emerging risks of a “farm to fork” global food system · today’s topics: o food defense and...
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Emerging Risks of a “Farm to Fork” Global Food System Rick Shanks, ARM, National Managing Director Food System Agribusiness and Beverage Group Aon Risk Solutions May 20, 2015
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Today’s topics:
o Food Defense and Security Risk
o Food System vs Chain
o Industry Risk Change Drivers
o Regulatory Challenges and Concerns
o Reputation Risk is #1
o Preparing for the Unexpected – What Food Companies are doing.
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Homeland Security Presidential Directive (HSPD) 7
Establishes policy for the Federal Government to: Identify, prioritize and coordinate critical infrastructures and key resources and protect them from terrorist attacks.
Homeland Security Presidential Directive (HSPD) 9
Establishes policy to defend the agriculture and food system against terrorist attacks, major disasters, and other emergencies.
Food Defense and Security Risk
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How do we look at food system risk?
Inputs to production agriculture
Type
of c
ompa
nies
Seed companies Crop breeders Agrochemical
companies Equipment
manufacturers Animal feed Financial services
Farmers Co-ops Ranchers Growers Dairies Animal production
operations Renewable energy
Refiners Millers Meat packers Beverage mfg Dairy Processing
Processed food manufacturers
Meat processors Dairy processors Beverage
manufacturers
Importers / exporters Wholesalers Supermarkets Restaurants Cold storage
Raw commodity
production & distribution
Primary food processing
Secondary food
processing
Distribution retail &
wholesale
Aon’s Food, Agribusiness & Beverage Practice (USA)
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1. Heightened consumer concern & awareness
2. Globalization & increased supply system complexity
3. Global regulatory challenges
4. Increasing product recalls and rising cost
5. Intensified media attention
6. Sustainability/corporate conscience
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1. Consumers are concerned
2014 Food & Health Survey International Food Information Council
82% Foodborne Illness Chemicals Pesticide Residues Unfamiliar Ingredients
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Reported 25 Chinese Mfg firms
Xuzhou Anying Biologic Technology Development Co., China
Customs Broker, Kansas City, MO
ChemNutra, Las Vegas, NV
April 3
Diversified Ingredients, St. Louis, MO
Menu Foods, Emporia, KS March 16,24; April 5,10,17,24;
May 2, 22 Scoular Co., Omaha,
NE (HQ) Menu Foods
Canada April 10
Nestle Purina PetCare
March 16,30 Hill’s Pet Nutrition
March 17,30
Del Monte Pet Products
March 31; April 6
Westaqua Commodity Group, Canada
More than 100 brands of pet
foods (Canada/US)
Proctor & Gamble
March 16
Skretting, Canada May10
Bio-Oregon Canada and
US 22 brands of
pet foods
30 chicken farms, Indiana Human food supply
At least 200 fish farms, Canada and US
Suzhou Textiles Silk Light Industrial Products Arts and Crafts Import and Export Col, China
Sunshine Mills
April 5
2. Globalization increases supply system complexity
Case Study: Melamine and EMA
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10% of all imports to the U.S. are for FDA regulated products
2012 estimated number of shipments – 24 Million
80% of seafood comes from outside the U.S.
Nearly 2/3rds of fruits & vegetables come from outside the U.S.
This year the FDA is tasked to inspect 600 foreign food facilities
2a. Imported products - food safety and defense challenge
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3. Regulatory Challenges
FSMA: Recall authority, Reason to believe Registration, Recordkeeping (24
hours) Food imports Track and trace Hazard analysis plan Food defense plan and foreseeable
risk Whistleblower protection
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3a. How many ingredients are there in a cheeseburger?
Tomato Grown in Puerto Rico
Bun WHEAT grown in Kansas, milled in Missouri, baked in the state where purchased
Mayonnaise Blended in Ohio from EGGS produced in Virginia, VEGETABLE OIL produced in Illinois from CORN grown in Iowa, LEMON JUICE produced in Florida, SALT mined in Utah, and SPICES from the Caribbean
Ketchup Blended in California from TOMATOES grown in California, VINEGAR from the Philippines, and SPICES from all over the world
Sesame Seeds Grown in New Mexico and packaged in Arizona
Lettuce Grown in Arizona
Cheese Made in California from MILK produced in Oregon
Onion Grown in Utah
Beef CATTLE born in Mexico, raised in Texas, transported to feedlot in Kansas and slaughtered in Nebraska, mixed with trim from Argentina, Canada
Bacon PIGS from Canada, shipped to Iowa, slaughtered in Missouri
Pickle Grown in Arkansas, pickled in Mississippi with SPICES from around the world
Mustard Blended in New York from MUSTARD SEED grown in Canada, SPICES from around the globe, and VINEGAR from Virginia
Illustration of vast diversity in food supply chain. Sources shown are only one possibility of origination point.
