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1、From farm to fork:Rethinking food and drink supply chainsPart 2:The food and drink industry From farm to fork:Rethinking food and drink supply chains 02ContentsAn introduction to the food and drink industry 03Food and drink supply chains 07The subsectors of the food and drink industry 09Supply chain
2、 risks 14What do we mean by supply chain risks?15What supply chain risks are food and drink businesses concerned about?16The future risk landscape 31Supply chain risk management approaches 38References 44Key:Client quotes Insurance case studies Acceleration opportunity with industry partners General
3、 sector insightsAn introduction to the food and drink industry An introduction to the food and drink industry From farm to fork:Rethinking food and drink supply chains 04An introduction to the food and drink industry From farm to fork:Rethinking food and drink supply chainsAn introduction to the foo
4、d and drink industry Food and drink is one of the largest global industries,with a total revenue almost$11 trillion USD in 20211.It is a dynamic and complex sector that underpins global resilience.In addition to direct operational issues and strategic goals,food and drink companies are also very rel
5、iant on the actions of their suppliers and customers.Food and drink supply chains operate at different scales and levels,from the shortest(from garden to table),to long,highly complex globalised supply chains(from farm to fork)as ingredients come together in products that we are all familiar with.Bu
6、sinesses transformed themselves to adapt in the pandemic.Now,as the world continues to reopen,they are looking to maximise the potential from these changes and years of investment in understanding and managing their supply chain risks.This continued transformation will be essential with the worlds p
7、opulation forecast to reach 10 billion by 2050,and demand expected to continue to grow significantly land twice the size of India is expected to be needed by that time to support a 70%increase in food production2.Meeting this need will require action across the value chain:eliminating pests and dise
8、ases;preventing loss in transport and distribution through poor storage;reducing food waste by retailers and consumers;and through supporting the transition to a low carbon economy.60%Fastest growing countries%0%30%40%20%10%50%SudanGuyanaEthiopiaIranSurinameZimbabweTogoHaitiLebanonGambiaKey revenue
9、markets(bn)China 178.3US 128.7Japan 39.5UK 19.4India 16.2South Korea 15.3Germany 10.7France 7.5Australia 7.5Indonesia 6.8The food and drink industrys global revenue is dominated by China and the US,with fast growth in key countries around the world3.Strong underlying growth factors such as populatio
10、n,urbanisation,and the expansion of the middle class translate into strong demand for the outputs of the food and drink industry.Box 1From farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply chains 0506An introduction to the food and drink industry
11、An introduction to the food and drink industry Attributes of the food and drink industry There are acquisition opportunities within small embryonic companies with a similar vision and good ethos around climate change and sustainabilityDirector of Group Risk and Assurance,food manufacturer All big me
12、at processors are getting into plant-based production or diversifyingJournalist,Food Trade Journal Most large multinationals have enough power in their scale and product range that they can manage their relationships with supermarkets and pass on prices fairly wellSector expert,global accountancy fi
13、rm Regulation is an ever-increasing burden on the business.More legislation and sustainability requirements keep driving change and cost into the sectorHead of Group Risk,global drinks companyHighly competitiveRelationship drivenFast movingHighly regulated High consumer expectations and pressure on
14、price,quality and sustainability There is high competition for shelf space,and discounters have a strong market influence on price and product range Cost pressures upstream and cost pressures downstream Efficiency increasingly important with growing technology use for operational gains Local labour
15、demand competition at all levels,from operative to management Economies of scale sought through growth ambitions Early-stage(particularly tech-enabled)businesses are attracting private equity investment Labour is key,and in many subsectors there is a reliance on a migrant workforce and older,more ex
16、perienced management Grocer/retailer partnerships and integration common Communities matter,whether thats logistics relationships or sourcing new ingredients in the face of climate risks.In an increasingly connected world,broader relationships are needed with yet more stakeholders,and collaborative
17、risk management is more important Brand and reputation dependent upon quality and reliability Adaptability,flexibility and speed are key to survival Constantly changing consumer behaviours and preferences Just-in-time manufacturing Fragility to market shocks and supply chain disruption Working from
18、home dynamic started during the pandemic continues to unfold as all businesses consider the future of work Fast-paced,which means companies can focus too much on the short-term Continual product and process innovation Pressing environmental impact demands With a core hallmark being safe and secure f
19、ood,the industry must meet mandatory standards across occupational health and safety,food safety standards,human rights,or infectious disease rules.Taxes and penalties can be severe Increasing expectations around Environmental,Social,Governance(ESG)and international expectations,from consumers,gover
20、nments,and regulators both internationally e.g.United Nations Sustainable Development Goals or TCFD,and country specific obligations,e.g.British Retail Consortium net zero 2040 or national resilience strategies around food securityFrom farm to fork:Rethinking food and drink supply chainsFrom farm to
21、 fork:Rethinking food and drink supply chainsFood and drink supply chains Food and drink supply chains 0708Food and drink supply chains The industry is made up of a series of subsectors where food and drink products are produced,harvested,gathered or slaughtered;then cleaned,packed and stored;and an
22、d finally typically processed in some way-from cutting and canning to complex manufacturing.Then it is distributed transported and traded through various channels to both individual customers and commercial establishments.There are strong links between subsectors,with manufacturers and processors re
23、liant on agriculture and livestock,and key dependencies that can cascade through the sector.For example,in the summer of 2018 a shortage of carbon dioxide(CO2)across Europe impacted the food and drink industry,with some companies having to pause production lines4.Food grade CO2 is a by-product of am
24、monia manufacturing,and many plants were shut down simultaneously for essential maintenance and in response to increasing costs of natural gas used in the process.CO2 is used across the industry in a number of ways including carbonating drinks,preserving fresh produce,and stunning livestock.As busin
25、esses look to build resilience and transform their operations in the transition to a net zero world,being able to identify these types of critical dependencies will be key;both at their own operations and through their relationships with suppliers as part of the procurement process.Market research e
26、stimates the global food and beverage market size is expected to grow from$5.8 trillion in 2021 to$6.4 trillion in 2022 at a growth rate of 9.7%.The food and beverage market size is expected to grow to$8.9 trillion in 2026 at a compound annual growth rate of 8.7%5.While a limited number of large com
27、panies hold a large share of revenue(in its Global 2000 list,Forbes estimates that the top 25 companies in the sector generated$1.5 trillion USD in revenue in the past year6),the sector is dominated by SMEs in volume.This pattern is seen around the world,with SMEs making up 99%of Europes 290,000 ent
28、ities7 who generate 40.5%of the regions 1.1 trillion turnover8.Research9 also highlights this pattern in lower middle income countries,where micro businesses and SMEs play critical roles in food systems worldwide10.At the production stage,SME farms provide almost half of the total calories produced
29、worldwide,including over 85%of fruit and vegetables(by volume)and approximately 80%of animal-source foods(e.g.meat and dairy)in sub-Saharan Africa11.The pattern seen in turnover across the industry subsectors is indicative of the breakdown across the world,with manufacturing and wholesale and distri
30、bution the major value centres within the industry.Source:UK Gov12Figure 1.The food and drink industry value chain 18,03717,54482,96320,692116,802Downstream:resources and supply chain dependenciesTurnover (millions)Upstream:leisure and hospitality,retail,consumers Agriculture and growing Livestock a
31、nd dairy Processing and food manufacturers Drinks manufacturers Food Service,Wholesale&DistributionFrom farm to fork:Rethinking food and drink supply chains 09The subsectors of the food and drink industry Agriculture and growing The subsectors of the food and drink industry How they work,market driv
32、ers and trendsWhat do they do?Farms grow a range of vegetables,fruit,cereal and other crops(e.g.grains,pulses,oilseed,foliage,fibre,tubers,fruit).Businesses in the Northern hemisphere often rely on overseas operations to source out-of-season crops all year round.Farms vary from small individual oper
33、ations to large scale operations and cooperatives.Many agriculture and growing businesses are also involved in wholesale and distribution.Companies in the industry may source a substantial portion of agricultural commodities from third-party growers in various countries.Therefore,managing sustainabi
34、lity risks within the supply chain is critical to securing a reliable supply of raw materials and reducing the risk of price increases and volatility over the long term.Market driversProductivity is a key component of agricultures economic performance and its competitiveness.Productivity metrics are
35、 based on the ratio of the volume of outputs compared to the volume inputs required.Time is of critical importance to the industry,as products take time to grow and harvest,and once harvested,products are perishable.Food consumption trends,government agriculture policy programmes,and the grain and o
36、ilseed export market are primary drivers of demand.Maximising crop yield and minimising disease risk are crucial for individual companies profitability.Trends Increased use of technology,both for improved efficiency and also as a result of labour shortages,including the use of autonomous equipment,p
37、articularly for larger scale operations,and aerial imaging for crop management Some processes are by nature difficult to automate and where this is the case,the labour shortage remains problematic The changing climate and impacts on water supply are a particular concern,with adaptations already unde
