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Now is the time to think about risk

By April 2, 2020 April 23rd, 2020 No Comments

So after reading the very interesting report by WBCSD called “An enhanced assessment of risks impacting the food and agriculture sector” and learning more about it over today’s “Towards a better understanding of food system risk” webinar, I thought it would be good to share some interesting insights.

Although regulation and social media backlash are perceived as the risks with respectively the most impact and likelihood, by companies in food and agriculture, KPMG has performed a Dynamic Risk Assessment, analysing how all risks are linked. Now this paints a different picture, as they found the biggest risks are actually organised around two clusters:

Alhoewel regulering en negatieve publiciteit op sociale media door food & agri bedrijven worden gezien als de risico’s met de hoogste impact en waarschijnlijkheid, heeft KPMG een Dynamic Risk Assessment uitgevoerd waarbij de focus ligt op hoe zulke verschillende risico’s onderling zijn verbonden. Dit laat een ander beeld zien. Uit het onderzoek kwam naar voren dat de grootste risico’s zijn georganiseerd rondom twee clusters:

  1. Inefficient production practices, land degradation and nitrogen inefficiency.
  2. Inefficient production practices, land degradation and water.

In essence, we risk of not being able to produce sufficient amounts of food, fibre and/or biomass due to land degradation, poor water management and inefficient nitrogen use.

This also aligns neatly with World Economic Forum 2020 Global Risks Report, that finds that most risks are now environmentally related and demonstrates a huge transition in the way we look at risks over the last 15 years.

The biggest risks they identified for 2020 in terms of likelihood are:

  1. Extreme Weather
  2. Climate action failure
  3. Natural disasters
  4. Biodiversity loss
  5. Human-made environmental disasters.

WBCSD and KPMG have taken this kind of analysis a step beyond just looking at likelihood and impact and performed some deeper analysis for the food and agriculture sector by also analysing which risks are the most influential on other risks and which are the most affected when another risk occurs, and this is where it get’s really interesting (see graph, © WBCSD/KPMG):

Top influential risks Top influenced risks
1. Understanding agricultural practices 1. Inefficient production practices
2. Regulation 2. Regulation
3. Inefficient production practices 3. Land degradation

This tells us a couple of things:

  • Understanding agricultural and applying the better practices is the foremost important risk mitigation strategy. This means that any company that is prone to risks should (wherever you are in the supply chain) should worry about what farmers do and how they can improve these practices.
  • Regulation is both influential and influenced, which means regulation operates as a binary variable, it either enables or disables sustainable agriculture based on how well the regulation is fit to support applying the right agricultural practices (whereas improving understanding of agriculture will always work as a risk mitigation).
  • Inefficient production practices are a very influential risk, but needs to be mitigated in a way that prevents land degradation and biodiversity loss (which was number four on the list of most influenced risks), otherwise these risks will definitely occur.

A lot of our work has always been centred around supporting farmers in their uptake of sustainable agricultural practices that go beyond productivity improvement alone, which often occurs at the expense soil, water and biodiversity. This report demonstrates once more the importance of steering on agricultural practices. We invite every company in the Agrifood or Apparel industry to start acting on these risks by becoming part of the solution.

Ready to act upon these insights?

We have developed several ready-to-implement solutions and are able to deliver tailor-made solutions when necessary. Such as The Short Circuit Project, that links brand-owners directly to farmers to work together on sustainability at farm-level and this does cheaper and more thorough than through existing certification schemes. Or our “Accounting for a Better Planet framework”, that gives provides you with a risk assessment and materiality analysis in the shortest possible time and uses those to formulate new sustainability actions. And of course the forthcoming Community of Practice on Business in Landscapes, that helps companies navigate through the role they can play in landscapes that they are linked to but not necessarily a part of.