Strategies for de-risking your farm business

Agri-environment schemes

The Sustainable Farming Incentive (SFI) can be valuable in terms of implementing a more active risk management strategy.  The SFI allows growers to take out the worst-performing areas, or lowest margin crops within a rotation, and replace them with a fixed return with almost zero risk. The return may not be as high as that produced by a really good crop, but it does avoid the risk of costly losses.

Taking this approach should also mean that growers can focus their efforts on the more profitable crops in the rotation, managing them in a more timely fashion to make them even more profitable.

Financial management:

Working capital required by farming businesses has risen significantly over the past three years and the costs of machinery and equipment have also risen, so securing favourable terms for funding is a priority.  Shopping around for the best deal and getting the right financial structures in place is becoming an increasingly complex process with businesses often needing specialist advice to guide them through the process.

Good farm business consultants often have access to financial brokers with relationships with every major lender in the rural and agricultural sector, who can unlock competitive deals.

Business structures

Higher-performing businesses have lower overhead costs per hectare, which is largely down to lower machinery costs, although their labour, property and administration costs also tend to be lower because resources are being deployed more efficiently

If businesses are reducing their cropped area, they will need to look for ways to reduce their fixed costs with possible solutions including machinery sharing and greater use of contractors or alternative business structures such as a joint venture or contract farming agreement.

Crop marketing

Other strategies for reducing risk might include taking a different approach to crop marketing to reflect the greater production risks growers are now facing. Spotting opportunities to sell into special markets which deliver a premium is another possibility.

Staff management

Having a staff member unavailable for a long period because of illness or injury can also be incredibly difficult, so some farming businesses are now offering private healthcare as part of their financial package.