Risk Management

Risk appetite with regard to the most important risks

The Executive Committee has determined that in general, ForFarmers aims for a low risk profile. This forms the guiding principle for the assessment and taking of risks in the realisation of strategic goals.
The risk profile and risk appetite is evaluated annually by the Executive Committee and risk managers, and wherever necessary adjusted to the changing market conditions or a revision of strategy.

This is so that the Company can optimally weigh up handling decisions and commercial or strategic goals with the associated risks/opportunities. 

ForFarmers has grouped the 21 main risks into the four key categories, for which control measures are determined and implemented.

The desired and established risk appetite can differ per category or sub-category as described below:

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Strategic objectives

To be able to meet the growth objectives within the strategy, both organically and through acquisitions, (substantial) investments will be made. In this respect, ForFarmers has an average to high risk appetite.
However, when pursuing strategic business objectives, there are two specific areas where ForFarmers applies a very low to low risk appetite:

  • Reputation: reputation is crucial for the confidence that customers, suppliers and society place in ForFarmers.

  • Sustainability: ForFarmers places great importance on sustainable raw materials, the environment, energy, waste reduction, animal health and welfare, people and society.  When controlling these risks, ForFarmers applies ‘economic sustainability' as a guiding principle. This means that each and every initiative for sustainability must be commercially feasible both to customers and to ForFarmers.

Operational objectives

An inherent aspect of the business is the purchase of raw materials, the prices of which are prone to fluctuate substantially. Because of the nature of the business and the corresponding volume of necessary raw materials for the production of feed, the Company faces risks relating to these purchases. This is why the purchasing policy applies a low to average risk acceptance level, and for the quality of purchased products, a very low risk acceptance level. To control such purchasing risks, the risk limits are defined on the basis of the ‘value at risk’ principle that applies to the organisation as a whole, translated for the various business units.

Financial objectives

ForFarmers has a very low to low risk acceptance level for risks that may have a considerable effect on the financial results and the reliability of the information of ForFarmers, financial or otherwise. Currency positions with regard to raw materials, or for other purchases for operational activities, are hedged by ForFarmers. Currency risks of assets outside the Eurozone are partly hedged through funding in the same currency. Currency risks relating to the annual result and undistributed dividends are not hedged.

ForFarmers is partly funded by means of interest-bearing debts, which brings about an interest risk. Developments on the interest and currency markets are followed carefully and risks are, if so required, hedged by means of swaps and other financial instruments. ForFarmers ensures, through a robust equity and liquidity position, that the Company’s financial obligations can always be met.


ForFarmers has a very low risk acceptance level for risks regarding compliance with legislation and regulations. The Company has a Code of Conduct and a Whistle-blower Policy. The Code of Conduct contains the business principles, values and rules of conduct that are applicable to everybody working at ForFarmers. All ForFarmers employees must be familiar with the Code of Conduct and be aware of its implications. New employees receive the Code of Conduct in their own language and they are tested on its enforcement with the help of case studies. They are also asked to sign the Code of Conduct. The Code is regularly discussed and highlighted internally. ForFarmers has a zero tolerance policy with regard to breaching the ForFarmers Code of Conduct. Both the Code of Conduct and the Whistle-blower Policy serve as control measures with respect to combating corruption and bribery.

Methodology of the internal risk management and control systems

In order to be able to realise strategic, operational and financial objectives, ForFarmers has to seize opportunities and run risks. It is therefore important to properly identify, weigh up and manage risks; the primary goal of good risk management. The Executive Committee acknowledges the importance of good internal risk management and control systems, and strives for a high level of awareness in the organisation by actively monitoring risk management. This system is entrenched in the organisation, all the way from the Executive Committee, under supervision of Supervisory Board (‘the Board’), to all operational and financial departments. This includes the tone at the top, and the hard and soft control measures. The corporate governance & compliance team give risk and compliance workshops and facilitate self-assessment for the relevant business units and processes. For all major risks, key officers (risk owners and risk managers) are designated who are tasked with risk management as part of their role.