38、rway where possible.In some cases this includes moving to regions where water is more plentiful Example companies:ADM El Tejar,Brazil Prodimex,Russia Cargill Corporation Barfoots of Botley Dyson Farming From farm to fork:Rethinking food and drink supply chains 10The subsectors of the food and drink
39、industry Livestock and dairy What do they do?Livestock and dairy businesses produce raw and processed animal products,including meats,eggs,and dairy products,for human and animal consumption.Key activities include animal raising,slaughtering,processing,and packaging.The industrys largest companies h
40、ave international operations,and companies are vertically integrated to varying degrees,depending on the type of animal produced.Large industry operators typically rely on contract or independent farmers to supply their animals,and may have varying degrees of control over their operations.The indust
41、ry sells products primarily to processing and food manufacturers and to retail distributors that distribute finished products to key end markets including restaurants and grocery retailers.Market driversDemand is largely driven by food consumption trends in each respective region.For example,demand
42、is affected by consumer preference for healthy products(e.g.Omega 3 fish and eggs),animal welfare(free range and organic),product cost and quality,and changing dietary habits around the world(particularly China).Feed is the single largest direct cost of raising animals and can be as high as 40%of ov
43、erall farm revenues.Trends Many farms remain labour intensive and labour shortages are a problem for many countries around the world Humane treatment of animals and the recurring threat of animal disease(e.g.avian flu,African swine fever)are key risks Threat of a global recession and cost of living
44、rises are having an impact on spending.Meanwhile other factors are causing increasing cost of inputs,e.g.higher prices for animal feed as a result of less availability of grassExample companies:JBS Pilgrims Pride Lactalis Danone Muller Arla ABP Foods From farm to fork:Rethinking food and drink suppl
45、y chains 11The subsectors of the food and drink industry Processing and food manufacturers What do they do?Food processing covers a variety of topics including fruit and vegetable processing,meat and seafood processing,canned goods,cereal and other packaged foods.Manufacturers produce a wide range o
46、f food products,both branded and supermarket own-label.These products include ready meals,baked goods,frozen foods,fresh food items and canned and packet goods.Typically,these products are made ready to consume,are marketed to retail consumers,and can be found on food retailers shelves and in leisur
47、e and hospitality outlets.The industry is characterised by large and complex ingredient supply chains,as many companies source ingredients from around the world.Large companies operate globally,and international opportunities are driving growth.Market driversFood processing and manufacturing is subj
48、ect to demand that is largely driven by food consumption.Companies compete on cost and the ability to distribute their product.The industry is capital-intensive,with high costs stemming from expensive industrial machinery.The majority of employees tend not to be highly skilled and due to labour shor
49、tages and a drive for increased efficiency,more work is being performed by machines/robotics.Where that is not possible,labour shortages are problematic.Major customers are supermarkets,distributors,food service distributors and hotel and restaurant chains.Manufacturers operated throughout the pande
50、mic and generally fared well financially,where customers were predominantly supermarkets with high levels of demand for products.Trends Sustainability,and in particular a reduction in carbon footprints,is a key driver for an energy-hungry sector.The drive for more environmentally friendly packaging
51、is also a key battleground increasingly,decisions are being made by investors,customers,consumers and employees on the basis of a manufacturers ESG credentials.The sector is also seeing growing demand from consumers for plant-based meat products Increased focus on health and wellbeing,with a drive t
52、o reduce sugar,fat,calorific content of many products Raw material and input costs,labour shortages and supply chain challenges are high on the agendaExample companies:Nestl Mondelz Associated British Foods Cadbury Unilever Mars From farm to fork:Rethinking food and drink supply chains 12The subsect
53、ors of the food and drink industry Drinks manufacturers What do they do?Drinks manufacturers include companies that manufacture and bottle soft and alcoholic drinks,as well as purify and bottle water.Many of these companies also engage in wholesale distribution of drinks.The industry is dominated by
54、 large,international companies.Companies partake in syrup manufacturing,marketing,bottling operations,and distribution,with larger companies typically being more vertically integrated into operations that bottle,sell,and distribute the finished products.The industrys factories are highly automated,e
55、xtensively using mechanical automation and computerised robotics.The primary raw materials used to produce soft drinks are water,flavoured syrup,corn syrup or sugar,and containers.Containers may be glass bottles,aluminium cans,or plastic bottles made from polyethylene terephthalate(PET).Products suc
56、h as Coca-Cola and Pepsi employ a two-tier process to manufacture and distribute their products.A two-tier process occurs when a primary manufacturer(for example Coca-Cola)produces concentrate,which is then sold to a bottler to manufacture and distribute the final product.Market driversCustomer tast
57、es,demographics,trends in alcohol consumption,and personal income are the primary drivers for drink demand.Demand for some drink products(especially alcoholic drinks)tends to be seasonal,peaking during both the winter and summer.Trends Increased focus on health and wellbeing,e.g.a reduction of sugar
58、 content Sustainability,in particular with regard to packaging,with many businesses undertaking“out of plastics”projects and eliminating secondary packaging Example companies:Coca-Cola PepsiCo Nestl Britvic Diageo From farm to fork:Rethinking food and drink supply chains 13The subsectors of the food
59、 and drink industryExample companies:Sysco US Food Holdings Bid Corporation Jollibee Foods Corporation Performance Food Group Food service,wholesale and distribution What do they do?Food service businesses often have an element of manufacturing or processing as part of their operations,supplementing
60、 their core products with a range of third-party products to provide a complete product range to customers.Many individual food sellers and purchasers do not have the opportunity to negotiate directly with their counterparts because of the time,effort,and complexity that transactions entail.The volu
61、me and diversity of the required supplies may also vary.Wholesalers are large intermediaries in the food distribution system,allowing them to reconcile supply and demand in terms of volume,quantity,geography(markets),and time.Products are typically sourced worldwide and include fresh meat and produc
62、e,prepared foods,processed foods,baked goods,frozen and canned foods,non-alcoholic and alcoholic beverages,and a wide selection of household goods and personal care products.Warehouses are used to store purchased food items that are made available on the market.Wholesalers can have a food product sp
63、ecialisation such as seafood,fresh produce,or fruits.Market driversCustomers include small independent retailers,fast food outlets and leisure outlets such as hotels and restaurants.A common selling point is the ability to provide goods in a short time frame from the point of order.A development has
64、 been the expansion of last mile facilities to get closer to local markets,reduce supply chain disruptions and meet sustainability targets.Buildings ranging from 10,000sq ft in rural areas to 30,000sq ft in metropolitan hubs13 sit alongside improvements in fleet efficiency and investments in electri
65、c vehicles14.Trends Green logistics and sustainability,moving to alternative fuels Shifting customer base and food trends Stringent regulatory landscape including food safety and food labelling(both including allergens)Healthy and plant-based foodsSupply chain risks What do we mean by supply chain r
66、isks?Supply chain risks From farm to fork:Rethinking food and drink supply chains 15Supply chain risks From farm to fork:Rethinking food and drink supply chainsWhat do we mean by supply chain risks?Supply chain risks can mean different things to different people and can be multidimensional.Some are
67、within an organisations control and others like geopolitical risks have systemic elements that go beyond the balance sheet of any one institution:Supply chain risks are at the forefront of food and drink businesses minds as,regardless of the source,an interruption to a supply chain can cause an arra
68、y of problems from loss of market share and revenue,to reputational damage,breach of contract and damage to stock price.As a result,food and drink businesses are actively managing and aware of their supply chain risks.Over the past four months,we have surveyed and interviewed over 275 risk,supply ch
69、ain,and insurance practitioners,and these perspectives have provided real-life,practical insights into the challenges that companies across the food and drink industry are facing as a result of the highly interconnected world we live in,and a historic but now changing reliance on just-in-time busine
70、ss models.Supply risks:Impact inbound supply,implying that a chain of suppliers cannot meet the demand in terms of quantity and quality of finished goodsOperational risks:Impact elements within a supply chain,impairing its ability to supply services,or finished goods within the standard requirements
71、 of time,cost,and qualityDemand risks:Impact elements of the outbound supply chain where the extent or the fluctuation of the demand is unexpectedFactors Environmental Geopolitical Economic Technological Natural disasters Extreme weather Pandemics and epidemics Political instability Trade restrictio
72、ns Terrorism Theft and illicit trade Piracy Demand shocks Price volitility Border delays Currency fluctuations Energy shortages ICT distruptions Infrastructure failuresRisksSupply risksOperational risksDemand risksFrom farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking
73、food and drink supply chains 1617Supply chain risks Supply chain risks What supply chain risks are food and drink businesses concerned about?Table 1(below)highlights the key strategic and operational supply chain risks facing the food and drink industry across its subsectors.Notable risks to the foo
