Creating confidence in livestock production and supply-chain

The livestock supply-chain is one of the three major concerns and areas of activity of the Food & Agriculture Organization of the United Nations (FAO), aimed at increasing resilience in respect of threats and crises that affect agriculture, food and nutrition.

Epizootics are the global concern

So called epizootics – animal diseases – are of more and more concern not only for the farming society, but also for whole countries and regions, as they even can cause problems to human health. Therefore, this topic has become part of the general food protection policy.

The need to fight against animal diseases at global level led to the creation of the Office International des Epizooties through the international Agreement signed on January 25th, 1924. In May 2003, the Office became the World Organization for Animal Health, but kept its historical acronym OIE.

One of the main missions of the OIE is to collect information from its member countries on the presence and distribution of animal diseases and the methods used to control them, the purpose being to avoid the spread of epizootic diseases at international level.

At the moment 16 diseases are monitored monthly and contained in the o called OIE List A, namely:

  • Foot and mouth disease
  • Swine vesicular disease
  • Peste des petits ruminants
  • Lumpy skin disease
  • Bluetongue
  • African horse sickness
  • Classical swine fever
  • Newcastle disease
  • Vesicular stomatitis
  • Rinderpest
  • Contagious bovine pleuropneumonia
  • Rift Valley fever
  • Sheep pox and goat pox
  • African swine fever (ASF)
  • Highly pathogenic avian influenza

These are classified as “Transmissible diseases that have the potential for very serious and rapid spread, irrespective of national borders, that are of serious socio-economic or public health consequence and that are of major importance in the international trade of animals and animal products.”

Development of African Swine Fever and avian influenza during last decade

The best-known epidemics, that are treated in plenty of mass media, are African Swine Fever and Avian Influenza (“Bird Flue”). For example, a massive outbreak in China wiped out at least 40% of China’s pigs in 2019. In some countries of Central and Eastern Europe ASF has been present since 2014 and is not over yet, as the human factor and the presence of infected wild boars spread this disease significantly.

African swine fever (ASF) is a devastating infectious disease of pigs, usually deadly. No vaccine exists to combat this virus. It does not affect humans nor does it affect other animal species other than pigs and wild boars. It can be transmitted either via direct animal contact or via dissemination of contaminated food (e.g. sausages or uncooked meat).

The ASF virus spread to Europe for the first time in 2007 through the Trans Caucasus Countries and the Russian Federation. The next massive outbreak occurred in 2014 affecting Russia, Ukraine and Baltic countries and is lasting until now and moving to the West of Europe.

Dynamics of number of ASF on farms in some countries of Europe (data from the EU Animal Disease Notification System).

20142015201620172018201920202021(till Feb.21)
Bulgaria14419
Estonia18613
Greece1
Italy40162317101
Latvia3210381013
Lithuania613193051193
Moldova2
Poland21208110948103
Serbia18161
Romania2116317241053112
Slovakia1117
Ukraine12410542231

In addition to the cases mentioned above, ASF was found in wild boars in Germany, Belgium, Hungary and Czechia.

Avian Influenza (AI) or “Bird Flu” is a highly contagious viral infection which can affect all species of birds and can manifest itself in different ways depending mainly on the ability of the virus to cause disease (pathogenicity) and on the species affected.

Influenza infections in birds are divided into two groups based on their pathogenicity:

  • Highly Pathogenic Avian Influenza (HPAI): spreads rapidly causing serious disease with high mortality (up to 100% within 48 hours) in most poultry species (except domestic waterfowl)
  • Low Pathogenic Avian Influenza (LPAI): causing generally a mild disease, may easily go undetected

While the risk from Asian H5N1 is low for most people, sporadic human infections with Asian H5N1 virus have occurred in some Asian countries. Most human infections with Asian H5N1 viruses in other countries have occurred after prolonged and close contact with infected sick or dead birds.

We can witness a new wave of Avian Influenza in Europe, which started at the end of December 2019 in the Netherlands and Poland and spread for the next 12-15 months over whole Europe.

Dynamics of spread can be seen on the pictures below (data from EU Animal Disease Notification System):

Risks in supply-chain and how they are managed

Usually, if an epizootic disease occurs in a part of the farm’s premises, all animals of the farm will die or will be slaughtered upon order by the state authorities. It leads to the total loss of animals on a farm. Moreover, besides material damage related to animals, the farm suffers losses caused by the interruption of activities, as it takes time to slaughter, transport and utilize animals, disinfect premises and keep them closed for enforced quarantine time (3-12 months), then implement an additional 1-3 month testing period and fill in the full production cycle. Therefore, business interruption loss of gross profit can be a much more substantial loss than just the loss of culled livestock.

Besides the risk of having the virus inside the farm, there is also the risk of government restrictions for animal transportation, if the farm is trapped into a risk control or surveillance zone, which can reach a radius of up to 20 km from the epicenter of the outbreak.

In addition, according to EU legislation, there is special zoning of infected areas, where additional limitations are imposed and its derogation requires some compliance with veterinary rules, if the farm wants to proceed transporting live pigs to non-affected areas of the same country or of another EU member state. Such necessary measures can lead to additional increased cost of working for a long period of time.

