RISK MANAGEMENT

Developed in a participative manner, involving all areas, the risk management policy is led by a specialized office.

RISK MANAGEMENT POLICY

The risk management policy of BRF is monitored monthly by the Board of Directors. Every two years the policy is reviewed and approved by the Board and is considered of paramount coverage, reinforced against isolated actions and changes of names in the executive board.

With a well established governance, risk management policy is developed in a participatory manner and led by an expert management, which examines the risks of the Company by means of specific tools and indicators, reporting to the collegiate bodies. The policy is considered disciplined, mature and conservative, acting preventively through continuous and comprehensive monitoring of factors that can affect the course of business or conquering of planned results.

Having strengthened financial and operating issues, risk management in BRF evolved into a more linked to business and strategy approach, and follows a process of gradual expansion which will culminate with an extensive management of business risk impregnated to BRF Culture. In 2013, this issues were followed up asmost relevant aspects of risk:

Financial - Full compliance with the Financial Risk Management Policy is monitored by the Committee of Financial Risk Management, which also proposes operations and vetoes proposals that it deems inappropriate. Minimum and maximum guidelines are established in the use of hedge hired to minimize the impacts of exchange rate volatility on its income.

Click here for the Financial Management Risk Policy.

Supply chain - With a long chain, BRF has a comprehensive risk management policy of supplies, with mechanisms to prevent and repair damage. In 2013, the Program for Monitoring the Supply Chain was expanded due to the need to identify and mitigate risks controlled by third parties who, although not under the direct management of the Company, influence the business.

Operating - Since 2010, BRF has the Operating Risk Management Project (RMP), which focuses primarily on the prevention of possible property claims and relies on the involvement of various departments. In addition, an area constantly monitors the aspects that can hinder productivity and continuity of operations (such as scarcity and cost of labor, infrastructure of the logistics, industrial operations, etc.). Operating risks of manufacturing plants and distribution centers are mapped to identify impact and probability of occurrence. BRF considers the Precautionary Principle, which states that lack of full scientific certainty should not be used as an excuse not to prevent serious or irreversible damage to environment or human health. This principle is observed in the developing, designing, manufacturing and distributing phases of the product. Based on this philosophy, the Company takes out insurance against property damage and loss of profits involving factories, equipment, transportation of goods and liability for product and operations. The Operating Control Center operates since 2012, a proactive system with employees from different areas gathered in a single room, in Curitiba, where they administer any problems in order to avoid risks involving continuity, productivity

Sanitary control - Risks of this nature are eliminated or minimized by constantly updating practices adopted in its own operations and integrated producers, process improvements and rigid system of industrial operation. The slaughtering units are strategically located in different regions of the country and abroad with the aim of reducing impacts of health issues or any international embargoes to a specific region. The risks related to food safety are controlled by the BRF Quality System and specific food safety programs (such as the Good Manufacturing Practices, Hazard Analysis and Critical Control Points - HACCP). These programs, in particular HACCP, guarantee the elimination or minimization of biological, chemical and physical hazards that may occur in the product, ensuring that products commercialized by the Company pose no risk to consumers health. The Company makes use of metal detectors and X-ray equipment to maintain the safety of the final product. In addition, all suppliers sign contracts with clauses guaranteeing the safety of commercialized items and those produced in any unit can be traced through a history that identifies the path to the consumer, in a process that includes feed control and drugs supplied to animals.

Commodities - The operating results are subject to seasonal factors and volatility that affect both the prices of raw material and sales prices of BRF. The Company’s business is largely dependent on the cost and supply of corn, soybean meal, soybeans, pork, milk and other raw materials as well as the sellingprices of poultry, pork and dairy products, all of which are determined by constant changes in supply and demand that can fluctuate significantly, and other factors over which we have little or no control. These other factors include, among others, fluctuations in the levels of domestic and global production of poultry, pork, beef and milk, environmental and conservation regulations, economic conditions, weather, and animal and field diseases, the cost of international freight and exchange rate fluctuations. The economic sector of activity, both in Brazil and abroad, is also characterized by cyclical periods of higher prices and profitability, followed by overproduction, which leads to periods of lower prices and profitability. BRF cannot minimize these risks by entering into long term contracts with customers and with most suppliers, since these contracts are not customary in the industry. Financial performance is also affected by costs of domestic and international freight, which are vulnerable to fluctuations in oil prices. Perhaps the Company is not successful in addressing the effects of cyclicality and volatility of costs and expenses or the pricing of products and in this case, its financial performance may be adversely affected.

Image and reputation - BRF seeks to maintain its image attached to a solid corporate governance and values such as trust, ethics and transparency. With a clear and adjusted image and reputation risk policy to all business and segments, the rules for commercial areas reach also relations with international strategic partners. In addition, a Crisis Committee operates in all instances that can expose its image and its relationship with strategic publics.

Environmental - There are specialized technical teams in industrial, agricultural and environmental issues in all manufacturing units, skilled to fully attend the brazilian legislation and act correctly and effectively in emergency situations whenever necessary.

Legal/Tax - There is constant monitoring of aspects that may be questioned by government agencies so as to reduce administrative and law suits. Moreover, the Company acts based on ethics protecting from risk of non-compliance with laws and regulations of all walks.

Climate change - In 2013, the 5th Report of the International Panel on Climate Change (IPCC) has reinforced the need to intensify adaptation actions confirming that global warming impacts will occur, even with the immediate discontinuation of GHG emissions. Aware of this reality, the company’s strategy considers aspects related to climate risks, assessing and managing potential impacts on the operations and supply chain, recognizing the vulnerability of natural resources and basic agricultural inputs for its production activity.

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