74、d and drink supply chain stem from dependence upon other critical sectors including energy,transportation,borders,labour,key inputs(additives and ingredients),and data communications.The criticality of site location,i.e.where an organisations operations are concentrated in a single or limited number
75、 of sites,is often a key vulnerability,particularly if those sites rely on a sole source utility such as water.This has been seen in action across continental Europe this summer,where a heatwave has led to the drying up of reservoirs and crucial waterways,hampering critical trade15.As well as wider
76、transportation links,ingress and egress to a businesss own site and associated road network are also on their minds for their own operations and for suppliers attempting to deliver critical materials such as CO2,packaging and raw materials.Some of these key supply chain risks have potential insurabi
77、lity challenges,highlighted in italics.These include potentially systemic risks such as pandemics,macroeconomic factors(e.g.inflation),currency fluctuations,or environmental factors(e.g.climate change,resource,and biodiversity loss).Other commercial trading risks like fines or penalties,movement res
78、trictions,or labour availability are also often excluded from cover,as are non-damage supply chain risks like fuel shortage.Risk Description Livestock Agriculture and growingManufacturingProcessorsFood serviceWholesale and distributionSignificant property damage event e.g.fire,flood xxxxxxDamage to
79、third party premises(TP warehouse,supplier premises,customer premises)xxxxxxDenied access/egress(regulatory or otherwise)xxxxxxLoss in transit (e.g.raw materials,including temperature-controlled)xxxxxxFuel shortagexxxxxxLabour availabilityxxxxxxCyber risk xxxxxxAdverse weather xxxxxxCrop:disease/pes
80、tilence/yield levels/quality/level of biodiversity xxLivestock and aquaculture:disease(e.g.zoonosis:AI&ASF)xDrought/water shortage/availability of water xxxxxxFrom farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply chains 1819Supply chain risks Sup
81、ply chain risks Risk Description Livestock Agriculture and growingManufacturingProcessorsFood serviceWholesale and distributionEpidemic xxxxxxPandemicxxxxxxClimate changexxxxxxBiodiversity lossxxxxxxCost inflation/raw materials and inputsx Fertiliserx Abattoir servicesx Packaging,raw materialsxxxCur
82、rency fluctuationxxxxxxFinancial penaltiesxxxxxxFinesxxxxxxPolitical risks(e.g.war,expropriation,Brexit)xxxxxxMovement restrictionsxxxxxxProduct contamination and recall,integrity and traceabilityxxxxxxReputation risk xxxxxxShortage of a key raw material or inputx Fertiliserx Feedstockx Packaging,ra
83、w materialsxxxLoss of a key customer xxxxxxLoss of a key supplier (property damage,solvency or reputational issue)xxxxxxBreakdown or unavailability of key equipment,and consequent business interruption xxxxxxFailure of utilities(e.g.electricity)xxxxxxFrom farm to fork:Rethinking food and drink suppl
84、y chains 20Supply chain risks Key risks and driversOut of the wide range of risks mentioned,the following are the key supply chain risks and drivers of most concern to the sector:Figure 3:Supply chain risks and drivers Supply chainEconomic pressuresDemand changesClimate change and sustainabilityLabo
85、urGeopolitical and political risksTechnologyTransportFrom farm to fork:Rethinking food and drink supply chains 21Supply chain risks Economic pressures Economic pressures dominate business risks in the current climate.The unstable economic situation and market volatility are both a major concern arou
86、nd supply chain risks,and hence on the mind of every business.In turn the necessity for improved resilience is driving increased costs e.g.additional storage for finished product as a result of nearshoring.Inflation is impacting manufacturers through every aspect of their operation with increased co
87、sts in wages,energy,raw materials and consumables (CO2 and packaging and equipment costs).Current uncertainties are further exacerbated by the unfolding Ukraine conflict and resulting global impacts.In August 2022 for example,the UKs largest CO2 plant halted production due to rising energy costs16-a
88、 striking reminder for many UK businesses of the events in 2018 described earlier.Risk leaders are also proactively exploring impacts together with procurement teams,including how to manage for risks such as interruption to transport services or new climate change standards e.g.carbon reduction targ
89、ets.One UK company interviewed is already thinking about a potential repeat of the restricted energy power supplies and reduced working weeks experienced during the 1970s.On the resilience side,some drinks manufacturers are exploring carbon capture during production to secure their own CO2 supply.A
90、further consideration relates to economic pressures on their workforce,as explained by a risk manager at a major manufacturer:“Can they physically afford to work,travel to work,be reliable,or will we be looking at people taking second or third jobs and an increasing level of business disruption or a
91、ccidents and errors as a result?”Inflation is the main driver of risk and increased costs across the production and distribution cyclesCompany Secretary and Group General Counsel at a drinks companyThe two key risks are Labour and Inflation.All other risks,like the insurable ones of fires,contaminat
92、ed food/product recall,calamitous accidents,cyber,pale into insignificance compared to the real and present commercial challenges of driver shortages and inflationGeneral Counsel of a food companyOurenergy billwill be twice the cost of our total payrollCFO of a major food supplier Inflation has affe
93、cted all suppliers and competitors.Recovery has been difficult,but it has been achieved if the alternative for retailers is no supplyCFO,food manufacturerWere reaching a commercial boiling point in trying to pass on higher costsGeneral Counsel and Company Secretary at a food manufacturerQuotes from
94、interviewed food and drink practitionersFrom farm to fork:Rethinking food and drink supply chains 22Supply chain risks Demand changes The impact of broader economic contraction on customer demand was also highlighted through the interviews and in one case it was reported that this is already being s
95、een downstream at retailers,who are becoming more cautious and requiring tighter lead times for delivery to prevent their own supply chain issues.This is impacting normal demand volumes,requiring adjustments to existing processes and disrupting normal activity.One risk leader suggested that the logi
96、stics sector is undergoing a significant period of change,arguing that businesses used to operating just-in-time processes are now operating closer to do we have it in stock processes.Consumer demands have also changed.While previously the trend was for more requests for fresh and sustainable produc
97、e.Most recently in response to price increases many are trading down,for example from fresh fruit and vegetables to frozen,with reduced waste adding to cost savings.In response to these changes and others,manufacturers have been looking at new ways to manage product supply,such as additional storage
98、 and staged supply.Looking ahead,other factors such as ESG and evolving consumer tastes were also considered to be instrumental in influencing future demand volumes.Supermarkets really want their suppliers to manufacture their goods on our shore so theyre not exposed to that supply chain riskSector
99、Expert at a law firmI expect therell be intellectual property risk around the chemical laboratory food processes for flavours,tastes and textures produced that have longevity so they dont deteriorateDirector of Group Risk and Assurance,food manufactuerLess meat eating but more for health and environ
100、mental reasons,rather than animal welfare or ethics Flexitarian(mostly plant-based)buying behaviour is a trend that will endureFood and drink industry academic Theres a healthy eating trend,but dont think its just houmous and pomegranate seeds-bread and cakes are mass market productsCFO at a food ma
101、nufacturer Consumer demand foryear roundproduce means that we will need to continue securing producefrom areas of the world considered to beproblematicCFO of an agricultural growing businessQuotes from interviewed food and drink practitionersFrom farm to fork:Rethinking food and drink supply chains
102、23Supply chain risks The pandemic,an aging workforce and inability to attract new talent17 has caused serious difficulties with availability,recruitment and retention of labour,leading to higher wages,training and replacement of staff at all levels from factory operatives to crop pickers,HGV drivers
103、 to supply chain specialists.The haulage sector,which is essential for the transport of both components and finished goods across many supply chains,has been particularly affected,with industry bodies estimating a shortage of 80,000 drivers in US alone.Many food and drink supply chains are highly re
104、liant on the trucking sector,with the American Trucking Association estimating that about 72%of Americas freight transport moves by trucks18.Looking further across the sector,recruitment and retention difficulties reflect the physical nature of operatives work,necessitating increased automation in t
105、he manufacturing environment.As more systems are digitised,this both increases the availability of data to monitor supply chains and the number of touch points for vulnerabilities as explained in the technology section.Several issues were raised in our discussions with risk practitioners:Wage inflat
106、ion and rising labour costs,due to both labour supply and demand challenges and the broader economic pressures mentioned earlier A rise in socioeconomic unrest also presents risks to the labour force,as currently seen in an increasing number of sectors such as the rail and postal strikes in the UK i
107、n 2022 and in 2021 at a global food manufacturer in the US19.The broader climate of social disruption,protests and unrest associated with economic but also social and political challenges and highly visible activists(such as climate change hydrocarbon and sea capitalism)can increase the likelihood o
108、f industrial action affecting supply chains The challenge of successfully attracting and retaining staff in a maturing industry was also raised.The easiest way to attract staff is to pay more money,which then fuels the labour inflation position.This point led into a broader consideration of the over
109、all UK logistics network that requires a capacity and reconfiguration for the 21st century and an overhaul of railways,hubs and local transport.This in turn then correlates to the environment and sustainability agenda The increasing challenge to recruit suitable talent,may bring with it the associat
110、ed risk of insider threat(not only ideological but also just criminal,and/or fraudulent),as employers are potentially forced to take what they can find.This position can be further aggravated by location of operations,e.g.if the majority of an organisations supply chain operations sits in a rural ar
