RISK MANAGEMENT IN A VOLATILE IRISH CLIMATE

A subject that was particularly disliked by many of our agricultural business management students was statistics. So why did we teach it? The rational was simply that farm management planning is about risk management and it is imperative that decision-makers understand probabilities. Preferably. it need to become intuitive as much as formalized. That said, if one is adroit at using spreadsheets for planning, looking at the possible downsides is not onerous.

One should also remember that planning is not solely about cash flows; there are many situations that would not be first considered in financial terms. Feed supply is an obvious one. Although resolving an on-farm fodder crisis will have financial implications, it is preferable not to get into it in the first place. In the days when a farm was entirely self-reliant, farm planning involved ensuring that there was a safety margin between expected supply and anticipated need. Nowadays one wonders if an expectation of government crisis support has led to farmers risking operating closer to the margin than they would have in the past.

I remember commenting in 2014 that the Fodder Crisis of 2013/14 should have been immediately followed by a review of the Food Harvest expansion plans. Just what would the implication be if it was repeated with an extra 300,000 dairy cows on the island? It would certainly mean [yet] another ‘Dear Taxpayer’ letter emanating from those who represent Irish farmers. At present, one wonders how some farmers are coping with the quality of their silage this winter.

Prior to Ireland, my previous dozen years had involved farming in a climate that had warm to hot summers and long cold, dry, windless winters. We did not have long grass-growing seasons but leguminous forage crops grew in abundance. The summers were good enough for hay-making and conservation could be back-stopped with haylage. Land costs were low and we could farm on a low-cost, extensive system that meant a fodder safety margin could be built in. I would say it was an easier location to farm cattle, sheep and, as it was, water buffalo.

How different Ireland is. Yes, it has a long grass-growing season but it has an unpredictable, maritime climate. As I often say, the country has low variable costs of production for milk and meat but those are more than dissipated by the small size of Irish farms. Consequentially, it is not a low-cost producer. And endlessly repeating the statement that it is does not turn the myth into reality. It is a myth based upon partial costing and it is one that continues to undermine the future of Irish farming. That this has led to a processing / exporting model that assumes that Ireland can produce low-cost raw materials is the farming tragedy of our times.

Apparently, the solution of more than a few who advise Irish farmers [and write agri-food strategy] is to recommend that farmers intensify their farming systems. The logic being that if one aims for a greater production per acre [land being a major constraint for most farms] costs per unit of farm produce can be driven down. The more intensive grassland use will lead to greater ‘profits’. Whether this will provide a sustainable return on the farmer’s labour, management and assets is an issue that partial costing does not properly address.

One would also ask if this model can be successful in Ireland’s volatile climate? Is there a gap between the theory and what farmers can achieve year-on-year within risk-set safety parameters? If those who advise are frustrated by farmers’ willingness to adopt their ideas [regardless of how many discussion groups they attend] it is probably because the farmers are weighing up the risks involved and concluding that intensification is not a sustainable solution for them.

One read a headline the other day that referred to producing 44 DM t/ha from grass in Brazil. It was under centre-pivot irrigation. Intensive farming invariable means operating in a controlled environment [indoor livestock or protected crops] or where climatic variation can be mitigated [as with irrigation]. Yes, it rains in Ireland and an awful lot at times. When and how much is less predictable. One wonders how many advocates of intensify grassland use, more stock and greater forage reliance have run the economic models [and risk assessments] necessary to fully assess the wisdom of going down that route on an island that is quite so exposed to the Atlantic Ocean? I suspect that many farmers have [at least intuitively] gone through the processes.

It is why I keep questioning the idea that Ireland is [or can be] a low-cost food producer. The farming structure is unsuitable and the climate too variable. I tend to consider Ireland as more akin to those European regions that have a difficult climate, constrained to small-scale farming and remote to market. It requires a different mindset and farming/food model.

Sadly, many in Ireland’s farming establishment are fixated with New Zealand’s large-scale farms as a model. Sadly, many in Ireland’s agri-food establishment believe that Ireland’s farmers can survive on low farm-gate, commodity prices. Realistically they cannot; regardless of the taxpayer support that flows their way. Irish farming is exposed [by their supply-chain partners] to the wrong markets and they are being advised to rectify the problem by adopting farming systems that simultaneously and increasingly expose them to the vagaries of Ireland’s climate.

The strategic advise given at all levels to Irish farmers should be built upon risk-based farm planning but, one must ask, just who has done such? Has anyone? And, not least, was it done for Food Harvest 2020 or Food Wise 2025? And if not, why not? I for one am left with the impression that there is just too little rigorous farm business planning around.

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