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Tackling the challenge of managing risk

By Dairy News Australia

The challenge of managing dairy farming businesses under increasingly risky and uncertain economic and climatic conditions was tackled at the recent Dairy Foundation Symposium.

Held over Zoom due to COVID-19 restrictions, a presentation from University of Melbourne farm economist Bill Malcolm focused on how to manage risk and make good decisions in the face of challenges.

“Albert Einstein once said, ‘Don't worry about the future it will happen soon enough’," Mr Malcolm told the symposium.

“The fact that the future will be here soon enough of these just around the corner just over the hill means that we should be thinking about it and thinking hard about it.

“Not worrying about it, but thinking about the future is a different world. And it will arrive soon.

“And you can't remember the future. So you've got to imagine the future.

“What I would say is act now as if the future you expect is already here.

“We know there are trade-offs between risk and profit, and much how much risk we prevented and stress we're prepared to cope with.

“We know that the future is unknowable, there's more things could happen than will happen.

“And we know that rare events with big consequences will happen.”

A whole farm approach is key to success, according to Mr Malcolm, who encouraged those in attendance to remember that solutions to problems of parts of their farm enterprise are not solutions to problems of the whole.

“People tend to tackle problems in pieces, rather than as a whole,” he said.

“And if you solve part of a problem, you'll get part of it right and you've left part of it wrong.

“So solutions to parts are not solutions to wholes.”

To watch Mr Malcolm's and other full presentations from the Dairy Foundation Symposium, visit: dairy-foundation.sydney.edu.au/dairy-research-foundation-2020-symposium

What do most successful farmers and their advisers get right?

● They think big.

● They have well-considered goals.

● They use the whole farm approach.

● They distinguish between cash, profit and wealth to judge business performance.

● They understand growth, gearing and the principle of increasing financial risk.

● They know costs.

● They know how to sensibly value farm assets.

● They understand that risk creates return.

● They appreciate that uncertainty is trumps.

● They pursue continual improvement — the status quo is not an option.

● They know that the quality of management is the key.

● They recognise that growth and intensification increases mean and variance of profits.

● They reject unsound advice based on average technical rations.

● They compare themselves with themselves.

● They make good decisions.

● They keep their business afloat.

The best farm decision makers:

● Do not over-analyse, act quickly and decisively.

● Can say no to an opportunity.

● Know it takes longer than planned to reach potential.

● Know knowledge is incomplete — some things just aren't knowable. Unexpected things happen all the time.

● Know nature varies unpredictably.

● Recognise uncertainty.

● Know people misunderstand one another and make mistakes.

● Know we cannot predict the future accurately so have to imagine it instead.