Continuity risks in the food industry: climate change (3/4)

While in the past most company risks originated from within the company, today, 90% of these risks come from outside the company. This also applies to food companies. An insurance policy that is tailor-made to address your company risks in combination with a Business Continuity Plan (BCP) can offer solace. But what are the most likely risks for food companies?

Continuity risks in the food industry: climate change (3/4)

This month, we will examine one risk every week that can have a big impact on your business operations. We recently covered fire and cybercrime. This week, we will examine one of the hottest topics of 2019: climate change. How can you insure yourself against the impact of the changing climate on your business operations? In part three of our series on continuity risks, we will provide a sneak preview of what is involved.

What is the impact of climate change on the food industry?

Over the past few years, we have already witnessed increasingly extreme weather, both in terms of temperature and precipitation.  The changing climate involves great risks for companies in the food industry.

A few topical examples:

  • A storm floods crops and destroys them completely. Night frost can also be very damaging. In 2017 for example, the apple harvest was diminished by 70% due to night frost.
  • Prolonged drought in the summer can result in fewer or even no products being harvested.
  • The costs for auctions and food processing companies can rise due to price fluctuations resulting from a scarcity on the market. This effect is worsened in terms of both volume and price if they had concluded fixed contracts with their customers.
  • Some food processors depend on the supply of high-value crops. A bad season could lead to a shortage of these raw materials and a decline in turnover as a result.
  • The financial results of producers and distributors in the food and drink industry often strongly correlate to the temperature. A cool summer has a considerable influence on the consumption of soft drinks and ice cream. The same applies to the sale of coffee and soup during a mild winter.

The weather and nature itself are phenomena which we as humans cannot control and, consequently, cannot change. That is why it is imperative that every company in the food industry anticipates the consequences of climate change as best as possible. This will ensure that your business operations will not be jeopardised.

How can you prepare your company for climate change?

Which risks do your activities run when the winter cold persists or when long periods of drought follow one another? Be prepared for the far-reaching consequences of climate change on your business operations by compiling an action plan.

The optimal protection of your company starts with a risk analysis of the activities and critical processes. As soon as you have insight into the various risks, you can devise an alternative scenario for every risk factor that was identified. We recommend that you include this information in your Business Continuity Plan (BCP).

The importance of an internal and external communication plan should also not be underestimated. Because you cannot predict when weather conditions will be stable in advance, communicating about the impact of weather conditions on your company is no easy task. A test case can help you make your communication optimally respond to the needs of the various parties involved: your employees, your stakeholders, your suppliers and, especially, your clients.

Which (insurance) solutions are available to you?

Good, internal preparation is the key to guaranteeing continuity within your company during an uncertain period the duration of which may be difficult to estimate. If you are also looking for a financial safety net for your business activities, we recommend that you take out a qualitative weather insurance policy. There are two different kinds of insurance solutions that protect your company against specific weather phenomena.

First and foremost is the comprehensive weather insurance policy. This policy provides cover when crops are partially or completely destroyed by a natural phenomenon. This includes extreme or unfavourable weather conditions; such as frost, hail, snow, ice, storm, wind, persistent rain, drought and so on. In the future, this policy shall only gain in importance now that the decision has been made that farmers, starting from 1 January 2020, may no longer rely upon the Disaster Relief Fund, (you can read more about this in the article “How the comprehensive weather insurance policy will replace the Disaster Relief Fund“). With this type of policy, the damage is determined by an expert in the field.

You also have the option of taking out a parametric insurance policy. This insurance policy covers a production shortage by way of an index (parameter) agreed to in advance. Such a policy may offer a specific solution for financial losses that are the result of excess precipitation, extremely high or low temperatures, excessive wind speeds, etc. It is especially interesting for companies that are highly susceptible to one or more weather phenomena, such as frost and hail in the fruit sector, for example. The underproduction itself, based on official production statistics, may also be used as an index. This provides quite a broad insurance solution that in addition to weather phenomena, also covers 03 292 widespread diseases and infestations. Another extra advantage of this insurance policy is that it features expedient and objective damage compensation.

Ronny Kamermans

We are there for you.

Would you like more information? Are you interested in a tailor-made insurance solution for your company? Or would you like to receive our whitepaper on the BCP free of charge? Please contact us on tel. 03 292 00 36 or send an e-mail to propertyservices@vanbreda.be.

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