111、ea the labour pool becomes even smallerLabour Labour availability is a key issue.In terms of economics,theres a bidding war for low-skilled individuals locally,training costs to replace lost skills and the cost of new process efficienciesHealth,Safety and Environment Director at a food manufacturerE
112、verything revolves around people:the right amount,the right training,the right qualifications,the right culture,but the labour market is the worst its been since,probably,the 1970sHead of Logstics and Operations at a food company Its difficult to recruit at all levels.Our vacancies areover 100%highe
113、r than our previous normal rate and our labour costs are increasingCompany Secretary at a major food manufacturer Andassociated with that the increasing challenge to recruit suitable talent,comes insider threat,as we potentially have to take what we can findRisk&Operations Director for a global drin
114、ks companyQuotes from interviewed food and drink practitionersFrom farm to fork:Rethinking food and drink supply chains 24Supply chain risks TechnologyThe food and drink industry continues to see wider automation,the harnessing of Artificial Intelligence(AI)and the deployment of Internet of Things(I
115、oT)devices.Such moves widen the cyber security challenge for a sector with operations that have traditionally prioritised performance and safety over cyber security.A further consideration for resilience lies in IT infrastructure,which can be reliant on third-party outsourced providers.If not carefu
116、lly coordinated,these can lead to disruption or failure of existing systems.For example,new“dark warehouses”,which are fully automated and systems driven,are extremely vulnerable to cyber-attack.WTW global cyber claims data shows the manufacturing sector overall is the second highest sector in terms
117、 of cyber insurance claims frequency,and the impacts of a cyber-attack can be wide ranging as the attack surfaces multiply.In May 2022,the worlds biggest producer of beef,pork and chicken by sales,saw many of its global slaughterhouses disabled by a cyber-attack,with facilities in the U.S.,Canada an
118、d Australia seeing disruptions and shutdowns to various degrees20.Global food producers had seen 40 such cyber-attacks in the 12 months preceding the incident at the meat producer,a sign the industry is becoming an attractive target.Changes in technology and the evolving nature of cyber-attacks are
119、all adding to the pressure on food and drink manufacturers to modernise their cybersecurity or face a widening range of undesirable consequences.This is changing the risk profile with a shift from production specialists to technology professionals and adding to ongoing recruitment needs.All industri
120、es are facing a global war for tech talent,and investment in training existing staff and attracting new talent will be critical.Several issues were raised in our discussions with risk practitioners,who identified some areas of opportunity against the many challenges presented by rapidly developing t
121、echnology and cyber threats:Judicious capex on automation,robotics,AI,digital business systems and the cloud can help meet long-term operational efficiency goals and drive value creation New developments in technology such as driverless vehicles,robots and AI will also affect the future of transport
122、ation both at strategic and operational levels Technological advances are being used by some in the sector to address labour shortages and rising labour costs.“Were considering initiatives that would not necessarily be considered without the labour shortage,”said one general counsel at a food manufa
123、cturerAutomation and robotics change the risk profile for the better,as theres less human health and safety errors or incidents However,new tech requires new training,new competencies,new people,different health and safety proceduresHead of Logistics and Operations at a food company There will be mo
124、re automation as people become more expensive.Operative numbers will go down,but software engineer numbers will increaseGeneral Counsel and Company Secretary at a food manufacturerRobotics,powerful AI and digital products means we can automate financials,business analytics,manufacturing processes,sm
125、ooth out material flow supply chainsthis speeding up will improve efficiencyDirector of Risk and Insurance at a food manufacturerQuotes from interviewed food and drink practitionersFrom farm to fork:Rethinking food and drink supply chains 25Supply chain risks Transport-related risks(whether haulage
126、or container availability,or shipping lane closures)were raised in every conversation,and for some businesses resulted in significant changes to manufacturing timescales and,at times,in some delays in delivery to customers.Critically,whilst there is enough food produced around the world21 this requi
127、res the effective operation of global supply chains to feed people and communities 2530%of global food produced is lost between on-farm food production and its storage at a retail facility,largely as a result of poor supply chain management and spoilage22.The transition to a low carbon economy and t
128、he expansion of developments such as biofuels and solar farms23 is also shifting agricultural land from food production to other uses.The transition of a low carbon economy and use of agricultural land for solar production has interesting global differences.In some regions the use of solar panels is
129、 perceived as a removal of land(UK),and in others an opportunity to make land viable for production,as seen in Kenya where the use of solar panels is increasing water retention in dry regions and supporting agriculture on new land24.Congested or restricted shipping routes are a key factor in transpo
130、rt capacity.Examples include the South China Sea and the Ireland/UK shipping leg,which has a very limited number of routes and ferries.The loss of any of these could cause significant supply chain disruption.Where food and drink businesses rely on longer shipping lanes,they are at particular risk if
131、 there is a lane blockage (e.g.Ever Given),port disruption,adverse weather or gazumping(space or passage given to another shipper offering higher fees).Wider issues raised included:Limited container availability is impacting capacity and reliability of supply.The knock-on effect of these on the busi
132、ness can be significant,requiring changes in manufacturing timescales and,at times,in some delays in delivery to customers Restricted shipping capacity from ports was also noted-particularly for smaller,less developed ports across the world.Following experiences during the COVID-19 pandemic,many ris
133、k managers are concerned that an infectious disease outbreak could lead to prolonged closure of a port Haulage driver availability continues to be a cause for concern,although this has eased somewhat recently from the height of the labour shortage In many regions,not least the UK,neither road nor ra
134、il networks are fully geared to todays supply chain demand25.From climate resilience to industrial strike action,the future of moving goods will require conversations at the national policy level,wider investment in transportation methods and consideration on where distribution/warehouse nodes are n
135、eededTransport The Russia/Ukraine conflict will bring huge challenges around logistics,payment systems,fertilisers,etcHead of Client Services at a food producer Driverless vehicles hub to hub“trunkers”are probably 10-15 years away”(i.e.not long-haul,overnight journey vehicles)General Counsel and Com
136、pany Secretary,food manufacturerTake Senegal,where there is only one fast boat and one slow boat per weekCFO,Grower We have seen a massive increase in shipping costs e.g.seafreight up 300-1000%and road(airfreight has been eliminated),plus increase in storage costs and regulationsFinance Director at
137、a farming businessQuotes from interviewed food and drink practitionersFrom farm to fork:Rethinking food and drink supply chains 26Supply chain risks Given the recent global conflicts and political events which have dominated both domestic and international news channels,it is unsurprising that geopo
138、litical and/or political risk was mentioned by every person interviewed.Some risk leaders are preparing for rolling blackouts in the coming winter as a result of threat of reduced energy supply linked to conflict in Ukraine(covered in depth in our recent report Ukraine:A conflict that changed the wo
139、rld).In some countries the food and drink industry is considered a key component of national infrastructure and businesses may be protected by governments but this will not be the case in all countries,and rising energy costs are straining balance sheets.Looking to the future,the growth in regional
140、trade agreements may add new dimensions to supply agreements and require businesses to respond to geopolitical agreements26.Many countries and businesses are pivoting towards reshoring supply chains as a means to achieve self-sufficiency and more control over access to priority goods and services.Th
141、e disruption to critical exports from Ukraine,such as grain,and recent energy policies by Russia to limit export presents a significant threat to global food security.Wider global examples include China imposing punitive trade quotas on Australia in retaliation to its support for an international in
142、quiry into Chinas handling of the coronavirus27.Wider issues raised included:Companies are revising or reviewing future geographical development plans as a result of geopolitical instability Apprehension around the impact on supply chain of political conflicts in Africa,and social unrest in South Am
143、erica.Brexit has also added hidden delays and higher costs to business,in terms of increased bureaucracy and administration,affecting consistency and continuity Concern was displayed over Chinas unique position as a primary supplier for many critical products and goods across the world with particul
144、ar mention of their zero covid policy,multiple complete lockdowns,and global impact on container availability and positioningGeopoliticsI think interest in trade disruption insurance(TDI)is going to increase if all of the major geopolitical elements that we bring to the table come into play.if you t
145、hink about the strategic importance of the Strait of Hormuz with oil,even though we try and move away from oil,and the Suez Canal,I think thats a real problem.the South China Sea,in the next decade,if not sooner,is going to blow up and be a real problem,I believe.Risk&Operations Director,global drin
146、ks companyDisruption,protests,and unrest associated with economic but also social,political,and with existing activists,such as climate change hydrocarbon and sea capitalismRisk&Operations Director,global drinks companyStarting to see more of a problem in relation to social unrest in places like Sou
147、thAmerica,in relation to labour rates and laws.There have been some changes in governments,towards more left leaning politics,putting in large wage increases.Starting to see things like striking workers blocking roadsCFO,fresh produce processorQuotes from interviewed food and drink practitionersFrom
