Kiwi farmers take risks every day - it's what they do

Massey University professor Nicola Shadbolt says it always makes her laugh the number of well-meaning commentators who pronounce that we need to teach farmers how to manage risk.

"I think 'have you any idea how much risk our farmers handle on a day-to-day basis'? It's what they do, and they've done it well for many years.

"Ever since subsidies came off it's been 'you're it. There's no one to prop you up," she says.

"There are always new tools to use, and new worries sitting on the horizon, but that doesn't mean our farmers don't have some of the innate characteristics to make it work. They do. Just see how quickly our farmers adapt to things."

Risk management strategies and resilience have been a common thread in much of the research that Shadbolt has led or collaborated on in the last six or seven years.

A professor in Farm and Agribusiness Management at Massey's Institute of Agriculture and Environment, she will address the 4th NZ Future Farms Conference on March 14 on The next 20 years of farming: Possible, plausible futures to contemplate.

She intends discussing some of the risk management strategies practised by successful farming entrepreneurs.

Everyone in agriculture tries to make sense of what's around the corner and common themes tend to develop and "pervade" the farming media, based on what information we have about environmental, technology and market challenges, Shadbolt says.

She and other researchers employed a planning exercise that uses a technique called scenario analysis developed most notably by Shell Oil.

When the 1970s oil shock bit them hard and fast, "they realised none of their business plans had prepared them for it.

"They realised they had to conduct planning sessions they were not currently preparing for, ones that nobody was even talking about," Shadbolt says.

"It's an exercise that takes you out of your comfort zone, and makes you look at the market signals that are out there and consider, if they really grew, could they become a future that isn't currently on our radar?"

The researchers held three meetings with about 25 agriculture industry people and 'landed' three new possible futures that aren't on anyone's radar at present "but all paint a picture of a future that might happen - indeed some of the soft signals are that they could happen".

Shadbolt's conference presentation will dwell on those scenarios, and possible responses. It's interesting, she says, that almost all the solutions to the scenarios involved technology.

One scenario, dubbed 'Governments Dictate', imagined market chaos, the end of free trade, lots of protectionism, lower prices and also lower volumes being traded.

"To be honest, with what's been happening recently [Trump, Brexit] some of it may turn out to be true, which is a bit daunting."

For New Zealand to continue to export to markets like that, one of the technology developments could be, for example, not sending milk powder but something in the form of a milk biscuit or tablet.

"We're talking about a future and countries where people could basically be very short on nutrients."

Another research project that involved three or four post-graduate students saw a significant number of farmers interviewed about their attitude to risk, and the generally accepted notion that our "entrepreneurs" were those with a risk-taking propensity.

Shadbolt says the results showed those farmers who self-identified as risk takers could be more accurately described as gamblers, based on their performance (Dairybase records) over six years of volatility. Their businesses performed the least strongly.

The most successful group of farmers - research literature would call them "cautious strategists" - were risk neutral, had strong business focus and skills, and managed quite high level of debt to good effect.

"Interestingly, that group said they didn't have high levels of debt but they actually had the same sort of debt as the people who were taking on all the risk. It showed it was about perception. It's because you're managing that debt quite well, it's not distracting you from running your business."

Even the risk averse did better than the risk takers.

Another characteristic of those farmers who tended to do well was that as well as strong business skills they exercised strong "group sense making", as well as evaluating risk and issues themselves. "In other words they were the ones with the strong networks, the ones who draw in people who can advise or mentor them. "

Shadbolt was also cautions about leaping to conclusions about future challenges.

"There's a human characteristic to take a couple of numbers, line them up and decide that's where the line is going. They extrapolate out into the future and decide 'this is where we're heading because that's what the line tells me'.

"So many people last year were wallowing in negativity with the dairy prices yet I think many farmers - though they wouldn't have enjoyed the losses - saw through the noise of the volatility.

"Land values didn't drop that much. The primary drivers - global supply, competition, long-term demand - were indicating prices would come back up. It's just that no one knew when.

"The resilience study showed the strong strategic thinkers, those who also used social sense making, had the ability to look outside the gate, see through the noise, and make decisions for their farm that would hold true for the next 10 or 20 years."

- Professor Nicola Shadbolt will speak on day one of the 2-day Future Farms Conference, March 14-15, in Palmerston North. It's a showcase event in the second NZ AgriFood Investment Week, with other events including The Sheep Milk NZ Conference, ASB Perspective 2025, Central Districts Field Days and Plate of Origin. The Norwood New Zealand Rural Sports Awards take place on March 10. A special Future Farms Conference price of $199 is available to Federated Farmers fulltime owner-operators. Use promo code RURAL17 at cart summary at www.conferenz.co.nz/futurefarms.