It’s rarely one risk at a time…

In risk management generally, people tend to consider one risk at a time.  However, when a risk crystallises, it is often a chain of risk events that have occurred.

Some pig farmers are currently facing over-crowding on their farms and higher costs as a result. Higher costs from having to feed more pigs, from increasing prices of soya and barley, and from financial penalties from supermarkets for not delivering.

The overcrowding comes from more pigs being born and the farmers not being able to make room for them by getting other pigs off to market (hence the financial penalties).

And this is all because some pig slaughterhouses have had to close, and this is because of a shortage of carbon dioxide, used to numb pigs prior to slaughter.  And this is because of higher demand for carbon dioxide with the hot weather and the FIFA  World Cup (it is used in the production of fizzy drinks and beer), combined with a reduced supply owing to a lower price for ammonia.  And this is because carbon dioxide is a by-product of the production of ammonia for fertiliser, and when the price is low, fertiliser manufacturers buy from abroad and less carbon dioxide is produced locally.  And this is because carbon dioxide is very cheap and any lengthy transport costs normally make it unprofitable to ship long distances.  It is also because it is hard to react to a spike in demand because ammonia (and thus carbon dioxide) is produced in the winter to feed into fertiliser production, and then the manufacturing plants close down for maintenance, whereas demand for CO2 normally spikes in the summer.

The complexity of food production and supply is illustrated by the short supply of CO2 also causing production slow-downs for beer, cider, coca-cola, salads, and crumpets, and also restrictions on home delivery from supermarkets as the delivery vans use dry ice (solid CO2).

Understanding the connectivity of risks is important for understanding how events might unfold and putting controls and contingency plans in place before they happen.

Source:  The Financial Times

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