148、 farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply chains 2728Supply chain risks Supply chain risks The food and beverage sector depends heavily on the natural world for its raw materials and resources.For example,research suggests that the food a
149、nd drink industry consumes 70%of the worlds fresh water to grow and manufacture its products28.Increasing pressure on those resources,along with the need to meet global climate goals,may explain why environmental factors emerged as the greatest risks to business success over the medium term in the W
150、TW Global Food and Beverage survey.Extreme weather events such as droughts have caused crop failures and a lack of fresh water in other parts of the world29(see Box 3,below for additional detail).All risk leaders interviewed were sensitive to the issue of water availability and impact on supply chai
151、n in the event of shortage or interruption and there was a clear awareness of environmental and sustainability factors such as packaging,CO2 usage,measurement of environmental impact of suppliers,empty miles1 etc.Climate change is understood as a long-range risk impacting the external landscape from
152、 procurement to supply chain,as well as internal operations such as warehousing,energy,production,business continuity within the supply chain.Climate and adverse weather risks were referred to in every conversation with specific examples such as El Nio(affecting Peru or Ecuador and the central and e
153、astern Pacific Ocean)and La Nia(affecting the tropical west coast of South America)given as possible to probable sources of supply chain disruption.Conversely,the unintended consequences of sustainability efforts impacting farmland,such as rewilding land or installing solar panels,versus national fo
154、od security are currently under debate.Businesses are adapting to try to manage climate change risks,including moving sites to regions where water is more plentiful.One respondent based in the UK reported that reservoir and extraction sources had been exhausted for some of their operations and they
155、were actively considering new mitigations such as building a new reservoir and developing new water strategy around recovery of wastewater.Problems stemming from too much water or not enough have hit the headlines in 2022 with extreme event level floods and droughts;however,water quality is also a g
156、rowing concern.Groundwater contamination in the US has reduced the water resources available for some production processes30,and there is long-running concern around sea level rise impacting low lying regions in South Asia reliant on groundwater aquifers31.Although manufacturing of packaging is chan
157、ging to become more environmentally friendly,with an emphasis on the“out of plastics”project across manufacturing,one respondent reported teething troubles with some of the new packaging being damaged in transit.Another business mentioned the unintended consequences of a new national glass recycling
158、 scheme increasing costs for Scottish producers this is actively in discussion with industry35.Climate change and sustainabilityBox 3:Water quality As food systems use freshwater from both surface water and groundwater sources,the quality of water is the primary consideration in the food production
159、process.In the US,agriculture constitutes the main source of pollution in rivers and streams,the second main source in wetlands,and the third main source in lakes32.Contaminants from agricultural activity are largely considered nonpoint source pollution.As irrigation and stormwater runoff moves off
160、fields and farms,pollutants are picked up,transferred,and then deposited into lakes,wetlands,and coastal waters,significantly affecting the availability of the water supply.Californias agricultural sector,for instance,is responsible for over 400 different commodities and produces more than 99%of doz
161、ens of crops,representing one quarter of the USs entire food supply and employs nearly half a million people.Half of all failing water systems in California are based in the centre of Californias agricultural output,the Central Valley33.Groundwater contamination,coupled with decrepit infrastructure,
162、drought,and cuts in water allocation,are having a significant impact on water-intensive crops such as almonds,pomegranates,avocados,raisins,as well as meat procurement,affecting businesses ability to effectively bring products to market and resulting in lost revenue,leading to the largest amount of
163、empty farmland in decades34.Sourcing of drink ingredients from Ecuador and India could be affected by climate changes or crop failures This has occurred in the pastHead of Safety and Logistics OperationsWere aiming to reduce carbon footprint,but were a major user of gas,electricity and diesel.Some p
164、lants have solar panels and CHP sources and weve introduced EVs to start replacing diesel trucks.This is a potential new infrastructure risk:fire hazard from charging on site rather than filling up at a diesel garageGeneral Counsel and Company Secretary,food manufacturer As a fruit grower,were looki
165、ng at new frost-free irrigation systems and were linking up with a University for new technology investigationsHead of Beverages,food producerPackaging materials are easier to source than last year,but theres still long lead times,so weresecuring supplies at least 12 months,instead of say 6 months,i
166、n advanceHead of Safety and Logistics OperationsQuotes from interviewed food and drink practitioners1 Empty miles refer to the mileage that is accumulated while driving an empty container or trailer and not earning revenueFrom farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Ret
167、hinking food and drink supply chains 2930Supply chain risks Supply chain risks To gain a view on what risk leaders expect to face in the short term,WTW surveyed 250 risk leaders in global food and drink businesses.When asked what supply chain challenges they expected to face in the next two years,th
168、ey responded as shown in the table below:WTW Global Food and Beverage Survey 2022 Figure 4.Food and drink supply chain challenges food businesses expect to face in the next two years Figure 5:Risk factors challenging food and drink businesses in the next 3 5 years 29%said just-in-time operating mode
169、ls29%said brexit71%said shipping container shortages63%said shortage of workers(excluding drivers)64%said regulation changes56%said pandemics68%said componant shortages60%said raw material shortages69%said panic buying and stockpiling60%said logistics and warehousing shortages69%said shortage of dri
170、vers61%said packaging shortagesInternal risk factors0%50%30%40%20%10%Brand and reputational risk46%Allergen risks44%Health and safety failure43%Product contamination42%Product recall/product liability41%Food provenance40%Business interruption38%Food safety/health risk37%Labelling and packaging35%Sup
171、ply chain and infrastructure risk33%Workplace violence31%Cyber risk30%Directors and officers liability risk41%External risk factors0%30%40%20%10%Environmental risk/climate change/severe weather events40%Cost and availability of inputs(such as raw materials,energy,transport)38%Border/customs issues p
172、ost Brexit31%Changing tastes and preferences31%Genetically modified foods30%Regulatory risk29%Intellectual property issues28%Export risk27%Supply chain and infrastructure risk27%Allergen risks26%Retail landscape changes26%Labelling and packaging25%Brand and reputational risk24%Pandemics24%Labour cos
173、ts24%Cyber risk20%Terrorism and political violence20%Competition31%Source:WTW Global Food and Beverage Survey 2022 North America:51%of business leaders saw environmental risk as the greatest threat to their success.As well as concern over natural resources,named by 79%among their top environmental r
174、isks,this may reflect the rise in climate-related extreme weather there have been more than 20 weather events in the U.S.in the last few years,each causing more than$1bn in damage.APAC:Pandemics remain the biggest issue,named by 42%of respondents there,as outbreaks of COVID-19 continue to surge in p
175、arts of the region.EMEA:In Europe,customs and logistics issues following Brexit were the number one concern at 64%.Latin America:Here businesses were most worried about the cost and availability of inputs(50%),reflecting supply chain issues and also the regions vulnerability to volatile commodity pr
176、ices.Box 4:Key regional risk factors challenging food and drink businessesWTW also asked businesses about the internal and external risk factors they expected to face in the next three to five years that pose the greatest risk to their success.Environmental risk/climate change/severe weather events
177、and cost and availability of inputs were highlighted as the greatest external factors,and both also featured during the 1:1 interviews held with the sector,with sentiment strengthening since the survey took place.Some risk factors had regional implications,underlining the deep local and cultural inf
178、luences that drive the market for food and beverage products(see Box 4).From farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply chains 3132Supply chain risks Supply chain risks As well as the shorter-term risks and drivers facing businesses now,the
179、re are four key areas where change is expected to increase:The future risk landscapeFigure 6:A forward look at drivers,trends and risks Source:Compiled from WTW Food and drink industry interviews and RAND Europe36Skills AcquisitionsCyber security Smart farming Market consolidation Market consolidati
180、on Purpose Job roles of the future Food waste Novel packaging Circular economy ESG Plastics Soil quality and erosion Biodiversity Natural capital Water depletion Climate change Alternative proteins Organic foods and ESG first Consumer preferences&buying power Health concerns New diets Big data Onlin
181、e shopping Blockchain/DLT Genomics,GMOs,gene editing Nano-technology 1.Business model Long-term value growth imperatives will place a growing focus on Brand,Human and Relationship Capital,as well as revenue growth and the desire for efficiency Delivering On Purpose and growing sustainably will be in
182、creasingly important as key performance indicators.Attention to this aspect of performance will increase Increasing competition for differentiating talent in key performance areas(Marketing,Data and Analytics,Engineering)Retirement and hybrid working preferences at senior levels2.Sustainability Food
183、 and drink businesses expect the ESG agenda to intensify driven by consumer demands,investor preferences,Government legislation and guidance This will increase the focus on sustainability through both the supply and value chains3.Consumer preferences More of the same is expected with strengthening o
