We have chosen risk and compliance as twin themes for this issue, although the elephant in the room will of course be our withdrawal from the European Union. While the country and its neighbours wait for the exit negotiations to begin, we have gathered a range of opinion in support of the theory that ‘the time is now’. It is our view that risk managers have a unique opportunity to engage with their business and take steps towards scenario planning even while uncertainty continues to dominate.
NO1 Trending kala jadu karne wale ka contact number kala jadu karne wale baba...
Autumn 2016 Food and Drink Inperspective
1. Aon Business Unit
Market or Division | Practice Group
Risk. Reinsurance. Human Resources.Risk. Reinsurance. Human Resources.
Food and Drink
Inperspective
In this issue
Welcome to this autumn 2016 edition of Inperspective, Aon’s
exclusive review of the risk issues facing food and drink
organisations in the UK.
We have chosen risk and compliance as twin themes for this issue, although the
elephant in the room will of course be our withdrawal from the European Union.
While the country and its neighbours wait for the exit negotiations to begin, we
have gathered a range of opinion in support of the theory that ‘the time is now’.
It is our view that risk managers have a unique opportunity to engage with their
business and take steps towards scenario planning even while uncertainty
continues to dominate.
If properly documented and signed off at board level, scenario plans could prove
the difference between a business which is truly prepared for Brexit and one which,
to the displeasure of stakeholders, is swept away by events.
Meanwhile, the food and drink industry faces a more immediate compliance
challenge, in the form of the Modern Slavery Act. For businesses of a certain size
and scope, declarations of policies in relation to the act have been compulsory
since 30 September 2016.
p3 Brexit – Avoid playing the
waiting game
p5 Brexit – Addressing concerns
over long-term agreements
p7 Brexit – An industry view
p10 Modern Slavery Act – A testbed
for traceability
p12 Meet the experts
Aon Risk Solutions
National | Food & Drink Practice
Issue 6 November 2016
Norman Andrew
Executive Director, Aon
Brexit – The time is now
2. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 2
There are wide-ranging views on the efficacy of this legislation, largely owing to its
lack of prescriptive rules and an apparent absence of sanctions.
However, the Bribery Act has already pointed many organisations in the direction of
enhanced transparency, particularly when their reputations could be damaged by
being seen not to take steps against the scourge of corruption.
Grant Foster’s article in this edition of Inperspective suggests that the Modern
Slavery act points the way to a new generation of supply chain transparency where
the reputational risk of non-compliance vastly outweighs the demands of the law
itself. Put simply, manufacturers are likely to be rendered conspicuous if they meet
only the bare minimum standard of compliance.
Thankfully, he also provides some helpful steps that can be made to support
traceability efforts and get your business ahead of the law before it tightens up.
As ever, we hope you enjoy reading this edition of Inperspective and look forward
to hearing any feedback you may have.
3. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 3
Brexit – Avoid playing the waiting game
David Molony
Consultant
Aon Global Risk Consulting
Brexit Navigator is supported by an
interactive tool that presents
scenario-based insights for each of
the EU Four Freedoms, which helps
to quantify how the changing
dynamics will impact businesses.
Following the UK’s vote to leave the European Union, the UK
Prime Minister, Theresa May, announced that Britain would be
exiting the EU by summer 2019. Companies must now attempt to
determine the strategic implications of this decision, and examine
the effects that withdrawal of the EU’s ‘Four Freedoms’: Goods,
Capital, Services and People, from the United Kingdom may have
on organisations.
In Aon’s view, there has never been a better opportunity to demonstrate enhanced
corporate governance by beginning the process of planning and documenting
potential scenarios caused by departure from the European Union.
The summer months introduced a welcome post-Brexit lull for many people in the
UK and it is arguable this may have encouraged some to think that waiting for the
government is the only game in town.
But for food and drink organisations whose’ business models, trading relationships,
supply chains and workforces may be turned upside down by departure from the
EU, it feels far from ‘business as usual’.
Brexit represents a risk and governance issue for company boards who must
acknowledge that their risk profile may change as a result. Possible outcomes need
to be considered, including decreased capital mobility, loss of revenue, price
increases, loss of competitive advantage and potentially an overall reduction in
market share. For directors of larger businesses in particular, a failure to act could
prove costly.
