Summer Series: Only farmers know real risk

Summer Series: Only farmers know real risk

In a world that crashes from crisis to crisis, Ontario farmer and Nuffield scholar, Amy Cronin, went on a global search for farmers who excel at risk management. Here’s what she learned.
– April Stewart, CG Associate Editor

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If it’s a new and even more volatile world for farmers (which it is) and if success on the farm has got to include a new approach to risk management (which it does), just how does a farmer figure out how to get on board?

For answers, Ontario pork, chicken and cash crop farmer Amy Cronin headed to the airport. Her plan: talk to cutting-edge farmers in 11 countries on four continents as part of a research project through Nuffield Canada. (Nuffield is a unique farmer-led nonprofit that backs international travel and networking missions into emerging challenges and opportunities for farmers.)

From her travels, Cronin wanted to know: how are these farmers identifying their risks? And how are they determining which risk mitigation strategies work best?

Now she’s back in Canada, and Country Guide checked in with Cronin with the following questions.

Country Guide: Why are you so focused on risk?
Amy Cronin: Risk is something that every single farmer faces. It’s something we hear about a lot, but as I was trying to figure out whether I had the strongest management plan for my own business and I was looking at the tools and resources available to me, I still had a lot of questions.

CG: Why go overseas to learn about risk? Don’t we need Canadian solutions?
AC: The interesting thing about this research was that every farmer I visited around the world operated in a different way. No two farmers were the same. Their business models varied, their commodities varied, their markets varied… but the risks that can have huge impacts on a farm were the same no matter where I went.

CG: What do these farmers share?
AC: It starts with the basics: insurance, strong standard operating procedures and documented policies and protocols to empower decision-making.

Around the world, too, being involved in provincial or national boards or other leadership roles also helps mitigate risks on the farm by influencing decision-making at higher levels.

On my travels, I talked as well with a lot of farmers who work with business consultants. These are third-party individuals who are able to ask thought-provoking questions and help farmers understand their numbers and data in order to help them put goals in place. Farmers recognize that these consultants are a vital risk management tool.

But when it comes to external risks, I did not meet a single farmer that had external risks under control.

CG: On the topic of external risks, what did you learn about how COVID-19 has changed the picture?
AC: Researcher Andria Jones-Bitton (University of Guelph) has done a lot of research on farmers and mental health. Her research found that COVID increased the stress in farmers, and that’s connected to risk management.

During COVID, farmers were dealing with many external risks. Processing plants were shut down, there were logistical nightmares and it was more challenging to get products across the border and to bring in temporary foreign workers. Farmers work hard and they work long hours. All of a sudden, during COVID, there was all of this extra stress and extra risk and it took a toll on their mental health.

CG: After talking to farmers around the world, what would you put on the list of things that farmers AREN’T doing that they should be to manage risk?
AC: We need to develop a risk mindset — and we need to help each other do that using peer groups.

It’s not always well received to have a risk management expert standing at the front of the room telling you what to do. Often, they can’t relate to what it’s like to be a farmer, to have skin in the game, to face gut-wrenching challenges. There’s a real benefit in hearing from a fellow farmer who’s working on the same things, who is also facing the same challenges. Farmer-to-farmer conversations and learning from other farmers are really helpful for risk management.

CG: What are some of the mistakes farmers make when it comes to managing risk?
AC: Farmers must have an active approach to risk management; they have to be able to think about risk on an ongoing basis. It’s never a one-and-done.

There are so many third-party organizations that advise getting a risk management plan, but it’s not that simple. It’s extremely difficult to write the plan and to constantly refer to the plan and consider it an active file, but risk management is all about continuous improvement.

There are so many demands on our finances when we’re in agriculture. Farmers need to think about the potential impact of risk on their operations and how to create a financial buffer to manage it.

CG: You looked at the role governments can play in helping farmers mitigate risk. What do you think the Canadian government is doing well in this area?
AC: Canada has some strong programs in place, like crop insurance, that are valued and important to farmers and help them build a risk management plan.

CG: What would you like to see the government do more of, or to start doing, to help farmers mitigate risk?
AC: The government needs to consult farmers to understand the true impact of policymaking and to provide industry an opportunity to collaborate.

Government also has to communicate from the top to the bottom. When communication between federal, provincial and municipal levels is poor, it makes implementing workable policies extremely difficult.

When the levels of government don’t communicate well with agriculture, we end up with policies that have unintended consequences.

CG: Your Nuffield report identified three main kinds of risk that farmers face: preventable risks, strategic risks and external risks (see ‘Understanding Risk’ at bottom). Which type of risk has the potential to have the biggest impact on a farm operation?
AC: All three are equally important. Two of them — preventable risks and strategic risks — are commonly addressed but external risks aren’t considered nearly as much.

External risks are those big scary things that farmers don’t have a plan around because it’s really difficult to put a plan in place for things that you don’t know are coming. We’ve seen so many examples of external risks in the last five years, including COVID and the Russian-Ukrainian war and its impact on the cost of production around the world.

There are a whole lot of consequences that come with external risks that make it extremely important for farmers to have conversations about mitigating those risks.

CG: What do you hope farmers learn from your report?
AC: I hope that farmers will look at the recommendations and use them as a starting point to think through their approach to risk management and to remember that a risk management plan doesn’t have to be perfect from the get-go but it’s something that we need to be doing, one step at a time, to get better at managing risk.

We also need to be working together and encouraging each other on this journey of continuous improvement.


Understanding Risk

Nuffield scholar and Ontario farmer Amy Cronin identifies three different categories of risks to the farm:

  • Preventable risks are internal risks that farmers can control, eliminate or avoid. Examples of managing preventable risks include using strict standard operating procedures to prevent breakdowns in operational processes and purchasing crop insurance.
  • Strategic risks: Not all risks are bad. In fact, strategic risks like diversifying into new markets or taking out loans to invest in property or new technology can lead to real gains. Even so, risks need to be contained.
  • External risks: Risks that are outside of the farm operation or beyond farmer control are considered external risks. Political disasters, pandemics and major macroeconomic shifts are external risks and it’s more difficult to establish risk management strategies to mitigate them.

The complete Risk Management: Partnering for Prosperity report is scheduled for posting online at nuffield.ca.

– This article was originally posted in the February 2024 issue of Country Guide.