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Food and Drink InperspectiveIn this issue

Welcome to this latest issue of Inperspective, Aon’s review of the risk and insurance issues facing food and drink organisations.

It’s our belief here at Aon that food safety and the impact it can have on business continuity, will be two of the major forces driving operational strategy in the food and drink industry next year. With this topic in mind, I’m delighted to say that we are able to present a unique insight from one of the UK’s best known grocery brands.

Wm Morrisons has worked with Aon since 2013, and Jonathan Burke who heads its Competition and Compliance function, has been kind enough to reveal the ways we have been providing business continuity support so it can keep its shelves stocked.

For a business with no less than 25 of its own manufacturing, processing and distribution hubs the need to create a dynamic continuity planning framework is abundantly clear and Jonathan provides some frank revelations about how planning now feeds into the business from every direction.

p3 How Morrisons put continuity planning in its own hands

p5 Will new food safety guidelines support the industry and protect consumers?

p7 Can food and drink still blame the weather?

p9 Meet the experts

Aon Risk Solutions National | Food & Drink Practice

Issue 5 Winter 2015

Norman AndrewExecutive Director, Aon

Business continuity and food safety will be dominant themes in 2016

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Will new safety guidelines support the industry and protect consumers?Also in this issue, my colleague Kary Yates, looks at the proposed review of food safety guidelines which many of you will no doubt be aware. Kary explains the importance of demonstrating a robust approach to safety and reminds manufacturers that a less prescriptive regime could have some benefits if it encourages firms to innovate their testing procedures.

Can food and drink still blame the weather?Meanwhile, home nations rugby fans may still be licking their wounds but our experts in Aon Benfield suggest this isn’t the only contingency manufacturers should have been concerned about. Kurt Cripps reveals how food and drink is able to use historical data to understand the effect weather patterns have had on sales and are finally able to do something about it.

Download our food safety white paperAnd finally, a question: How do blackcurrants fit in with the product recall plan at cider maker Thatchers? If you don’t know the answer to this, download our latest food safety white paper.

As ever, we hope you enjoy this edition and look forward to hearing your thoughts...

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How Morrisons put continuity planning in its own handsVertical integration is at the heart of Wm Morrisons’ strategy. Its nationwide manufacturing, processing and logistics operation ensures the supermarket’s shelves remain stocked to perfectly reflect customer tastes for those essentials in our weekly shop. Inperspective spoke with the supermarket’s Head of Competition and Compliance, Jonathan Burke, to find out how business continuity planning (BCP) has become a key element to maintaining this objective.

In July 2013, Wm Morrisons PLC announced that it had purchased the mothballed Del Monte banana ripening plant in Boston Lincolnshire1. The development not only created 80 new jobs but exemplified the company’s approach to delivering products as consumers want them.

Around the same time, Morrisons and Aon began a partnership to ensure this factory and the two dozen others like it including factories for vegetable processing; cheese cutting, meat and fish processing, abattoirs, bakeries and even fresh cut flower arranging, are all following the same rigorous approach to business continuity planning.

“We have a very high level of vertical integration at Morrisons and we’ve been refining our approach to BCP for a number of years,” says Jonathan. “When we began working with Aon, we were looking for a more sophisticated approach to BCP which placed the ‘plan ownership’ in the hands of our site management as well as my department at head office. The typical prescriptive methods were no longer appropriate on their own and while checklists and emergency procedures remain important, the approach we were looking for was much more dynamic.”Hugh Leighton, Senior Consultant within Aon’s Business Continuity Practice, has been responsible for delivering a series of desktop exercises, training sessions and scenario planning drills at Morrisons’ distribution centres and production sites around the UK.

The exercises are part of an annual review process which Aon supports at each of Morrisons’ 25 operational sites across the UK. He explains: “We keep in mind at all times the strategic objective of the client and as Jonathan explained, there was a need to build into Morrisons’ BCP testing and review process a more scenario-driven approach. We have been able to provide them with a simple approach to desktop exercising, which tests both the plan and the team, providing valuable training and experience, and identifying areas for improvement.”

Hugh LeightonSenior ConsultantAon Global Risk Consulting

1 Source: The Grocer 26th July 2013

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Unique risks on each siteJonathan adds that the exercise and debrief elements introduced by Aon have been the most valuable of all. “The team at Aon will devise a dynamic scenario like a catastrophic electricity failure and site management will deploy their existing BCP plans to test how well put together they are. While this is a generic incident, it will affect each site in a different way; the abattoirs for example emerged from their session having learned that they will need to include provision for veterinary assessment under animal welfare regulations. If this wasn’t included in the plan, this requirement would undoubtedly introduce further business continuity risk.”

