By David Laks
Editor’s note: David Laks is Vice President & Risk Control Services Manager for Hub International, a global agri-business insurance brokerage. For more information, contact Jenna Shields at JSC.Jenna.Shields@hubinternational.com.
If there is one word that can describe agri-business, including the hog sector, it would be ‘unpredictable.’
In 2021, farms and food manufacturers had to deal with a record number of weather-related challenges, ongoing labour shortages and an increase in cyber attacks.
In particular, labour shortages, often stemming from lower numbers of Temporary Foreign Workers (TFWs), have affected several points of the supply chain from the barn to meatpacking plants to transport logistics. In fact, more than five per cent of TFWs in Canada used to work in the hog sector. Of course, the labour shortage in agri-business – like in most industries – may actually be pushing the industry toward automation.
Hog farmers and pork processors will need to plan and prepare for 2022. Whether running a family farm or a major corporation, industry players and their partners will need to lean on their experiences to cope with risks.
Managing the impact of weather threats
It is impossible to predict the next catastrophic storm, but it may be a good idea to assess a farm’s vulnerability to extreme weather through catastrophe (CAT) modelling.
If 2020 was the year of the pandemic, 2021 was the year of catastrophic weather. Western Canadian provinces were especially hit hard, with heat waves, severe drought and wildfires taking over headlines last summer. And weather conditions brought challenges to farms and food manufacturers around the world, including frost damaging Brazil’s coffee crop and floods in China affecting livestock and meat processing.
Farmers and processors are taking steps toward risk management measures to ensure resilience, including securing adequate insurance coverage through government programs or private markets. Working with brokers to develop CAT modelling capabilities can help secure insurance, demonstrating to underwriters the strengths and vulnerabilities an organization has to extreme weather.
For processors, it is imperative to secure adequate supplies in the face of weather catastrophes, requiring stronger supply chains, alternate materials sourcing and proper insurance to guard against shortages.
Climate issues encourage water conservation
In 2021, the severe drought in western Canada highlighted the need for water conservation.
The record-setting drought, which has hit nearly every province across the country, is the worst nationwide in nearly 20 years. Farmers are beginning to recognize the long-term effects of climate change, adopting more sustainable practices to improve resilience. With less rain and warmer temperatures overall, crop yields decreased considerably.
As a result of the recent weather extremes, there will be a greater focus on water and energy conservation. Attention to costs and climate change will lead agri-business in general – and hog farmers, in particular – to minimize use of fossil fuels.
Taking precautions around allergens
For many food suppliers and manufacturers, allergens remain a major problem. Between 2015 and 2020, undeclared allergens represented more than one-third of all food recalls across Canada.
Proper risk management requires that special attention be paid to thorough, reliable and consistent cleaning of manufacturing equipment, as well as ensuring that food products are free of contaminants.
Depending on your organization, it may be a good idea to secure product recall insurance and product liability coverage. These policies protect food manufacturers from the high costs of product recalls and liabilities, both in terms of dollar amount and in terms of your reputation.
Approach automation with caution
JBS Foods – the largest meatpacking company in the world – paid more than $10 million in ransom after a cyber attack disrupted its North American and Australian operations.
This example of increased technology use leading to greater risks for the industry hit close to home for many farmers and processors, who were looking to increase automation to combat labour shortages, where possible. Generally, automation has been a godsend, particularly in manufacturing; it improves efficiency and quality control, with less reliance on human subjectivity.
Yet, the risks are not just financial. JBS had to halt cattle slaughtering at all its U.S. plants, as well as operations at its plant in Brooks, Alberta – about 200 kilometres southeast of Calgary – for a whole day. In addition, since JBS processes more than one-quarter of all beef in Canada, a longer shutdown would have led to disruptions in food supply chains and added to rising food prices. It could have impacted the organization’s reputation as well.
Keeping cyber security in mind means finding proper insurance coverage to protect your organization from cyber attacks. Because of the increase in cyber crime, cyber insurance in agri-business is expected to increase by 20 per cent or more in 2022.
The importance of prevention and deterrence cannot be overstated. Third-party audits, multi-factor authentication and employee training are essential. For cyber criminals, complacency is almost an invitation.
Getting yourself prepared
With so much that hog farmers and pork processors cannot control, it has never been more important to focus on the things you can control. Mitigating risk through CAT modelling, paying attention to weather events and water conservation, taking precautions with allergens and enhancing cyber security can help organizations find their balance in the coming year. Consult with your insurance broker to prepare for what lies ahead.