Risk mitigation in farming: Part 2

In this second part of our series on risk mitigation for sheep producers in South Africa, freelance strategist and writer PJ Mommsen looks at the riskiest periods that both mutton and wool farmers have to contend with

- PJ Mommsen

Often positioned at the other end of risk, value is regarded as the opposing force, or that desired state of farming operations that can cancel the costs and impact of risk. To my mind, value creation and risk mitigation are two sides of the same coin of any profitable business.

Many would argue that for as long as the financial value derived from the farming operation outweighs the real and potential risks, a farmer will stay afloat. My response is that a boat with even a single small hole in its hull is already sinking, perhaps slowly, imperceptibly, but nevertheless its seaworthiness has been compromised. Hidden and/or unmitigated risk is that single hole.

The management of risk mitigation and the seeking of innovative solutions should be aimed at protecting the farmer’s application of time, energy and capital into the future, thereby increasing profitability, growth, sustainability and the security of the farm as a business venture.

A WAY TO PROTECT PROFITS 

I propose that the inclusion of the disciplines and skills associated with risk mitigation and management, underpinned by innovative solutions and profitable production management, will better position the farmer to protect profits than a single-minded focus on production and value alone.

Although traditional value chain analysis is a useful management tool, it really focuses on one side of the coin. An overlay of the value chain of a business, together with the risks associated with each phase of the production process, will prove to be of greater tactical and strategic importance, as it will take full account of the other side of the coin of profitable business.

ANALYSIS OF PRODUCTION