Brexit Navigator
In response, Aon has developed Brexit Navigator, a three step solution that helps
organisations to quantify the impact of Brexit risk exposures, redesign risk
management and adapt risk financing structures.
Brexit Navigator is supported by an interactive tool that presents scenario-based
insights for each of the EU Four Freedoms, which helps to quantify how the
changing dynamics will impact businesses.
Brexit Navigator serves as a powerful advocate in conversations with the c-suite
around strategic risk, while identifying opportunities to ensure your insurance
programme remains ‘fit-for-purpose’.
We’re asking directors how the removal of the four fundamental freedoms of EU
membership will affect their strategic business plans and objectives; how will their
balance sheet be affected; how will they ensure the appropriate resources and
people are in place to mitigate these changes?
4. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 4
In sectors like food manufacturing which are heavily reliant on the free movement
of goods and people around the EU, a formalized assessment of Brexit related
strategic planning will have significant value for stakeholders. More than 90% of
imports and exports made by the industry are covered by free trade deals the EU
has in place or is currently negotiating1
. Documenting your analysis of and
mitigation plans in view of potential tariff barriers would be a fairly straightforward
step which can be carried out using established forecasting techniques.”
Businesses that follow this approach to strategic planning can expect enhanced
directors’ and officers’ liability protection through proactive corporate governance
and stewardship. This is prudent risk management and companies’ insurance
programmes are likely to change as a result of Brexit. Our intention is to support
businesses so that volatility is kept to a minimum.
For further information on Brexit Navigator and scenario planning
contact David Molony:
David Molony
+44 (0)20 7086 7043
david.molony@aon.co.uk
Businesses that follow this
approach can expect enhanced
directors’ and officers’ liability
protection through proactive
corporate governance and
stewardship.
1
Source: Food and Drink Federation
5. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 5
Mark Hancock
Strategic Account Manager and Head of Service
Excellence, Aon Global UK
Food and drink manufacturers who have, or are considering
entering into a long term agreement with their insurer are being
urged to consider ‘Brexit Restructure’ as a possible break clause.
Mark Hancock, Strategic Account Manager and Head of Service
Excellence at Aon Global UK, explains the key issues for risk
management decision making.
Until Article 50 is triggered and its two-year timer is up, it is unclear what shape
insurance regulation and policies will take in the UK and EU. While insurance policies
customarily run for a period of 12 months, for those clients who have or are considering
entering into long-term agreements (LTA’s) Brexit planning is now a reality.
The initial reaction is to defer entering into any LTA until the regulatory landscape is
clearer, but with sufficient pre-planning and safeguards, now may be the optimum
time to consider a multi-year programme.
One of the principal benefits of an LTA is to lock in rates that could rise in the
medium-term and provide budgetary certainty. General insurance rates (other than
perhaps natural catastrophe exposures) have been on the decline since the financial
crash of 2008. History has shown that external political and economic pressures can
create a dramatic hard market with coverage and capacity being restricted and prices
rising steeply. An LTA could be the optimum hedge against these uncertainties.
The foundation of a good LTA is to build a relationship with an insurer that
understands your risks and has the depth of resources to provide the services you
need, be it extended coverage, policy issuance in multiple territories, risk
engineering services or claims handling services. It’s usually a combination of all of
these, although Brexit will weigh most heavily on the ability of insurers to issue
multinational policies across the European Economic Area.
One of the Brexit unknowns will be whether the carrier you chose today will be the
right long-term partner for the duration of the agreement? Will the insurer chose a
different business model post-Brexit or will they be subject to a merger or acquisition?
What is needed is a pre-nuptial agreement that can insulate against a messy divorce.
Aon insight
A typical insurer LTA is limited to an option that allows the insurer to extend renewal
terms at the expiring rates, for which they offer a small discount. If claims
experience is poor or other factors arise, the insurer has no obligation to continue.
A more client-focused LTA provides both parties with the right to break or
renegotiate. On the insurer side, this will cover changes in the insured’s business,
increase in exposure, claims experience, change in law or material restriction in the
availability of reinsurance. Clients benefit from protection in the event that the
insurer fails to pay valid claims, an insolvency event or security downgrade.
