Farmers’ total expenditures for livestock maintenance have surged by over $100 billion, marking a 28% increase to a record $460 billion in 2023, and a persistent worker shortage compounds these challenges.
Proactive risk management, prioritizing employee well-being and securing appropriate insurance coverage can empower dairy organizations to navigate these business obstacles effectively. Here’s how.
1. Mitigate risks from every angle
A multitude of risks, encompassing product recalls, workplace safety, supply chain disruptions, finding and retaining creameries to process milk, manufacturing plant maintenance, cyber threats and weather-related challenges, demand a thoughtful approach to risk management in the dairy industry in 2024.
To enhance business continuity and risk management plans, agribusinesses should undergo catastrophe modeling, simulating the potential impacts of catastrophic events specific to their geographic location and overall business risk. Considering region-specific weather events, including record heat and flooding, aids in devising targeted strategies. For instance, dairy organizations affected by drought can implement resource management plans to alleviate the impact. Enhancing protocols and safeguarding facilities situated in regions susceptible to wildfires or tornadoes is another important consideration.
In dairy production, recalls are an ongoing concern. Robust product oversight measures, including periodic process audits, can effectively mitigate the risk of food recalls.
Given the increasing reliance on technology, especially in the dairy sector, combating cybercrime, including ransomware and malware, emerges as a critical challenge. Employee training, heightened awareness of cyber threats and the deployment of protective measures such as multi-factor authentication and endpoint detection systems is imperative to increase vigilance and fortify systems.
2. Address the labor gap
The persistent labor shortage across the United States in 2024 poses a significant hurdle for the dairy industry, which has an estimated growth rate of 21.4% over the next decade. Adequate staffing levels are crucial for seamless operations, prompting dairies to explore solutions beyond automation. While automation does play a role, some
entities are reverting to traditional labor to mitigate issues related to this automation in order to reduce product defects, control costs and enhance overall production.
Innovative benefits solutions tailored to individual needs, guided by data analytics, offer a promising avenue to bridge the nationwide labor gap. Personalized benefits programs, designed to elevate employee experiences, can attract and retain skilled workers, subsequently bolstering employee loyalty. By prioritizing personalized benefits, dairy organizations can enhance employee safety, well-being and health, thereby reducing risks and improving overall retention and hiring outcomes.
3. Update insurance coverages
The dairy industry faces ongoing challenges stemming from catastrophic weather events, high interest rates, escalating insurance premiums and input costs, compounded by a shortage of available labor. While certain factors like interest rates and weather events remain beyond control, dairies can still strategically manage risk, potentially lower insurance costs and fortify coverage to safeguard profit margins.
Policy considerations include:
· Modifying limits in existing policies
· Understanding your loss trends
· Implementing a layered insurance program
· Exploring captives or self-insurance
Harnessing innovative and alternative risk transfer solutions, such as parametric insurance policies, offer avenues for resilience. These policies compensate organizations after qualifying weather events, irrespective of whether actual damage occurs. Openly engaging with a knowledgeable and industry-specific broker can provide insights into cost reduction strategies and profit optimization for the year ahead.
The future of sustainability
While the current challenges in the agribusiness industry mirror those of previous years, organizations equipped with robust risk management practices, a thorough analysis of insurance coverages and a commitment to employee well-being will be able to thrive and remain profitable in 2024 and beyond.
Editor’s Note: Josh Smart is the North American Practice Leader and Chief Sales Officer for Agribusiness, Food and Cannabis with HUB International and is responsible for leading the strategic initiatives around growing and supporting the Agribusiness segment. He provides risk management and cost containment strategies that parallel client’s business goals and priorities.
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