Irish agri-food companies are poorly-prepared for the post-Brexit risks and other challenges they face, according to a report by risk management experts Aon.
Aon’s ‘Food, Agribusiness and Beverage Risk Insights Survey 2016’ report surveyed companies with a combined turnover in excess of €26bn on what they view as their top ten risks.
Some 83% of respondents see volatility of commodity prices as their number one threat; damage to brand and reputation was second; while 58% cite exchange rate fluctuation as a post-Brexit risk. Some 41% of all Irish food exports go into the UK.
At best, 50% of respondents are ready for volatility and brand damage risks. For the eight other categories, preparedness levels were all below 50%, with addressing the risk of losing top talent the lowest at just 5%.
Ciara Jackson, food and agri-business practice leader at Aon, said: “Last week’s shock result has the potential to severely challenge the competitiveness of Irish food and agri-business.
Prior to the vote, 58% of companies identified exchange rate volatility as a top 10 risk, I suspect that percentage will now be much higher. On a more positive note, this is a sector that is rapidly diversifying its export markets, moving up the value chain, and has proven resilient in the face of past challenges.”
The report also assesses Irish agri-food’s Brexit concerns in the context of last year’s removal of EU milk quotas. Milk production levels across the EU have risen, with Ireland forecast to see a volume uplift of 50%.
Falling prices challenge a dairy industry which accounted for over €3.2bn in exports last year.
Aon’s report cites fixed milk price schemes developed by co-ops such as Glanbia, Dairygold and Aurivo to mitigate price volatility risk.
Irish agri-business companies also remain on high alert on any potential brand damage they could face from issues like product contamination.
As an example, the report cites New Zealand dairy producer Fonterra’s suspected botulism scare in 2013, which resulted in China banning all New Zealand milk powder imports.
The financial impact of this hit to reputation is indicated by the €249m impairment charge recognised a year later by Danone because of the damage done to Dumex, its brand in China that was being supplied by Fonterra.
“For the first time we have data showing the top risks faced by companies in this crucial sector of the Irish economy. It is clear from the research that companies are risk aware but risk unready; in some cases worryingly so,” said Ciara Jackson.
“Strong risk management is fundamental to smart balance sheet protection.”
Aon also notes that 12% of survey respondents don’t have directors’ and officers’ liability cover. It says this could leave some directors open to personal liability in an increasingly litigious environment. Aon notes that €5m worth of ‘sleep easy’ cover can be purchased for as little as €3,000 per year.
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