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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
USDA inspected beef
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
Cucumbers water Vinegar Salt calcium chloride Alum natural flavorings polysorbate 80 turmeric
Grill Seasoning Salt Pepper cottonseed oil soybean oil
3b. Product track and trace takes on a new meaning
lettuce
dehydrated onions
Source: DHS/National Center for Food Protection and Defense
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3c. Labeling - Cereal or illegal drug?
Logos removed
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3d. Global regulatory challenges
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4. Contamination events are likely
Hazards in food cause an estimated 48 million illnesses. Roughly translated this means 1 in 6 Americans will develop a food borne illness. 128,000 will go to hospitals and 3,000 die..
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(Years 2002-2011 CSPI Outbreak Alert 2014 Report)
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Pesticide contaminated grain >$87 million
Foul smelling yogurt >$25 million
E. coli contamination >$250 million
Product tampering for cookie manufacturer $100 million
Green onions/Hepatitis A >$30 million for restaurant
Tomatoes Salmonella >$11 million
Natural organic juice contamination $100 million
Odor in cereal boxes >$70 million
Cantaloupe tainted w/Listeria $150 million (estimated)
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+ mi (Co. BK)
Peanut butter paste – Salmonella $ 1.5 billion
4a. Contamination events are costly
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5. Media coverage explosion
Logos removed
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6. Consumers are thinking about sustainability
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As developing countries grow their demand for food will increase dramatically and the result is emerging markets for food & agribusiness firms
– Rising Incomes = Demand for Convenient Packaged Foods & Meat
China has 20% of the Population, but Only 8% of Arable Land & 7% of fresh water
India has 17% of the Population, but Only 13% of Arable Land
China is the largest exporter - and the largest consumer of many agricultural products
There are more foreign firms registered to produce food for the U,S. than there are within our borders
Supply System Complexity/Dependence
6a. Changing dynamics of the food system – think global!
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Sustainability index Energy and Climate:
Reduce energy costs and greenhouse gas emissions
Material Efficiency: Reduce waste and enhance quality
Natural Resources: High quality, responsibly sourced raw materials
People and Community: Responsible & ethical production
Source: IFPRI
Water Productivity
50% 100% 70% 2050
6b. There will be greater pressure for sustainability
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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!
Source: National Geographic
1,799 576
1,008
689 600
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660
53
880
468 880
3,170
6c. Sustainable water productivity concern
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CRISIS MANAGEMENT
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It won’t happen to us
Logos removed
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Financial impact on shareholder value
Winners
Losers
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Clean up your mess
Share
Tell the truth
Apologize
Keep your hands to yourself
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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
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Preparing for the Unexpected. Are you Ready? What are Food Companies Doing?
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Reputation risk, brand protection and crisis management
“The top priority – trumping everything else, including profits – is that all of us continue to zealously guard Berkshire’s reputation……We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.”
Warren Buffett Memo to Bershire Hathaway’s Managers and Directors
December 19, 2014
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Taking a new look at enterprise-wide risks (ERM)
www.aon.com
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Evaluating processes (internal and external)
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Stress test and gap analysis
Consumer Safety
Brand Protection
Financial Recovery
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Pre-Incident
Planning Crisis Event Response Recovery
Crisis Management
Post-Incident
Analysis
Communications
Developing effective crisis management plans
Invest in preparedness, not predictions - plan for impact!
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Food Supply System:
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
1.6 billion tons $750 billion
28%
Reducing food waste from the system
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Farms Packer/Shipper Processors Distributors Grocers &Restaurants
• 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
Supply System Risk Concerns:
Assessing the risks of critical supply systems
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Emerging Risks of a “Farm to Fork” Global Food System Rick Shanks, ARM, National Managing Director Food System Agribusiness and Beverage Group Aon Risk Solutions May 20, 2015