One of the key questions nowadays is how to stay agile in an ever-changing supplier and customer environment? In other words: How to get the right product to the right customer at the right time in the right place while continuing to be profitable, environmentally and socially compliant?

COVID, the war in Ukraine, the gas crisis and more have exposed the fragility of many industries.  Our food supply chain is no exception. What does the future hold for us and are we ready to successfully face new challenges? The more immediate question we have to ask ourselves is: “How can we increase flexibility and financial resilience in an ever-changing economical and geopolitical environment?” Let’s take a closer look at this issue and how to better deal with it:

Sustainability in the Food Supply Chain

The Food and Agriculture Organization of the United Nations defines the food supply chain as consisting of all stakeholders who participate in the coordinated production and value-adding activities that are needed to make food products.

Food Supply Chain

The food supply chain covers agricultural upstream and downstream sectors from the supply of agricultural inputs (such as seeds, fertilisers, feeds, medicines or equipment) to production, post-harvest handling, processing, transportation, marketing, distribution, and retailing.  
A sustainable food supply chain:

  • should be profitable throughout all its stages (economic sustainability),
  • has broad-based benefits for society (social sustainability),
  • has a positive or neutral impact on the natural environment (environmental sustainability).

Spotlight on Supply Chain Disruption Risk Management

The recent agitation in societies caused by COVID-19, Russia’s aggression in Ukraine, the gas crises, climate change, etc., have prompted governments and corporations to pay more attention to supply chain disruption risk management. This is due to its obvious negative consequences, such as loss of net profit and increased costs for restoring supplies to normal.

The complexity of the supply chain requires that risks be grouped as follows:

  • Supply Risks: Impacts inbound supply, implying that a supply chain cannot meet the demand in terms of quantity and quality of parts and finished goods (supply disruption).  
  • Demand Risks: Impacts elements of the outbound supply chain where the extent or the fluctuation of the demand is unexpected (demand disruption).  
  • Operational Risks: Impacts elements within a supply chain, impairing its ability to supply services, parts, or finished goods within the standard requirements of time, cost, and quality. Transportation disruptions are one of the most considerable operational risks.
Risk in global supply chains

In order to effectively manage the risk of disruptions in the supply chain, special risk management procedures should be implemented in companies:

Step 1: Assess the risks (suppliers, buyers, weather-related events, foreign economic instability, raw material shortages, blackouts, military actions, actions of the government, social unrest, etc.)

Step 2: Quantify the risks (likelihood and severity, risk mapping)

Step 3:  Build a response plan to contingencies (“If X happens, then we will respond with Y.”) and define roles and responsibilities in this action plan.

Step 4: Develop a supply chain continuity plan (determine critical and major suppliers and logistics routes, qualify alternative suppliers and shipments)

Step 5: Further monitor supply chain risks, carry out supply chain continuity plan modifications and reporting

The vessel, blocking the Suez Canal in 2021

The vessel, blocking the Suez Canal in 2021

Stay Agile in the Food Supply Chain   

One of the key questions nowadays is how to stay agile in an ever-changing supplier and customer environment? In other words: How to get the right product to the right customer at the right time in the right place while continuing to be profitable, environmentally and socially compliant?

Here are some practical key points and ideas for increasing the flexibility of the food supply chains:

  • Go digital wherever possible: collect, process and display in-time data
  • Ensure optimum levels of visibility and transparency across the organization by providing more information to optimise operations 
  • Automate the less time-consuming manual processes
  • Hold extra inventory
  • Make shorter-term plans 
  • Reduce the variety of products
  • Switch to new packaging – smart packaging, large multi-serving formats, modular packaging solutions
  • Buy from domestic or local suppliers where possible to increase the ability to transport goods in an efficient and cost-effective manner
  • Establish and foster solid relationships with strategic suppliers.

Insurance – Key Element to Counteract Food Supply Chain Disruptions  

Insurance is a tool that limits financial losses when a risk has become reality and has disrupted the supply chain, resulting in a loss of net profit, an increase in its mitigation costs and contractual penalties.
As a rule, standard property insurance covers business interruptions, caused by physical damage to the enterprise or physical damage to its suppliers or buyers (extended coverage).   In any case, it should also contain an “on-site element”, i.e. the damage should arise at the site of the party specified in the insurance contract.
In order to partially fill this gap, clients are advised to consider investing in special tailor-made solutions, such as combined stock-throughput and trade disruption coverage or parametric insurance.
Combined stock-throughput and trade disruption covers the entire value chain: from the delivery of goods from suppliers, through their processing at the insured party’s premises, to their delivery to buyers, including both transit and storage periods. A stock-throughput placement provides compensation for material damage to the transported or stored property.
The additional trade disruption insurance covers loss of net profit, increased expenses and contractual penalties resulting from direct damage to property and unexpected events that impacted on logistics and/or happened to goods along the way (fire, lightning or explosion, natural disasters, blockage of waterways, harbours, airport, roads or railways; breakdown of a vessel; confiscation, expropriation, deprivation, embargoes; sanctions; political interference; strikes, riots and civil commotion, terrorism border closures; or other triggers subject to the agreement of underwriters). 
Parametric insurance insures a specific weather or statistical parameter, which should correlate well with the quantity or quality of the goods one buys or sells. For example, to produce a planned amount of vegetable oil, an oil-crushing plant needs seeds to be processed. The factory relies on farmers who grow such crops. In the event of a drought, there will be a shortage of harvested seeds, which, in turn, results in a reduced production of vegetable oil. To mitigate and balance such losses, the oil crushing plant will be insured against soil moisture deficiency (drought index) or an area yield index. The insurance contract is triggered when the insured index reaches a certain value.

Maksym Shylov

Group Practice Leader
Food & Agriculture

T +48 22 39 33 211

Chojnacki Jacek

Jacek Chojnacki

Dyrektor Regionu Food & Agri
Broker Ubezpieczeniowy

T  +48 609 600 960

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