The methodology used by ForFarmers for the control and management of the different risks is based on the model formulated by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and in line with ISO31000. In June 2017, COSO issued a new publication called “Enterprise Risk Management - Integrating with Strategy and Performance”. ForFarmers is studying this publication.

Management, Monitoring and Reports

All aspects of risk management (execution, monitoring and reports) are under the responsibility of the Executive Board, which has appointed a Risk Advisory Board (RAB) hereto. The executive Board gives account to the Board. The RAB is composed of the CFO, Director Supply Chain, Director Reporting, Tax & Risk. The Internal Auditor participates in meetings as an observer.

The RAB monitors the control of the main risks based on the periodic reports. These reports serve, amongst others, as a tool to measure ForFarmers’ risk appetite as regards the actual risks, and where necessary to take additional control measures.

The managers of the business units have to sign a Letter of Representation (LOR) twice a year to declare that they comply both with the (local) laws and legislation and the internal control rules, including the Code of Conduct. The LOR, in addition to the Whistle-Blower Policy, provides the opportunity to report potential fraud and incidents.

Risk Management in 2017

In 2017, risk owners followed additional training sessions on conducting self-assessments of risks. The 21 main risks were assessed twice in this manner, including an analysis of the overall desired risk profile compared with the current risk profile. The corporate governance & compliance team discussed the outcomes of this with the risk owners and where necessary, action plans were drawn up to improve the control of these risks.

The data protection legislation project will be pursued in the ‘compliance’ risk area. This project concerns further controlling the use of data protection-sensitive subjects and the associated risks within the limits of the legislation and regulations. In 2017, the decision was made to appoint a Privacy Officer who will make a risk inventory with the help of an external expert.

In 2017, the RAB met four times to discuss the status and reporting of the risk management system.

In general, the profiles of the risks stayed the same or decreased in 2017; the risk profile ‘Size of livestock herd and animal diseases’ increased slightly. Dairy livestock in the Netherlands decreased by almost 10% as a result of phosphate measures implemented there. The risk of loss of volume of Total Feed solutions remained low through the introduction of new tools in the sector, and through intensive guidance of customers by ForFarmers advisors. The Fipronil affair in the layers sector led–especially in the Netherlands–to financial loss for individual poultry farmers. Given the spread of activities, this affair had a very limited impact on the level of ForFarmers.

The risk profile ‘Credit and liquidity risks contracting parties’ decreased in 2017. This was because of the improved financial positions of a large proportion of customers as a result of overall higher prices, primarily for milk and swine. In 2017, a limited amount of the overdue receivables was proactively converted into loans, secured by collateral as much as possible, and with clear arrangements as to interest. Customers with credit limits of more than €250,000 are discussed by the Executive Committee in their monthly meetings. Most of the receivables are insured. 

The pension risk also fell in 2017. After reaching an agreement with the trustee of the pension fund in the United Kingdom, an extra sum was paid in to the British pension fund in January 2017. This is in line with an adjustment of the inflation definition; from RPI (Retail Price Index) to the lower CPI (Consumer Price Index).

In the past year, attention was also devoted to the risks associated with mergers and acquisitions (‘M&A’). One of the pillars of the Horizon 2020 strategy is growth through M&A. For an acquisition to become a success, it is important to draw up a good business plan to be able to assess an appropriate valuation. Proper implementation of the integration plan is also important. Management is aware of the risks associated with M&A transactions and is implementing risk mitigating measures. 

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Main risks and their control measures

The main risks and control measures as defined by ForFarmers’ Executive Committee are shown below:

Risk Description Control measure
Strategic risks
Price development and availability of raw materials ForFarmers processes raw materials (wheat, maize, soya meal, barley etc.) The prices thereof are influenced by such aspects as the quality and size of harvests, demand from the biofuel industry and speculative trading, making them very volatile. Changes in raw material prices affect feed prices and are passed on to customers. ForFarmers takes positions to safeguard the availability of raw materials for orders. These positions can affect the Company’s results. ForFarmers closely follows developments in the area of prices and availability of raw materials. To reduce the risk of raw material positions, ForFarmers has implemented a risk management system, which outlines who is authorised to take positions, up to what level and also under which terms agreements can be made. Longer-term pre-sales contracts for customers are immediately hedged for 85%. The authorisation boundaries are defined per Business Unit.
Size of livestock herd and animal diseases The size of livestock herds can change, e.g. because of legislation or animal diseases. As a result, the demand for raw materials and/or compound feed may fluctuate, which may affect ForFarmers’ results. An outbreak of animal disease can result in transport restrictions that are imposed by official authorities, which can lead to lower feed sales. ForFarmers limits these risks by spreading activities both geographically and over various animal species. In the event of an outbreak of animal disease, an (international) crisis team closely follows developments, and instructs the business units concerned on actions to be taken and on which protocols should be followed. In such cases, the crisis team stays in close contact with the national authorities.
Development of energy & fuel prices Changes in energy and fuel prices affect ForFarmers’ production and transport costs. Cost fluctuations cannot always be passed on to customers in the sales prices, leading to a potential adverse effect on results. ForFarmers has an energy-purchase policy. Price risks are, where necessary, hedged by financial instruments and commodity contracts. The enforcement of this purchasing policy is monitored. Developments on the energy and fuel markets are closely monitored.
Operational objectives
Safety The safety policy (including procedures, training, physical safety measures, personal safety awareness etc.) is executed locally. Therefore there is a risk that there is insufficient vigilance as to the practice of the safety system. This exposes ForFarmers to an unacceptable level of incidents, reduced motivation of employees, claims and reputational risk. Detailed safety plans are drawn up for all ForFarmers locations. The Company also places a lot of importance on creating heightened awareness, as well as training all staff (this also refers to logistics safety), completing inventories in all factories as regards safety aspects and reporting on the status of any shortcomings and actions to resolve these.
Quality risks The quality of raw materials is of essential importance for the production of safe and reliable compound feed. There is a risk that due to contamination of products or cross-contamination during the production process, the finished products of ForFarmers do not comply with imposed requirements. Apart from claim risks and the costs of potential recall actions, there is also the risk of loss of customers. In the various countries, ForFarmers works with several partnerships to ensure maximum feed safety. ForFarmers subscribes to the Sedex code and requires its suppliers to do the same. Knowledge is shared in respect of monitoring, quality control, tracking and tracing, and crisis management. In addition, specific arrangements have been made about the choice of raw materials and suppliers. A solid and objective risk analysis is conducted from the origin of a raw material up to the actual delivery. ForFarmers also applies procedures and uses tools/applications to signal potential contamination at an early stage and to subsequently take adequate measures. Analyses are performed at in-house laboratories and by external parties.
Financial objectives
Currency and interest risks The purchase of raw materials and the entry into sale and purchase agreements may result in currency risks. If raw materials are purchased in a foreign currency, the risk exists that due to currency fluctuations the prices of raw material are not aligned with raw material prices in local currency. The potential differences that result from this cannot necessarily be passed on in the sales prices and can therefore affect gross profit. In principle, raw material positions are purchased in local currency. If positions are entered into in a foreign currency, they are immediately hedged by means of forward currency contracts and/or other financial instruments. The Governance, Risk & Compliance Team closely monitors compliance with the principles, which are formally established in the purchasing risk management policy. The availability of raw materials is continuously being monitored.