It can be said that in respect of epizootic scenarios slaughterhouses and meat processors are not the less vulnerable. On the one hand they are dependent on stable supply of live pigs or fresh meat, and on the other hand export markets can be unexpectedly closed as long as epizootics occur in the country where they are located. The latest story of this sort happened in Germany, when the Chinese government immediately closed the border for producers of German pork after the first infected wild boar was found on German territory. In terms of disruption of the supply-chain, the main sources of risk of a slaughterhouse and a meat processor are as follows:

  • Virus found on premises of a slaughterhouse or a meat processor.
  • Virus found on premises of a farming supplier.
  • A large number of farming suppliers are trapped in control or surveillance zones, which leads to constraints in the movements of finishers for slaughter and further processing.
  • The slaughterhouse or meat processor is trapped in control or surveillance zones.

Moreover, events associated with epizootic outbreaks can make farmers or slaughterhouses liable to compensate claims, brought against them as consequence of the 3rd party’s product recall and product contamination costs and direct damage to the contingents.

In order to prevent the spread of epizootic diseases and to compensate for the financial consequences of events occurred, governments deploy legislation in relation to:

  • basics of strict bio-security measures on farms;
  • measures taken by authorities regarding the destruction of affected or suspected animals and the prevention of further spread of the disease;
  • long-term zoning in order to regulate movement of livestock and meat products;
  • financial compensation for the value of killed and culled animals.

On a microlevel, the farmers and meat processors implement special bio-security audits, put additional investments into the improvement of bio-protection and prevention measures against the occurrence of diseases on farm premises, develop business continuity plans in order to be ready to react and modify their business model in the event of a disease. Based on the GrECo Food&Agri practice, our cooperation with farmers and breeders’ associations in several countries, we count about 100 factors of bio-security that can be analyzed and afterwards implemented in order to reduce this risk.

Insurance solutions to mitigate financial losses

The ultimate parachute each livestock breeder and meat processor should definitely possess is a livestock insurance policy. We can witness that even the modern farms, that invested a lot in biosecurity, have suffered the emergence of African swine fever or bird flu on their grounds.

When designing a livestock insurance program, one should take into account the following:

  • we need to avoid an overlap with government compensation of the value of the killed and culled livestock, which is usually financed by authorities (e.g. in EU);
  • on the other hand, in many countries the government usually does not fully compensate 100% of animal value;
  • for vertically integrated meat producers, it is recommended to consider business interruption insurance coverage rather than pure material damage;
  • meat processors can be offered a livestock contingency BI program, which covers loss of gross profit as a result of disruption of livestock supply.

GrECo works with up to 20 international markets who can offer standard or bespoke livestock insurance solutions. Unfortunately, livestock material damage coverage is getting harder and harder to be placed, as insurers’ appetites in respect of CEE/SEE regions are quite low. Insurance and reinsurance companies are aware of the ongoing epizootic situation in this area, especially regarding ASF and HPAI. However, some innovative solutions and schemes have been developed by our Food&Agri practice to partially overcome such challenges. One should also not forget that any insurance of exposed risks should go alongside with risk management services consisting of bio-security audits and business continuity plans, that can be provided by our special GrECo Risk engineering department.

Related Insights

GrECo further expands services for Food & Agricultural industry

Maksym Shylov, long-standing expert in agricultural insurance, established as Group Practice Leader

As the leading risk and insurance consultant in Eastern Europe, the GrECo Group is further increasing its specialization on dedicated services and solutions for selected industries. Therefore, GrECo is setting up a group-wide Food & Agriculture Practice. The new Group Practice Leader Maksym Shylov will be responsible for the strategy and development of this Specialty in all GrECo Group countries, including Poland where he will be located.

Maksym has 19 years of experience in risk management, especially in the area of food & agricultural insurance. Over the last years he has also been developing tailor-made parametric insurance solutions for clients in Poland, Ukraine and the Baltic States where he worked with international insurance and reinsurance markets from various countries. He has completed more than 30 large advisory projects for the agricultural sector, banks and insurance companies in various countries.

Maksym Shylov comments “The Food & Agriculture sector represents one of the fastest growing industries in our region. Today, additional exposures arising from climate change are more and more influencing our planet and in particular natural habitats. In addition, recently appearing risks such as COVID-19 are exposing the global supply chains resulting in auxiliary uncertainties. In order to secure a sustainable and ecofriendly supply, European economies are further incentivizing their domestic agriculture and food production.”

Georg Winter, Member of the Executive Board at the GrECo Group and responsible for its Specialty expansion is convinced that “more and more clients will benefit from GrECo´s strategy in continuously developing progressive risk solutions for dedicated industries. With the newly established practice, we will be able to provide tailor-made solutions for our clients in the food & agriculture sector in order to increase their resilience and to manage risks emerging from fundamental challenges ahead such as climate change, biodiversity as well as growth of population and their inevitable consequences.”

Maksym Shylov

Group Practice Leader
Food & Agriculture

T +48 22 39 33 211

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