Mastering resilience: How preparation beats the odds in building agribusiness
Despite the headwinds, according to the National Agricultural Marketing Council (NAMC), South Africa’s agricultural product exports showed a healthy increase:
Agricultural products exports increased by 14%, in value from R64bn in quarter three of 2022 to R72.9bn in quarter three of 2023.
Products that contributed to this increase were soya bean flour and meal (increased by 7328%), followed by nuts (828%), oranges (480%), mandarins (112%), macadamia nuts (68%) and soya beans (42%).
Geopolitical conflicts abound with Russia’s invasion of Ukraine and the impact of the Israel-Hamas conflict affecting global markets, amplifying disruptions of various commodity supply chains and their subsequent price surges.
Meanwhile, the volume of regulation and disclosure requirements is growing, which in turn is driving transparency around pay equity; diversity, equity and inclusion (DEI); food safety; climate risk; environmental, social and governance policies (ESG); cyber security; deforestation and much more.
“Agribusinesses are facing tremendous pressure to accelerate and de-risk their climate transition and create positive social impact while addressing concerns related to yield volatility, working conditions, mass population migration and the impact of natural disasters,” explains Werner Bezuidenhout, branch manager at Aon South Africa.
Here, Bezuidenhout highlights the top factors to consider in building a resilient agribusiness:
1. Business interruption: Business interruption was ranked as the third most pressing concern to the agricultural sector in Aon’s latest Risk Management Survey.
Cover for business interruption compensates farmers for financial losses resulting from physical damage to property or external events relating to supply chain or distribution failure. Food is global, and even the smallest food processor uses ingredients, packaging and equipment from around the world.
Political unrest, trade disputes, natural disasters, workforce shortages, delays at ports and harbours, digitalisation and climate change will continue to cause business and supply chain disruptions and need to be thoroughly considered from a coverage perspective.
2. Cyber risk: Companies in the food value chain are prime targets for hackers, says Bezuidenhout, particularly ransomware strikes and data-extortion threats. Food production, including planting and harvesting crops, raising livestock, processing, packaging and logistics, has become more technologically sophisticated.
"Farmers and producers use distributed networks, remote sensors and computing to increase automation and efficiency on their farms, monitor the health of crops and livestock and tell when their equipment needs maintenance. The system is increasingly connected and cloud-based, creating a large potential cyber-attack surface."
3. Crop, livestock and game: Crop, game, and livestock are the lifeline of farming operations, continues Bezuidenhout. "Without adequate insurance, a farm risks losing its income until these essentials are replaced.
"Replanting after a disaster can be particularly challenging - for instance, it can take up to seven years for a macadamia orchard to yield a crop after a major fire necessitating total replanting. Negotiating this type of cover with insurers is crucial given its significant impact on farm sustainability and income over an extended recovery period."
4. Property: Bezuidenhout says that many farms have undergone expansions and renovations over the years, often resulting in outdated insurance coverage.
"Conducting a thorough property and asset valuation is essential to ensure that insurance sums adequately cover replacement costs, site rehabilitation and architectural plans in the event of fire or weather-related disasters."
5. Contents: Protecting specialised equipment that is integral to farm operations, is paramount, says Bezuidenhout. "Contents insurance safeguards the livelihood of a farm by covering essential equipment.
6. Vehicles/fleet: While commercial vehicle insurance typically covers partial damage or complete loss due to fire, older vehicles may only be insured against fire risk under specific sections of the policy.
"Having cover in place that is appropriate to the vehicles being utilised is crucial to prevent out-of-pocket expenses in case of replacement."
7. Theft of property and commodities: Theft remains an omnipresent risk that the farming community needs to contend with, which affects their property, contents and fleet covers. It is essential to work through the ramifications of the risk and how to manage the risk and/or transfer the risk where needed, says Bezuidenhout.
8. Fence maintenance and fire risk: "Farms seeking fire insurance must specify and maintain fences on their insurance schedules." This is particularly significant for game farms, where specialised and electrified fencing solutions are common but require substantial upkeep and risk mitigation, adds Bezuidenhout.
9. Public liability: Public liability insurance shields farmers from negligence allegations, covering incidents such as slip and fall, animal attacks or inadequate fire safety measures. Membership of Fire Protection Associations (FPAs) can mitigate liability risks related to fire incidents.
"It is also imperative to declare all activities conducted on the farm, especially for farms that are incorporating hospitality services such as tours or accommodation on their operational front. Standard agricultural policies may not provide cover for liabilities associated with hospitality-related activities - think of weddings/events, tours or restaurants."
10. SASRIA: SASRIA provides crucial cover for agricultural businesses against risks such as riots, protests and violent strikes, which can have significant financial implications if overlooked, especially in an election year.
11. Directors and officers liability: Despite not being corporate entities, agribusinesses face similar management liability exposures. Directors and officers of farming companies require this coverage to protect against wrongful acts, ensuring their interests are safeguarded amidst farm management responsibilities.
“With many commercial farms and agribusinesses becoming increasingly diversified, it is essential to take a much closer look at how their risk insurance would play out in the event of a catastrophe and the risk of liability claims against them in the event of fires, droughts or accidents,” says Werner.
"The uptake of insurance is greatly influenced by economic conditions. This underscores the vital role of a knowledgeable broker, well-versed in agricultural risks, to navigate the delicate balance between affordability and adequate coverage for worst-case scenarios.
"As agribusinesses expand their operations and income streams, the landscape of risks evolves, necessitating the expertise of a professional broker to craft tailored risk management strategies alongside suitable insurance solutions," concludes Bezuidenhout.
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