184、f existing trends related to health and wellbeing,environmental awareness,convenience4.Technology The Internet of Things,especially network connected devices allowing real-time communication between consumers,supermarkets and manufacturer,may enhance performance,if successful fathomed People increas
185、ingly replaced by automated processes“The Board remains committed to growing a business which reflects evolving consumer needs as driven by a focused health and sustainability agenda and creates value for all stakeholders.”“There will be legislation like plastic tax for ESG or sugar tax for health a
186、nd wellbeing”“Raw Material changes:what type of protein will be used?Protein from land,lab-cultivated protein or plant based protein,driven by consumer habit drivers choosing the healthier option or being environment-friendly.”“Were using new digital technology across all business systems,not just i
187、n our factories”3D printed foods Lab-grown/cultured foods Sensors Artificial intelligence Automation Environmental,Social and Governance|Industry 4.0|Politics and regulationFrom farm to fork:Rethinking food and drink supply chains 33Supply chain risks Business modelFrom a broad business perspective,
188、long-term value growth will sit centre stage,driving increased emphasis on brand,human and relationship capital,as well as revenue growth and the desire for efficiency.Success will be measured against the ability to deliver against stated intentions and growing sustainably both in terms of revenue g
189、rowth and being a good global citizen.Challenges will include increasing competition for differentiating talent in key performance areas such as marketing,data and analytics and engineering whilst indications are that we will see increasing retirement and hybrid working preferences being expressed a
190、t senior levels.In terms of supply chain trends specifically a number of key trends are worth highlighting:Complementing supply chain efficiency with supply chain resilience to reduce impact of disruptive risk.Even relatively linear supply chains,such as those in the food and drink industry,can stil
191、l comprise a number of products or commodities that are sourced,manufactured or stored in multiple locations,thus resulting in complexity and increased risk.Complexity can mean reduced efficiency as managers struggle with the day-to-day risks of delays and fluctuations,and it can lead to increased r
192、isk of disruption,in which dependencies between products can bring everything to a halt.Moving forwards,it is likely that supply chain risk managers will seek to control the amount of complexity by designing supply chains to contain risk(employing strategies such as segmentation and regionalisation)
193、rather than allow it to spread through the entire supply chain,therefore leading to higher cost efficiency and reduced risk.An example of this being driven by efforts to reduce carbon footprints is companies further up the value chain working with smallholder farmer suppliers to support reduction of
194、 their carbon footprint by paying the capex for green technologies37.Introduction of more sophisticated supply chain modelling.As the use of AI and quantum data becomes more commonplace,supply chain risk managers will increasingly turn to supply chain modelling tools to build their knowledge of risk
195、s and the mitigations available.Another major benefit of these data tools is the ability to quantify losses in a more scientific way and,consequently,providing underwriters with the depth and detail of data they require to write the risk more accuratelyIncreased stress testing of supply chain risk.A
196、s sophistication of modelling improves,this will enable more comprehensive stress testing,allowing companies to understand and prioritise supply chain risks.Stress testing approaches are likely to be deployed more frequently in the future,allowing supply chain managers to identify mitigation measure
197、s on a near,medium and long term basis and reduce the impact of disruptive risk.Ensuring these meet increasing stakeholder reporting interests will be essential.From farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply chains 3435Supply chain risks S
198、upply chain risks In our previous section on supply chain risks linked to sustainability,we discussed how companies are addressing this challenge now.Notably,the drivers are not just corporate but are also fuelled by consumers and investors,with increasing demands for more transparency about the ori
199、gin and impact of products which are,in turn,reflected in growing regulatory pressures.Regulation and the move to integrate sustainability and ESG reporting into financials are expected to be the biggest driver of action.Data requirements are not yet clear,but there are numerous groups delivering fr
200、ameworks(see Figure 7 and Box 6).In response,food and drink companies and industry groups are working towards developing and meeting new ESG commitments,reporting requirements and frameworks(see figure 6).An early innovator in this space includes Nestl who in 2019 disclosed a list of its suppliers a
201、longside data on its priority raw materials as part of its Responsible Sourcing programme38.This was the first disclosure of its kind in the industry we expect to see more businesses take this approach as they respond to emerging national regulation.The European Commissions“Farm to Fork”strategy39 f
202、oresees the development of an EU sustainable labelling framework by 2024 with the goal to make our food systems more environmentally-friendly,fair and healthy.Collaboration between organisations in the food system is likely to increase in 2023 and food brands will be under greater pressure to furthe
203、r develop integrated sustainability roadmaps.Companies have been working with third-party companies such as the Carbon Trust for a number of years to verify the carbon footprint of individual products.Carbon Trust states it has certified over 27,000 individual product footprints,with its labels used
204、 in more than 40 countries40.Policymakers will also be expected to start to introduce further legislation that encourages sustainable and ethical practices within the food system,which also plays a key role in the development of alternative fuels and may see further demands on global stocks.Roughly
205、70%of current global wheat is used for food,and nearly 20%is used for livestock feed.While corn is the preferred feedstock in the US and sugarcane in Brazil,wheat is one of the main crops for biofuel production in the EU,accounting for 2%of Europes grain supply,followed by sugar beet and maize.By 20
206、30,the EU wants to increase the share of renewable energy in transport“to at least 14%,including a minimum share of 3.5%of advanced biofuels”41.Sustainability The ESG agenda is huge-a high priority.Its where everyone is at-all stakeholders:financiers,employees,consumers shareholdersGroup Treasurer,f
207、ood manufacturerTask Force on Cimate-Related Financial DisclosuresAverage level of disclosure across the 11 recommended disclosures for discal year 2020 was 30%-an uplift of 10%on 2019.50%of F&D companies reported on their Risks and Opportunities and 48%on their Climate-Related MetricsCarbon Disclos
208、ure ProgrammeIn 2021 CDP saw a 28%disclosure rate from the food,beverage and agriculture industry,representing a substantial increase from the 9%disclosure rate achieved in 2020Sustainability Accounting Standards Board now IFRS FoundationDisclosure topics and standards covering accounting metrics fo
209、r 7 food and drink subsectorsUN Global CompactIn addition to the UN Global Compact principles,the food and agriculture sector has been issued with a further set of voluntary principles to report against on an annual basis to lead the way to sustainable agriculture and food security for allGlobal Rep
210、orting initiativeGRI 13:Agriculture,Aquaculture and Fishing Sectors was launched in July 2022.The standard is the first global and holistic sustainability reporting standard for all companies in the upstream production of crops,animals and seafood,setting expectations for disclosure of their shared
211、distinct impacts.GRI 13 was developed by a 19-member multi-stakeholder working group,with agriculture,aquaculture and fishing organizations represented alongside investors,civil societym mediating instituations and labor bodiesBox 5:Sustainability initiatives and innovators as new sources of supply
212、chain dataSustainability strategies:Coca-Cola are striving towards a 2030 water security strategy44,which includes targets to achieve 100%“regenerative water use”in water stressed areas.The plan to do this by reducing,recycling,and reusing local water supplies,deeper engagement with agricultural sup
213、pliers,and collaborative efforts to develop watershed protections plans in regions of China,India,Kenya,and the U.S.Midwest.ESG legislation is seen by businesses as the main driver of change in the industry.Investors,retailers,consumers,employees,as well as the manufacturers own values,are also driv
214、ing interest.Sustainability innovators:BanQu,a South African start-up focused on mapping out and tracing recyclable material,is supporting customers,producers,and aggregators of waste products to track and audit recyclable supply chains along the entire chain of custody,down to the first contributor
215、45.Box 6:Datasets and toolsIf you cant measure,you cant manage.As more and more companies analyse and report on their greenhouse gas emissions,supply chain emissions have grown in both focus and importance.Datasets:CERES research outlines two global lifecycle assessment databases providing emission
216、factors for food products:the World Food LCA Database(WFLDB)and Agri-footprint.Variables include environmental impacts associated with the production,processing,and cooking(in the case of WFLDB)of food and agricultural products.Data is provided at the unit process level for example,N2O emissions emb
217、odied in 1 kg output fresh (crop)product,unpackaged,at farm exit.Initiatives:Cool Farm Tool is an online calculator that enables farmers to measure their greenhouse gas emissions and understand mitigation options for agricultural production.Originally initiated by Unilever,the tool provides scientif
218、ically robust quantification methods that are sensitive to farm and field scale management choices.Agricultural Life Cycle Inventory Generator(ALCIG)is a tool that calculates life cycle inventory data for crop products.The tool allows companies to generate custom product-level emission factors using
219、 the same methods and background datasets that are used to generate the factors in LCA databases such as Ecoinvent and the WFLDB.GLEAM is a spatially explicit life cycle assessment model for the livestock sector.It covers 11 livestock commodities at global scale:meat and milk from cattle,sheep,goats
220、 and buffalo;meat from pigs;and meat and eggs from chickens.Sustainable supply chains:As insurers consider emissions across whole insurance portfolios,access to data and being able to share their views during risk conversations is an opportunity to support the transition to a sustainable future.An e