Jonathan says it is examples like this which show how Morrisons’ teams have become part of the BCP planning process. “This is a universal lesson for any business. They are the ones with intimate knowledge of their own operation so it makes sense to bring their experience on board. Aon’s Business Continuity desktop exercise has taught us how to engage colleagues into the process and draw on their insight to create a more dynamic and robust BCP plan for our company.”

For further information on Business Continuity Planning please contact Hugh Leighton.

Hugh Leighton+44 (0)20 7086 7312 hugh.leighton@aon.co.uk

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2 Source: Food Safety Magazine

3 Source: FSA releases new data on campylobacter

in chickens – Food Safety Magazine

Kary YatesTeam Leader, Product Recall and Contamination

Will new food safety guidelines support the industry and protect consumers?Food manufacturing has faced huge challenges in recent years as demands for greater transparency in the supply chain have co-incided with negative headlines. Kary Yates, Team Leader, Product Recall and Crisis Management at Aon reviews the latest proposals for new safety guidelines and asks if they will encourage greater innovation…

In spite of the fact that the vast majority of Food Standards Agency enforcement notices result in little or no harm to consumers, the truth is that a food safety incident can cause material harm to manufacturers and their brands.

In the worst case scenario it can interrupt production to such an extent that a business’ long-term viability is in question.

Now, with the remnants of Horsegate and the subsequent Elliott Review still fresh in the mind, a European Commission proposal to review food safety guidelines has re-ignited the debate about whether new industry standards are needed, while some commentators have suggested they should extend beyond manufacturing alone2.

In September 2015 the European Commission announced that it was proposing a review of HACCP (Hazard Analysis and Critical Control Points) and The Food Standards Agency (FSA) is currently consulting with stakeholders on the review to the existing EU HACCP guidance documents.

Using supply chain traceability control standards developed by the Pillsbury Company in the 1960s for the NASA space programme, HACCP has for decades been a source of pride for the food manufacturing industry. Using a global framework and a consistent language, the protocol concentrates on the most significant hazards facing the food industry, including microbiological contaminants like Salmonella, E.Coli O157:H7, Listeria, Campylobacter, and Clostridium botulinum.

However, despite HACCP’s robust reputation, contamination issues continue to generate headlines and the FSA consultation is asking whether the current guidance is straightforward enough. Concerns have been expressed about whether prerequisite programmes (PRPs), which, alongside HACCP, provide the conditions essential for safe food production, are sufficient on their own.

The FSA also wants to know whether particular parts of HACCP and PRPs represent a disproportionate burden on food and drink businesses and has asked stakeholders how this might be reduced without compromising food safety.

The challenges faced by poultry producers and UK supermarkets during 2015 as campylobacter contamination made headline news have again put the issue into sharp focus. The FSA said in a recent report3 that although only 6.8 percent of chicken packaging had traces of contamination on the exterior, it was still concerned because consumers didn’t expect this. The regulator pointed out that there are no specific rules regarding how to handle such packaging from the point of sale to opening it at home.

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Download Aon’s food and drink safety report

As I said in my opening remarks, the possible consequences of a contamination incident can be severe and as insurance and risk consultants we have to encourage a robust and transparent regime of testing, control and monitoring along the entire supply chain.

However, we do not necessarily advocate a prescriptive system and should HACCP be made more adaptable to suit the needs of modern manufacturing, supply and distribution then the industry could be encouraged to innovate.

Some have suggested that a more flexible regime may demotivate companies from focus-ing on safety, but I would disagree. Consumers and the press stand as judge and jury on a manufacturer if they fail to take contamination and safety seriously and this should be motivation enough. It has already become clear that the enforced testing regime recom-mended by the Elliott Review will not be supported by government, and as such manufac-turers have an opportunity to design and implement more appropriate tests that properly reflect the risks within their own business.

For further information on Product Recall and Contamination contact Kary Yates.

Kary Yates+44 (0)20 7086 4411 kary.yates@aon.co.uk

aon.co.uk/food-drink

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Can food and drink still blame the weather?With the Rugby World Cup recently coming to a close, some food manufacturers may realise the home nations’ performance isn’t the only variable they should have planned for. Kurt Cripps, Managing Director at Aon Benfield explains how the industry should also hedge its position for a range of possible climatic scenarios.

For food and drink businesses, the weather is a volatile external factor influencing consumer behaviour and market dynamics. The weather can quite literally make or break a company’s year.

2015 has been a disappointment for many manufacturers who rely on the summer months to deliver their peak demand as the temperature rises. The Met Office said summer 2015 was cooler and wetter than either of the two previous summers, with a provisional mean temperature 0.4C below the 1981-2010 average. Conversely, rainfall was above average, with 113% of the average falling on UK shores during the summer months.

