How to build a more resilient business
Farming is a risky business and probably more now than it ever has been. Volatility is an over-used term, but there is no escaping the significant difference in the top and bottom of the market, whether you are buying inputs or selling produce. We’ve been used to cycles in agriculture for many years, but the variation within these cycles is unprecedented. The potential impact on an individual business is also therefore much greater. This, combined with the holes appearing in the safety nets, means that risk management is now just as relevant for arable businesses as it is for those in any other sector of the economy.
It is perhaps no surprise then that a common theme running through all the recent Monitor Farm meetings is risk management and how to build more resilient businesses. There are many threats and opportunities, but also more information and tools to deal with them. The focus of the meetings has been how to prioritise management time such that the many risks being faced can be managed at the same time as meeting the day to day requirements of a modern arable farm.
The simple model shown below has been adopted to help in this process:
In order to manage risks, you first have to identify what they are and this can be done quite quickly. On the Monitor Farms, we pulled together a list of about 30 key risks under the headings: production, financial, market, human and legal. These were then assessed by evaluating their financial value to the business based on probability and impact.
This achieved two things; firstly, it highlighted those areas where management time needed to be focussed, and secondly it illustrated the staggering impact that just a few key decisions can have on profitability. No-one can get every decision right every time, but even just a 10% improvement in 10 key areas can have a significant effect on business resilience. We have also been able to use our benchmarking programme, CropBench+, to carry out net margin analysis to identify areas where costs can be reduced without having an impact on yield.
The added value from these sessions on risk management is that they have provided the catalyst to look at the key components of a resilient arable business. The capacity to adapt quickly and successfully in the face of risks such as changes in the weather, exchange rates, grain prices, input costs, pests, disease, EU & UK policies, personal health, interest rates, etc. is increased by a proactive and strategic approach. This could be in practical areas such as soil management, varietal choice, rotation design, machinery selection or more corporate issues such as contracts, budgets, insurance and wills.
If any of these subjects are of importance to you, then consider attending a Monitor Farm meeting to analyse what are often difficult issues and discuss the possible solutions. The next round of meetings in East Anglia are on the events page or listed on the Monitor Farm pages:
If you would like to see the presentation on ‘risks in perspective’ given at the Agronomists’ Conference, then watch the video.