Brexit – Addressing concerns over
long-term agreements
6. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 6
We can now add Brexit restructure to that list of possible triggers. Exactly what such
a clause might look like may depend on a number of variables, both client-specific
and market-driven. Your Aon broker can provide advice and guidance if you think a
long-term agreement is the right solution for your business at this time.
For further information on LTA’s contact Mark Hancock:
Mark Hancock
+44 (0)20 7086 3169
mark.i.hancock@aon.co.uk
7. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 7
Brexit – An industry view
2
Source: Office for National Statistics
Dominic Goudie
Policy Manager (Exports, Trade and Supply Chain)
Food and Drink Federation
Inperspective speaks with Dominic Goudie, Policy Manager
(Exports, Trade and Supply Chain) at the Food and Drink
Federation about representing an industry facing considerable
challenges from Brexit.
It is difficult to think of another industry sector more impacted by Brexit than food
manufacturing. In advance of the vote, a poll showed that almost three quarters
(72%) of Food and Drink Federation members were in favour of remain, with
undecided voters at 18% and the remainder choosing to leave.
Dominic Goudie, whose every day role has been subsumed entirely by Brexit issues
says; “The message we had from our membership was that the industry was
extremely supportive of staying in and the key theme of accessing a skilled
workforce via the EU was seen as absolutely essential. The industry was
understandably disappointed with the outcome, but we’ve dusted ourselves down
and moved our focus towards the possible outcomes of leaving the EU.”
The FDF was quick to respond with its manifesto; ‘A New UK-EU Relationship;
priorities for the food and drink manufacturing industry’ a matter of weeks after the
referendum. “This is our outline to the membership what the short, medium and
longer term concerns are and what we think the government needs to focus on in
relation to our industry,” explains Dominic.
In some ways mirroring the four freedoms granted by EU membership, the FDF
manifesto focuses on a quartet of topics; the workforce, trade, the regulatory
framework and ‘domestic support’.
Putting minds at ease
Understandably, of foremost concern for an industry where migrant workers form
such a large proportion of the sector is the issue of acquired rights and freedom of
movement. “Many of our workers were deeply unsettled by the uncertainty caused
by the Brexit vote,” says Dominic. “We all saw reports that they might be forced to
leave the UK and understandably many of our members were placed in a difficult
situation of having to advise and reassure their employees about their security as
residents in the UK.”
As a result, the FDF has been calling for clarity from government as a matter of
urgency. “Our sector is reliant on workers from the rest of the EU. Our most recent
numbers show that 27%2
of the sector’s workforce is non-UK/EU workers. This is a
huge unanswered question and the industry is changing rapidly. We have figures
which show that the sector will require 130,000 new skilled workers by 2024 to
meet the industry’s needs as a result of an aging workforce and changing patterns
of manufacturing.”
8. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 8
Trade barriers and an Irish case study
The overwhelming influence of free trade in the European Union is probably of
equal importance as freedom of movement and once again, the numbers are
stark. “Over 70% of our sector’s exports are to the EU and we are reliant on imports
from EU countries to a similar degree. Adding in free trade deals that the EU has
in place or is currently negotiating; covers 94% of exports and 97% of imports.
Maintaining the access to these markets is essential so we can carry on producing,”
says Dominic.
To illustrate, Dominic says Ireland’s border with the United Kingdom gives a perfect
example of the challenges manufacturing will face. “One of the emerging points is
the interdependency between Northern and the Republic of Ireland,” he says.
“Ireland is effectively part of the wider UK trade area with almost £600m3
in trade
from January to June 2016. This is more than twice the second largest market and
there are enormous overlaps and areas of interdependence. You find things like
grain that is produced south of the border can be milled into flour in Northern
Ireland to then be used by bakers in the Republic once again. If you have a closed
border with tariffs there, you can only imagine the increased costs of doing
business. There are similar challenges for dairy and beef producers which are very
large industries across Ireland.” The concerns of the UK food and drink industry are
mirrored by Food and Drink Industry Ireland, who recently published a review
highlighting what they see as the ‘intense competitive pressures that have followed
the referendum result’.
