Managing Production Risk in Farming

Nicon Rural Services - Cam Nicholson

Type: PDF
Knowledge level: Advanced

Farm Table says:

The type of analysis used in Grain and Graze provides a very useful platform to inform discussion and decisions around risk.

 

What is the problem?

Risk is a natural and accepted part of farming.

Australian agricultural production (based on value of output) is the most volatile in the world and the most volatile sector of the Australian economy. This volatility conveys a level of risk that needs to be managed. Given most farmers are still operating despite two centuries of volatility suggest they have developed long term strategies and operational tactics to cope with this ongoing challenge.

What did the research involve?

The Grain and Graze analysis creates and uses distributions for yields, prices and some costs to generate a range of enterprise and whole farm profits. These profits can then be compared and discussion around how acceptable this range and volatility in profit are given the level of risk the farmers wishes to take on.

Close to 30 farms in South west Victoria and Southern NSW have been analysed. While no two farms are the same, there are four generalisations are worth highlighting.

 

What were the key findings?

There are many strategies farmers use to manage production risk:

  • diversification in crop and pasture type
  • enterprise mix
  • targeting multiple markets
  • and property location
  • so is managing input costs, especially when production and prices can be highly variable

 

Conclusion
There is no single way to manage production risk.

Many ‘levers’ influence the ultimate risk profile of a business and it is up to the individuals in that business to determine and feel comfortable with a level of risk that matches the rewards they seek.  Having said this, managing risk requires making decisions.

 

Australia - Nicon Rural Services - Cam Nicholson
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