The Barn's food and beverage portfolio sees "enormous increase"

The Barn's food and beverage portfolio sees "enormous increase" | Insurance Business Australia

The Barn's food and beverage portfolio sees "enormous increase"

According to the Australian Food and Grocery Council (AFGC), food and beverage continues to be the largest manufacturing sector in Australia and accounts for more than 30% of total manufacturing output. For many parts of this industry, COVID-19 boosted rather than strained production.

“The COVID effect on the food and beverage industry in Australia was enormously positive,” said David Porteous (pictured above), managing director of The Barn Underwriting Agency and part of the Market Lane Insurance Group. The Barn is a specialist underwriting agency working with brokers to offer insurance coverage for industries including the agribusiness, food and beverage sectors.

“So we saw in our food and beverage portfolio an enormous increase in the financial performance and therefore the insurance requirements for those in the food and beverage industry,” said Porteous.

He said their portfolio now includes pandemic inspired start-up businesses.

“In one case, literally two mums who got together at their school drop off and said, ‘Right! As a side hustle during COVID we should start making pre-prepared meals and we’ll sell them around the school,’” he said.

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Two years later, said Porteous, they’re a $35 million business sold in major supermarkets like Coles.

“There are a number of outstanding success stories where I think the pandemic forced a lot of us to think about where we source our goods from,” he said.

The result, he said, was a greater focus on quality, locally sourced food and beverage. With restaurants and pubs shut, these options were often those you could take away or bring into your home.

“You had to feed and water 25 million Australians more or less locally because boats and planes weren’t bringing plane loads of avocados in from South America, or eggs from China,” said Porteous.

He said he’s seen much of this industry growth at the smaller end of the market, but it does flow through the entire food and beverage chain of producers.

“These companies might be everything from a farmer farming 100 acres of carrots, extracting the carrots out of the ground, sticking them in a processing facility, washing them, cutting them up, sticking them in a plastic bag and then driving them over to Coles,” said Porteous.

The boom in food and beverage is also a result of years of the growing local food movement.

“It’s a whole range of things. If you think about the number of micro-breweries that have become the norm and coffee roasters, bread makers and cheese makers - I think there’s a move, generally speaking, towards people wanting to buy locally,” said Porteous.

The Barn’s boss said this industry has also experienced the impacts of several years of a runaway property market.

“So whether it was property prices all the way through to ensuring gross profits and the financial impact should something go wrong in the business,” he said.

He said there were some downsides from the pandemic, including an increase in the costs of production and not being able to source overseas labour supplies.

“The cost of fuel doubled and the cost of fertilizer doubled. So, the inputs were more but, generally speaking, the benefits outweigh the costs, if we put it that way,” he said.

The insurance that The Barn facilitates for food and beverage industry operators starts with property assets.

“So they [the mothers running a $35 million business] might have had to buy a million dollars-worth of plant and equipment to help them produce these meals that they were cooking in their kitchen - and now they’ve got a full blown commercial kitchen,” he said.

Porteous said they would also be insuring the financial assets of the business.

“So, the gross profits or the business interruption exposure - that’s what they would obtain from us: property and then business interruption,” said Porteous.

Insuring gross profits is becoming more common for all types of businesses, he said.

“Particularly when you’ve got a business that has developed a track record of profitability. For example, in the food and beverage industry, if something terrible happened in your factory and there’s a massive fire and you can’t trade for 18 months, that’s what you’re buying insurance against: The loss of profits over that 18 months,” he said.

Porteous said it’s “one and the same” as business interruption (BI) insurance.

“Business interruption encompasses a whole range of things but the leading driver for business interruption losses is gross profits in the business,” he said.

The Barn’s interest in this market, he said, focuses on the construction of these businesses’ properties.

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“They can very much be higher hazard in nature,” said Porteous. “Some of the largest single claims in the insurance market have come from food related businesses,” he said.

He referred to businesses like abattoirs or bakeries that have suffered serious damage from fires. “They’ve had enormous claims,” he said.

“Coming back to why The Barn exists and what we do as underwriters: We like to get in there and work with our brokers and help their clients understand their exposures from a property perspective and also from a business interruption (BI) perspective.”

The BI perspective involves getting businesses to think carefully about the risks that can impact their operation.

“So what happens, Mr or Mrs Business Owner if something impacts your business and you can’t trade? What is your plan B? Can you get this new machinery from Germany and how long is that going to take? So that’s very much our underwriting approach to understand the risk,” said Porteous.

“Food and beverage in particular and high end, high hazard manufacturing present unique exposures that have to be underwritten,” he added.

The Barn works with brokers from Steadfast, Austbrokers and also authorized representatives.