Thinking about Risks
Risk and uncertainty are an inevitable part of life, business and
farming. The act of planting a seed and expecting a harvest involves
managing risks: Planning (knowledge of growing requirements, tolerance
for drought, extreme rain, cold and heat), observation and
interventions (turning on the irrigation system), reward (the fall
harvest) and a good dose of luck.
The secret lies not in avoiding risks, but in recognizing potential
challenges and preparing frameworks to evaluate and make smart
decisions. The rapidly changing and adversity prone world of both
conventional and organic agriculture mean that thinking about risks is
critical for both short term survival and long term sustainability.
Managing risks isn’t about giving up control to a plan, but using
planning to take control.
Risks during transition to organic farming can include:
it the right time to go organic? The timing of decisions can have a
significant impact on risks and rewards. “Early Adopters” usually face
the most risks and uncertainty in their new crop or use of an
innovative practice or technology, but they also stand to reap the
greatest reward, capture the biggest premium and establish a presence.
Those who quickly follow can learn from early adopters' mistakes.
Moving into established, safe territory can have limited risk, but
limited reward. Sometimes ventures start too soon, with insufficient
demand in the marketplace.
will going organic impact my farm? Business risks relate to the
operation and performance of the farm financially. Business risks can
include price, cost, productivity, marketing and production
uncertainty. The impacts of the transition on the farm’s day to day and
long term operations and position are reflected here.
will going organic impact my income and my family? Financial risks can
be thought of as the performance of the farm as an investment, its use
of debt and equity. Interest rates, comparisons to other investment
options, lender confidence and effective use of debt are all factors in
assessing financial risks.
do factors thousands of kilometres away impact my farm? Strategic risks
include government policy and regulations, macro-economic events,
social and natural emergencies, unexpected input cost fluctuations and
relationships with other parts of the food chain. The impact of BSE on
the beef industry and the closure of a processor due to the value of
the Canadian dollar are examples of strategic risk.
Effectively managing those risks involves:
- Identification of possible sources of risk
- Identification of the potential outcomes or events that could occur
- Identifying and evaluating different strategies and tactics
- Assessing the outcomes and effectiveness of different strategies and tactics
- Making informed decisions based on trade-offs between risks and returns
In addition to thinking about risks and your farm business, it is
critical that you think about your (and your spouse or partner’s)
comfort level with risk. Are you the kind of person who is so cautious
that you won’t try anything new? Do you take on major new projects
without pausing to think through the possible consequences? Perhaps you
fall somewhere in between?
The New England Small Farm Institute has created an excellent tool
to assess your personal risk tolerance. The Assessment tool can be
found at www.smallfarm.org/explorer/resources.htm and can help you
answer questions like:
- Can I make enough money farming?
- How do you manage cash flow without anything resembling a steady pay cheque?
- What can I do about damage from pests, diseases, and weather?
- How can I minimize the toll on my body from the physical labour of farming?
- How can I prevent my relationships with my spouse or farm partners from falling apart from the pressures of farming?
Strategies to manage risks generally begin with a good understanding
of the farm’s financial and production situations, current risk
exposure and ability to make changes. Strategies can include actions to
lessen the odds of a negative event occurring, shift the potential
impacts to other parties or parts of your business, and provide
insulation to reduce the impact.