Connected Perspectives: Better Decisions on Interconnected Risks for FAB Organizations

Connected Perspectives: Better Decisions on Interconnected Risks for FAB Organizations
July 1, 2024 7 mins

Connected Perspectives: Better Decisions on Interconnected Risks for FAB Organizations

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As the scale and speed of interconnected risks escalate, innovative risk management strategies help FAB businesses build the resilience and agility needed to thrive.

Key Takeaways
  1. FAB organizations are operating in an increasingly volatile global environment where disruptions can quickly cascade.
  2. Interconnected economic, environmental and social risks are becoming more complex and unpredictable, challenging existing risk management strategies.
  3. A holistic, long-term and innovative approach to risk is helping FAB organizations better identify, assess, manage and mitigate existing and emerging threats.

In an increasingly volatile operating environment, the food, agribusiness and beverage (FAB) industry finds itself at the frontline of a series of global macro trends, navigating a complex web of interconnected and evolving risks.

Economic volatility, geopolitical tremors, an intensifying climate crisis and rising regulation continue to threaten organizational resilience. While the sector has always operated within a shifting landscape, becoming accustomed to change and unpredictability, the scale and speed of interconnected risks have created new challenges. Today, disruptions in one area can quickly cascade and impact others.

A Growing Appetite for Change

The global population is expected to reach 9.7 billion by 2050;1 this growth, coupled with increased urbanization and a rising middle class with changing dietary and purchasing habits is reshaping the industry. Consumer preferences are shifting toward climate and health-conscious consumption, as well as driving a surge in food demand. However, the challenge of keeping a global population fed without damaging the planet through increased emissions and deforestation is a monumental task facing the sector. The ability to solve these challenges is dependent on building a pipeline of digital talent and employees with sought-after specialist skills — a task that has become increasingly difficult in a fierce employment market, against competitors with deeper pockets and more compelling employee value propositions (EVPs).

35%

Total global food demand is expected to increase by 35 to 56 percent between 2010 and 2050.

Source: A meta-analysis of projected global food demand and population at risk of hunger, Nature, 2021

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The Impact of Climate Change and Geopolitical Tensions on Supply Chains

The industry’s vulnerability to business interruption is the third biggest risk according to FAB leaders who responded to Aon’s Global Risk Management Survey. Escalating geopolitical tensions and conflicts threaten global supply chain resilience, contribute to the instability of commodity prices and ultimately impact food security. At the same time, climate change effects, such as extreme weather events, resource scarcity and production disruptions, threaten the stability of complex global supply chains. The result is a rise in both costs and risks for FAB businesses. Increased duty on Indian rice,2 climate-impacted olive harvests in Europe3 and Russia’s blockade of grain exports from Ukraine,4 are just some of the multi-faceted challenges that have recently disrupted global food supply chains.

24%

Maize crop yields are projected to decline 24 percent by 2030 as a result of climate change.

Source: Global Climate Change Impact on Crops Expected Within 10 Years, NASA Study Finds, NASA, 2021

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The Risks and Opportunities of a Digital Revolution

Digital acceleration within the FAB sector is transforming both business opportunities and operational processes — from new online channels to connect with customers to digital product passports that support supply chain transparency. The rapid advancement of artificial intelligence and the adoption of technologies like blockchain and NFTs will support more efficient, effective and safe operations for FAB businesses. Yet with these benefits come increasing threats that leave the sector vulnerable to digital disruption and cyber risk. Addressing cyber security gaps, building a resilient digital workforce and strengthening defenses across the value chain is now imperative for FAB businesses.

11.5

The average downtime after a cyber attack is 11.5 days, costing businesses an average of $260,000 per hour.

Source: Reducing Manufacturing Plant Downtime, Food Engineering, 2023

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Quote icon

FAB businesses are caught in a perfect storm of complex and interdependent risks that require a united and innovative approach from risk capital and human capital leaders.

Ciara Jackson
Food, Agribusiness and Beverage Industry Practice Leader at Aon

A Revised Approach to Risk Management

Faced with these interconnected risks, FAB businesses need to adopt a proactive approach to risk, reevaluating their operations and strategies around established and clearly defined risks and newer, evolving risks.

  • Embrace a Holistic Approach to Risk Management:

    As risks become more complex and connected, it is essential to address their interconnectedness across the business. Bringing together risk, insurance, finance, treasury, environmental, social and governance (ESG), HR and IT leaders ensures an enterprise-wide approach to risk that helps improve decision making and strengthen organizational resilience.

  • Prioritize Long-term Thinking:

    The current level of volatility and the pace of change make a reactionary mode of operating unsustainable. A long-term focus on understanding and anticipating future threats empowers organizations to mitigate risks and proactively seize opportunities. By building strong partnerships grounded in trust and transparency across the value chain, stakeholders can work collaboratively to manage risks and navigate disruptions.

  • Drive Innovation:

    Investing in innovation through digital advancements and nurturing a workforce made up of diverse thinkers will help the FAB industry develop solutions that not only address emerging risks but also capitalize on opportunities. Building a compelling EVP around climate risk supports the attraction and retention of talented people committed to making meaningful contributions toward sustainability and global food security.

Discover more about managing and mitigating interconnected risks with Aon’s: Better Decisions on Risk Capital and Human Capital for Food Agribusiness and Beverage report.

Aon’s Thought Leader
  • Ciara Jackson
    Food, Agribusiness and Beverage Industry Practice Leader at Aon

1 Global Issues: Population, United Nations
2 Indian rice traders hike prices to mirror higher export duty, Economic Times, 2024
3 Europe’s olive oil supply running out after drought – and the odd hailstorm, The Guardian, 2023
4 Ukraine says Russia again blocking Black Sea grain export deal, Reuters, 2023

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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