Emerging Risks of a Global Food System
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2 Emerging Risks of a Global Food System Changes, Challenges and Trends Rick Shanks, ARM, National Managing Director Food System, Agribusiness & Beverage Group Aon Risk Solutions August 6, Aon Corporation Australia Limited ABN
3 Discussion topics: Six Industry Risk Profile Change Drivers Global Regulatory Challenges Food Safety and Defense and Foreseeable Risks Reputation Risk, Brand Protection and Crisis Management Preparing for the unexpected 3 3 3
4 What is driving risk change for the industry? 4 4 4
5 Globally 1. Heightened consumer awareness and concern 2. Globalization increases supply system complexity 3. Regulatory challenges 4. Increasing product recall costs 5. Intensified media attention 6. Sustainability/corporate conscience 5 5
6 1. Australia s consumers are concerned 57% seek food safety 5.4 million food poisoning 1.2 million visits to the doctor 120 deaths 300,000 prescriptions 2.1 million lost work days Food Safety Information Council 6
7 1a. Contamination/Recall trends (FSANZ) 580 7
8 1b. Contamination/Recalls by food category (FSANZ) 8
9 2. Globalization increases food system complexity 9
10 2a. Global sourcing increases supply system risk Odds of eating product from China: Tilapia 77.8% Apple juice 70.0% Cod 50.0% Mushrooms (p) 42.7% Garlic 22.8% Spinach 21.5% Cauliflower (f) 14.6% 24 million Source: food&waterwatch
11 3. Regulatory challenges Microbial contamination Foreign matter Labeling Chemical contaminant Other Biotoxin Tampering 11
12 4. Increasing product recall costs Pesticide contaminated grain $87 million Caustic detergent washing bottles $10 million E. coli contamination $250 million Product tampering for cookie manufacturer $100 million Green onions/hepatitis A $30 million Tomatoes Salmonella Food dist filed for BK Natural organic juice contamination $100 million Finger in the chili Stores sales off 20-50% Benzene contamination beverage $30 million Hot dogs, lunch meat Listeria $50 million Lettuce Taco Bell, E. Coli $20 mil lost operating profit Peanut butter Salmonella 2 year loss of brand $140 mil Hamburger patties (Topps) Company out of business Meat contamination (Westland/Hallmark) USDA billed $60+ mil Peanut butter paste Salmonella $ 1.5 billion 12 12
13 5. Intensified media attention 13
14 6. There will be greater pressure for sustainability Sustainability index Energy and Climate: Reduce energy costs and greenhouse gas emissions Material Efficiency: Reduce waste and enhance quality % 100% 70% Water Productivity (BAU) Natural Resources: High quality, responsibly sourced raw materials Source: IFPRI People and Community: Responsible & ethical production 14
15 6a. Sustainable water productivity is a critical issue 3, ,799 1, Source: National Geographic Origin of Resource Agricultural Production Food Processing Packaging & Distribution Preparation & Consumption End of Life Disposal Trends: Eat locally --Eat Less Meat --Eat Organic --Use Less Refrigeration -- Look for an ECO Label! 15
16 Global Regulatory Challenges Track and trace Labeling Economically motivated adulteration
17 Product tracing takes on a new meaning Baking soda wheat gluten calcium propionate enzymes Bleached wheat flour mono- and diglycerides malted barley flour diacetyl tartaric acid esters thiamine ethanol riboflavin sorbitol Niacin polysorbate 20 folic acid potassium propionate reduced iron sodium stearoyl lactylate Water corn starch corn syrup ammonium chloride sesame seeds ammonium sulfate soybean oil calcium peroxide Yeast ascorbic acid Salt azodicarbonamide calcium sulfate calcium carbonate calcium silicate soy flour lettuce Grill Seasoning Salt Pepper cottonseed oil soybean oil dehydrated onions Milk milkfat Water cream sodium citrate salt sodium phosphate sorbic acid artificial color cheese culture acetic acid soy lecithin Enzymes starch Special Sauce Soybean oil pickles distilled vinegar water egg yolks HF corn syrup sugar onion powder corn syrup spice spice extractives salt xanthan gum mustard flour prop. glycol alginate sodium benzoate potassium sorbate mustard bran garlic powder hydrolyzed proteins caramel color paprika Turmeric calcium disodium EDTA Source: DHS/National Center for Food Protection and Defense USDA inspected beef Cucumbers water Vinegar Salt calcium chloride Alum natural flavorings polysorbate 80 turmeric 17
