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Emerging Risk in AgribusinessAugust 22, 2017

Chip Lerwick | Aon Risk Solutions

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American Cheeseburger

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How Many Ingredients are There in a Cheeseburger?

TomatoGrown in Puerto Rico

BunWHEAT grown in Kansas, milled in Missouri, baked in the state where purchased

MayonnaiseBlended in Ohio from EGGS produced in Virginia, VEGETABLE OIL produced in Illinois from CORNgrown in Iowa, LEMON JUICE produced in Florida, SALT mined in Utah, and SPICES from the Caribbean

KetchupBlended in California from TOMATOES grown in California, VINEGAR from the Philippines, and SPICES from all over the world

Sesame SeedsGrown in New Mexico and packaged in Arizona

LettuceGrown in Arizona

CheeseMade in California from MILK produced in OregonBeef

CATTLE born in Mexico, raised in Texas, transported to feedlot in Kansas and slaughtered in Nebraska, mixed with trim from Argentina, Canada

BaconPIGS from Canada, shipped to Iowa, slaughtered in Missouri

PickleGrown in Arkansas, pickled in Mississippi with SPICES from around the world

MustardBlended in New York from MUSTARD SEED grown in Canada, SPICES from around the globe, and VINEGAR from Virginia

Illustration of vast diversity in food supply chain. Sources shown are only one possibility of origination point.

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OnionGrown in Utah

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baking sodawheat glutencalcium propionateenzymes

bleached wheat flour mono- and diglyceridesmalted barley flour diacetyl tartaric acid estersthiamine ethanolriboflavin sorbitol niacin polysorbate 20folic acid potassium propionatereduced iron sodium stearoyl lactylatewater corn starchcorn syrup ammonium chloridesesame seeds ammonium sulfatesoybean oil calcium peroxideyeast ascorbic acidsalt azodicarbonamidecalcium sulfatecalcium carbonatecalcium silicatesoy flour

milk milkfatwater creamsodium citrate saltsodium phosphate sorbic acidartificial color soy lecithin acetic acid starchenzymes

Special Saucesoybean oil picklesdistilled vinegar water egg yolks HF corn syrupsugar onion powdercorn syrup spicespice extractives saltxanthan gum mustard branprop. glycol alginate sodium benzoatepotassium sorbate garlic powder hydrolyzed proteins mustard seedcaramel color paprikaturmeric calcium disodium

cucumberswatervinegarsaltcalcium chloridealumnatural flavoringspolysorbate 80turmeric

lettuce

Source: DHS/National Center for Food Protection and Defense

80+ Ingredients

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USDA inspected beefsaltpeppercottonseed oilsoybean oil

onions

tomatoes

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Global Dynamics4

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Global Dynamics

• As developing countries grow their demand for food will increase dramatically and the result is new markets for food & agribusiness firms

– Rising Incomes = Demand for Convenient, Packaged Foods & Meat

• China has 20% of the Population, but Only 8% of Arable Land & 7% of fresh water

• India has 17% of the Population, but Only 13% of Arable Land

• China is the largest exporter - and the largest consumer of many agricultural products

• There are more foreign firms registered to produce food for the U.S. than there are within our borders

• Supply System Complexity/Dependence

Hana Ševčíková and Jen Christiansen; SOURCES: “WORLD POPULATION STABILIZATION UNLIKELY THIS CENTURY,” BY PATRICK GERLAND ET AL., IN SCIENCE EXPRESS. PUBLISHED ONLINE SEPTEMBER 18, 2014 (2014 projections); “THE END OF WORLD POPULATION GROWTH,” BY WOLFGANG LUTZ ET AL., IN NATURE, VOL. 412; AUGUST 2, 2001 (2001 projections)

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Industry Change Drivers

• Heightened Consumer Awareness & Demand• Globalization & Increased Supply System Complexity• Regulatory Challenges• Increasing Recalls and Rising Cost• Sustainability/Corporate Conscience• Intensified Media Attention• Science & Technology

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Heightened ConsumerAwareness & Demand

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Consumers are Concerned About Food and Transparency

66%Areas of Concern• Getting sick• Chemicals in food/packaging• Pesticide residues• Carcinogens in food• Food additives & ingredients

2016 Food & Health Survey International Food Information Council

CONSUMERS PRIMARILY HOLD FOOD COMPANIESRESPONSIBLE FOR TRANSPARENCY

2015 Consumer Trust Research

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Labeling Poses Risk

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Globalization & IncreasedSupply System Complexity

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• Currently 15-20% of all food consumed in the U.S. is imported, including 85% of seafood, 39% of fruits/nuts

• Major import growth will come from developing countries (Mexico, Brazil, South Africa, India, Thailand & China)

• 80% of imports come from companies that send 11 or fewer shipments per year to the U.S.

