021.
From 2015 to 2020, undeclared allergens accounted for 38% of food recalls nationwide
3. Food safety and recalls on allergens will pack a punch
Although there are a variety of reasons for food recalls, allergens remain a major problem for the industry. Between 2015 and 2020, undeclared allergens represented roughly 38% of all food recalls across Canada.5
Proper risk management means more than ensuring food to be free of contaminants, but also that it is accurately labelled. Also, manufacturing equipment must have no trace of allergens.
Doing so entails thorough, reliable, and consistent cleaning. This is especially critical when the same manufacturing machinery is exposed to foods with and without the priority allergens, which include milk, eggs, crustacean shellfish, tree nuts, peanuts, wheat, soybeans, mustard, sulphites and sesame.
The issue is not just one of product safety but also reputational risk. Food manufacturers will order more voluntary recalls as a precaution to guard against reputational damage. Among the key protective measures are product recall insurance and product liability coverage. These can protect food manufacturers from multimillion-dollar costs related to product recalls and liabilities.
5 Government of Canada, “Statistics: Food Incidents and Food Recalls,” accessed October 29, 2021.
The industry’s reliance on technology makes agribusiness a bigger target for cybercriminals
4. Tech and automation will be a dual-edged sword
Like every other industry, agribusiness is increasing its reliance on tech and automation, particularly in light of labour shortages stemming from the COVID-19 pandemic.
And like every other industry, the increased reliance on technology means cybercriminals will make agribusiness a target.
Take the June 2021 cyberattack on meat packing firm JBS Foods: It paid the equivalent of US$11 million in ransom following a cyberattack that disrupted its North American and Australian operations. JBS had to halt cattle slaughtering at all of its U.S. plants, as well as operations at their Alberta packing plant, for a day.6
JBS produces more than one-quarter of all beef in Canada. A longer shutdown would have led to disruptions in food supply chains and added to rising food prices.
Generally, automation (particularly in food manufacturing) has been a godsend; it improves efficiency and quality control, with less reliance on human subjectivity.
However, greater dependence on automation also increases the need for cyber security, which includes taking thorough measures to attempt to prevent potential cyberattacks. It also means securing proper insurance coverage in the event of a ransomware attack.
Because of the increase in cybercrime, cyber insurance in agribusiness is expected to increase 20% or more in 2022. Worse, insurers are often not renewing or underwriting policies.
With that in mind, agribusinesses need to focus on prevention and deterrence. Third-party audits, multi-factor authentication and employee training are essential. Remember that complacency practically invites cybercriminals into an IT system.
6 Reuters, “Meatpacker JBS says it paid equivalent of $11 mln in ransomware attack,” June 10, 2021.
Moving forward in 2022
With uncertain weather, supply chains depleted by labour shortages and cybercrime on the rise, it’s never been more important to mitigate risk. CAT modelling, increased cybersecurity and even adding benefits to lower-paying agribusiness jobs can help the industry get its arms around uncertainty. Consult with your broker to prepare for 2022.