The Management of Risk: An Intro for Farmers

Photo (supplied): PJ Momsen

Consider how the devastating impact and costs of widespread, uncontrolled fire or loss of access to water, as examples of priority, existential risks, will undoubtedly negate the benefits of many quality decisions in areas which expose the farm and the farmer to lesser degrees of risk.  The prioritizing, mitigation and management of risks, coupled with the search for innovative solutions to these risks, must be considered to be a primary skill and discipline for farmers.  Let me now turn my focus to the risks coupled with a specific farming model, free-range sheep farming, either for wool or mutton.  As with any private sector business, the primary objective of the sheep farmer is to firstly make a profit, and then to improve efficiencies and grow the operation so as to maximize these profits, all of this with a focus on sustainability.  Losses in a business come about when the owner/management team and staff are unable, unwilling, unskilled, ignorant of, or are unprepared to mitigate and manage the risks facing, or being encountered by the business.

For farmers, and specifically sheep farmers, these risks include the following less obvious examples:

• Compromised or absent immunity to seasonal parasites, either drought/dry condition organisms or those prevalent during wetter seasons. The absence of risk mitigation strategies to boost lamb immunity in this regard could result in critical mortality rates amongst the immune-compromised lambs.
• Changes in consumer buying patterns, present risks to the farmer which are difficult to mitigate against in the short and medium term, as these most often require changes to farming practice, re-education and always a high degree of innovation.
• Infestation of introduced and exotic, noxious plants, especially the various cacti varieties, with the associated impacts on grazing, carrying capacity, water usage, animal health, not to mention relationships with neighbours.
• Inadvertent or unforeseen introduction of inferior quality genes into the productive flock through artificial insemination with poorly verified sperm.
• Too narrow a view on the impact of legislative costs, including taxes and fees, veterinary and other animal health and safety requirements and costs on the production value chain and cycles.
• Poor or absent estate planning for the inheritance of the farm. Too often the commercial viability of the inherited farm is compromised due to the dilution of the estate’s capital base, division of the total hectares available, in-fighting among beneficiaries, and the payment by beneficiaries of onerous estate duties and other legal fees.
• So-called ‘Black Swan’ events such as is now happening in many Karoo farming districts with the erection of wind-farms and the building of facilities for the casting of the cement platforms for the turbines, and other required infrastructure. Ongoing interest in both fracking and the mining of manganese ore remain potential ‘Black Swan’ events, albeit in the wings!
• Volatility of the differential within the grading metric of mutton and lamb prices. Consider that the producer price of A2/A3 grade mutton in Q1 of 2017 was R58.60, with that grade now receiving R82.40, an increase of almost 41% over the 7 years, whereas AB2 grade for the same period increased by 35%, with C2/C3 also increasing in price by almost 40%. Furthermore, the continued aggressive support of imported mutton, by many of the role-players in the industry, as well as the ‘dumping’ of foreign-sourced wool, mutton and lamb, priced well below the local production prices, contributes significantly to price insecurity for local farmers.

Conclusion

The unique peculiarity of Farming as a business model, positioned at the frontier of all risks faced in the production of food, results in the critical importance of strategies for mitigation of risks, and the discovery of innovative plans for the resolution of these risks.  In this series of articles, I will discuss the need for continued attention to be paid to the creation or discovery, and testing of possible innovative solutions aimed at resolving the risks faced by farmers.  I will expand on how innovation lies at the heart of a matrix consisting on the overlay of the sheep farming value chain with the key risks associated with each of the elements of production.

Veld First is a forum for Sheep Farmers. We build Risk Profiles for farms. If you would like to communicate directly with the author, you are invited to contact PJ at the following email address:   [email protected]