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Volatility in raw material pricing driving efficiency and innovation?

06 February 2013

JLT Specialty Limited (JLT) and Campden BRI have, through their recently created strategic collaboration, launched a joint research paper on the food and drink manufacturing industry in the UK: 'New World, New Risks’.

Bertrand Emond, head of membership at Campden BRI, said: "Food and drink manufacturers have faced increasing pressure on their profit margins in recent years. Our research highlighted that volatility, and particularly the increase in the prices of raw material, which is often exaggerated by fluctuating exchange rates, is a key concern and challenge. This is clearly putting pressure on the sector as it is hard to pass these increases on through the supply chain."

Manufacturers are employing a variety of strategies to combat these pressures. The research showed the most widespread response was innovation - developing new products or encouraging consumers to eat and therefore shop differently, or finding economies of scale through focused product strategies, merger and acquisition activity, international expansion and targeting new customers. Just as the commercial challenges facing the industry fluctuate and escalate, so do the range of risks that threaten the smooth functioning of business operations. 

Jon Miller, associate at JLT’s Food & Agri Practice, noted: "Whilst most of the companies we spoke to purchase the traditional insurance lines such as property and liability covers, many professed concern over other risk areas. In particular there was a growing interest in product recall and contamination cover." 

In 2011 recalls in the UK food and drink sector doubled from the previous year from 35 to 70 demonstrating the increased awareness and scrutiny. High profile cases, including the recent horse meat issues, have also heightened concerns and as the industry exposure has grown, stipulations requiring product recall and contamination insurance have become more common in contracts between retailers, suppliers and manufacturers.

Jon Miller continued: "Manufacturers need to consider purchasing such cover not just for the first party recall expenses, but also for retailer/3rd party charges as well as pre and post loss advice, which addresses key issues such as reputation management through specialist crisis consultants that are written in to most policies".

Bertrand Emond, Campden BRI, concluded: "The food and drink manufacturing industry is the largest manufacturing sector in the UK and, whilst it has clearly shown resilience even in difficult economic times, this paper shows that sharing insight and experience as an industry and understanding both the opportunities and challenges we face are important for on-going success."

JLT Specialty Limited (JLT) is a specialist insurance broker and risk consultant providing market leading industry knowledge and expertise in specialist fields to some of the world's largest companies.

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