FACULTY OF BUSINESS AND MANAGEMENT

BACHELOR OF BUSINESS ADMINISTRATION (HONS)

INVESTMENT MANAGEMENT

INTRODUCTION TO TAKAFUL

INS510

GROUP ASSIGNMENT
(FOOD INDUSTRY)

PREPARED BY:

AZRI LUQMAN BIN YA’AKUB AZHARI 2021101127 JBA252 3A

MUHAMMAD 'AZIM SHAKIR BIN ABD WAHAB 2020449812 JBA252 3A

UMMI SYAFIQAH BINTI RADZMAN 2021125989 JBA252 3A

NUR AQIDAH SYAZWANI BT ED NOOR 2021478216 JBA252 3A

PREPARED FOR
MISS/MS. DR. NUR HANISAH BINTI MOHAMAD RAZALI

SUBMISSION DATE
(3 JULY 2022)
 TABLE OF CONTENT

ACKNOWLEDGMENT 01

1.0 INTRODUCTION

1.1 INDUSTRY BACKGROUND 02

1.2 BUSINESS OPERATION 04

1.3 COMPANY BACKGROUND 05 - 06

2.0 RISK IDENTIFIED IN FOOD INDUSTRY 07 - 12

3.0 THE IMPACT OF RISK 13

3.1 RISK ASSESSMENT MATRIX 14 - 19

4.0 RISK MANAGEMENT 20

4.1 OPERATIONAL RISK 20 - 21

4.2 BUSINESS RISK 22 - 24

4.3 FUNDAMENTAL RISK 25

4.4 LIABILITY RISK 26 - 27

4.5 MARKET RISK 28

4.6 PROPERTY RISK 29

5.0 CONCLUSION 30

6.0 REFERENCES 31 - 36
ACKNOWLEDGMENT

First and foremost, praise and thanks to Allah SWT for His showers of blessings throughout our
process to complete this assignment successfully.

We would like to express our gratitude and appreciation to all of teammates include Muhammad
‘Azim Shakir Bin Abd Wahab, Azri Luqman Bin Ya’akub Azhari, Ummi Syafiqah Binti Radzman
and Nur Aqidah Syazwani Binti Ed Noor for successful complete this report.

A special thanks to our lecturer for this subject, Mr./Sir Mohd Khairul Ariff Noh and Miss/Ms. Dr.
Nur Hanisah Binti Mohamad Razali, who helped stimulate suggestions, consultant and
encouragement on helping us to write a good industry analysis and risk management report based
on the instructions and format given. His exemplary guidance, constant encouragement, and
careful monitoring us throughout the task given are so great and awesome!

We also are proud to say that our group project paper on industry and risk analysis has given us
a useful knowledge and opportunity to learn more about industry analysis and how to identify,
evaluate and manage the risk according to the Risk Matrix Table. We really hope that the
knowledge we earn can be practiced in the future as an investor, or analyst.

This group project report of Introduction to Takaful subject (INS510) is the result of hardwork and
co-operation of the members of the entire group. Many challenges, problems, argument and
obstruction we have faced, but all of these have been overcome with the spirit to complete this
report.

We really hope all the hard work we have done for this report will get blessings and Will-ness
from Allah SWT.

Thank you.

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1.0 INTRODUCTION
1.1 INDUSTRY BACKGROUND

The food industry is the involute network of farmers and diverse businesses that together
supply much of the pabulum consumed by the world population. The pabulum industry is
fundamental and consequential to every nation. The term "aliment industry" covers a series of
industrial activities directed at the engenderment, certification, processing, preparation,
preservation, conversion, convey, distribution, and packaging of foodstuffs. The most lucrative
areas of the pabulum industry are confectionery, vegetables, meat processing, dairy products,
and fruit processing. Victuals processing is the methods and techniques used to transform raw
ingredients into pabulum for human consumption. Victuals processing takes unsullied, harvested
or butchered and slaughtered components and utilizes them to engender marketable pabulum
products. The pabulum industry today has become highly diversified, with manufacturing ranging
from diminutive, family-run, traditional activities that are highly labor-intensive, capital-intensive,
and highly mechanized industrial processes.

The food industry in its entirety is not one industry but an amassment of several types of
industries engendering a diverse range of victuals products. It covers farming, pabulum
engenderment, victuals processing, preservation, packaging, distribution, retail, and catering.
However, the components of the aliment industry consist of research and development. Research
on any aspect of the pabulum industry engenders germane information about that sector.
Research reflections may be on factors influencing consumer comportment, customers’ buying
culls, formation of posture, and opinions. (Aliment Processing) is utilized to transform raw
ingredients into marketable victuals products. Packaging bulwarks aliment from the environment,
elongates victuals shelf life, and increases the quality of pabulum. Pabulum marketing describes
any form of advertising used to promote the purchase and/or consumption of an item or beverage.
Aliment marketing is the primary designate for promoting information about pabulum. This may
influence victuals comportments by mitigating socio-cultural elements of the pabulum
environment.

However, Malaysia is a lush tropical land profuse of natural resources that integrate
flavour and variety into research, cultivation, and processing of foods. The victuals-processing
sector accounts for about 10% of Malaysia’s manufacturing output. Processed foods contributed
about RM21.76 billion and were exported to more than 200 countries, while the import value of
processed foods amounted to RM20.27 billion in 2019. Thus, Malaysia is poised to become one

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of the leading Asian countries in aliment engenderment and processing. With a deep-rooted
tradition of excelling, Malaysia is committed to developing the country’s agriculture industry for
import supersession and export. The Malaysian pabulum and beverage market is very developed
and sophisticated and is supplied with both local and imported products. Hypermarkets
(immensely colossal format stores) are the ascendant format in urban/metropolitan areas in
Malaysia, with about 50% to 60% of urban household shoppers utilizing them as the main outlet
for the majority of their packaged groceries. Urban consumers are relatively brand-conscious and
prefer to shop in stores that offer accomodation and good product culls. Traditional markets are
losing ground but are still the primary outlets for fresh fruits and vegetables.

