Risk Management Weather 63c9549c38a87

Risk Management Strategies for 2023

Jan. 19, 2023
There are many headwinds as we enter 2023; proper risk management can help processors weather all of them.

Now that we’re into 2023, food processing companies face soaring input prices, record drought, staff shortages and increasing cyber risks that could hamper profitability and operational success. Processors can win in the new year, but it will require a best-in-class risk management and insurance strategy, as well as a nimble approach to workforce needs to work through the following issues:

The labor shortage

Recruiting and retention of production employees has been an ongoing issue for the food and agribusiness industries, and the pandemic made it worse. Unfortunately, even though the pandemic has moved on, its aftershocks remain, and labor shortages are likely to continue.

Food processors should re-evaluate their compensation and benefits packages, and re-examine cost-savings strategies in medical coverages, reallocating funding to the benefits employees find most important. Leveraging data to create personalized benefits based on employees’ unique needs will result in a quality employee experience that attracts and retains workers.

Once new employees have been hired, emphasize training and onboarding to lower turnover as well as lower the number of workplace injuries. This, in turn, will also help lower workers’ compensation insurance rates and medical costs long term.

Rising input costs

There are obvious culprits for price spikes of inputs and product costs: Russia’s invasion of Ukraine and China’s zero-Covid policy exacerbated global supply chain disruption with sharp reductions in fertilizer, seed and fuel production.

Staying profitable in this environment demands flexibility. Farmers in hundreds of Midwestern counties growing soybeans and sorghum are double cropping, which USDA is promoting through relaxed rule changes in response to the wheat shortage.

Vertical integration and commodity futures are time-tested ways to help tame input costs and improve efficiency. But many threats to profitability in 2023 will be largely out of producers’ control, requiring strong risk management, insurance, and financial strategies to remain profitable.

Catastrophic weather events

Nearly three-quarters of American farmers say crop yields have fallen due to drought, and severe weather events seem to be occurring with greater frequency and impact. Yet, there’s little reason to believe the stormy atmosphere and its impact will calm anytime soon.

 The cost of crop insurance will increase, as premiums are directly related to commodity prices. Farms need to determine the level of risk they’re willing to tolerate. On the whole, rates will rise across the board for agribusinesses, with particular pressure on excess liability coverage, property and cyber liability coverage.

Cyber crime

As processors and producers implement more automation to address the labor shortage and improve efficiency, the risk of cyber crime will continue to rise as a major security concern. This shift has increased exposure to cyber risks that could result in reputational damage, financial loss, and production downtime.

Monitoring control systems, employee cybersecurity training, adoption of multi-factor password authentication and cyber insurance are important strategies for managing cyber risk. Assess and address your areas of greatest risk, and also prepare for cyber coverage rate increases of 10-20% from 2022 prices.

So processors should start developing a tailored strategy to protect the bottom line, support the workforce and build resiliency for 2023. The mission of this strategy should be founded upon the following considerations:

  • Understand your loss trends — Find the root cause of your large losses and explain to insurance carriers what you’re doing to prevent future losses. Develop a strategy to determine the best time and frequency to review alternative markets.
  • Emphasize onboarding and training — With many employers hiring less-experienced workers, it’s more important than ever to focus on onboarding and training to set the right expectations and avoid costly accidents and injuries.
  • Protect employees — Employees expect you to support their health, safety and well-being. Give them the ability to personalize their benefits without increasing costs.
  • Close claims quickly at the lowest possible cost — Claims that take months or years to resolve will affect your long-term loss experience. Ask your broker for a claims management specialist who can help close claims quickly and with the best possible outcome.

Consumers will continue to need the food produced and processed by the industry, but the companies that address these risks early enough and with the right approach can thrive in 2023 despite the strong headwinds blowing against them.

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