After the summer drought and drop in crop productivity in 2021, canola farmers may be reviewing their business risk management (BRM) program. This article describes how FMC’s AgriShield can help farmers work through a comprehensive approach to manage farm risk.

What BRM tools are right for you?

What are the options for business risk management? And do you need them all?

Before we get started on this topic, let’s begin by asking ourselves: What we are talking about when using the term “business risk management (BRM)”?

In many circles, BRM strictly refers to government risk management programs, more specifically AgriInsurance, AgriStability, AgriRecovery and AgriInvest. Although these programs can be a very useful and, for some, a critical part of managing farm risk, BRM encompasses a much broader repertoire of activities.

A report released by the Organisation for Economic Co-operation and Development (OECD) in 2011 noted, “In many cases, public farm support programs have crowded out other ways to manage risk.”

Research recently conducted by Farm Credit Canada (FCC) and Farm Management Canada (FMC) support this observation. Approximately 30 per cent of farmers have a risk management plan of some type, typically limited to financial and production risk. Why so low? Many of those who don’t have a risk management plan believe it is unnecessary and feel that their farms are succeeding without one.

So, answering the question “What BRM tools are right for you?”, becomes more complex as we rethink and redefine BRM. But this is a necessary step in managing farm risk.

In its simplest form, risk is defined as the uncertainty of an outcome. Insurance and government programs typically focus on coping with the negative impacts of risk once a risk has become a reality. On the other hand, BRM is about thinking strategically and applying a process to minimize threats in advance while putting yourself in a position to seize new opportunities presented by changing circumstances. The latter does not exclude the former and it’s best to have both approaches included in your BRM plan.

For the purpose of this article, BRM refers to everything a farmer needs to consider and do to manage risk. This includes prevention, mitigation and management. In other words, proactive planning to manage both what is in the farmers’ control and outside the farmers’ control. More concretely, BRM should involve a plan to manage risks that can affect the people on your farm (including issues with farm safety, personal well-being, employees, family relations, and contractors/advisors), your finances (issues with financial management and investments), the markets (issues with sourcing, pricing, selling and trade), the strategic management of your farm (issues with your business strategy, technology, farm transition, and operations), your business environment (issues with public trust and consumer advocacy, and politics, policy and regulations), and your production (issues with climate and environment, animal health and welfare, nutrient management, pest management, and soil, water and biodiversity).

At first glance, this may seem overwhelming. That’s a lot of ground to cover. The good news is, farmers can gain more control over many of those risk by applying proven business practices at little to no cost. It’s about a change in management practices and a mechanism to evaluate risk and putting practices in place to gain control over risk. Sure, we can’t help the weather or prices, but farmers can help mitigate these risks through water retention or release methods, emergency preparedness, storage, and forward contracting to support selling at more favourable prices, to give a few examples.

It could be argued that BRM is becoming more and more important. With increasing risks like extreme weather conditions, or the large number of older farmers that haven’t planned for succession, or the dwindling number of farm workers, as well as emerging risks like those caused by COVID (reliable supply chains, transportation, processing, workforce and consumer protection), it’s becoming more and more important to ensure that farms are resilient and capable of facing risks, not only to survive but also to benefit from opportunities presented by change.

So how can farmers possibly eliminate every risk that’s out there without breaking the bank or going crazy with the sheer amount of work involved? The answer is simple: they can’t. Fortunately, that’s not the point of BRM.  What’s important is to think strategically about the risks that pose the greatest threat to your farm and build a plan that puts you in the best possible position to thrive.

A comprehensive approach using AgriShield

Taking a comprehensive approach to managing farm risk is key. The approach is straightforward: (1) identify the risks that are relevant to your farm, (2) assess the activities you have in place to manage these risks, (3) identify the risks that require better management and (4) develop a plan to improve your risk management practices.

FMC’s AgriShield (myagrishield.ca) is an online platform that facilitates this process.

You begin by answering some simple questions about the frequency or likelihood of a risk occurring, and the impact it would have on your farm if the risk became a reality.  Then the platform prompts you to answer more specific questions, including the best practices you have in place to reduce these risks. Once that’s done, you can use a built-in action planning tool to decide what actions you want to take to better manage your risks.

Many best practices can be adopted for little or no cost, and these can greatly improve your farm’s resilience.

For example:

  • Do you hold regular meetings with your staff/partners/family/board of directors to discuss your farm’s values/objectives (short and long term)/strategy?
  • Do you have standard operating procedures on your farm?
  • Have you trained your staff on farm safety?
  • Have you started talking about farm succession? (Who? When? How?)
  • Do you have contracts with suppliers and buyers, or do you rely on handshake agreements?
  • Do you use forward contracts for selling your products?
  • Do you have an environmental farm plan?

AgriShield also includes resources and programs to help you take action to reduce your risks or mitigate the impact, including subscribing to government support and insurance programs.

Aside from online risk management tools, training programs can help you to understand and apply comprehensive (or whole farm) risk management. A program led by FMC, and funded by the Government of Canada’s AgriRisk Initiatives, called Roots to Success is currently being offered. The program takes farmers through comprehensive risk management planning, and for now, it’s completely free. Participants in the training also gain free access to AgriShield.

Finally, many websites offer information about risk management. AgriResponse.ca  provides a forum to ask questions about specific risks and management strategies, and also posts articles on recent risk management topics for farmers to consider when creating and updating their risk management plan.

Our farm management decisions and process for making informed decisions are now more critical than ever. An immense opportunity for growth for the Canadian agricultural sector will come from shifting attitudes towards risk management beyond government support programs.

The Next Policy Framework provides a significant opportunity to redefine business risk management and recognize that taking a comprehensive approach to managing farm risk is the best way for farmers to manage that which is in their control, use the appropriate tools to manage that which is outside of their control, and continue to invest in what works.

The time has come to redefine business risk management and take a comprehensive approach to manage farm risk.

Canola Digest - November 2021