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When risk appears, valuable lessons can be learned

April 2016

When risk appears, valuable lessons can be learned

In a previous article we have defined risks as the possibility that unforeseen, unplanned, unnatural, out of the ordinary, unexpected events may occur and could cause a loss of some nature.

Remember as a farmer when you commence with the production of an agricultural product you face possible risks. In broad terms you face production risks, marketing risks and financial risks.

During the production process numerous events can occur such as uncertain climatic conditions  (droughts, flooding, hail, severe frost) and the occurrence of disasters such as veld fires and the outbreak of plant and livestock diseases.

During the marketing process events may occur that could disrupt the marketing process and/ or affect prices adversely. The loss can be physical – you cannot market your products (bridges are damaged during a flood). Or the price of your products may drop due to some or other reason beyond your control.

Financial risks could be a lower income and/or problems with maintaining a positive cash-flow position, thus affecting the financial success of the business. It should be noted that production, marketing and financial risks are closely interrelated.

By far the majority of our farmers have experienced the drought (a prolonged risk) which has emphasised that a farming business is by all means the most difficult business to manage and it is not for the faint hearted. Unfortunately this will not be the last drought. South Africa being one of the drier countries in the world is prone to droughts on a regular basis, thus we must farm with this in mind.

Acknowledging the fact that the drought has caused major problems, all with negative financials results, one must attempt to remain positive. Therefore what can we learn from experiencing the drought? Is there something to learn? It is absolute necessary to consider the effects of the drought and what can be done to reduce the effects of a drought in the future. You will have to improve your management if you want to survive as a farmer. The drought will pass and when continuing your farming business, consider the following.

As far as the production process is concerned, we are of the opinion that the drought has emphasised that, if it is at all possible, you must do your utmost best to diversify your farming business into more than one enterprise. Diversification entails a combination of farming enterprises that are not subject to the same risks. Diversify into crops that have different growth periods and are not equally susceptible to drought. The addition of a livestock enterprise will have a great effect on countering the effects of risks. The more diverse enterprises are,  the more risks are countered.

The drought has also accentuated ‘Do the basics right’. In practice, farm with whatever you are farming, as correctly as possible. Prepare your lands correctly, plant at the correct depth, do proper weed and pest control. If a dry period occurs and your maize plants have to compete with weeds for moisture the adverse affect will be more severe.

The application of conservation farming practices have also been highlighted. Conservation farming can be described as a sustainable profitable farming system that reduces soil disturbance through minimum tillage and rotating of crops with the purpose of leaving as much as possible plant material (mulch)  on the lands to increase water infiltration.

As far as livestock is concerned, do what you need to do with your livestock. It is of the utmost importance to apply a proper grazing management system and never, never overgraze. Apply the accepted norm of grazing capacity for your area at all times. It is also important tobuild up a feed bank (make hay and/or silage)as a reserve should you experience a drought situation. If at all possible build up a feed bank that will be able to maintain your basic herd for at least a year.

As far as marketing management is concerned diversify the marketing of your products and consider the aspect of value-adding to your products. If you think you are too small a farmer to add value to your products, what about forming a group?

With regards to financial management the use of a proper budget has also been highlighted. This means to plan your business properly, beginning with detailed management production programmes for every enterprise and from that a budget for the financial year in advance. Then farm according to your plan.

To summarise consider to diversify your business and apply conservation farming, do the basics right and farm strictly according to your plan and budget. The key to soften the effects of adverse events is management – plan, organise, implement and control as correctly as humanly possible. In the event then of a very severe event, such as a prolonged drought, you can thenbe at peace – you have done what you can.

Article submitted by Marius Greyling, Pula Imvula contributor
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Publication: April 2016

Section: Pula/Imvula