KPMG’s Dynamic Risk Assessment methodology applied to the food and agriculture risk landscape

Over the past two years people around the world have reconnected to the critical role that food plays in their lives – its importance in securing and protecting health, the role it plays in connecting people to friends, family and culture, the essential role that farmers, growers and fishers play in our society. However, the pandemic has also demonstrated the fragility of our global food system. The risks facing the system have been amplified with the likelihood and impact of many of the risks becoming easier to understand and quantify.

Millions of people have faced food shortages, as global supply chains have been stretched close to breaking point due to labour shortages, shipping difficulties and COVID-19 standdowns. The food system’s effect on the environment has also been challenged. Its impact on biodiversity, soils, fresh water, oceans and the climate all being highlighted. The system has been questioned over the ethics of its use of animals, concerns around employment practices and the amount of food that is wasted.

Yet at the same time, farmers and growers are being asked to meet an ever increasing demand for more and nutritionally better food from a continuously growing global population while using less inputs – both synthetic and natural. This is driving massive investment into new ways of producing food taking advantage of physical, digital and biological technologies in transformational ways.

It is against this background, that KPMG International has collaborated with the World Business Council for Sustainable Development (WBCSD) to study the connections between the many risks the food system faces. KPMG’s Dynamic Risk Analysis methodology (‘DRA’) can help identify which actions and efforts have the potential to create a sustainable, equitable, accessible and prosperous global food system. Drawing on the knowledge of a range of WBCSD partner companies and other food system professionals, the DRA was used to examine how a range of key risks connect with each other and the severity of the outcomes when they do connect.

Through detailed interviews and workshop sessions with the contributors, a wide-ranging set of 20 risks were identified and described. The contributors were then asked to provide their estimates for each risk on likelihood, severity, interconnectedness with other risks, and velocity or speed by which the risk consequences would be experienced, should a risk arise.

The DRA process then looks at the clustering of risks – this highlights four scenarios or clusters that professionals most expect to see. The notable features of these four clusters are the number of risks that are common across multiple scenarios – climate change, soil degradation, diminishing biodiversity, the disconnect between short- and long-term interests – and the severity and speed at which these risks could connect and impact the functioning of the global food system.

There is a lot of insight in the DRA analysis, however it was the central role that uneconomic farming systems and farmers play within the network that really caught my interest. It is the most connected risk to every other risk in the network.

The analysis suggests that an increase in uneconomic farming highlights when risks are combining and is a bell weather indicator for the overall strength of the global food system.

I know from my own personal experience working with farmers, many are only a weather event or a biosecurity incursion away from significant financial stress. When a business is not sustainable, the ability to invest in the steps that need to be taken to address the impact that food production has on the climate, biodiversity, water, or to pay people a living wage, or adopt new digital technology innovation is lost.

The DRA suggests there is an obligation on players in the food system to help ensure that the business models in place can support the viability of supply chain partners, but particularly the farmers and growers.

Striving to ensure farmers and growers are viable is one of the only ways they can deliver on the ask to produce more food with better nutritional qualities, while using less natural resources and supporting strong rural communities.

The need for the system to deliver on all these objectives simultaneously while aiming to ensure that producers are able to operate financially sustainable businesses, means that the sector has many variables to manage in a highly complex equation that ultimately has to be balanced. The focus therefore needs to be on creating resilient food systems that are economically sustainable so that the capacity to invest in meeting environmental and social goals exists.

The DRA analysis also provides guidance on us on which risks, withfocus and effort, are likely to have the biggest impact on slowing the development of clusters and helping to reduce the severity of their impacts.

Not unsurprisingly, the analysis highlights that the risk that has the greater ability to change the longer-term pathway for the sector and should be given the most focus is Climate Change and Episodic Events. Other risks that if mitigated can generate better outcomes for society include a focus on food quality and affordability and a focus on long term priorities over short term interests.

The more work organizations do to address these risks, the harder they push to innovate in these areas the more likelihood that the global food system can deliver on the social, economic and environmental expectations placed on it and meet the needs of the wider community.

It means there is a need for mature conversations around genetic technologies, particularly the use of gene editing. It means that we need to think more deeply about how we sustainably use our oceans, not only to grow more food but to provide practical and ethically sound carbon offsetting solutions. The ability for farmers to be compensated for providing ecosystem services to the wider community in parallel to growing food needs to evolve quickly. We need to accelerate work on envisaging what the modern food system will look like and how it will work – how will fermenting and cultured products fit with traditionally grown animal protein, how will we use digital technologies to grow food closer to where it is consumed?

There are many questions and challenges that arise from this DRA analysis but also shows that doing nothing is not option. If gives me hope that if the aspirations of KPMG IMPACT can be delivered and KPMG professionals can work alongside clients in helping them to focus on the big challenges that face the system, there is the potential to create a global food system that we would all aspire to be part of.

Click here to read the report, An Enhanced Assessment of risks impacting the food and agriculture sector, produced by the WBCSD in collaboration with KPMG International.