There are more than 800 food-related processing and manufacturing companies doing business in Northeast Ohio. The products and ingredients produced by these companies are shipped all over the world. Additionally, consumers are purchasing food products grown and processed globally.
Leo G. Walter III, executive vice president of Aon Risk Services Inc., says the agribusiness and food processing industries have their own unique risks that require a special approach to mitigate.
“As your advocate, a risk management firm can not only help you identify those exposures, but it can help you develop the strategic business solutions to manage them so you can devote your resources to growing your business,” says Walter.
Smart Business spoke to Walter about how companies in these fields can mitigate their exposures to risk, and why it can have a huge effect on their success.
How can a risk management partner help an agribusiness or food-related company?
Every industry faces traditional and nontraditional risks. By utilizing perspective on the agribusiness and food system industry, a risk management partner can show you how nontraditional risks impact every aspect of your organization, from corporate compliance to information technology to human resources. Then, you can effectively and proactively reduce volatility, stabilize earnings and control pre- and post-loss risk exposures.
An enterprise-wide risk management and audit process provides an organized and thorough approach to risk identification and assessment. It can help you target nontraditional risks unique to your business such as the impact of a crisis on your brand and reputation, perception and acceptance of genetically engineered food worldwide, and trade policies and restrictions.
How can manufacturers, processors and distributors manage the impact of globalization?
Globalization has changed the way we feed the world. National and regional boundaries have vanished. Produce grown in Puerto Rico is eaten in Kansas. Pigs from Canada are shipped to Iowa and processed in Missouri. Ranchers in Argentina export their beef to France. To succeed in a globalized environment, your organization must proactively manage areas of concern including import and export laws and trade restrictions, governmental and regulatory reforms, and genetically engineered food.
Changes in import and export laws can significantly affect your ability to conduct business overseas. As trade restrictions and government regulations evolve across a variety of issues, including the ability to sell genetically engineered food to certain regions, you face strategic and financial business risks.
What should businesses look for in a risk management firm?
Look for a firm that has agribusiness and food system experts. This is important because they can help you plan for changes in import and export laws, trade restrictions and governmental regulations. Doing business on a global scale does not mean you should be vulnerable to constant shifts in the political, economic and business landscapes of regions around the world.
Also, look for a firm that uses proprietary analytical tools and risk management methodologies to create a powerful global knowledge base that will help you target the specialized risks in your industry.
How can you protect your value chain?
As part of a highly integrated industry, your value chain is complex. It requires interdependent relationships with suppliers, vendors, partners, consumers and customers around the world.
Conducting business in global markets exposes you to unforeseen volatility and places your business at risk. Nonperformance of key suppliers or service providers, as well as labor disputes, wars, economic upheaval or natural disasters, can disrupt a company’s normal trade practices.
The results are significant: lost or damaged assets, lost sales and substantial unbudgeted expenses, including contractual penalties and expedited costs. To protect your business interests around the world, you must address key risks such as supply chain disruptions, commodity price risk, and negative financial impact due to interdependent or volumetric risk.
There are tools that can help you understand and manage the risks of conducting business in potentially unstable regions. A political and economic risk map can analyze data collected by trade credit and political risk underwriters. The map’s supply chain vulnerability index ranks the top 50 countries that U.S. and European companies rely on most for imported goods and services.
How can a risk management firm help a company improve its food safety and security?
The well-publicized outbreaks of mad cow and foot-and-mouth disease, combined with the increasing risk of bioterrorism, have brought the issue of food supply safety into the harsh spotlight in communities around the world. When one component of the food chain is deemed unsafe, the dependent parts of the chain are damaged along with it.
In this age of open access and media scrutiny, your business faces key challenges in food safety and security such as foreign and domestic terrorism, accidental and malicious contamination, and product recall and reputational damage.
Risk management experts develop cost-effective risk funding and transfer options to mitigate your business risks. They conduct extensive site surveys, design security systems that blend tampering deterrence with acceptable public interfaces, and adopt standardized security approaches at your facilities. They use their broad experience and international network of resources to conduct threat assessments on a multinational level and across the enterprise, helping you implement robust internal controls.
Leo G. Walter III is executive vice president of Aon Risk Services Inc. Reach him at (330) 836-8866 x126 or Leo_Walter@ars.aon.com.