Pillars of risk
There are actions that farm businesses can take to mitigate the risks and uncertainties that face agriculture and horticulture. But first, there must be a foundation of business culture and adaptability.
The business must be willing and able to adapt, to meet the challenges in an ever-changing world and country. In addition, the business should have clearly set-out objectives and understand how success will be measured.
Relentless cost management
A competitive cost base at the cash and full cost levels is a key source of resilience. A farm with the lowest cost of production will be the last to lose money in a falling market. However, even the most competitive producer can experience periods of loss-making. Building reserves of cash or ‘near-liquid’ capital (assets that can be converted to cash quickly) is important in managing this risk. Think about:
- Variable costs of production, including seeds, growing media, fertilisers, pesticides, animal feed, veterinary and replacement costs
- Overhead costs such as labour, machinery, property, professional and finance charges
- How your costs of production compare with others? Farmbench is an easy-to-use online benchmarking tool that helps to identify where strengths and weaknesses lie within a farm business, and could help you in this area
Understand the short-term market dynamics to anticipate what near-term price and cost risks face the business. This can inform your trading strategy and the level of short-term cash resilience needed. Meanwhile, an understanding of rolling costs and prices on a three to five-year basis can help to inform longer-run profitability, with annual extremes smoothed out – it is a truer indicator of profitability.
Hunt out win-win partnerships to deliver objectives and engagement with peers to continually drive efficiency. This could be as part of buying groups, producer groups, share-farming arrangements or just by sharing machinery with your neighbours. You could get involved with AHDB’s Farm Excellence network and attend the events held at our Monitor and Strategic Farms. Is there any potential for collaborating with local non-farming businesses.
Ensure robust control of your business to actively identify risk, as well driving entrepreneurial thinking and putting action plans in place. Do you have regular meetings in which you set and monitor objectives, plan activities and identify areas for improvement? Explore your own time management and become more disciplined on time efficiencies by reviewing day-to-day practices.
Embrace and trial new ideas and technology in pursuit of continually improving efficiency. Do you know what technical skills are lacking in your business? How could better use of data or precision make your business more productive?