Written by Tackling the challenge of feeding the world, while solving environmental problems and preventing further global warming is not an easy task. The latter implies curbing and reducing the intensification of agriculture.
Half of the world’s GDP is tied to nature, be it food production or water supplies. The United Nations estimates that 840 million people will be affected by hunger by 2030. How can we feed the 7.9 billion people without exceeding the limits of our planet?
Climate change is just as evident. The intensification of agriculture, which has resulted in high nitrogen emissions, exacerbates the problem. It accounts for nearly 11% of the greenhouse gas emissions in the world. Particularly concerning are nitrous oxide emissions from over-fertilization of land, which is 300 times more potent than carbon dioxide, causing global warming.
Tackling the challenge of feeding the world, while solving environmental problems and preventing further global warming is not an easy task. The latter implies curbing and reducing the intensification of agriculture.
Curbing agriculture may lead to a reduction of land used for agricultural purposes, less protection of crops, and, as a result, less crop production. At the same time, this spurs outside-the-box thinking to find a compromise that could solve the dilemma. New ways of more efficient agriculture, producing healthier pesticide-free products in smaller areas well protected from production risks (pests, diseases, natural disasters, etc.) could be the solution.
Preserving nature
The EU Green Deal developed in 2020 is a roadmap to more sustainable economies. It sets new targets for achieving greener agriculture over the next ten years by:
New technologies for global problems
The development of digital technologies, precision farming and the use of artificial intelligence can help humankind to some extent to produce sufficient food while conserving natural resources. For example, artificial intelligence and nanotechnology can improve crop and soil yields while maintaining soil health and protecting the quality of the environment.
New risks in the transformation of the food and agriculture sector
How can we help farmers cope with crises while still providing a fair and reliable income base? How does the food industry adapt production and distribution processes to meet challenges of both climate change and government efforts aiming at making agriculture more environmentally friendly? Without a doubt, the food and agriculture sector is subject to changes and transformations. However, these very same changes also bring about new risks. The time has come to think ahead, identify risks, and prevent and reduce potential losses.
Management more exposed to claims under new rules
Increasingly, management decisions are guided by compliance with new rules, primarily related to preserving the environment and maintaining public health, i.e. in line with the EU Green Deal. As a result, the insurance industry will have to deal with potential new claims made against directors, government officers, shareholders and other stakeholders.
More cyber risks in the food and agriculture sector
More reliance on digitization means increased cyber threats. Modern and fully automated IT farms, for example, may suffer from business interruption and losses caused by cyber-attacks, software failures or human error.
Supply chain sustainability
Climate change creates new challenges for farmers and the food industry and may result in catastrophic losses.
It is prudent to plan and consider alternative resources, increased costs due to additional transport requirements or even a limited supply. In addition, one should not lose sight of the new risks of a pandemic. These can be substantial, as the COVID-19 crisis has shown since 2019. Various business sectors registered a serious shift in the structure of demand and experienced restricted labour mobility. Personnel in the health sector were hard hit, timely availability of basic resources was a challenge for farmers and the food sector, and different channel infrastructure was built to ensure food delivery. New biosafety requirements were set up, delays and disruptions in transport and logistics services became the order of the day, and the costs of international freight transport surged. Many of these consequences continue to affect businesses and human lives.
Business interruption coverage in the spotlight
The insurance industry is set to increasingly focus on business interruption products.
Nowadays, livestock insurers opt for gross profit loss insurance rather than animal value insurance. At the same time, every hectare of land will have a higher value. Because they are subject to risks associated with reductions in inland areas, there is an increase in the industry capital intensity and its digitization.
Moving from conventional to organic farming despite higher production risks
The sustainable yield performance of organic farming is still questionable. Historically, conventional agriculture provided better-guaranteed protection of yields against adverse perils. The rapid transformation of many areas from conventional to organic farming entails additional yield production risks. These should be taken into account and handled accordingly.
Modification of agricultural resources and new farming methods leads to new liability risks
New crop varieties, chemicals and fertilizers will be created because of the increasing need to fight hunger and save the planet. Any modifications involve unknown risk factors for property damage and personal injury and, therefore, may lead to additional claims and costs of product recalls. As an example, there are specific concerns and doubts about the effects of genetically modified organisms (GMOs) on humans.
Several incidents cast a shadow on the safety of GMOs and, importantly, on the ability to control the spread of these organisms in food production and distribution networks, not to mention the environment in general.
Increased risks due to a lack of water
Water, the world’s most precious resource, also plays a crucial role in solving agricultural problems. Water is one of the crucial factors in irrigation facilities deployment as more rainfed lands need to be irrigated due to desertification, resulting from global warming. Unfortunately, many natural water sources have also become unreliable, more polluted, or both.
PPP in agricultural insurance will gain in importance
Stepping up public-private partnerships by introducing new agricultural insurance products to better protect farmers against catastrophic risks, such as drought and epizootic diseases, will help improve the agricultural sector’s financial sustainability. Governments will be challenged to find ways to encourage farmers to buy more agricultural insurance. They may have to introduce compulsory baseline production insurance, tie prerequisite insurance policies to other government support, develop other measures to prevent the risk of crop and animal loss, and help farmers to define effective mechanisms to reduce losses.
Insurance specialization will intensify
The insurance sector is undergoing a significant change. Already, we are experiencing increasing digitization, ready-made basic solutions and artificial intelligence, which will ultimately automate the communication between the client and the insurer. However, the food and agriculture sector will continue to require highly professional advice from insurance experts who understand the industry, speak a common language, and can develop and tailor the right solutions.
In response to the increasing impact of climate change, the spread of epizootic diseases and the new impact of pandemic risks to humans, GrECo Holding has begun to offer new risk management programmes for clients active in food and agriculture sector.
This article is a part of our Foodprint publication focusing on issues and risks facing the Food & Agriculture industry. Read the publication and learn more about insurance solutions and the growing importance of risk management and alternative solutions like parametric insurance.
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Maksym Shylov
Group Practice Leader
Food & Agriculture
T +48 22 39 33 211