221、xample of where insurers are putting this into practice is a partnership explored in the Lloyds Lab,where Tokio Marine Kiln and CarbonChain have gone on to pilot a methodology framework to measure customers emissions and compare them with their industry and regional peers.This can then be translated
222、 into a carbon risk rating to be taken into account when considering underwriting of each policy46.Figure 7:Sustainability frameworks and reporting initiatives 42,43 From farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply chains 3637Supply chain ri
223、sks Supply chain risks Between consumers,government food strategies47,regulation such as national sugar taxes implemented by over 50 countries48 and investors driving action2,the dial is being moved,with further change expected to come.With the world population forecast to reach 10 billion people by
224、 2050,global food demand is expected to continue to grow significantly the United Nations estimates that land twice the size of India is expected to be needed by that time to support a 70%increase in food production49.Its not just the number of people,consumer preferences are changing.Food sustainab
225、ility has become more important for two-thirds(64%)of 1824-year-olds in Europe in the past year50.Meat companies are also starting to invest more in plant-based meat alternatives start-ups and technologies to support a shifting customer base.Collaboration between these sectors is going to be crucial
226、 for the future of sustainable protein diversification.With a wider demand for sustainable alternatives to traditional food products,this trend also extends beyond meat.The United Nations General Assembly has declared 2022 as the International Year of Artisanal Fisheries and Aquaculture seeking to m
227、ake seafood production more sustainable,and this is supported by an increase in innovation to develop alternative seafood ingredients and products.The application of technological innovation is seen as crucial to help solve some of the big challenges facing agriculture and food production,with one o
228、f the largest being the application of smart agriculture to increase climate resilience.This may in turn support the viability of insurance.These range from applied research projects at global universities to accelerator initiatives at major financial institutions like the World Bank looking to conn
229、ect the value chain.For example,the Lincoln Institute for Agri-food Technology(LIAT)is exploring a range of applications(see Figure 8)and is the worlds first Centre of Excellence in Agricultural Robotics.Companies are also investing in their own initiatives(see Box 7).Traceability and transparency a
230、re two of the biggest market forces driving digitisation and are seen as essential in building consumer loyalty and trust.Some of the largest players focusing on innovation include IBM Food Trust,and Microsofts Azure FarmBeats.In turn,large industry players are making demands of their suppliers and
231、requiring they implement technologies52,such as IoT and blockchain,in order to support their traceability efforts.Sensors and software are being used to track extensive information about raw materials(e.g.field observation),supplies(e.g.efficiently monitoring levels),ingredients(e.g.trends and patte
232、rns)and final products(e.g.standards).Consumer preferences Technology 2 E.g.ShareAction driving change through investor action at Tesco in May 2021 to increase its share of healthy food sales from 58%to 65%of total sales by 2025Box 7:Digital first communitiesLand farming is also undergoing a technol
233、ogy renaissance,especially in the robotics,computer vision,artificial intelligence,and sensor spheres.In Africa,big data and emerging technologies are becoming mainstays of the continent,with the aim of empowering local famers,businessmen,and shareholders to contribute to a circular economy built on
234、 inclusive growth and development.Given the large share of agriculture as a percentage of the continents GDP,ample opportunity exists for implementation of new and disruptive technologies.Figure 8:Innovations being explored by the Lincoln Institute for Agri-food Technology(LIAT)51Robotics and automa
235、tionThe field of robotics and automation is a key strategic theme,looking at the development of innovative solutions to food and farmingNet zero agriculture and carbonConsidering the impact of carbon sequestratuin and ways in which soil health might be measured using applied technologies and data sc
236、iencesRobotic phenotypingBy using robots to consistently and repeatable observe and meausre crop growth,we are able to help inform plant breeders and growers about the performance of a type of plant or group of plantsFood safety and securityDigital and extended connected capability support the evide
237、ncing of food security pathways,and data sensing and modelling systems allow for forecasting and the development of approaches to risk managementCrop careUsing technology to care for crops involves the deployment of novel sensing systems,data collection,and real time data analysis to help understand
238、 the micro-environment of individual plants within a cropSelective harvestingDeveloping ststems that identify harvest ready crops can enable reliable and consistent picking/harvesting,using a mix of practical enfineering solutions,robotics,vision and sensing systems,data collection sensors,and compu
239、tor scienceEnergy efficiency and sustainabilityDeveloping solutions for the energy efficiency and sustainability of food production systems,which include wireless communications,extended data networks,and sustainable energy innovationSupply chain risk management approachesFrom farm to fork:Rethinkin
240、g food and drink supply chains 39Supply chain risk management approachesFrom farm to fork:Rethinking food and drink supply chainsBusinesses in the food and drink industry have traditionally been able to adapt quickly to changing supply chain conditions but the pace of change,volatility and uncertain
241、ty experienced since the onset of the pandemic has forced many to question and improve that resilience and find ways to manage problems away.Many companies are nearshoring production closer to their markets where just-in-time models have not been resilient enough to disruptions.Food and drink busine
242、sses around the world are actively taking steps,such as moving sites or investing in automation to reduce supply chain risks and achieve long-term stability.Food and drink businesses have risk management processes in place for most risk areas,with alert systems in place to flag emerging threats and
243、prompt corrective action.When asked in WTWs Global Food and Beverage survey,few businesses have embedded this in strategic planning,capital allocation and other processes requiring action from the board(20%for supply chain).Despite these issues,businesses generally feel they are on top of many of th
244、eir risks.Almost 9 in 10(89%)felt that they have some level of control over the root causes of the risks they face,but only 24%said this was completely under their control,so there is more to be done and an opportunity for the insurance ecosystem to support understanding.Views on organisational and
245、supplier resilience varied amongst the businesses we spoke with.Broadly speaking,most felt that although plans were in place there was room for further improvement.Testing of plans both internally and with suppliers themselves was seen as a key action.Supply chain risk management approaches Box 8:Te
246、chnology trends As well as suppliers technology,businesses are increasingly embracing digital solutions to drive greater operational efficiency,predominantly through investment in automation,robotics,AI,digital business systems and the cloud.However,the lack of available and/or affordable technology
247、 can hold the industry back.There are inherent risks with new kit and it comes with additional costs.Cyber security from increased technology and related data presents an evolving risk.IT business continuity planning(BCP)and resilience testing is seen as a necessity.Investments in technological adva
248、ncement will be a primary development area for clients along with management of the related risks from its introduction.“Automation and robotics change the risk profile.Its better as it means lower human health and safety error or fewer incidents,more space for the reduced numbers to work in,potenti
249、ally better concentration,more valued people and less ability to take short cuts.However,new tech requires new training,new competences,new people,different health and safety procedures.”Head of Logistics and Operations at a food company “Cyber security was flagged up two years ago.Were investing mo
250、re and more and increasing resilience.We couldnt get cyber insurance at the price we wanted,so we halved coverage.”Head of Risk at a food manufacturer The rise of data analytics within food and drink systems has also resulted in commodity management at the most minute level.Cargill have been investi
251、ng in Global Innovation Centres to develop insights into new ways to improve productivity and fish welfare,as well as creating technology solutions to support the industry.To assist shrimp farmers to better understand weather and disease risks,Cargill developed the first cloud-based solution in the
252、aquaculture industry,dubbed iQShrimp,in conjunction with its iQuatic digital platform that utilises machine learning,sensors,mobile devices,and automated feeders to record data about shrimp size,water quality,feeding habits,and weather53.Lloyds has been supporting the market with insights into key t
253、echnology trends,with further information available in reports like Cyber risk:The emerging cyber threat to industrial control systems,Safeguarding intellectual property,and Networked World.From farm to fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply ch
254、ains 4041Supply chain risk management approachesSupply chain risk management approachesThe Business Continuity Institute(BCI)2021 Supply Chain Resilience report54 sheds more light on developments across supply chain management,with more than three-quarters of organisations(75.2%)report checking that
255、 key suppliers have business continuity arrangements in place,up from two-thirds in 2019.Interestingly,most professionals admitted this was not due to COVID-19,but rather ongoing reviews of how suppliers should be managed(see Box 9 for examples of standards and industry initiatives surfacing supply
256、chain data points and maturity proxies).Further,more than half now request full details of business continuity programmes from their suppliers rather than asking whether a plan is in place without documented evidence.One leading international food and drink company spoke about how they were integrat
257、ing supply chain planning software,in this case Optimity,to support business continuity planning.The software allows them to explore and apply demand forecasting,supply chain optimisation,inventory optimisation,sales and operations planning,ABC analysis3,production scheduling and network design.This
