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Farmers must get better at managing risk as volatility becomes the norm

The Institute of Agricultural Management (IAgrM) national farm management conference heard businesses must change the way they address volatility if they want to survive. Olivia Midgley reported from London


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Peter Kendal urged farmers to focus on volatility management 'not just when prices are low'
Peter Kendal urged farmers to focus on volatility management 'not just when prices are low'

Learning to address volatility and manage risk as a matter of course will be key to the future of farm businesses going forward.

 

Too often farm businesses look for solutions in times of hardship, meaning they are less able to react, the Institute of Agricultural Management (IAgrM) national farm management conference heard.


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Peter Kendal

AHDB chairman Peter Kendall urged farmers to look to ’steal a march on their rivals’ and focus on volatility management ’not just when prices are low’.

 

He highlighted forward contracts, derivatives and formula pricing.

 

"The discussion needs to be ongoing," he said, adding the levy board was to launch a new volatility forum for its members next year.

 

"We need to be planning for the next part of the cycle."

 

Natwest/RBS agriculture chairman Jimmy McLean agreed farmers who did not regularly assess their business model were vulnerable when swings in volatility hit.

 

"Farmers are left exposed financially if they do not practice any risk management," said Mr McLean.

 

"In the last 10 years we have seen more volatility than we have done in previous decades."

 

He urged businesses to put in place strategies, such as setting objectives, analysing the business, preparing a forward plan and then monitoring performance.

 

Andrew Blenkiron, estate director at the Euston Estate, a 4,451-hectare (11,000-acre) mixed operation in Suffolk, said diversification often allowed farmers to spread risk.

 

“Farmers have been very good at adapting to the situation without realising they are giving the business another arm and the potential to overcome market volatility. I think that is in farmers’ mentality.”


Long-term relationships provide solutions

Longer term relationships can help all elements of the supply chain ride out volatility.

 

Connor McVeigh, UK supply chain director at McDonald’s, said managing risk throughout the fast food business’ supply chain boosted confidence across the board.

 

He said fostering partnerships and collaborations with McDonald’s farmer suppliers was an important part of its business model.

 

"We work hard to ensure we deliver as much benefit and incentive to the supply chain to make sure suppliers are motivated over the long-term.

 

We want our suppliers to be profitable and successful,” he told delegates.

 

Mr McVeigh highlighted the chain’s work with Andrew Francis, senior farm manager at the Elveden Estate which supplies 9,000 tonnes of potatoes a year via McCain.

 

He said the firm’s long-term relationship with the farm had given it the confidence and investment to grow varieties which can be harvested early in the summer to meet the demand for new season potatoes, along with others which are suited to long-term storage through winter.

 

Mr McVeigh, who joined the restaurant chain after stints at Morrisons and Sainsbury’s, said there was an ’increasing recognition of genuine application of partnership’ among his former colleagues in he retail sector.


Give risk management strategies some thought

Risk management strategies are vital when operating in an uncertain grain market.

 

Tony Bell, arable farmer and raw material director at ForFarmers, said growers could spread risk by growing a range of crops with variable selling strategies and ‘selling the best income’, for example oilseed rape or barley when the crops were ‘relatively high priced against wheat’.

 

He said growers needed to keep in mind who they were selling to and what the payment and quality terms were to avoid any unwelcome surprises further down the line.

 

“Accept you are not likely to sell everything at the top of the market. Markets are unpredictable,” Mr Bell added.

 

He also urged growers to take advantage of advice from AHDB and merchant buyers.

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