Risky business focus at WA farm forums
Managing risk in a farm business should centre on the size and frequency of ‘extremes’, rather than averages, according to farm management consultant Cam Nicholson.
He said concentrating on averages did not always help growers or their advisers to project risk adequately.
Mr Nicholson, of Nicon Rural Services in Geelong, Victoria, will outline tactics for generating and dealing with more precise farm business risk factors at a series of Grains Research and Development Corporation (GRDC) Farm Business Update events across Western Australia next month.
These popular forums are scheduled to be held at Munglinup on February 8, Narrogin on February 10 and Dalwallinu on February 11 and registrations are open here.
A broad range of topics will be discussed at each event, including local and global economics with leading Australian economist Saul Eslake; a grower’s perspective on managing risk with Bob Nixon, of Kalannie; recruiting the right people with Ley Webster, of 2Workin Oz; and using technology on-farm to improve business management with NSW Nuffield Scholar Ben Boughton.
The Farm Business Update events will also have sessions focused on family farm structures and succession planning with Stephen Park, of Pacer Legal, and tools for a productive and enjoyable workplace with communications consultant Andrew Bayly.
Mr Nicholson said managing risk is a natural and accepted part of farming in Australia, where agricultural production is highly volatile.
He said it was vital for growers to understand the downside, or potential harm, from taking a risk, as well as the opportunities that taking a risk could offer.
“Managing risk is about making decisions that trade some level of acceptable risk for some level of acceptable return for an acceptable amount of effort,” he said.
“Decisions can be made to reduce risk, but this usually comes at a price – often in lower returns.”
Mr Nicholson said the ‘average’ values commonly used in agricultural extension and by farm advisers and financiers when undertaking risk assessments were convenient, but rarely included the likelihood or frequency of the average occurring.
He said the key profit drivers in agriculture – predominantly crop yield, grain prices and input costs - had a range of values within and between production periods.
“If we use averages for analysis, this usually over-estimates the profits and hides the volatility in those profits,” he said.
“Managing risk is not about the middle or the average, it is about appreciating what happens at the extremes, the size or value of these extremes and how often they occur.”
Mr Nicholson said his Farm Business Update sessions would help participants analyse and better understand the influences shaping their decisions around risk.
He said he would then discuss ways to convert these decisions to profit projections and demonstrate a range of risk ‘stress-testing’ scenarios.
“The scenario analysis is extremely valuable, as it enables an understanding of the risk implications of big (and small) changes on the farming business before the changes are made,” he said.
“I hope this will help growers to reduce distractions from things that don’t matter by building a risk profile that establishes what does matter and how to achieve this.”
ORM, Farm Business Updates
03 5441 6176
03 5258 3860
Melissa Williams, Cox Inall Communications
0428 884 414
GRDC Project Code ORM00017