Poultry processing accounts for 60% of the meat processing industry. Although Malaysia
is a net exporter of poultry meat, it is still a net importer of meat products, categorically beef and
mutton. Poultry meat is a major raw material for further processed livestock products. Among the
dairy products engendered are milk powder, sweetened condensed milk, pasteurized or sterilized
liquid milk, frozen dihydrogen monoxide cream, yogurt, and other fermented milk. Except for the
engenderment of pasteurized milk, the dairy product industry is heavily dependent on imports.

The fishing sector generated about 2.2 million tons of fish in 2019, of which the aquaculture
sector contributed more than 400,000 tons annually. An export-oriented sector, seafood
processing includes the processing of prawns, frozen products, canning of fish, and the
engenderment of surimi and surimi products. Malaysia’s total exports of seafood processed
products exceeded RM1.1 billion in 2019.

Malaysia’s current population of 33.6 million has purchasing power (per capita income)
that exceeded RM44,686 in 2019. Lifestyle changes have led to an incrementation in the
injunctive authorization for accommodation and salubrious foods. Exports of processed pabulum
recorded a positive magnification, betokening the incrementing acceptance of Malaysia’s victuals
products in the overseas market. This is contributed mainly by products such as cocoa and cocoa
preparations, prepared cereals and flour preparations, processed seafood and dairy products.
The Sodality of Southeast Asian Nations (ASEAN), with a population of over 668 million, has a
prodigious market potential to be tapped, and Malaysia is poised to become a major exporter of
processed victuals for this region.

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1.2 BUSINESS OPERATION

A manufacturing business uses raw materials, labor, and machinery to assemble or

engender culminated goods. These companies will additionally generally use advanced
technology and assembly lines to make their products. Diminutive businesses can be considered
manufacturers. For example, a company that engenders jewelry from beads or makes dried fruits
would additionally be engaged in manufacturing business operations. Albeit this sector is
homogeneous to that of retail businesses in that they both sell goods to consumers, there is a
major difference. A manufacturing business buys products and raw materials to make an entirely
incipient item and markets it. Merchandising operations purchase goods and sell them right away,
without having to assemble, reconstitute, or transform the product.

The food manufacturing subsector is a component of the manufacturing sector. Industries

in the Food Manufacturing subsector transform livestock and agricultural products into products
for intermediate or final consumption. The industry groups are distinguished by the raw materials
(generally of animal or vegetable inception) processed into victuals products.

The food products manufactured in these establishments are typically sold to wholesalers
or retailers for distribution to consumers, but establishments primarily engaged in retailing bakery
and candy products made on the premises for immediate consumption are not included.

Goods and accommodation Workers in the food manufacturing industry link farmers and
other agricultural entrepreneurs with consumers. They do this by processing raw fruits,
vegetables, grains, meats, and dairy products into culminated goods ready for the grocer or
wholesaler to sell to households, restaurants, or institutional pabulum accommodations.

Food manufacturing workers perform tasks as varied as the many foods we victual. For
example, they slaughter, dress, and cut meat or poultry; process milk, cheese, and other dairy
products; can and preserve fruits, vegetables, and frozen specialties; manufacture flour, cereal,
pet foods, and other grain mill products; make bread, cookies, cakes, and other bakery products;
manufacture sugar and candy and other confectionery products; process abbreviating, margarine,
and other fats and oils; and prepare packaged seafood, coffee, potato and corn chips, and peanut
butter. Albeit this list is long, it is not exhaustive. Victuals manufacturing workers additionally play
a component in distributing numerous other aliment products to our tables.

4
1.3 COMPANY BACKGROUND

Nestle is one of the Swiss transnational food and beverage companies established and
headquartered in Vevey, Vaud, Switzerland. The establishment of the Nestle Company arose
from a merger in 1905 between the Milk Company, a dairy company founded by the Page Brothers
in Cham, Switzerland, in 1866 and the Henri Nestlé Lactée Farine Company founded in 1867 by
Henri Nestlé which produced food products. This Nestle business has been aided by a strong
network of more than 86 countries with over 500 factories working together. The Nestlé Company
continues to grow by producing various types of food and beverage products such as milk,
chocolate, coffee, food flavors, and many more. Now, Nestlé is the world's largest food and
Beverage Company. Nestle products also have more than 2000 brands distributed in 189
countries, including Malaysia.

Next, NESTLÉ’S Company’s commitment to providing quality products to Malaysians

dates back more than 100 years. Nestlé began in Malaysia in 1912 as the Anglo-Swiss
Condensed Milk Company in Penang and later its growth and expansion made a move to Kuala
Lumpur necessary in 1939. Since 1962, with its first factory in Petaling Jaya, Nestlé Malaysia now
manufactures its products in eight factories and operates from its head office in Mutiara
Damansara.

The company was publicly listed on the KLSE, now known as Bursa Malaysia Bhd, on
Dec 13, 1989. Today, the company employs almost 6,000 people and manufactures as well as
markets more than 300 halal products in Malaysia. Its brand names such as Milo, Nescafé, Maggi,
Nespray, and Kit Kat have become trusted household names and enjoyed for generations.

5
The performance of Nestle Company

On 22 February 2022, Nestle Company recorded a resilient performance for the financial
year ended 31 December 2021, delivering solid Turnover growth at 5.9% to RM5.7 billion. This
performance was largely driven by positif growth in the Group’ s core F&B business in both
domestic and export markets. The review of performance for Nestle Company in quarter 4, 2021
compared to quarter 4, 2022. This report shows the turnover for the quarter increased by 7.1% to
RM1.47 billion, from RM1.37 billion in the same quarter of 2020, driven by higher domestic and
export sales which grew by 6.0% and 10.8% respectively. The Group’s F&B business was a key
driver, recording a strong 6.4% increase, while Out-Of-Home channels maintained a positive
trajectory following the easing of restrictions, even though still well behind pre-COVID levels.
(Nestlé Malaysia Delivers Another Year of Solid Results in 2021).