Regulation and domestic support
Before the referendum, one of the leave campaign’s major selling points was the
prospect of reducing red tape. For the FDF, this will be on the agenda, but Dominic
emphasises the federation’s commitment is to ensuring stability. “The FDF’s
regulatory experts will work with member companies to help identify if there are
any regulations that might be removed or improved after the body of food law has
been transferred to the UK. These discussions are ongoing, but it is likely to be a
long term project and our focus remains on ensuring regulatory stability rather than
seeking to scrap regulations at the point of Brexit.”
The final manifesto pledge, ‘domestic support’ acknowledges other considerable
challenges for manufacturers, notably volatility in currency markets. In 2013, Aon’s
Food and Drink Risk Survey found that commodity price volatility was the number
one concern across the sector and it would be a fair assumption to expect this to
have risen once again to the top of a manufacturer’s risk register.
Currency Volatility
Dominic explains: “We have sought to work with government in its efforts to help
bring stability to the currency markets. We’ve heard from the larger organisations
that they have taken measures and precautions around currency and hedging,
which broadly speaking will carry them through until the end of the year or in some
cases as far as March or April 2017. For the smaller companies, this type of exposure
is a greater concern and they may not have access to some of the risk management
tools available to their larger counterparts.
Obviously there’s only so much we can do in relation to this issue but we do want
to bring together as many organisations as we can who are affected by this because
there is so much concern about it.”
3
Source: Food and Drink Federation – Food and
non-alc drink – Jan-June 2016: UK exported nearly
£1.5bn to Ire, UK imported over £1.8bn from Ire
9. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 9
Meanwhile, domestic support issues also extend to funding and probably no
greater finance issues concern the food supply chain in the UK more than the future
of the Common Agricultural Policy and EU-funded innovation projects. “With such
a huge amount of funding coming directly to our industry from the EU, our
question for government is will we have a policy to replace the current framework
in the long term?” he says.
No more distractions
With such an overwhelming task ahead for both public and private sectors, the FDF
is using Brexit as an opportunity to urge a rethink on two key ‘in the pipeline’
regulations which have been in the headlines recently. “We’re keen to press the
government on its progress relating to regulations which threaten the stability of
the market at a time of unprecedented change. Firstly, the apprenticeship levy;
while we’re in support of it, we have some serious concerns about the timing of its
introduction and the level of funding rates. We’d like the government to put a
pause on it for further thought. The same applies to the soft drinks levy.”
Brexit; a line in the sand?
So, with clarity from government still a way off, does the FDF advocate scenario
planning as a sensible approach in the meantime? “We’re trying to make people
aware of the potential scenarios facing them such as restrictions on who you can
employ and the increased tariffs that come from being outside the EU Single
Market.” says Dominic. “The focus on risk is very important, but as we carry this
forward, in order to present a compelling argument to government, we should also
be focusing on areas of opportunity.”
For further information on the FDF’s approach to Brexit
contact Dominic Goudie:
Dominic Goudie
dominic.goudie@fdf.org.uk
10. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 10
Modern Slavery Act – A testbed
for traceability
Grant Foster
Managing Director
Aon Global Risk Consulting
On 30 September, a first wave of businesses had to publish
statements of their policies in relation to the Modern Slavery Act.
The obligation to publish an anti-slavery statement is mandatory, however the
content of this statement is not, prompting some observers to label the Act
‘toothless’. Nevertheless, Grant Foster, Managing Director at Aon Global Risk
Consulting says this should not dictate a company’s response. “There are few hard
sanctions within the Act and it is unprescriptive to say the least.
“At its heart, the Modern Slavery Act represents a rallying call for any UK business
over a certain size, particularly those with a complex supply chain, to show that
they take this risk seriously,” he says.
“The government is asking for businesses to refocus their procurement efforts and
not accept any products or services which may have been ‘adulterated’ by the
influence of modern slavery or human trafficking anywhere along the supply chain.”
Grant admits this may be a challenge for some manufacturers, but says that supply
chain traceability audits are a sensible first step. “You need to look at where there is
money and opportunity. Traceability audits focus on ‘following the money’ and
identifying where the most money could be made by adulterating a product.
Businesses with supply chains that stretch across the globe could find themselves
exposed. According to the International Labour Organisation, countries in Asia/
Pacific, Africa and South America are the most frequently associated with corrupt
labour practices. This could mean anything from enforced servitude, to the use of
state run prisons for the production of goods.”
