In the world of farming, the only certainty is uncertainty. Farming, by its very nature, comes with a range of risks. Whether it’s unpredictable weather, inflation or regulatory hurdles, British Columbian growers face a unique set of risks that require planning and management.
Effective risk management is no longer an option, it’s a strategic necessity. But where do you start?
Develop a risk management plan.
It’s essential to have a clear understanding of risks, how they can impact your agriculture operation and how you can reduce or transfer them. A risk management plan won’t eliminate the potential of risk, but it can help you retain the viability of your operation, protect your balance sheet and bring some peace of mind.
Here is the framework to develop your own risk management strategy:
Identify the risks on your farm
Assess and prioritize them
Build a plan to mitigate them
Take action (assign roles and create a timeline).
Know your risks
The first step in risk management is to identify the risks. You can’t prepare for risks you don’t know, and the risks you don’t know could have the biggest impact on your farm.
Each unique operation, including orchards and vineyards, will face its own unique risks. When creating your risk plan, consider what-if scenarios that relate to:
Production
Weather
Pests
Diseases
People
Labour
Family relations
Finances
Debt
Cashflow
Markets
Price fluctuations
Inflation
Interest rates
Farm transition
Poor planning
Technology risk
Cyber security
Geopolitical events
Supply chain disruptions
Trade disputes
New government regulations
You’re probably aware of many of those aforementioned risks but giving them the attention they need is often forgotten about, or put aside, until an event occurs that triggers one of them. Recognizing and listing the risks will help ensure you don’t forget about them in your planning.
Evaluate your risks
The next step is to figure out which of these risks is the most important to your operation. When you’re assessing risks, make sure you consider the frequency or likelihood of each one, the impact of those risks, and how prepared you are to face them. This will let you prioritize which ones to deal with first and avoid the overwhelming prospect of having to deal with them all at once.
Mitigate your risks
Once you know which risks need to be addressed in priority, how do you protect your agricultural operation? The answer lies in a proactive approach to risk management, which combines risk reduction and risk transfer.
There is a wide range of best practices that can be applied to reduce your risks, from the application of standard operating procedures and biosecurity, to hiring an advisor to guide you through your farm financials. These can be added to your action plan.
From a risk transfer perspective, Canada offers excellent programs for farmers, like AgriStability, that provides a security net when your margins drop too low. These programs should be an important part of your risk management plan.
This can be complex, so don’t be afraid to hire an advisor. As Dave Ramsey —financial advisor and American radio host—says, “When selecting a consultant or a financial advisor, be sure to choose one who has the heart of a teacher.”
The right consultant can ask the right questions and offer the knowledge and guidance you need to manage the risks you can’t handle alone. The benefits will far outweigh the cost.
Benefits of a risk management strategy
Managing risk in a comprehensive way has a variety of positive impacts on an orchard or vineyard, including:
Financial impacts: Effectively managing your risks can have a direct effect on your finances, including higher profits and lower debt.
Business impacts: Having a plan allows you to make faster, more informed decisions. If things go wrong, you’ll be ready to pivot.
Personal impacts: Having a risk management plan can reduce anxiety.
Even knowing the potential risk and what to expect can reduce stress and put farmers in a better headspace.
A 2020 report from Farm Management Canada found that 62 percent of Canadian farmers report having mid-stress levels, while 14 percent said they had high levels of stress. The leading cause of this stress? Industry unpredictability, workload pressures and financial pressures.
But planning for the uncertainty — like a risk management plan or business plan— can be helpful in alleviating these worries. The study found that 88 percent of farmers who follow a written business plan say it has contributed to their peace of mind. And 77 percent who do not follow a plan believe it would give them peace of mind. ν
AJ Gill is the national leader, Agriculture Risk Management Resources at MNP. Reach him at 250-469-6488 or aj.gill@mnp.ca. Tori Keiffer is a senior manager Agriculture Services, Kelowna at 250-979-2987 or tori.keiffer@mnp.ca.