Risk Management

What's your plan for managing risk?

Farming is an inherently risky business and there is no simple solution to deal with every risk.

Whether it’s rising input costs, price volatility, or the threat of disease, risks can have a massive impact on your farming business. Add to that mix a change in political policy, extreme weather events or, simply, family ups and downs, and your farm may not be as competitive or sustainable as you would like.

While no risk can be fully controlled, identifying threats to your business and having a plan in place to deal with them can give you greater business resilience. Follow this up with goal setting and establishing objectives and you and your business can look forward to being back in the driving seat.

Managing risk webinars

As part of a Defra initiative funded under the EU Adjustment Aid Scheme, AHDB Dairy, AHDB Beef & Lamb and AHDB Pork have recently completed a series of risk workshops and supported farmers to identify the most pertinent risks to their individual businesses and how they can reduce the potential impact with proactive planning. This project has now come to an end, but as a result of this pilot work, we now have some great content to help support farmers make important decisions on securing the future of their business which we will making available to all farmers via a series of webinars in the coming months. 

If you are responsible for long term planning of your business enterprise and want to identify and manage risk, these webinars will help you understand how you can manage specific risks within your own business. If you’d like to be informed when these webinars are available, please email Jackie.darlow@ahdb.org.uk who will let you know when they are ready, otherwise please check back here for updates.

Farm Business Risk Management  

Farm business risk management is a continuous process by which farm businesses identify the likelihood and impact of key risks and their financial impact e.g. price volatility and animal disease. A Risk priority matrix is one tool that can be used to help you decide on which risks to focus. 

Alongside this it is the creation of action plans to manage key risks as well as an ongoing drive for increased financial resilience e.g. competitive cost base, to cushion unknown and difficult-to-manage risks. One way of recording this action plan would be in a Risk register. Here you can score the risk for it's likely hood to happen and severity of impact giving and indication of your need for action, and then record ways in which you intend to reduce either the likelihood or impact. Importantly it encourages you to allocate a person responsible and timeframe for these actions. 5 pillars of farm business risk management
There are five pillars that support the development of a farm business that is set to manage risk and be more resilient. We can use these five pillars in combination to look at how we can mitigate our risks.

Relentless cost management
Frequent forward budgeting as well as cash flow projection. Frequent benchmarking to find the areas of competiveness which then identifies where action plans need to be made. Competitive businesses are the last to lose money in falling markets and the first to make it in rising ones. 

Strategies and tools developed from the financial markets can be a successful method of managing price risk. The financial markets provide an opportunity to manage price risk through the use of futures, futures-based forward pricing contracts and options.

Market engagement
Understanding of short term market dynamics to understand what near-term price and cost risk face the business. This informs trading strategy and the level of short-term cash resilience that is needed. Meanwhile an understanding of rolling costs and price on a three to five year basis helps inform understanding of longer-run profitability with annual extremes smoothed out i.e. it’s a truer indicator of profitability. 

Our Dairy Market Weekly publication can help you keep a track of the environment and markets you are operating in. 

Collaborative approach
Hunting out win/win partnerships to deliver objectives and engagement with peers to continually drive efficiency 

Commercial acumen
Robust control of the business to actively identify risk as well driving entrepreneurial thinking and putting action plans in place. Perhaps have a look at our business control questionnaire. 

Technical excellence
Embracing and trialling new ideas and technology in pursuit of continually improving efficiency.  

Setting strategy and objectives
All businesses have to have clear vison of what they want to achieve. This comes from an understand of what those involved in the business want to achieve both as individuals and collectively for the farm. From here you can set out objectives and know how your success towards your vision will be measured.  

Our webinars can help you look at setting out a plan for the risks that affect you and your business as well as coming up with a vision for your business.