Risk Description Control measure
Credit and liquidity risks contracting parties Credit risks occur if contracting parties of ForFarmers, such as suppliers or buyers, do not comply with their contractual obligations. Non-compliance with contractual obligations may have a direct effect on the results of ForFarmers. If buyers do not or potentially no longer comply with their obligation, this results in a write-off or provision for the outstanding claim. If suppliers do not comply with their obligation, this may result in, for instance, inefficiencies in production processes. The contracting parties are assessed on a number of criteria. If required, additional arrangements are agreed, including the establishment of additional collateral. If required and possible, risks are insured. The correct settlement of obligations by contracting parties and developments with contracting parties are closely monitored. ForFarmers works across all business units with a system that ensures that outstanding receivables are collected on time. There are also strict arrangements regarding the maximum outstanding amounts per customer as well as applicable payment terms. Where necessary, ForFarmers at a very early stage contacts contracting parties where credit and liquidity risks increase.
Liquidity risks ForFarmers must always be able to comply with its financial obligations. In 2014, ForFarmers entered into a multi-currency revolving facility agreement with ABN AMRO, Rabobank, Lloyds Bank and BNP Paribas for which no collateral is provided. The agreement has a maturity date up to 31 January 2020. The facility amounts to a maximum of € 300 million. In the funding agreement, loan covenants were established that ForFarmers must comply with. ForFarmers monitors the liquidity position and bank covenants by means of periodic reports.
Pension risks The pension schemes used in the Dutch subsidiaries are defined contribution schemes that were placed with insurance companies, for which only the agreed premium must be paid. In the German subsidiaries there is an in-house defined benefit scheme for a number of people. In Belgium, there is a defined benefit scheme as a result of the reform of the local legislation in 2015. External developments may have a negative impact on the level of the provision to be booked by ForFarmers. In the United Kingdom, the legal predecessor of ForFarmers UK operated a defined benefit scheme which was converted (2006) to a closed scheme in which the risk remains with ForFarmers. Changes in the actuarial assumptions may have a negative impact on the equity position of the pension fund and could imply ForFarmers United Kingdom needing to make additional payments. As of 2006 a new scheme was implemented on the basis of defined contribution placed with an insurance company, meaning that no risk exists for ForFarmers as regards this scheme. The risk management model of the investments for the pension scheme in the United Kingdom is assessed periodically. The implementation of the investment policy is in the hands of a fiduciary manager.
Amendments in legislation and regulations Amendments in legislation and regulations at a European, national or local level may affect the activities of ForFarmers or its contracting parties. This concerns, among other things, legislation in the area of the environment, food safety and production processes. ForFarmers closely monitors developments in the area of legislation and regulations that are important to the Company and its contracting parties and, if so required, implements adjustments as a result of amended legislation. Compliance with legislation within ForFarmers is determined through, among other things, periodic reviews.

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Apart from the regular items on the agenda for the RAB, attention was also devoted in 2017 to the following subjects, which led to additional control measures:

Climate risks

One of the main risks companies are faced with is climate change. Greenhouse gases are emitted both in the production and the logistics processes of ForFarmers. These contribute to potential further global warming, which could have damaging economic and social consequences. It is difficult to estimate when and to what extent these risks could manifest themselves. The water levels in rivers can have an influence on the ForFarmers costs of logistics forwarding. One ForFarmers factory risks being left inaccessible because of high water. ForFarmers has included the reduction of greenhouse gas emissions in its sustainability objectives. Every quarter, the progress of various implemented relevant parameters is reported to the Executive Committee, and additional points for action are determined where necessary. In 2018, this process will be fine-tuned further.

Information Technology (IT)/cybersecurity

Organisations are increasingly confronted with cyber-crime. Several tests were conducted in 2017 to increase the awareness of IT risks among employees.
The outcomes of these tests led to further improvements to the policy. More attention will be devoted to this subject in 2018.

Feed Fraud

In the production of feed, ForFarmers is dependent on the quality and provenance of the raw materials and ingredients added to the feed. There is a risk that the raw materials and/or ingredients bought do not comply with the legal standards or with the quality description based on which they were bought, in order for the counter party to obtain an economic advantage. These raw materials could be processed in feed and could therefore lead to a food safety risk. The risk of feed fraud, and the measures to be taken against it, is additional to the quality risks that ForFarmers could face as a result of the potential contamination of products or cross-contamination during the production process.

In 2018, the existing measures for quality risks were broadened to identify potential feed fraud at an earlier stage.