In terms of net profit for Nestle, it has posted the highest net profit of RM205.18 million in
the first quarter ended March 31, 2022 from RM175.16 million a year ago. This is because the
Nestle company is driven by stronger sales and lower Covid-19 related expenses, despite the
impact of increased commodity prices and the one-off Prosperity Tax. This made Nestle company
group revenue grow 16.9 per cent to RM1.69 billion in quarter 1 2022 from RM1.45 billion last
year ( New Straits Time).

For Nestle net financial expenses, were unchanged at CHF 873 million, as a lower cost of
debt offset the higher average net debt. The Group reported tax rate decreased by 330 basis
points to 20.9%, mainly as a result of one-off items in 2020, including the divestment of the U.S.
ice cream business. The underlying tax rate decreased by 40 basis points to 20.7%, mainly due
to the geographic and business mix (Nestlé reports full-year results for 2021).

6
2.0 RISK IDENTIFIED IN FOOD INDUSTRY

Operational risk is the jeopardy of loss resulting from ineffective or failed internal
processes, people, systems, or external events that can disrupt the flow of business operations.
The losses can be directly or indirectly financial. This type of risk brings a tactical or ground-level
view of the company’s risk profile. According to Investopedia, the uncertainties and threats that a
company faces when intending to operate its day-to-day business activities within an industry are
depicted as operational risk (SEGAL, 2006). Based on the table below, it shows the causes and
effects of operational risk to the food industry.

No Risk

1 Operational Risk
Causes
1.0 Supply chain interruptions to customers.
2.0 Failure to comply with the equipment reliability strategy, inspection, or maintenance
programme
3.0 Ineffective Turnaround and Recovery
Effects
1.0 Operational disruption in manufacturing and unsustainable operational performance.
2.0 Inability to meet customers’ demand
3.0 Increase in maintenance costs.

7
 The term "business risks" refers to the possibility of a commercial business making
inadequate profits or even losses due to uncertainties arising from uncertainties such as
transmutations in tastes, transmuting predilections of consumers, strikes, increased competition,
vicissitudes in regime policy, obsolescence and others. Every business organization faces various
risk elements while doing business. Business risk implies skepticality in profits or peril of loss and
the events that could pose a peril due to some unforeseen events in the future that cause business
to fail. The table below shows the causes and effects of business risk to the food industry.

No Risk

2 Business Risk
Causes
1.0 Competition in the development of innovative products and solutions.
2.0 World Pandemic Crisis (COVID-19)
3.0 Climate change and environmental management
Effects
1.0 Create fewer profits and lower market share
2.0 Wastage
3.0 The emerging economy may pose liability, physical, and transitional risks to businesses.

8
 Fundamental risks affect the entire economy or sizably voluminous numbers of people or
groups within the economy. Examples of fundamental risks are high inflation, unemployment, war,
and natural disasters such as earthquakes, tornadoes, floods and hurricanes (Vidya Gaur, 2019).
Fundamental risk is an uninsurable risk and intrinsic peril, which engenders no skepticality about
the number of losses that will occur and need to be incurred by the company. In other words, the
loss incurred cannot be covered. Table below shows the causes and effects of fundamental risk
to the food industry.

No Risk

3 Fundamental Risk
Causes
1.0 World Pandemic Crisis (COVID-19)
2.0 Changed climates or weather.
3.0 New policies or sudden changes in regulations and policies.
Effects
1.0 Health related issues from the virus outbreak and pandemic
2.0 A higher risk of heat stroke is faced in very hot weather.
3.0 Minimized profit or loss of business and market share.

9
 The fourth risk that was identified in the food industry is liability risk, which is a form of
operational risk that involves the peril of being held accountable or liable for an action or omission
that results in a direct or indirect financial loss, whether or not somebody is at fault (Deshret
Capital). It can additionally lead to a party being held liable for concrete types of losses. The risk
that an individual or corporation would engage in comportment that causes bodily harm, death,
property damage, or financial loss to third parties is high. When this occurs, the harmed third party
has the option of suing the allegedly responsible party and pursuing licit remedies. Table below
shows the causes and effects of liability risk to the food industry.

No Risk

4 Liability Risk (Legal Risk)

Causes
1.0 Acquirer's shareholders sue the company's management for shoddy acquisition due
diligence that resulted in a dilutive deal.
2.0 Liability incurred as a result of a materialized Fraud Risk
3.0 Customers or regulators may bring a lawsuit against the company as a result of a data
breach or infringement of personal data.
Effects
1.0 The jeopardy of financial loss as a result of a buyer's breach of contract or the company's
failure to felicitously handle contractual benefits or obligations
2.0 Damage to reputation, credibility, or damage to the company's brand value.
3.0 Business loss as a result of order cancellations or third-party claims for damages

10
 risk or known as systematic risk is the possibility that an organization or an individual might
experience losses due to any factors that affect the stock market performance and the overall
performance of investment and in the financial markets simultaneously (Investopedia). Market
risk is the risk that cannot be eliminated and is unpredictable. The primary sources of market risk
are changes in interest rates, foreign exchange rate, political changes, movement of stock prices
and many more. Table below shows the causes and effects of market risk to the food industry.

No Risk

5 Market Risk
Causes
1.0 The advancement of new technology leads to product supersession.
2.0 Global trade disruption.
3.0 Changes in Consumer behavior
Effects
1.0 Manufacturing slowdown due to high inventory.
2.0 Lower consumer demand due to cautious business and consumer sentiment.
3.0 Business and products will be in low demand.

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 Lastly, property risk is the risk that affects the owner of the property if it is damaged or
lost. Property risks include flood, earthquake, and fire damage to immovables such as land and
buildings, as well as theft or fire damage to movables such as appliances and other personal
property. The loss of this risk might be direct or indirect. A direct loss can be seen through financial
loss to the property due to the disaster. Losses resulting from an incident that causes direct or
physical damage or loss, on the other hand, are considered indirect.

No Risk

6 Property Risk
Causes
1.0 Fire and explosion
2.0 Equipment breakdown
3.0 Contamination and spoilage
Effects
1.0 Manufacturing shutdown due to property damages.
2.0 Stoppage of production due to failure operational infrastructure.
3.0 Low food quality which will damage the business and lower the revenue.

