AJ Gill thinks a lot about the complexity of today’s farm business landscape and how wading through everything from tariff and trade issues to unpredictable weather events is a big ask of farmers who just want to farm.
But the risks are real, says Gill, director of Agriculture Risk Management Resources with MNP, and planning for them is critical if you want your farm to be resilient.
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“I’ve been in this space for 25 years, so I’ve seen a lot,” he says. “It’s not just the geopolitical events – we’ve had issues with places like China and India for a while. It’s also the weather, like the floods of 2020-21 in the Fraser Valley, the heat domes – it’s happening a lot more and with increasing severity.”
Fully understanding your financial health, identifying all potential risk areas (some are not obvious) and taking action to deal with them is not an easy job, says Gill. But it can be broken down into bite-sized pieces.
“Every farm is different, so the risks are different,” says Gill. “You need to develop your own individualized risk management strategy, but the framework for all of them is the same: Identify the risks on your farm. Assess and prioritize them. Build a plan to mitigate them. Take action … which means assign roles and create a timeline.”
Gill says your risk management plans should be reviewed annually, just like you do with crop plans.
“The key is to have the right programs in place at the right time, which is often easier said than done,” he says. “Does your plan provide the coverage you need? Don’t be discouraged if your answer is ‘I don’t know,’ because you’re not alone.”
What if…
Gill says it’s important to look at all potential risk areas for your farm – the pillars of risk, if you will. Production and market risks, including geopolitical events, are obvious. But also look at financial risks (how much debt are you carrying; what’s your cashflow like?), HR risks (what’s your labour situation; are your shareholders happy?), and farm transition risks (do you have a succession plan; do you review it regularly?).
One place to start, says Gill, is with tools like MNP’s Ag Risk Management Projector. “You can create ‘what if’ scenarios – like what happens if you have a 30 per cent drop in production, or interest rates go up by 10 per cent, or your crop has a 15 per cent tariff,” he says. “How much of that risk is going to hit your balance sheet?”
Knowing the answer to that question sets you up to identify appropriate mitigation strategies. Maybe it’s a government program like AgriStability, or maybe it’s boosting your available working capital, or maybe it’s as simple as adjusting your crop plans or calling a staff meeting to address issues.
“The impacts of risks are different depending on where you are on your journey,” says Gill, explaining that a newly established farm, for example, likely has a higher debt-to-equity ratio than an established operation, and that will influence risk management decisions accordingly.
It’s important to prioritize the potential risks you identify to avoid getting overwhelmed by the prospect of dealing with them. Gill says MNP is developing a new tool that looks at the pillars of risk (people, production, financial, etc.) from a management perspective to help prioritize what should be dealt with first. “It’s a 10-minute survey that shows items in red, yellow and green, so you know which areas to focus on when building a plan,” he says.
The bottom line is that having plans to manage various risks is necessary, even if you never need to activate those plans. “There’s a difference between risk and reality,” says Gill, explaining it’s all theoretical until something actually happens. “But if it does happen, and you have a plan in place, you kick in – ‘I’ve already thought about this’ – and you know what to do.”
Having a roadmap to recovery takes some of the shock out of a bad situation, too. “I’ve seen some farm disasters,” says Gill, thinking about things like those awful floods in the Fraser Valley. “And the farms that had a good risk management plan came out of it okay.”
Have a team, get advice
Today’s farm business landscape is nothing if not unpredictable. Gill says having a good risk management plan can help alleviate some of the stress associated with the “not knowing” that farmers face. He has three final pieces of advice for anyone who’s about to sit town to build that plan.
First, have a good advisor.
“It can be either a family member who has taken on the responsibility for the operation, or an advisor who has the heart of a teacher who can work with you every year,” he says. “You need someone who understands what’s available out there.”
Second, take advantage of business risk management programs.
“We have this multi-billion-dollar framework the government has created but, if you look at Statistics Canada figures, uptake isn’t high,” he says. “So why are we not taking advantage of it?”
Federal programs like AgriStability and Advance Payment can be complicated, and often farmers believe a program isn’t a fit based on past experience or lack of knowledge. “There have been a lot of changes to these programs over the years, so have a look and make an informed decision,” Gill says. “Pass if you want to but be sure it’s an informed decision.”
Third, have a written risk plan in place.
Look at all the “what if” scenarios you can think of and have a plan to deal with them. Gill sites a 2020 Farm Management Canada report that says nearly 90 per cent of farmers say following a written business/risk plan helps with their peace of mind. “People have lower stress levels when they have a plan.” For more information about farm-focused financial planning and risk management support, connect with MNP advisors at mnp.ca/en/clients/agriculture
