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Fielding challenges: The top risks facing today’s agribusinesses

Agribusinesses face complex challenges. Leaders should understand their key risks and implement an appropriate risk management strategy for success.

09/11/2024 · 7 minute read

The agriculture industry faces mounting pressure to provide for a growing global population, despite limited land resources and more frequent and severe climate events impacting operations.

To account for this need, agribusinesses seek to increase capacity and develop larger facilities, while navigating a persisting labor shortage and changing regulatory environments. Against that backdrop, other long-standing priorities continue to loom overhead: ensuring worker safety and animal welfare, implementing more sustainable technologies, and continuing to reduce greenhouse gas emissions.

Operating within this complex landscape requires risk managers and senior leaders to prioritize the most urgent risks facing the industry today and devise clear plans to mitigate their impacts. Faced with high stakes — sustaining and developing the food systems necessary to fuel generations to come — leaders need to consider more effective risk management decisions to minimize these challenges.

Climate change and its cascading impacts

Agribusinesses are already familiar with how adverse weather events — such as wildfires, storms, floods, droughts, and rising temperatures — can disrupt production and threaten food security, as many have been thinking about and managing the effects of climate change for years.

The two are inextricably linked; agribusiness has a significant role to play in securing more sustainable food systems and contributing to the energy transition, yet climate events continue to impact crops, livestock, and soil and water resources. Some of the top concerns include:

  • Heavy precipitation eroding soil and depleting soil nutrients, damaging crop yield
  • Severe weather events damaging crops, infrastructure, and nearby vegetation
  • Changes in temperature, rainfall, and frost-free days leading to longer growing seasons with both positive and negative effects; some farmers may be able to plant longer-maturing crops or more crop cycles, while others may need more irrigation over longer, hotter growing seasons
  • Rising sea levels and storms threatening coastal agricultural communities

These climate risks can lead to challenges that potentially impact infrastructure, heavy machinery, and operations. For example, if a storm causes a major transformer on a poultry farm to malfunction, prompt replacement may be necessary to prevent significant product loss. Considering the substantial property damage and business disruptions that could be caused by extreme weather events, it is crucial for businesses to:

  1. Understand existing and future vulnerabilities. Environmental risks continue to dominate the global risk landscape, as outlined in the 2024 Global Risks Report. Leaders should continue to identify how climate change will impact their organizations both in the near and long term and prioritize this effort.
  2. Develop robust business continuity plans. Develop clear business continuity plans intended to speed up the recovery process. This may include implementing backup power systems, establishing alternative production sites, or investing in climate-resilient infrastructure. Leaders should also conduct regular and varied tabletop exercises to test out these plans and practice adapting to new challenges efficiently and comprehensively.
  3. Transfer risk effectively. An effective risk transfer program can help companies mitigate the financial impacts resulting from property damage brought on by climate events. In addition to securing adequate insurance, it is important to ensure policies properly address coverage nuances, from deductibles and limits to exclusions and rates.

A labor shortage

Addressing these interrelated challenges requires sufficient personnel across farms, ranches, and facilities nationally. But the enduring labor shortage is hindering the industry’s productivity and expansion ability.

This shortage is primarily driven by older workers retiring and younger generations showing less interest in pursuing careers in agriculture, mostly due to the labor-intensive nature of these jobs that often require exposure to the elements. Shifting the paradigm around agriculture to attract and retain a new generation of talent will be crucial — but it will also take time. Agribusinesses can:

  • Reinforce the opportunity that exists in the sector, as well as its essential role in contributing positively to the energy transition
  • Provide training and development opportunities, as well as competitive wages and benefits programs, to attract new talent
  • Advocate for more robust federal programs that make it easier for migrant workers to legally help fill in the labor shortage

By proactively managing the current labor shortage, risk managers can help mitigate the operational and financial risks associated with understaffing and facilitate the long-term sustainability of agribusiness.

Preventative fire risk  

This sector also faces the risk of increased fire hazards at their farms and facilities. A fire could yield catastrophic damage to people, infrastructure, crops, animals, and nearby vegetation, as well as significantly impact the revenue stream associated with damaged property or livestock. In many rural agricultural locations, it also may be difficult for fire response teams to arrive onsite quickly.

This issue is further compounded by wildfires increasing in frequency due to climate change. Now more than ever, risk managers and leaders should consider taking action to minimize fire hazards by embracing safeguards, such as:

  • Establishing fire safety protocols and developing evacuation plans for workers and livestock
  • Conducting routine maintenance on electrical systems to avoid preventable fire hazards
  • Implementing early warning smoke detection and automatic fire sprinkler systems to enable faster response
  • Utilizing fire resistant/non-combustible construction features for all new construction projects and building upgrades

Changing regulatory environments and social pressures

Agribusinesses must navigate a complex web of federal and state-specific legislation intended to help them maintain health and safety standards, including more stringent rules around how to process food and house livestock. These regulations come with a long list of requirements, including Occupational Safety and Health Administration (OSHA) employee safety standards, pollutant limits, management practices, operational standards, and reporting obligations. Simultaneously, agribusinesses must also consider their customers’ and key activist groups’ social priorities, such as animal welfare issues.

The most successful organizations can minimize the risk of unintentional noncompliance, as well as social backlash, by staying abreast of new developments in this environment.

With support from a qualified risk advisor and legal counsel, businesses can proactively monitor and analyze regulatory changes to facilitate compliance. Third-party advisors can also collaborate with internal stakeholders to develop robust compliance programs and standard operating procedures that align with regulatory requirements. Regular audits and inspections can help you identify and address potential compliance gaps, reducing the risk of penalties, fines, and reputational damage.

Addressing today’s challenges begins with a holistic risk strategy

The above risks, from climate change and preventative fire risk to the labor shortage and an evolving regulatory and social environment, can have significant financial and reputational impacts on agribusinesses if not mitigated.

While these risks represent some of the most prevalent in the agriculture industry today, every business has its own unique set of vulnerabilities that also need to be addressed — and companies can only begin problem-solving if they know what they are up against.

A comprehensive risk assessment and broader risk strategy can help you more effectively pinpoint business-specific blind spots and determine the impact of these cumulative risks by:

  • Measuring the effectiveness of your existing risk mitigation practices and gaining better internal oversight into what aspects of your business need improvement
  • Implementing comprehensive risk management programs that address both pre-loss concerns including safety practices, bio- and site-security, hazard management, and equipment maintenance, as well as post-loss risk transfer mechanisms including insurance to address risks associated with workers’ compensation, property losses, and business interruption
  • Staying current with the evolving risk landscape and best practices in the agricultural industry

As agribusiness continues to play a pivotal role in nourishing global communities and moving the needle forward towards a greener world, a holistic approach to risk management remains critical to the sector’s future.

Speak with a Marsh representative to learn more.

 

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