But while food and drink businesses will expect wet and cold weather during autumn and winter, what if seasonal averages upon which their forward planning is based no longer apply? How much of that financial impact can be absorbed?

Some manufacturers smooth their exposure to volatility in commodity prices of raw materials like wheat, rice, coffee and other staples with weather derivatives which reduce the risk associated with adverse or unexpected conditions, paying out if they force prices beyond a pre-defined tolerance or impact a key trading season.

But derivatives aren’t a simple product to buy and so their penetration is limited; meanwhile the industry is still guilty of blaming the weather. A scan of investor relations pages often reveals how it remains high on the list of problems at which to point the finger of blame. 2015 has been no exception, with an inclement summer unfortunately hitting the bottom line for some as sales, and profits, both fell.

If you look back far enough, the resignation by manufacturers over how weather impacts their business is categorical, and in most cases made without any recourse to a solution. The default position is to hope that this year things will work in your favour.

Unfortunately, investors appear increasingly to label this tactic in rather unflattering terms. ‘Earnings excuses’ was the subject of a recent article in Fortune Magazine titled ‘the weather ate my returns’, which cited a 2014 study by Emory University researcher Dexin Zhou, titled ‘The Blame Game,’ which found that “the more corporate executives blamed poor performance on external factors, the less their stocks returned in the future4”.

The question is one of tolerance. How much bad weather is too much? Every organisation has a risk appetite but with modern approaches to data mining and analytics it has now become possible for companies to identify and isolate a trading loss as an insurable interest and hedge against that loss without resorting to complex derivatives.

Kurt CrippsManaging DirectorAon Benfield

4 Source: http://fortune.com/2015/04/24/

the-weather-ate-my-returns/

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Historical climate analysis can be overlaid against trading data to produce a ‘real time’ review of how and why the weather influenced your company’s sales over time. For companies that habitually look to the skies for a reason why consumers open their wallets, this can be a very powerful tool, not only when sales drop but also when demand surges beyond expectations.

The UK has recently been enjoying just such a scenario with the Rugby World Cup coming to a close on 31st October. The fate of numerous food and drink brands has been riding on the success of the competition with beer and tied promotions in every retail outlet.

Indeed, the performance of the home nations’ teams can and does have an influence on sales, leading many manufacturers to build ‘what if?’ scenarios into their production planning. But when pub gardens across the country are washed out from an unseasonal deluge it stands to reason that winning on the field should not be the only variable a manufacturer should plan for.

For further information on Aon’s weather solutions contact Kurt Cripps:

Kurt Cripps+44 (0) 20 7522 3718kurt.cripps@aonbenfield.com

“If you look back far enough, resignation over how weather impacts business is categorical… The default position is to hope that this year things will work in your favour”

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Kurt CrippsManaging DirectorAon Benfield

Hugh LeightonSenior ConsultantAon Global Risk Consulting

Kurt Cripps Kurt Cripps is a member of the treaty team within Aon Benfield and product leads the Aon weather reinsurance offering WExcess. This is the only UK regulated offering of its kind. Kurt started his career at HSBC Insurance Brokers in 2004 and joined Aon Benfield in September 2009. He has experience in casualty lines across many international territories. Prior to joining the UK&I team in July 2009, Kurt spent 5 years in London placing APAC treaty business. Kurt is a member of the Weather Risk Management Association.

Involvement in placement of non-traditional and non-subscription placements within the International Reinsurance markets and extensive participation with the Aon and RMS teams in respect of catastrophe modelling.

Hugh Leighton works within the Enterprise Risk Management team within Aon and is responsible for the development of focussed risk and business continuity management programmes and the custom design of specific solutions to deal with client issues. Hugh has extensive knowledge and expertise within the Business Continuity field, designing, implementing and supporting BCM projects for a range of clients and has specific expertise in working with manufacturing clients in the food and drink sector. Hugh is a member of the British Standards Institute committee BCM1, which is responsible for creating and maintaining BS 25999 and ISO 22301 (Business Continuity Management Standards). He also participated in the committee which prepared the recently published American National Standards Institute (ANSI) standard for BCM systems and is a qualified Lead Auditor for BS 25999.

Meet the experts

aon.co.uk/food-drink

Kary YatesTeam Leader, Product Recall and Contamination

Kary Yates has 29 years’ experience in producing and placing property and casualty business with emphasis on product recall and contamination since 2002. Kary has 14 years broking experience in the London market, including Lloyd’s of London and the London company market. Kary has a number of qualifications in food and drink including a Level 2 and 3 in Food Safety Supervision for Manufacturing.

Risk. Reinsurance. Human Resources.

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