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3.0 THE IMPACT OF RISK

Risk ID Title Impact Likelihood

3 - Moderate Possible
R001 Operational Risk

4 - Major Possible
R002 Business Risk

4 - Major Likely
R003 Fundamental Risk

4 - Major Unlikely
R004 Liability Risk

3 - Moderate Possible
R005 Market Risk

5 - Catastrophic Possible
R006 Property Risk

1 2 3 4 5

Likelihood Rare Unlikely Possible Likely Almost

(Frequency) certain

Impact Insignificant Minor Moderate Major Catastrophic

(Severity)

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3.1 RISK ASSESSMENT MATRIX

Property Risk

The food and beverages industry are evolving at an increasingly rapid pace. Therefore,
an organization must acknowledge the operational risk which put the food safety in an enterprise-
level risk. According to Global Data, Nestle’s overall risk profile have been increased because
the operational and country risk pillar. This can be seen through Nestle’s massive operation,
which includes more than 2,000 branded items in 186 countries, the scale sub-pillar influences
the operational risk. Nestle has been able to retain clients in a highly competitive market because
of its strong brand portfolio and widespread familiarity (Nestle SA – Risk Profile, n.d.). Despite
that, according to Pascal Gréverath who is the Head of Environmental Sustainability at Nestlé, he
admitted that there is a clear risk identified related to the supplies of agricultural raw materials
and the sustainability of the supply. One of the ways to address this issue are through sourcing
the quality of raw materials especially coffee, cocoa and dairy because of its demand in the market
(Simon, 2016). Furthermore, Nestle have been facing the risk of equipment failure which can
cause an injury to their worker. In 2016, a worker was hurt in an accident in a UK plant that
involved confectionery production equipment. Based on the statement of the HSE Inspector
Jacqueline Ferguson, this is a tragic incident that could so easily have been avoided. The risks
inherent in failure to properly guard dangerous parts of machinery are well known in industry and
to Nestle. Therefore, Nestle had been fined $869K, and the company also ordered to pay £26,234
in court cost. Plus, A Malaysian court ordered Nestle Manufacturing (Malaysia) Sdn Bhd, a local
Nestle subsidiary, to pay a fine of RM90,000 (about $22,400) in December for discharging an
excess amount of industrial effluent (Forrester, 2021). Hence, the frequency of operational
risk is possible and the impact of operational risk are moderate.

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 Every business or an organization faces a variety of risks when conducting business.
Business risk denotes skepticism about earnings or the chance of loss, as well as events that
could represent a risk in the future owing to unforeseen events that cause the business to fail.
Every business in the food industry including Nestle, have been suffering to keep up with the
fierce competition in innovative products and solutions. According to BRIZ et al. (2006) due to
globalization and the process of liberalization, there are greater distances between producers and
consumers, more participants in the supply chain, a decreased ability of national governments to
protect and control consumers, and pressure to innovate and become more competitive. Nestle
had been drive innovation through their passionate R&D employees, strong expertise in science
and technology, increase speed and efficiency, and their entrepreneurial and collaborative
culture. Their understanding of consumer needs helps them deliver trend-based innovation and
breakthrough nutritional concepts (Driving Purpose through Innovation | Nestlé Annual Report,
n.d.). Besides that, nowadays every organization in the food industry have been taking initiatives
to decrease waste and recycle more as an effort to accomplish financial returns as well as
environmental benefits. As the impact of COVID-19 pandemic on the whole world, buying habits
and consumer needs had been changing which affect all the business, many younger consumers,
in particular, have increased their online purchasing and may continue to do so out of convenience
and habit given that the majority of venues had to close during lockdown. More than 50% of
consumers between the ages of 18 and 24 reported making larger than normal online purchases.
(Life in Lockdown: New Buying Habits and Changing Consumer Needs, n.d.). Therefore, there
are some wastages in stock of supplies due to pandemic, which are not purchased by the
consumer because of the lockdown. In addition, according to Schneider (2020), climate change
is one of the most difficult issue a business might face. Pascal Gréverath, the Head of
Environmental Sustainability at Nestlé warns that climate change is going to confront the
European food sector with an unprecedented risk related to supplies of agricultural raw materials.
So, Nestlé, the largest food and beverage corporation in the world, has a special potential to
combat climate change. Nestlé announced its goal to reach net-zero carbon emissions by 2050
a year ago. This initiative built on the company's more than ten years of environmental
sustainability work. We are increasing this work right now and outlining our resolve to cut our
greenhouse gas emissions in half by 2030. We face complicated problems as a result of our
extensive supply chain, which includes international agricultural suppliers that are responsible for
around two thirds of our greenhouse gas emissions. It can be concluded that the frequency
of business occurring in the food industry is possible, however the severity of the risk is
still major as it is unpredictable to the industry.

15
 According to Vidya Gaur, 2019 fundamental risk may affect the entire economy or a lot of
people or groups within the economy. Some of the examples of fundamental risk are high
inflation, unemployment, war, and natural disaster. The COVID-19 pandemic has affected so
many lives and live hoods. It has a devastating impact around the entire world, it affected the
health of the employees and cause tons of unemployment around the world. Since March 2020,
nestle have provided support with CHF 90 million in financial and in-kind donations in more than
50 countries. Nestle initial response to the pandemic focused on helping caregivers and
strengthening healthcare systems through a partnership with the International Federation of Red
Cross and Red Crescent Societies (IFRC) (What Is Your Response to COVID-19? n.d.). Next,
climate change is one of the most fatal disasters that can affect food industry especially the
agriculture and fisheries. Not only that, the climate change such as global warming affect the
environment, it also can cause heat stroke to either worker or the local people (Climate Impacts
on Agriculture and Food Supply | Climate Change Impacts | US EPA, n.d.). Nestle have been
working on helping the cocoa and coffee farmers adapting to environmental challenges and it has
been recognised by the United Nations’ Framework Convention on Climate Change (UNFCCC).
The company have been training the farmers to alter their production methods while improving
the impacts of their activities (Nestlé Helps Farmers Adapt to Climate Change, 2012).
Furthermore, regulation or policies are one of the few things that can affect the food industry
directly or indirectly through the supply or the prices of the product, the safety and nutritional
composition or simply the information the consumers received abut the food. A sudden change
of policies may affect the organization profit or loss and the market share. According to Deconinck
et al. (2020), the COVID 19 pandemic introduced a new policy that implies unexpected stresses
on the food industry, which needs some sudden changes of policies and regulation to avoid the
food price crisis and to maintain functioning food supply chains. Hence, it is proven that the
frequency is likely to happened and the impact is major.