258、 has allowed the business to simulate and compare multiple scenarios to mitigate supply chain risks information that could underpin discussions with insurance professionals.It was clear from the interviews that supply chain professionals tend to carry out operational risk management as part of day-t
259、o-day practice.However,the differentiator compared to previous years is the pace of change,volatility and uncertainty experienced since the onset of the pandemic.As one supply chain risk manager stated:There was also real interest in the opportunity to share risk registers with the insurance industr
260、y in Chatham House knowledge exchange sessions to identify and secure new/better insurance solutions.Respondents confirmed that there was a greater focus on risk by organisations and in one case the organisation had set up a specific supply chain working group that had created a dedicated supply cha
261、in risk register focusing on key priorities such as raw materials,packaging,cyber,driver availability,fuel etc.This particular organisation worked to horizontally integrate its Tier 2 and 3 suppliers and actively worked towards getting to the back end of the supply chain in order to better understan
262、d the risks and identify effective mitigations.As a result they were able to identify 15“factory killers”at both Tier 2 and 3 levels and work towards mitigating them appropriately.Looking forward,respondents shared best practice about the ways they are managing and responding to supply chain risks.W
263、hat is clear is that food and drink businesses are actively managing their risks,with clear examples of leadership:When asked to indicate their organisations approach to risk management 20%of businesses we spoke to felt they were managing their risks to a leadership level,and a further 35%indicated
264、an advanced level of risk management(the maturity model level was hidden from them but the descriptions were provided).Maturity level descriptions:Level 5 Leadership:Risk management is embedded in strategic planning,capital allocation and other business processes.Limits and early warning systems are
265、 in place to identify breaches and require corrective action from board and management.Level 4 Managed:Risk management is coordinated across business areas.Tools and processes are used.Risk identification,monitoring,measurement and reporting are in place.Level 3 Repeatable:Risk management processes
266、are in place and operated in a timely,consistent and sustained way.Action is taken to address high priority issues.Level 2 Initial:Risk management processes are in place,but they may not always operate consistently and effectively.Certain risks are defined and managed in silos,rather than consistent
267、ly throughout the organisation.Level 1 Ad-hoc:We do not have standardised risk management process,and rely on the individual efforts of staff to identify,monitor and manage risks.Figure 9:Approaches to risk management across key risks0%20%40%60%80%Source:WTW Global Food and Beverage Survey Level 5-L
268、eadership Level 4-Managed Level 3-Repeatable Level 2-Initial Level 1-Ad-hocSupply chainCyberDirectors and officersEnvironmentalReputationProduct recallBioterrorism Ive been in the(supply chain)business for the last 25 years but Ive never seen as much disruption as in the last two yearsSupply Chain D
269、irector,major food manufacturer 3 ABC analysis is an inventory management technique that determines the value of inventory items based on their importance to the business.ABC ranks items on demand,cost and risk data,and inventory mangers group items into classes based on those criteria.From farm to
270、fork:Rethinking food and drink supply chainsFrom farm to fork:Rethinking food and drink supply chains 4243Supply chain risk management approachesSupply chain risk management approachesFigure 10:Best practice approaches to managing supply chain risks,highlighted in our discussions with risk professio
271、nals We have operational resilience delivered through self-managed and well-established manufacturing and distribution networksCompany Secretary and Head of Group Risk of a drinks manufacturer We are analysing commercial risks,e.g.we question if there is over-reliance on certain retailer or certain
272、supplierHealth,Safety,Envrironment and Risk Director at a food manufacturer We are undertaking a program of process improvement that will create clear standards and expectations around processes across businessHealth,Safety,Envrironment and Risk Director at a food manufacturer We completely control
273、our own supply chain;we own our fleet of trucks;we have a freezer facility,so we have buffer stock if theres an outage,and a number of production sites to ensure continuityDirector of Risk and Insurance at a food manufacturerStandards for vetting processes for suppliers varied across respondents fro
274、m minimum levels to extensive investigations.The need to vet suppliers beyond Tier 1 was a growing area of interest and that existing suppliers needed to be vetted to the same standards as new providers.An interesting point was raised around who should be responsible for vetting suppliers.This norma
275、lly sits with procurement but the argument was put forward that a multi-disciplinary team would be better placed to carry out a more thorough process.This need for partnerships was a consistent theme,with one risk leader underlining the importance of establishing solid foundation relationships with
276、suppliers and creating long term partnerships.In their particular case this included the extension of financial loan arrangements and factoring to some of their suppliers to enable improvement of processes and services.Another suggested they would be looking at supplier business continuity plans and
277、 identifying learning from those to integrate into their own plans from both ESG and resilience perspectives(as well as purely supply chain resilience).Supplier size issues were also highlighted in terms of keeping the process proportionate to the risk and not drowning a small supplier with requirem
278、ents and standards they are unable to meet and may not necessarily need to.Getting supply chain resilience on leaderships agenda Strong recognition and support from leadership is critical Joint business planning with key partners.This includes physical in-person checks with suppliers using audit sty
279、le check-lists that encompass resilience Sharing to build resilience Improved collaboration&effective Business Continuity Plans across internal teams,e.g.procurement,commercial,operations&risk management Exchanging/sharing business continuity plans with trusted partners Controlled sharing of ITIdent
280、ification of risks Stronger solvency checks Better identification of physical risks to key supplier sites,and establishing greater visibility of higher risk suppliers and near-shoring or establishing secondary suppliers who can respond in the face of disruption.This is being led by supply chain and
281、procurement working in tandem on shared problems this is seen in businesses with mature understanding of risk Reducing over reliance on key suppliers spreading the risk both for existing&alternative ingredients and consumables.In some cases this is being enabled by the use of data platforms and soft
282、ware,which is increasing visibility of the complex web of tiered suppliers in and down the chain.E.g.Walmart and IBM Food TrustAdapting business models Working towards a business model that is more adaptable to changing circumstances.For example,in the case of key ingredients identifying suitable su
283、bstitutes and changes,and talking to retailers on would A or B be a replacement and embedding and contracting these changes Businesses are taking greater control of the supply chain themselves by having dedicated specialists at the coalface for overseas procurement and transportation of produce,in-h
284、ouse freight forwarders,import teams&customs advisors and by on-shoring sourcing Further in-advance ordering of raw materials,consumables and equipment and finding ways to improve buffer stocksBox 9:Standards and industry initiatives surfacing supply chain data points and maturity proxies As with an
285、y industry,data is always in demand,and while many organisations have a data supply chain they do not have full visibility into what that supply chain entails in its entirety,including visibility among partners.The standards landscape of the food and drink industry are currently characterised by gen
286、eral business continuity management systems and constituent elements that make up the supply chain as a whole,such as sustainability procurement and environmental management systems.Two examples include ISO 9001:2015 and FSSC 22000.ISO 9001:2015 can be used to help address the internal risk factors
287、that affect an organisations broader supply chain.By engaging staff in quality management,it facilitates greater accountability and transparency and ensures internal continuity.Section 6.1 Risk and Opportunities can be used to bring focus to the supply chain between the vendors and the beginning of
288、a businesss own manufacturing FSSC 22000 is a certification scheme for Food Safety Management Systems based on existing standards for certification(ISO 22000,ISO 22003 and technical specifications for sector PRPs).It is applicable to all organisations providing transport and storage services in the
289、food industry Understanding the need to drive action,the food and drink businesses have been exploring industry initiatives:The Supply Chain Optimization(SCO)initiative has been creating tools and frameworks to enable trust and collaboration within the foodservice supply chain,and improve supply cha
290、in visibility through improved tracking,traceability and transparency.The International Foodservice Manufacturers Association,Kinetic12 and Havi engaged 15 leading chain restaurants,18 manufacturers and 8 distributors,in conjunction with the industry associations IFDA,FSMA,NCCR,GS1,and the US Nation
291、al Restaurant Association.The objective of SCO was to evaluate how to optimize supply chain practices across all key stakeholders and co-author best practices to benefit the total foodservice industry and its supply chain The Global Food Safety Initiative(GFSI)is a Coalition of Action from the Consu
292、mer Goods Forum,bringing together over 40 retailers and manufacturers to oversee food safety standards for businesses.While many companies share goals on delivering safe food,GFSIs focus is on enabling and deepening cooperation and collaboration within and amongst manufacturers,suppliers,the agricul
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305、ebci.org/static/e02a3e5f-82e5-4ff1-b8bc61de9657e9c8/BCI-0007h-Supply-Chain-Resilience-ReportLow-Singles.pdfFrom farm to fork:Rethinking food and drink supply chainsTwitter LloydsofLondon LinkedIn Facebook Lloyds 2022 All rights reservedLloyds is a registered trademark of the Society of Lloyds.This d
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