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29 November 2023
Harvest has started across much of Western Victoria.
And despite virtually no rain through September and October, the early indications are for high yields, excellent quality and with relatively strong grain prices.
To deliver high yields in a season with no spring rain is a combination of good luck and good management.
The management piece comes from saving every drop of water through summer with good weed control.
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It’s about sowing on time and matching fertiliser application to seasonal conditions.
It’s really an indicator of the pretty sophisticated management applied to operating a modern farm successfully.
The luck is the cool ripening period and minimal frost damage in most districts.
So through good management farmers have put themselves in a position to take advantage of the luck that came their way.
But what happens when the luck runs out?
How prepared are we for the season where there’s no stored moisture; when the frosts are more severe and the heat comes early?
That’s not an ‘if’ consideration; it’s a ‘when’.
Being involved with the Community Bank network has given me some insight into the world of banking.
And one of the first things I noticed is how extensively banks consider the different types of risk concentrations they are exposed to.
They measure geographic risk, industry risk, strategic risk, interest rate risk, liquidity risk, climate risk and more.
They ensure their loan and deposit book is diversified enough to withstand a significant ‘shock’ to any one part of their business.
So are we doing enough to ensure our farm business can withstand a severe shock event?
When I applied bank thinking to our farm it was striking the concentration risk we had in our business.
All of our assets in one geographic location, the Wimmera.
There was some diversity of market risk through growing different crop types and running a few sheep.
But the exposure to seasonal volatility was evident.
The response for us was to spread geographies by buying land in the high rainfall zones, and spread industries by buying commercial property in Melbourne.
There’s no one answer to managing risk concentration, but maybe it’s something we need to be more deliberate about addressing.
During previous droughts, the farm lobby has been quick to seek government support for impacted farms.
In an era where a typical family farm may have a balance sheet with $20 to $40 million of assets, I’m beginning to question if it’s reasonable to ask taxpayers to help fund our way through an inevitable risk event.
I fear this will eventually erode the confidence in agriculture.
Yes, we should continue to advocate for policies that help farm businesses use the good times to prepare for the bad.
But isn’t it better to present ourselves as a mature industry that understands and manages our risks?
At least then, when the music stops, we’ll have our own chair.
The entire November 29, 2023 edition of The Weekly Advertiser is available online. READ IT HERE!
The entire November 29, 2023 edition of AgLife is available online. READ IT HERE!