BR Foods

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The risk management policy is developed in a participative manner that involves all of the Company’s areas, under the lead of a specialized unit. This unit is responsible for providing the entire Company with a risk dashboard to assist in understanding the importance of the factors and the cost of their mitigation. Preventive action involves comprehensively and continuously monitoring factors capable of interfering with business or affecting results.

Following the strengthening of financial and operational aspects, risk management at BRF is now evolving towards a more business and strategy-oriented approach, in a gradual reformulation process, so that factors that are already managed at the sectorial level may be managed in an integrated manner. The objective is to reach the Expanded Corporate Risk Management stage by 2015, with maximum decision-making transparency. The aspects currently regarded as most relevant include:

Financial - The Financial Risk Management Committee is responsible for evaluating full compliance with the Financial Risk Management policy and proposing applicable alternatives. Inaddition, the Committee has the authority to veto proposed operations that it may deem inappropriate to BRF at the time of their evaluation.

Supplier chain - In 2012, the Company expanded its Supplier Chain Monitoring Program to identify and mitigate risk controlled by third parties that may influence the business. These factors include, for example, discontinuing relationships with suppliers in breach of human rights or suppliers contributing to deforestation in the Amazon region.

Operational - Operational risks at the manufacturing units and distribution centers have been mapped based on 144 risk inspections, complete with determination of impact and probability of occurrence. The Operational Risk Management project (“Projeto de Gestão de Risco Operacional” -PGR) was adopted in 2010, and focuses on preventing potential damage to assets, involving several areas. In 2012, the Company installed its Operational Control Center in Curitiba (PR) where employees from different areas proactively manage potential issues affecting operational continuity, productivity and efficiency. BRF embraces the precautionary principle, according to which the absence of scientific certainty must not be used as justification for failing to prevent serious or irreversible damage to the environment or human health. The principle is observed in the product development, conception, manufacturing and distribution phases.

Sanitary control - Permanent updates on practices used in proprietary and integrated outgrowers’ operations, process improvements and a strict industrial operations system comprise the set of steps taken to eliminate or minimize risk of this kind. Slaughtering units are strategically spread across different regions in Brazil and abroad to reduce the impacts arising from sanitary issues or eventual international embargoes against imports from any one region.

Food safety - Items produced at any unit can be traced from the breeding stock to animal rearing farms through to products distributed to end consumers. This process includes controls on livestock feed and medication and the use of metal detectors and X-ray machines at the plants. All suppliers sign agreements with clauses guaranteeing the safety of the products we market.

Commodities - The commodities risk policy is discussed monthly at meetings of the Executive Board meeting and the Financial Risks Committee based on the monitoring of the entire production chain in an attempt to anticipate shifts that may have a positive or negative impact on operation costs. Used to maximum effect, these strategies mitigated the impact of the rising cost of grains in 2012 to a significant extent.

Image and reputation - With a clear image and reputational risk policy adjusted to every business and segment, BRF seeks to maintain its image associated with sound corporate governance and values such as trust, ethics and transparency. Standards for commercial areas also cover relationships with strategic international partners. Inaddition, the Company acts in all cases where events may expose the Company’s image and its relationship with stakeholders.

Environmental - Every manufacturing unit has technical teams specialized in environmental issues and capable of improving procedures as required, as well as to operate correctly and effectively under emergency circumstances.

Legal/tax - Ethical standards attempt to safeguard the Company from the risk of failure to comply with laws and regulations at the federal, state and local levels. In this sense, the Committee permanently monitors any aspects questioned by government authorities, thus reducing the potential for administrative and court claims.

Climate change - BRF also takes the impact of climate change into consideration as part of the overall interaction with other business risks. One particular concern relates to the supply of commodities (grains,beefandmilk); the availability of water and power; and logistics. To this end, the company adopts preventive practices such as regional procurement, research into new ways of using water, reuse and treatment technologies, power generation, reduced emission of greenhouse gases, verticalization of the supply chain, among others.