In the food and agribusiness sector, confirmatory due diligence plays an essential role in uncovering critical risks and opportunities across a range of operational, regulatory, commercial, and environmental dimensions. Given the industry’s complexity and susceptibility to both internal inefficiencies and external disruptions, thorough due diligence is vital in safeguarding investments and informing strategic decision-making.
This comprehensive analysis not only identifies potential operational fragilities, such as outdated equipment, quality control lapses, or insufficient workforce management, but also assesses regulatory compliance with stringent international standards and legislation. Additionally, the due diligence process examines supply chain resilience, evaluating the company’s ability to withstand disruptions through diversification and robust supplier vetting.
Furthermore, market and commercial considerations, including price volatility, consumer trends, and international trade dynamics, must be closely scrutinised to anticipate future performance. Equally important is the assessment of ESG issues, ensuring adherence to environmental regulations, sustainable practices, and labour compliance.
This document outlines these critical areas in detail, providing a clear perspective on how comprehensive confirmatory due diligence supports informed and effective business decisions within the food and agribusiness landscape.
Operational risks and regulatory considerations
At an operational level, confirmatory due diligence typically involves evaluating farm equipment and processing machinery for upkeep and capacity, reviewing quality control procedures (like sanitation or handling perishable goods), and assessing workforce management practices.
The review looks for any operational bottlenecks or fragilities, such as an over-reliance on a single processing plant, the use of outdated machinery, or poor harvest and storage practices. It reviews process flows to gauge the business’ resilience and scalability, flagging any operational risks.
The food and agribusiness sector faces intensive regulatory oversight, and so regulatory compliance requires thorough verification during the due diligence process. For instance, food safety regulations demand companies to maintain comprehensive preventive controls and traceability systems. As such, analysts will need to closely evaluate any inspection reports, industry certifications, and internal compliance documentation. This should include analysing any previous audit findings or corrective action records.
Supply chain risks
Food and agribusiness supply chains are often complex and global, introducing risks at multiple points throughout. Confirmatory due diligence looks at the reliability and diversity of the target’s raw materials and agri input suppliers, as well as the efficiency of its distribution network. A key question is whether the business is overly dependent on any single supplier, customer, or logistics channel, as any changes or disruptions can have a significant impact on business operations.
Confirmatory due diligence closely analyses how the company manages its supply chains and whether it has suitably diversified its sourcing. In recent years, numerous global events have highlighted these vulnerabilities. Ultimately, companies with diversified markets and adaptable supply chains will demonstrate greater resilience against disruptions, market volatility, and regulatory changes than those with concentrated exposure to specific suppliers, regions, or logistics channels.
Another aspect is the quality and safety of the supply chain. If ingredients are sourced internationally, analysts will scrutinise how the company vets its suppliers. Regulations like the “Foreign Supplier Verification Program” and the “Food Safety Modernization Act” in the US, EUDR and the General Food Law in the EU, and similar frameworks in other jurisdictions require companies to implement more robust supplier verification programs and maintain traceability throughout the supply chain. Maintaining compliance with these regulations is key to ensuring product integrity, food safety, and uninterrupted market access, so any confirmatory due diligence report will closely monitor the company’s supplier verification processes, traceability systems, and risk management strategies.
Market and commercial risks
Confirmatory due diligence also evaluates external market factors that are likely to impact the business’ future performance. For agribusinesses, this might include commodity price volatility, shifting consumer preferences, and changes to trade policy. Analysts will explore the company’s sales mix and customer base to see if revenue is stable or overly concentrated. They will also assess competition and market trends, whether the company is in a growing niche (such as organic foods or plant-based protein) or in a declining segment.
Market access may also hinge on international food safety standards and certifications, such as ISO standards or USDA export approvals, and so verifying trade compliance is key. This might include analysing export documentation, overseeing sanitation and veterinary requirements, and ensuring adherence to quality standards.
Macro issues and trade policies
Food and agribusiness companies operating in global markets face significant exposure to trade policy fluctuations. For instance, Brexit has reshaped trade dynamics for UK-based companies by introducing new customs charges and procedures, while in the US, the United States-Mexico-Canada Agreement (USMCA) increased operational costs for many food producers through more strict enforcement of labour laws.
Ultimately, effective confirmatory due diligence assesses both current compliance and the target’s ability to weather foreseeable policy changes.
Unfortunately, agricultural products frequently become entangled in geopolitical policy, as evidenced by recent trade wars affecting dairy, meat, grains, and other exports. Confirmatory due diligence must assess how current trade environments and potential changes might impact target companies by examining tariffs, import/export regulations, and relevant trade agreements. This is especially true for export-orientated agribusinesses.
Similarly, at a national level, changes in legislation or agricultural subsidies can significantly alter competitive dynamics, and so confirmatory due diligence will give these macro-level risks fair consideration.
Environmental and social risks
Environmental and labour compliance must be examined for any potential violations. Companies within the food and agribusiness sector can face countless ESG issues, including improper wastewater discharge, chemical runoff, soil contamination, hazardous waste disposal, excessive water consumption, deforestation, air emissions, the employment of undocumented or underage workers, non-compliance with food safety regulations, labelling issues, failure to meet animal welfare regulations, and many more.
Any one of these can significantly harm the valuation of any deal, and so confirmatory due diligence needs to make the necessary compliance checks, verifying the existence and validity of environmental permits, reviewing audit and inspection records, and uncovering any past environmental incidents or ongoing remediation efforts.
The analysis would also consider whether the target company had mitigation measures (such as crop insurance or disaster recovery plans) to handle any potential environmental risks. Naturally, any pending environmental enforcement actions or necessary infrastructure investments can then be factored into negotiations.
Confirmatory due diligence usually includes environmental site assessments to identify potential issues, with the most common issues relating to water rights transfers, compliance with clean water and clean air acts, proper hazardous material handling, and adherence to land use restrictions such as protecting wetlands or preventing deforestation. Analysts can also evaluate adherence to voluntary certifications such as organic standards, GLOBALG.A.P., or ISO.
How we can help
For food and agribusinesses, confirmatory due diligence requires a rigorous check of all facets of a company. By thoroughly examining operational processes, regulatory risks, supply chain dependencies, market positioning, and environmental compliance, stakeholders can gain a comprehensive understanding of the target company’s strengths and vulnerabilities.
At Farrelly Mitchell, our commercial, technical, and environmental due diligence consultants provide more than just professional support; we deliver tailored, actionable insights that help our clients to identify risks, uncover opportunities, and strengthen their decision-making process. Our due diligence experts provide independent, unbiased red flag reports with clear go/no-go recommendations to buyers, while our ESG team helps clients tackle environmental challenges and embrace sustainable practices. To learn more about our services and ensure that your choices are backed by years of hands-on agribusiness experience, contact our team today.