18 Labeling - Cereal or illegal drug? 18
19 Labeling - Say what? 19
20 Economically motivated adulteration (EMA) and imports Soy sauce made from human hair Contaminated baby food 6/294k/51k Goat urine duck meat as lamb ,000 children in Germany - Norovirus rat, fox, mink = lamb k dead pigs Recycled out-of-date food 20
21 Food Safety and Defense, Foreseeable Risk and the Government Role
22 Who is responsible for food safety and defense? Government 71% Food manufacturers 67% Farmers/producers 58% Retailers/foodservice 47% Consumers/individuals 39% Consumer advocacy groups 25% 2011 Food & Health Survey International Food Information Council 22
23 Food safety and defense - whose responsibility? 23
24 Preparing for the unexpected (case study) Day: States Infected: Day 5 Disease First Detected Potential Impact: If a National Stop Movement of all susceptible animals is ordered on Day 8, by the time the disease is eradicated the Nation would still lose 23.6 million animals! 24
25 Attack of the killer tomatoes (case study) QSR Fresh Vegetable Distribution System 25
26 Reputation Risk, Brand Protection and Crisis Management
27 It is all about. 27
28 It won t happen to us 28
29 29 29
30 Financial impact on shareholder value Winners Losers Source: Oxford Metrica Reputation Review
31 Maple Leaf Foods (case study) 31
32 Deep-water Horizon (case study) 11/ Dominant Problem? 87 days Halliburton fitted concrete cap Cameron International provided the blowout preventer The rig is owned and operated by Transocean Oilwell owned by BP 65%, Anadarko 25%, Mitsui 10% 32
33 Crisis Planning - and what not to do! BP 2009 Regional Oil Spill Response Plan 582 pages There are no walruses, sea otters, sea lions or seals living in the gulf Peter Lutz, noted marine biologist listed as a consultant in the plan, died in 2005 Emergency response phone numbers were incorrect Hyper link to Japanese shopping website 33
34 Crisis leadership was learned in kindergarten 1. Clean up your mess 2. Share I d like my life back! 3. Tell the truth 4. Apologize 5. Keep your hands to yourself Source: Comments by Douglas E. Besman, Esq Nestle 34
35 Preparing for the Unexpected. What are Food Companies Doing? 35
36 Taking a new look at enterprise-wide risks (ERM) 36
37 Evaluating food safety & defense processes 37
38 Developing effective crisis management plans Crisis Management Pre-Incident Planning Crisis Event Response Recovery Post-Incident Analysis Communications 38
39 Assessing the risks of critical supply systems Farms Packer/Shipper Processors Distributors Grocers & Restaurants Supply System Risk Concerns: Supplier insolvency Failure of fuel/utility supply Communication system failure Port blockage & transport failure Crop failure or damage (weather) Political Risk Cyber risks, virus Delays caused by supplier s supplier Denied access to supplier s premises 39
40 Stress test and gap analysis Consumer Safety Brand Protection Financial Recovery 40
41 Reducing food waste from the system 1.6 billion tons $750 billion 28% Food Supply Chain: Sources of food waste 1. Agricultural production 2. Postharvest handling & storage 3. Processing 4. Distribution 5. Consumption 6. End of life Food Life Cycle: Sources of environmental impacts
42 Industry specific solutions & resources Aon Benfield - AB esolutions AES Enterprise Risk Management - ERM Aon Crisis Management ACM Aon Global Risk Consulting AGRC Aon Global Client Network - AGCN Aon Environmental AE 42
43 Emerging Risks of a Global Food System Changes, Challenges and Trends Rick Shanks, ARM, National Managing Director Food System, Agribusiness & Beverage Group Aon Risk Solutions August 6,
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