Only 5% of the farmers in a recent survey perceived strategic risk as the most threatening risk to their businesses. The majority said financial, production or market risk would affect the business more.
"Prevalence of trade disputes, disease epidemics, wars and natural disasters in recent years have emphasized the importance of this shift of focus for farmers towards strategic risks," a group of Purdue University ag economists argued in a recent article.
Margaret Lippsmeyer, Michael Langemeier, James Mintert and Nathan Thompson said farmers don't prioritize managing strategic risks, arguing they're unmanageable because they're external to the business.
"In regard to strategic risk, farmers often take on a laissez-faire mindset, believing management efforts will be futile. However, contrary to this belief, building a more resilient farming operation through increasing agility and absorption capacity can mitigate negative effects from strategic risks."
The team defines agility as a farm's ability to spot and exploit changes in the market in a timely fashion, while absorption capacity refers to the ability to withstand shifts in the market, whether that's through cash reserves, diversifying cash flows and other strategies.
The Purdue ag economists surveyed 403 farmers and divided the responses into three groups -- those with low, medium or high resilience to strategic risk -- and compared farm attributes.
A strong balance sheet was key to resilience, but attitude also played a role. A higher proportion of risk-resilient farms reported believing they'll be better off financially a year from now, are considering making large capital investments and have the highest planned annual growth rates. They use agronomic consultants, financial ratios and crop-pricing alternatives at a higher rate than their peers.
If you're looking to build a more resilient business, I highly recommend The Executive Program for Agricultural Producers (TEPAP). The weeklong farm-management boot camp will be held the week of Jan. 7-13, 2024, at a resort outside of Austin, Texas.
The agenda is packed with resilience-building resources, but just as much good comes from networking with other farmers. Spots are limited. Visit https://tepap.tamu.edu/… for more information and to apply.
Katie Dehlinger can be reached at firstname.lastname@example.org
Follow her on X, formerly known as Twitter, at @KatieD_DTN
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