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Numerous external factors such as the changing climate and geopolitical turbulence, can affect supply chains for certain foodstuffs and increase the risk of economically-motivated adulteration of food and drink, or the substitution of ingredients. Clients in the food and beverage sector are aware of the need to horizon-scan for these changing risks and to develop a deep knowledge of their supply chain to minimise the risk of so-called food fraud.

Recent geopolitical and severe weather events have underlined the need for businesses of all types to keep a close eye on their supply chains and have plans in place should a commodity become scarce. For food and beverage clients, this issue is particularly acute as shortages can increase the risk of ingredients being fraudulently substituted or altered to meet demand.

Food fraud is a global problem, believed to cost as much as USD40 billion every year. And the UK Food Standards Agency's Food Crime Unit estimates that the total impact of food crime in the United Kingdom is between 拢409 million and 拢1.96 billion every year.

The Food Safety Agency's specialist unit focuses on seven types of food crime in the UK, including substitution - replacing a food or ingredient with one that is somehow inferior, and adulteration - including a substance that does not appear on a product's label in order to reduce costs or to fake a higher quality.

In 2013 thousands of products sold throughout the European Union and advertised as containing beef were found to contain horse meat, resulting in widespread product recalls and reputational damage for many companies.

Since then, food standards agencies around the world have tightened their focus on potential fraud, and clients have become increasingly aware of the need to assess and manage the potential risks to their supply chains and their final product.

Understanding the chain

According to the UK Food Standards Agency, when food fraud has been committed the average cost is about 拢87,000 for smaller cases and some 拢4.3 million for major cases, which make up about 13% of all known incidents. It is vital, then, for companies of all sizes to be alert to the risks and have plans and processes in place to assess, manage and transfer them.

Staying informed of the supply chain is key to understanding where vulnerabilities may lie and to putting in place plans to mitigate that risk. Food and beverage clients seek to build strong relationships with their various suppliers and to ensure that communication with them is open and dynamic.

‘…food standards agencies around the world have tightened their focus on potential fraud, and clients have become increasingly aware of the need to assess and manage the potential risks to their supply chains and their final product’.

Frequent audits of suppliers to understand the nuances of their operations and the various tiers of the supply chain can also help to give clients a better sense of where risks may arise. It's vital to have a clear picture of the frequency and levels of testing that suppliers undertake, for example.

This deeper understanding of the supply chain enables clients to work with risk and insurance partners to put in place supply-chain management, traceability and crisis management plans. These plans must be revisited, updated and tested when changes are made such as a new supplier being added or a new processing or storage technique being adopted somewhere in the supply chain.

Adapting the plan

These plans cannot be static and must not simply be viewed as tick-box exercises as supply chains and the potential risks to them can change all the time.

Threat Assessment and Critical Control Points (TACCP) is a concept developed in accordance with the British Standards Institution's PAS Standard, (PAS 96), intended to help evaluate, document and control threats that can arise from food fraud and food defence.

It is important that TACCP plans are reviewed and adapted based upon emerging and evolving risks. Vulnerability Assessment and Critical Control Points (VACCP) plans are more specifically focused on food fraud. Our clients can use the pre-incident funds provided in the insurance policy to work with our crisis consultants to test, amend and continually update these plans too to help put mitigation strategies into place.

Horizon scanning

All too often, events way beyond a supplier's control can introduce new risks into the chain. Severe weather, often exacerbated by a changing climate, can result in poor harvests of foodstuffs such as cocoa, olive oil or spices.

And geopolitical shifts can mean that lead times for certain foodstuffs might change drastically as transportation routes need to be changed, for instance, and goods may become less readily available - and/ or dramatically more expensive.

These threats can increase the risk of foodstuffs being substituted for those of lower quality or altered in a way that will affect the standard of the end product. Horizon-scanning can help clients to work out where vulnerabilities may exist and plan for and adapt to these types of changes.

Insurers and risk consultants work with clients to implement horizon-scanning strategies that use both reliable data and specialist knowledge to prepare for emerging risks to the supply chain.

Communication and response

Supply chains in the food and beverage sector are often long, global and complex. And the risks associated with them can change quickly. We work closely with our clients to help them understand their supply chains and where risks might arise that could result in the threat of foodstuffs being substituted or adulterated.

We seek to engage frequently with our food and beverage clients to help them to adapt to potential changes and ensure that there are flexible plans in place should horizon scanning reveal that issues might arise, for example, from weather-related shortages in foodstuffs.

By offering access to our risk consultancy, underwriting and crisis management expertise, we strive to help clients navigate this uncertain environment and protect themselves from the risk of their food and beverage products being subject to adulteration or fraudulent ingredient substitution, which may present a risk to the consumer.