16
 The next risk is the liability risk, which are the form of operational risks that involves the
peril of being held accountable or liable for an action or omission that results in a direct or indirect
financial loss, whether or not somebody is at fault (Deshret Capital). Any company that deals in
consumer goods should be aware of the current regulatory requirements and industry standards
that its products must adhere to, as well as the dangers that may result if those items don't adhere
to those standards or, worse, put customers at risk. Businesses will frequently be directly
accountable to customers for the supply of subpar goods in certain situations. With subpar
consumables possibly posing a direct risk to customers' health and consumers being naturally
more sensitive to standards failures, the risks of product liability are increased in the food and
beverage business. Incidents can have a significant reputational risk and significantly affect
consumer confidence in the supplier. Due to supply chains' frequent length and difficulty in
monitoring, maintaining standards in the food and beverage business is particularly tough (Scown,
2018). Companies are suffering greatly as a result of the new coronavirus's global spread as they
have to halt manufacturing, meetings, events, and business travel. Market declines have
resumed quickly. The Dow and S&P were down more than 2% in early trading, and Treasury rates
fell to all-time lows as traders exercised caution. After a volatile day in Asia, investors quickly sold
off shares in Europe, where indexes fell more than 3%. The value of airline shares decreased by
as much as 10%. All the business plan which includes flying in airlines are cancelled which cause
a loss to the company margin. So, Nestlé told their 291,000 employees worldwide not to travel
internationally for business, while domestic travel should be replaced by “alternative methods of
communication where possible” to minimize the risk (Humber, 2020). Thus, liability risk had a
low frequency but major impact.

17
 In this era, increasing competitive and environmental factors cause all industries or food
producers to face this marketing risk. So the marketing risks they face are new technological
advances leading to product substitutions, global trade disruptions, and changes in consumer
behavior. According to the Nestle Annual Report 2021, market prices in the food industry have
recovered, although its stability remains volatile. This is because according to an article from the
Food Industry Report there are various drivers that could unlock growth potential this year. This
is the nature of non-recycling industries, a growing number of middle-income consumers in
emerging economies spending more money on high value-added goods than low cost, and
increased use of technology to engineer solutions for global food supply all contributing to growth.
However, these factors would most likely reverse the surge in demand for snacks rather than
whole foods, the report said. In addition, this marketing risk also occurs due to the effects of covid
19 dah climate change that occurred this year. These, including the food industry like Nestle, are
experiencing a few problems as a result of this outbreak. For example, a Nestle company has to
face the challenge of rising raw material costs and resulting in products that will be in low demand.
This is due to the rising cost of food communities, one of the reasons for the increase in some
goods and the dampening of profit margins due to rising raw material costs and the weakness of
the ringgit against the United States dollar (US) which in turn increases the cost of imports. In
addition, the surge in transportation costs was due to the low supply of shipping containers and
the impact of the Prosperous Tax only once this year. Hence, the frequency of market risk in
the food industry is possible and the severity of market risk is moderate.

18
 All food manufacturers and industries have very unique and different risk exposures that
need to be addressed. Accidental fires and explosions can have catastrophic impacts on human
lives, property damage, the environment, and business continuity. Because of the danger of fire
and explosion, handling flammable liquids, dusts, gases, and solids should be done with caution.
(Fire and Explosion, n.d.). So, it is not impossible for the Industry to face and bear the risk of
property that occurs in their factories. At the same time, the potential losses that occur will be
detrimental to the food producer, and if the food producer is not properly insured, it can also cause
the company to go bankrupt. Based on Nestle Company, they also have to face some risks like
fire or explosion, equipment damage, contamination, and spoilage. A Nestle frozen foods
manufacturing plant in Jonesboro, AR was heavily damaged in a fire, which force the shutdown
of the firm production facility. Therefore, nestle announced a $100 million expansion project at
the Jonesboro site in January 2021 to increase production of Hot Pockets sandwiches. The
company opened the Arkansas location in 2002 shortly after it acquired the Hot Pockets brand
(Forrester, 2022). Besides that, there equipment breakdown also one of the risks of property
which can cause stoppage of production due to failure operational infrastructure. Nestle once
sues equipment maker over rubber in food products. This issue led to a recall of 2.25 million
cases of cookie dough in October 2019, incurring “substantial damages" as a direct result of the
equipment failure (Nestlé Sues Equipment Maker over Rubber in Food Products | European
Rubber Journal, n.d.). We can see here that how equipment breakdown can affect the financial
position of an organization. In addition, Nestle companies such as chocolate factories have to
shut down all product lines as a precaution while the contamination is investigated. This is
because all chocolate products that have been temporarily detained have been investigated due
to the fact that during the chocolate-making process they have been identified to have lecithin, an
emulsifier commonly used in making chocolate, as a source of contamination. With this risk this
gives a product in Nestle low food quality which will damage the business and lower the revenue,
If Nestle does not try to avoid and reduce this risk. It can be concluded that the frequency of
property risk occurring in the food industry is possible, however the severity of property
risk is still catastrophic when it happens.

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4.0 RISK MANAGEMENT

Risk management encompasses the identification, analysis, and replication to jeopardize

factors that form part of the life of a business. Efficacious risk management denotes endeavoring
to control, as much as possible, future outcomes by acting proactively rather than reactively.
Consequently, efficacious risk management offers the potential to truncate both the possibility of
a jeopardy occurring and its potential impact. Risk management is a consequential process
because it potentiates a business with the compulsory implements so that it can adequately
identify and deal with potential jeopardies. Once a risk has been identified, it is easy to mitigate
it. In integration, risk management provides a business with a substructure upon which it can
undertake sound decision-making. For a business, the assessment and management of
jeopardies is the best way to prepare for eventualities that may come in the way of progress and
magnification. When a business evaluates its plan for handling potential threats and then
develops structures to address them, it amends its odds of becoming a prosperous entity.