Source: USDA, Economic Research Service calculations based on data from U.S. Dept. of Commerce, U.S. Census Bureau, Foreign Trade Database; and USDA National Agricultural Statistics Service, various reports

300 – >200,000 - 150

Imports Will Continue to Increase

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Imports – Challenge Food Safety, Defense andCorporate Reputations

• 10% of all imports to the U.S. are for FDA regulated products

– 212,183 registered foreign food facilities (YE2015)

• FDA inspected 1,323 foreign food facilities in 2014

• 150 different countries (Inspections occurred in 50 countries)

• Nearly 50% come from facilities that send only one shipment per year

• $114 Billion of food imported in 2015

– Less than 2% of shipments inspected

– Over 300 domestic ports of entry

• 90% of seafood comes from outside the U.S.

• Approximately 50% of fruits & fruit juice is imported

• 30% of wine and sugar is imported

• 95% of coffee/cocoa/spices are imported

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Complex Supply Systems Complicate Traceback

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Regulatory Challenges

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Current:• Product labeling, marketing & nutrition facts• Cuts to U.S. Federal Crop Insurance (Farm Bill)• Prop. 65 – changes coming• Affordable Care Act & Overtime Rule Update• Menu labeling • State ballot issues-Minimum wage, soda tax, etc.

FSMA:• Publication of 7 Foundation Rules Completed• Focus on supply system & control• Foreign Supplier Verification Program• HARPC = HACCP+• Sanitary food transport• Enhanced records access• Intentional & economically motivated adulteration

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Enforcement: Inspections and sampling “Dear Manufacturer” letters ‘Voluntary’ recalls Injunctions In rem action / seizure Criminal prosecution by DOJ Park Doctrine: fines and prison time possible

with no mens rea required. United States v. Park, 421 U.S. 658 (1975).

Challenging Regulatory Environment

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Increasing Recalls and Rising Cost

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5,000

10,000

15,000

20,000

25,000

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100

200

300

400

500

600

700

800

# of

Illn

esse

s

# of

Out

brea

ks

Series2 Series1Outbreaks Cases

Hazards in food cause an estimated 48 million illnesses. Roughly translated this means 1 in 6 Americans will develop a food borne illness.

CSPI Outbreak Alert - based on CDC data 2004 - 2013

Contamination Events are Likely

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Contamination Events are Expensive

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Intensified Media Attention

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Social Media Impact

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Financial Impact on Shareholder Value

Winners

Losers

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Sustainability / Corporate Conscience

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2016 Food & Health Survey International Food Information Council

Consumers are Thinking About Sustainability

73%

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The Threat is Real

Sustainability IndexEnergy and Climate: Reduce energy costs and greenhouse gas emissionsMaterial Efficiency: Reduce waste and enhance qualityNatural Resources: High quality, responsibly sourced raw materialsPeople and Community: Responsible & ethical production

Global Water Stress: 2030

Source: OECD24

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Food Waste’s Absurd Cost

Food Supply Chain:Sources of food wastage

1. Agricultural production

2. Postharvest handling & storage

3. Processing4. Distribution5. Consumption6. End of life

Food Life Cycle:Sources of environmental impacts

1.6 billion tons$750 billion

30%

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Science and Technology

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Science & Technology

• Nano Food and Packaging

– Titanium dioxide

– Smart packaging for food safety

• Seed

– Coated

– GMO

• Agricultural Biologicals

– Bio Pesticides

– Bio Herbicides

– Bio Fertilizers

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• Precision Ag

– Precision planting

– Drones

– Cloud based systems

• Chemical

– Herbicides

– Pesticides

– Fertilizer

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Biography

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Chip LerwickManaging Director – Resident Sales Director8182 Maryland Avenue, Suite 1500St. Louis, Missouri 63105Office +1.314.854-0781Mobile +1.314.368-6854chip.lerwick@aon.com

Responsibilities

Chip is the Resident Sales Director for Aon St. Louis with responsibility for new business development across all risk and health & benefits solutions. As a member of the Aon St. Louis leadership team, Chip not only supports Producers, Account Executives and Consultants in business development but all colleagues in delivering on our Aon United mission.

Chip has consultative business assessment and solution development skills with particular emphasis in the food and agribusiness industry. With a successful track record of working with food and agribusiness clients in agriculture, livestock production/processing, feed ingredient, food processing and distribution, Chip brings the necessary experience to credibly serve colleagues, prospects and clients in addressing industry needs.

Experience

Chip has 20+ years of experience in business development and sales management working with middle market to Fortune 25 companies with a proven track record delivering results through the alignment of key resources and capabilities to meet business objectives.

Education

Chip earned his Bachelors from Webster University

PersonalChip lives in St. Louis, MO with his wife and two kids. Cycling, skiing, mountains and outdoors are great passions. Chip serves on the Board of Directors for Pedal the Cause and on the Danforth Leadership Council at the Donald Danforth Plant Science Center

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About AonAon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon’s global partnership and shirt sponsorship with Manchester United.

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