Manage your business risks

September 2021

MARIUS GREYLING,  INDEPENDENT AGRICULTURAL  MANAGEMENT CONSULTANT

Any business faces risks. A risk being the possibility that an unforeseen, unplanned, unnatural, out of the ordinary, unexpected event may occur and may cause a loss of some nature. Although risks cannot be prevented, attention must be paid to actions to reduce the negative effects thereof.

Farming is a high-risk business. During the production process numerous events can occur such as unfavourable weather conditions (droughts, flooding, hail, severe frost) and the occurrence of disasters such as veld fires and the outbreak of plant and livestock diseases. During the marketing process events may occur that could disrupt the marketing process and/or affect prices adversely. The loss can be physical – you cannot market your product, or negative price changes.

You may also experience unpredicted negative conduct by your employees. Thoughtless behaviour by either the farmer or his employees could lead to unnecessary disruptive action, resulting in an interruption of the production and/or marketing of products. Financial risks could be a lower income and/or problems with maintaining a positive cash-flow position, thus affecting the financial success of the business. Production, marketing and financial risks are closely interrelated.

AGRICULTURAL RISKS ARE GROWING
Unfavourable weather conditions are not unknown to us in South Africa, but we have experienced more adverse effects the last couple of years in the form of extreme temperatures, extreme floods, and more severe droughts. Even the soil as a production medium in South Africa is a risk factor. Research indicates that some 60% of South Africa’s soils are degraded, largely because of poor farming practices, both on lands and grazing.

Theft of inputs, products and machinery and equipment are on the increase and has become a severe risk. Do not forget load-shedding which will still be with us for quite some time.

Marketing risks have also intensified. Infrastructures such as roads, railways and even harbours are deteriorating. Transport by trucks are risky due to hi-jacking. Even the risk of labour unrest has increased. Stringent labour laws increases the possibility of strikes due to the difficulty to adhere to all the laws. Disputes regarding salaries are on the increase.

Our government is very unsympathetic towards agriculture with little support in case of disasters. Ever changing policies and the random application of policies creates uncertainty and poses additional risks.

To summarise, agriculture is a far riskier business than ever. Take note, forecasts of future tendencies indicate that circumstances will become even more challenging in future.

These are only a few possible steps to limit the adverse effects of negative events. Circumstances on farms differ and each farm will require different steps.

Tomorrow must be managed today (as far as practically possible) to limit adverse effects. Prevention is better than cure. Risks will always be with us – at least attempt to limit the negative effects. 

HOW TO LIMIT ADVERSE EFFECTS

1. Attempt to create an emergency fund for the sudden additional costs created by a risk. Or establish a credit reserve with your bank to provide for the sudden additional costs.
2. Livestock farmers must provide for a feed reserves, silage and/or hay.
3. It makes sense to invest in a second business which must be of non-agricultural nature.
4. To counter theft as the risk, list all your assets – even the number 13 spanner. Better still take a photo of every asset and mark and/or number all assets. Remember you are obliged by law to brand and/or tattoo livestock. Take stock of all your assets on a regular basis. Livestock should preferably be counted every day.
5. Apply the correct production methods and use heat, pest or disease resistant cultivars as are available. Apply regenerative production methods to improve your soil health.
6. Establish proper waterways and contours to limit the damage of flooding and pay attention to dongas.
7. Do everything on time and in time and as correctly as possible. Apply precision farming which basically means to do everything as precise as possible with the means available.
8. Diversify your farming if possible.
9. Consider your marketing and use more than one channel if possible.
10. Manage your employment affairs strictly according to the labour laws and do not neglect discipline.
11. Although perhaps costly consider, insurance of your crop(s) and your assets.

Publication: September 2021

Section: Pula/Imvula