4.1 OPERATIONAL RISK

Every organization will encounter operational jeopardy, but at a different degree of risk.
When considering the paramount impact of operational peril, three major categories that affect
the business activities are eminently; (i) property exposure, which relates to the physical assets
owned to or entrusted to the business; (ii) financial exposures, which relate to all aspects of the
company’s faculty to trade, whether it will give a profit or not, and cover internal and external
exposures and (iii) personal exposures, which relate to the perils faced by all those who work for
the business, including customers, suppliers, and contractors; Astute property, goodwill, and
patents are some examples of it (Matthews, n.d.).

As one of the primary actors in the country's food and beverage development, Nestles'
actions in controlling risks exposed to its business have become critical not only to its own
business performance but also to Malaysia's economic growth. In addition, the time during the
COVID-19 pandemic in 2020 was the ultimate stress-test for Nestle's food manufacturing.The
pandemic challenged the vigor of the company's fundamentals. Albeit operational risks can not
be eliminated, businesses can still operate smoothly by implementing risk retention. Risk
Retention | Insurance Glossary Definition | IRMI.Com, n.d.]: Risk retention is when the

20
company accepts the jeopardy and losses incurred in the business's operations only when the
potential risk exposure is diminutively minuscule or has a very low probability of occurrence. It
should be noted that not all jeopardies, such as market peril, business jeopardy, and liability
jeopardy, the company will be able to accept. Risk retention depends on the company itself, in
terms of the size of the company, their revenue or profits, and the types of businesses they handle
in.

There is one Takaful product that might be congruous and opportune to hedge high
operational risks that are to occur, which is Machinery Breakdown Takaful, and is efficacious from
August 1, 2020. The scheme covers plant, machinery, and mechanical equipment for sudden and
unforeseen physical damage or loss caused by fortuitous electrical or mechanical breakdowns at
work, at rest, or during maintenance operations such as cleaning, inspection, overhauling, or
relocation to a different location in the building. Certain physical losses are covered due to
defective design, deplorable craftsmanship, physical explosion, negligence or error in operations,
and any other reasons not expressly omitted, such as war, nuclear reaction, radiation, and any
other events ostracized by Shariah principles. The amount that the company has to contribute
may vary depending on the business's risk exposure, but the minimum amplitude of contribution
is RM250.00 per annum (Takaful, n.d.). This scheme is good for a company like Nestle, which
engages in a wide variety of machinery in its business. However, after reconsidering the cost that
Nestle had to pay and the benefits if the company did not apply to the scheme, the company
opted to not apply to the scheme. The scheme is constrained to one year only, and the insured
can unsaturate their certificate annually.

21
4.2 BUSINESS RISK

Nestle company for business can give an impact for a wide range of significant risks on
its operations, prospects, future performance, financial position, liquidity, asset value, growth
potential, sustainable development, and reputation. So, to ensure Nestle company can continue
to create and preserve. If Nestle Company are proactively using an effective and comprehensive
risk management and internal control system to reduce these important risks. Furthermore,
managing business risk can include identifying, assessing, responding and monitoring a range of
financial and non-financial risks which remains a cornerstone of the business strategy and is
fundamental to its goal of delivering sustainable long-term value. Therefore, it is not meant to
completely remove risk but rather to manage our risk exposure across the company while also
taking advantage of any possibilities.

The best method of business risk management that all food companies can take is risk
control which involves methods that reduce the severity of losses or the possibility of losses from
occurring. The majority of companies face a variety of challenges and possible threats. Risk
management is a corporate approach that seeks to discover, analyze and be prepared for any
hazards, and other possible disasters that could disrupt the organization’s operations and
objectives. Therefore, risk control is the most effective approach to loss control. For example, if
the raw material suffers from quality problems due to climate change it can put the food company
at risk to food production which negatively affects the production of the product. So, to solve this
problem the company will try to find initiatives like switching from installing biogas digesters on
dairy farms to planting 20 million trees a year in location sources for cocoa, coffee and palm oil.

Next, business risks for food companies can also be due to the overall economic situation.
Changes in government monetary or fiscal policy often create more risky situations for their
businesses. This is because business risk arises from the amount of competition in the economic
market. Increasing competition can result in a lower market share and fewer profits for companies.
For example, food company owners will do their best to spend more time and money educating
consumers about why their products are better than competitors' products, which results in their
profits being lower if they are not successful. So, to take steps so that they do not experience
problems in terms of management is to make a strategy correctly and according to the market
price so that their products are successful in the market. Furthermore, larger food companies may
be able to withstand a higher level of competition than smaller business organizations if they can

22
struggle to maintain an adequate supply of economic resources. Economic resources are the raw
materials, labor, and other goods needed by food companies to produce their products at the
highest quality.

The result of the economic downturn related to COVID-19, the closure of food companies
or lack of raw materials resonates throughout this industry, which is already facing the long term.
This causes an estimated 1.3 billion tons of food waste a year, according to the FAO, or more
than a third of worldwide food production to be wasted. Not only that, this pandemic is severely
affecting orchards or crops where fresh fruits and vegetables lead to global food waste at 45%
worldwide. This occurs due to improper handling, lack of proper storage, unsold stock, and food
processing such as peeling, washing, and drying. Other factors that contribute to food loss and
wastage in the food supply chain include no raw materials on the farm, no labor on the farm,
transportation limits, or problems due to attack, microbial damage, over-orders, equipment
damage, food destruction, failure to meet product specifications, seasonal food, bulk size
packaging, stock surplus, producer surplus, and human error, often caused by lack of employee
training.To solve this problem for food production cannot be wastage. Nestle Industry is taking
steps by helping farmers in Kenya access a food preservation system that allows them to convert
surplus fruits and vegetables that would otherwise be spoiled into less perishable products. By
pairing farmers with food processing firms in this way. This can help improve their lives by creating
additional income streams throughout the year.