“Of course, the food manufacturing industry buys large volumes of raw ingredients
on the open market and frequently uses wholesale networks which make full
transparency difficult. This will undoubtedly push the risk along the supply chain,”
he adds.
New penalties on horizon
Meanwhile, the lack of sanctions and penalties is likely to raise questions about the
efficacy of the legislation,” continues Grant. “But there is clearly a reputational risk
attached to not fulfilling a legal duty by publishing an anti-slavery statement. In
addition, there is a new private members bill currently passing through the House
of Lords, which proposes new sanctions such as prohibiting those found in breach
from joining any public procurement exercise. Frankly it is not inconceivable that
one day a criminal charge could be brought against a company and its directors for
‘knowingly associating with corrupt labour practices’.
On a more positive note, Grant says he expects fintech solutions to play an
increasing role in the promotion of supply chain transparency.
11. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 11
“Recent initiatives such as the Co-operative Food Group’s trial project with
UK-based company Provenance are embryonic, but using the open access database
technology ‘Blockchain’, these may help to bring traceability right into the
consumer’s hands. With fewer intermediaries in the process, the supply chain may
be able to build more trustworthy networks able to look at a product and trace its
supply chain; eventually, this will help us make informed decisions.
Can you insure?
With sanctions and penalties under the Modern Slavery Act a potentially moveable
feast, the likelihood of insurance programmes responding will very much depend
on the nature of a loss.
Lynn Richards-Cole, Client Development Director at Aon Risk Solutions says there
may be circumstances where companies can call on their insurance. “It’s certainly
worth discussing this issue with your broker. The consequences of less tangible
risks such as damage to reputation are becoming insurable, with crisis management
a useful part of product recall insurance now. In addition, there may be business
interruption exposures to consider as a result of any breakdown in the supply chain
caused by corrupt labour practices. It’s worth emphasizing that this is a board level
issue and there may also be an impact on the joint and several liabilities of directors.
Directors’ and Officers’ policies may respond if a breach of the act is alleged in the
form of defence costs, but again this will need careful discussion with your advisors.
For further information on the Modern Slavery Act and supply chain
transparency, contact Grant Foster:
Grant Foster
+44 (0)20 7086 0300
grant.foster@aon.co.uk
12. aon.co.uk/food-drink
Inperspective | Food and Drink | November 2016 FPNAT.254 12
Mark Hancock
Strategic Account Manager and Head of Service
Excellence, Aon Global UK
Mark Hancock has 27 years industry experience, primarily working for major
brokers in global client servicing. Mark currently has responsibilities for many
aspects of major client servicing and new business development.
Meet the experts
David Molony
Consultant
Aon Global Risk Consulting
David Molony has worked at Aon for almost 6 years working across the consulting
business and has expertise in risk financing and enterprise risk solutions. Having
worked in three countries for Aon and with a range of multinational clients, David is
committed to providing Aon’s clients with innovative and dynamic solutions to
organisational risks.
Dominic Goudie
Policy Manager (Exports, Trade and Supply Chain)
Food and Drink Federation
Dominic Goudie joined the Food and Drink Federation (FDF) in 2008 from the
BBC and works as Policy Manager in FDF’s Competitiveness Team with responsibility
for exports, trade and supply chain issues. He has led FDF’s policy response to the
vote to leave the EU, producing FDF’s manifesto ‘A New UK-EU Relationship:
Priorities for the Food and Drink Manufacturing Industry’, advising manufacturers
and convening cross-industry roundtables on the future UK-EU relationship.
These efforts have helped position FDF as the go-to food industry body to support
Government’s future planning on Brexit negotiations.
Grant Foster
Managing Director
Aon Global Risk Consulting
Grant Foster is the Managing Director of Aon Global Risk Consulting, a team of 80
risk practitioners based in the UK covering a range of risk management disciplines
including Actuarial, Engineering, Claims, Risk Financing and Enterprise Risk
Management. Combining direct experience of Corporate Assurance Systems,
Organisational Change Management, Enterprise Risk Management and Project Risk
Management (including risk assessments, process development and due diligence
work), Grant is able to bring innovative approaches to the challenges of business
management.
Grant is a chartered engineer, holds PhD in the field of distributed systems
modelling and a BSc (First Class) in Cybernetics and Mathematics from the
University of Reading.