AMR (Anti-Microbial Resistance)

If antibiotics are used at too great a scale or too frequently, some bacteria may become resistant. The fact that some bacteria are no longer responsive to antibiotics prescribed to humans is a source of major concern for society. In certain countries, the agricultural sector still adds antibiotics to feed as a pre-emptive measure. In the Netherlands and Germany, sectoral agreements have been entered into to stop pre-emptive use of antibiotics in feed. ForFarmers works proactively in Belgium and the United Kingdom to stop or reduce the use of antibiotics. ForFarmers specialists are trained to discuss and put forward alternatives to customers. In 2018, this subject will continue to be focused on.


ForFarmers has a growth objective, which must be attained through both organic growth and growth through acquisitions. In making acquisitions there are inherent risks, such as in the area of due diligence, valuation, risk management, achieving synergy, management and integration. All of these factors can have a negative impact on ForFarmers’ results. ForFarmers has a team for Mergers and Acquisitions, which works closely on this subject with the Executive Committee members and the managers of the clusters. These control measures are regularly discussed in the Executive Committee and Supervisory Board meetings and fine-tuned wherever necessary.

Availability of biological (organic) raw materials

ForFarmers is a leader in the biological (organic) feed market, operating under the name of Reudink. There is increasing interest in animal welfare and good nutrition. The whole chain, from raw material to the final product, has to meet specific conditions to be able to justify the ‘organic’ seal. The risk exists that there is a shortage of biological (organic) raw materials or production capacity. This could damage Reudink’s market position. The RAB has discussed this and taken measures to properly monitor the availability of biological (organic) raw materials.

Strategy and disruptive developments

Both the consolidation occurring in the value chain and the increasing role of (big) data can affect the long-term value creation of ForFarmers and thereby the results of the Company. ForFarmers actively monitors changes in the market and actively takes part in various initiatives in order to stay tuned with developments. To properly be able to weigh up opportunities and risks, a designated ‘Disruptor team’ has been set up. Certain specific points for attention have been established for which steps should be taken in 2018. The Disruptor Team periodically reports to the Executive Committee on findings.

Impact of the announcement by the United Kingdom of its withdrawal from the EU

On 29 March 2017, the British government triggered Article 50 of the Lisbon Treaty and announced to the European Council its intention to leave the EU. There is an initial two-year period for the United Kingdom to reach a deal with the EU on its withdrawal and on the future relations between the United Kingdom and the EU, although this period may be extended.
At this stage, there is a lot of uncertainty about the exit process, the time it will take, and the outcome of the negotiations on the future deals between the United Kingdom and the EU.

As a result, there is uncertainty about the period for which the existing EU Member State legislation will still apply for the United Kingdom and which laws will apply to the United Kingdom after Brexit.

There is a risk that the exchange rate of the Pound sterling will (further) decrease versus the euro. This has an impact on the consolidated results of ForFarmers. Furthermore, there is the possibility that farmers, particularly in the swine and dairy sector, will expand their businesses leading to an increase of the self-sufficiency ratio. This requires investments to be made by the farmers. Whether and when a possible expansion of farm businesses will take place is therefore uncertain. ForFarmers is actively following the developments.

ForFarmers tax policy

ForFarmers operates in four different countries with different tax systems. The risks exists that the Company’s policy does not comply with local requirements as a result of the complexity of the various tax systems and legislation. ForFarmers’ tax policy is based on the principle that paying tax forms part of its social responsibility, and consequently complies with laws and legislation in the area of tax. ForFarmers’ risk appetite as regards taxes is low.

ForFarmers complies with its tax obligations and pays its tax on time. ForFarmers also monitors potential changes in the law and legislation both on a group level and local level, and anticipates upon them. In this respect, ForFarmers maintains an open line of communication with tax authorities. Over the year, various meetings take place with tax authorities in the different countries.

ForFarmers’ staff are actively encouraged to keep their knowledge on legislation up-to-date. The current procedures and processes facilitate cooperation between the Group and local staff in the various tax zones.


In the period under review, no significant shortcomings were identified in the design and operation of the internal risk management and control systems and/or no significant changes were made to these systems. The anticipated improvements to these systems are specified above. The Executive Board has discussed the design and operation of the internal risk management and control systems with the Audit Committee and the Supervisory Board.