Moreover, Food industry or manufacturing also have to face risks like climate change and
environmental management. This is because climate change can disrupt food availability, reduce
access to food, and affect food quality. For example, projected temperature increases, changes
in precipitation patterns, changes in extreme weather events and reduced water availability can
all result in reduced agricultural productivity. Furthermore, increases in the frequency and severity
of extreme weather events can also disrupt food deliveries, and result in spikes in food prices
after extreme events are expected to become more frequent in the future. Therefore, crops such
as fruits have a bad effect where in the event of an increase in this high temperature the fruits
and plants can not grow well and the fruits will be easily damaged.

23
 So to reduce this risk, Nestle tries to reduce GHG emissions and use more renewable
energy. This is because Nestle wants to improve environmental performance and is striving
toward zero environmental impact in Nestle operations. Nestle also relies on farmers and food
producers to supply their key raw materials and Nestle will always look for ways to become more
resilient and produce food with fewer natural resources.

Food Industry or manufacturing try to cover the damage they get from business risk with
takaful Industry. Takaful will include environmental and green issues in its agenda on its way to
adopting sustainable practices such as Environmental and Social Governance (ESG) and Socially
Responsible Investment (SRI) as part of its corporate social responsibility (CSR). Moreover, the
financial industry has mostly incorporated a green agenda into its company strategy by supporting
the green technology industry. In addition, the Islamic financial sector is trying to adapt and
incorporate environmental issues into its framework as seen by the introduction and the rapid
proliferation of green Sukuk and Shariah-compliant green and sustainable investments products.
Thus, Takaful plays a very important role in solving environmental challenges. In reality, the entire
Islamic financial ecosystem can be mobilized to assist in this effort. As a result, Takaful the
industry needs to contribute in terms of managing the risks posed by climate change and Takaful
can be a reliable solution to such risks because it has the ability to solve global climate issues,
such as environmental pollution or climate change.

24
4.3 FUNDAMENTAL RISK

Fundamental risk has an impact on the entire economy or a sizably voluminous number
of people or groups within the economy. High inflation, unemployment, war, and natural disasters
such as earthquakes are examples of fundamental peril. Because it is linked to climate change,
the food and beverage industry cannot evade the fundamental jeopardy. Malaysia experiences
hot and humid weather throughout the year. The average daily temperature throughout Malaysia
is between 21 C and 32 C. Hence, there is additionally a higher risk of heat stroke in very sultry
weather. As a result, in order to abbreviate jeopardy, we will employ risk control as a peril
management strategy.

The Malaysian government and Meteorology Malaysia must work together by

implementing various emergency services such as creating warning sirens and apps that will give
attention to citizens if there is a sign of a natural disaster. For example, all businesses were
unprepared for the recent tragedy of a large flood in Shah Alam and several other areas in the
states, and hence many losses were suffered due to a lack of information and emergency
services. As a result, it is critical that this solution be implemented in order to avoid any
unfavorable events. We can give credit to Japan since they are aware of their natural environment.
As everyone knows, Japan is prone to earthquakes, so they developed a system that includes
alerts, warning sirens, and sirens to ensure that all of their citizens are prepared.

Nestle seems to be handling the COVID-19 pandemic very well. The group remains
committed to ascertaining its employees' salubrity while ascertaining the business's safe and
optimal functioning across the value chain. Nestle’s, which places the highest priority on its
employees' health and safety, has taken expeditious action and responded expeditiously by
adopting many proactive initiatives to minimize risk exposure and obviate risk transmission.

25
4.4 LIABILITY RISK

There are a lot of liability risks that might happen to Nestle’s company. One of the
examples is Nestle faced the possibility of being sued by shareholders for sloppy acquisition due
diligence that resulted in a dilutive agreement. This was demonstrated when The Carnation
Corporate agreed to pay $13 million to resolve a lawsuit alleging that firm managers made
misleading representations concerning discussions during the 1984 acquisition of the food-
products company by Nestle S.A.

Charles Taplin and Michael Asimow, two former shareholders, filed class action lawsuits
alleging that Carnation deceived stockholders and intentionally reduced the price of its shares by
denying that merger discussions were in the works. Carnation authorities denied that discussions
were taking place two weeks before the $3 billion deal was disclosed. The company's stock price
dropped $1.875 to below $70 a share shortly after that denial. Nestle made a cash tender offer
for Carnation shares of $83 per share. Before the announcement, Mr. Taplin and Mr. Asimow sold
their shares. A total of 4,000 stockholders are eligible to participate. Approximately 4,000
investors were entitled to receive money from an escrow account, according to Roger W. Kirby,
a lawyer who represented the owners.

The fraud risk is the next one, and it will ultimately have an impact on the risk. This is
because Nestle promotes unhealthy eating, which should come as no surprise, but the scale at
which they do it is incredible. According to a recent analysis by the UK Consumers Association,
Nestle products accounted for seven of the fifteen breakfast cereals with the highest levels of
sugar, fat, and salt. Center for Science in the Public Interest (CSPI) nutrition policy director
Margo G. Wootan said that Nestlé claims to be ‘the world’s leading nutrition, health, and wellness
company’, but when it comes to food marketing to kids, Nestlé is a laggard and not a leader.

26
 Nestle shrugged off any responsibility for promoting healthy eating. To add salt to the
wound, mister Brabeck gave a dismissive interview to the Telegraph, insisting that he is not obese
and that "every morning I have a tablet of dark chocolate as my breakfast," which he claims is the
right balance and contains all he needs for the day. Nestle's labeling, on the other hand, aren't
only deceptive; they're also false. Nestle Colombia was ordered to decommission 200 tons of
imported powdered milk in November 2002 after they were falsely relabeled as a different, local
brand and with a different manufacturing date. A month later, another 120 tons perished in the
same way, creating outrage among Colombians. Nestle's practice of importing old powdered milk
from another nation and marketing it as local and new is not only unethical and unlawful, but it
also puts consumers' health at risk. As a result of a data breach or invasion of personal data,
customers or regulators may file a lawsuit against the corporation. Companies are fighting
activities by internet activists seeking to smear company brands during the turmoil in Ukraine,
which have previously been warned to be on the lookout for potential Russian cyberattacks.

The increased commercial risks are highlighted by recent public efforts by the hacker
collective Anonymous against Nestlé SA and other corporations still operating in Russia.
According to cybersecurity and risk experts, the increasing prominence of hacktivists necessitates
additional efforts from organizations in internal response and outward crisis communication. In a
tweet on March 22, Anonymous said it had leaked 10 terabytes of Nestlé's internal data, including
emails, passwords, and customer information, in ‘retaliation for the company's continued
operations in Russia.'

27
4.5 MARKET RISK

One of the risks in this section is product supersession in Nestle’s company parallel with
the technology advancement. There is a higher risk of duplication and making low quality products
that will be blindly distributed to all the customers.

Nestle may face difficulties as a result of risks such as global trade disruption. Nestlé is
taking a variety of steps to prepare its operations and supply chain for significant interruption.
According to a corporate representative, they have a responsibility to ensure that much-needed
food, pet food, and beverage items are available all around the world. We're working together
with our supply chain, distribution, and retail partners to accomplish this. On a daily basis, they
are assessing the situation. According to FoodNavigator, ‘most' of the company's factories are
still running. Some countries have temporarily halted production as a result of government-
imposed limitations on migration.

They're also repurposing resources in some areas to keep up with changing demand. At
Nestlé plants, additional safety procedures have been implemented. They have implemented
additional safety measures at our factories, offices, and distribution hubs, in addition to our usual
stringent hygiene standards, such as providing personal protective equipment and implementing
social distance measures. The COVID-19 pandemic, according to Schneider, might cause a
disruption in ingredient and material supplies. He urged procurement teams to start stockpiling
necessities.

One of the hazards that Nestle faced in marketing was changes in consumer behavior.
Last year, while individuals stayed at home due to the epidemic, interest in home baking soared,
from sourdough bread to chocolate chip cookies. The trend gave a chance for Nestlé to
communicate with its customers in a new and more direct way. Kennedy and his team reacted
quickly to these changes in consumer behavior, leveraging first-party data and data from its
insights team, as well as being attentive to social media. They found new ways to engage with
consumers where they were, as well as leveraging first-party data to reach new consumers.
Nestlé has a wide range of food brands, as a result, people looked to Nestlé for baking assistance,
prompting the business to devise a unique marketing strategy for the brand, according to
Kennedy.

28
4.6 PROPERTY RISK

There are lots of accident might happen due to property risk in Nestle, especially fire and
explosion. As the biggest food manufacturer in the world nestle have been dealing with some of
fire and explosion incidents.

At a Nestle Purina PetCare facility, grain dust caught fire, injuring four welders as a result.
The corporation was found to have neglected to properly clean and ready the grain elevator before
the contractors started working, according to a state OSHA investigation. The organization was
assessed a $5,000 fine, of which Nestle paid $3,500. One of the employees then filed a personal
injury lawsuit against the business. At a Nestle Purina PetCare facility, grain dust caught fire,
injuring four welders as a result. The corporation was found to have neglected to properly clean
and ready the grain elevator before the contractors started working, according to a state OSHA
investigation. The organisation was assessed a $5,000 fine, of which Nestle paid $3,500. One of
the employees then filed a personal injury lawsuit against the business.

Clearly, combustible dust fires and explosions are more likely to occur in the food business
than in other industries. These facilities' most evident sources of dust include wheat, grains,
proteins, spices, sugar, and teas. Nestle as the bigger company should follow the NFPA codes
and standards which can mitigate risks for combustible dust fires and explosions. Every operation
that processes food must be aware of these standards, comprehend them, and follow their
requirements. To prevent tragedies at food processing facilities, NFPA rules are in place, but
businesses are required to follow them. It starts with evaluating the facility's fire protection
strategy, followed by strengthening any deficiencies found and informing staff members of their
part in fire prevention. The best fire protection available is provided by a strong safety culture.

It is the same with equipment breakdown in the manufacturing process. It can cause
stoppage of production due to failure operational infrastructure. Nestle once sues equipment
maker over rubber in food products. This issue led to a recall of 2.25 million cases of cookie
dough in October 2019, incurring “substantial damages" as a direct result of the equipment failure
We can see here that how equipment breakdown can affect the financial position of an
organization which can cause loss.

29
5.0 CONCLUSION

The word ‘quality’ is the best word to describe Nestle’s company as they are one of the
top food companies that exist in this world. They had a lot of categories of food and product and
achieved the highest number of profits but they still had weakness and risk that they had to go
through to become a well-known company. Moreover, they know how to manage their own risk
and problems and come up with solutions that automatically recover all the negative impact on
their company.

A large portion of the food consumed by the global population is provided by an unwitting
network of farmers and different enterprises known as the food industry. The word "aliment
industry" refers to a group of industrial processes that are used to create, certify, prepare,
preserve, convert, deliver, distribute, and package food products.

Confectionery, vegetables, meat processing, dairy products, and fruit processing are the
pabulum industry's most profitable segments. The overall food business is made up of several
different sorts of industries that produce a wide variety of food products, rather than being one
single industry. However, research and development make up the components of the food
industry. Food is protected from the environment by packaging, which also extends the shelf life
of food and improves pabulum quality.

About 10% of Malaysia's manufacturing output is accounted for by the food processing
industry. As a result, Malaysia is on track to overtake other Asian nations as a leader in the
production and processing of food. With a long history of success, Malaysia is dedicated to
growing its agricultural sector for export and import substitution. 60 percent of the meat processing
sector is devoted to processing poultry. A sector focused on exports, seafood processing
comprises the production of surimi and surimi products as well as the processing of prawns,
frozen goods, and canned fish. The growth in processed pabulum exports indicates that
Malaysia's food goods are becoming increasingly popular in other markets.

30
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