RISK MANAGEMENT

By Bart Rijke, BOARD MEMBER FOR REGION 1, OTTAWA-CARLETON (TWP. OF CUMBERLAND), GLENGARRY, PRESCOTT AND RUSSELL

When my wife and I started farming, we had nothing.

We had immigrated from the Netherlands three years earlier and at the time, our motto regarding risk management was that if things went wrong and we lost everything, it wasn’t so bad. We had nothing to lose, other than our pride. During the early days of milking eight cows, our long-term goal was to milk in a freestall. As the farm grew, and with more to lose, our approach toward risk changed.

Dairy farming is a very capital-intensive industry. With today’s rising interest rates, it’s more important than ever to understand the purpose and consequences of major investments.

No two farms are managed the same way. For each producer and farm, the appetite for risk depends on each individual situation and each producer’s personality. Producers approach this in diverse ways that suit their individual needs. Many factors come into play, including family situations, priorities, long-term goals and financial constraints. Risk is managed in a way that makes sense for each farm and business.

As a DFO board, the need to manage risk is the same, although the approach is different. We manage toward a common goal of what is best for the dairy industry, while mitigating the risk for dairy producers in Ontario. We know producers are affected by each decision DFO’s board makes whether they are short or long-term strategic goals, setting policy or doing damage control. That is why the board consults with staff at all levels throughout the decision-making process, as well as experts from outside of DFO, if necessary, to ensure we have the knowledge to make the best decision we can.

Setting clear goals and executing them in the best possible way, with help from industry partners, will help you achieve your objectives on your farm, with the level of risk you can manage.

Finance

• Understand your financial position and projections

• Maintain and analyze financial records: income statements, balance sheet, cash flow summary, budgets

• Identify debt management strategies

Farm Management

Business Plan Basics

Building a resilient and prosperous farm starts with a plan.

A robust farm business management plan provides an overview of the farm operation and accounts for every aspect that affects profitability, growth and resiliency. Producers who invest in a solid business plan are better prepared to take advantage of opportunities and overcome challenges.

A business plan can be a roadmap for making informed decisions, as well as achieving goals. Build these basics into a farm management plan for success.

Production

• Monitor and understand your cost of production

• Calculate current capacity and investments required for growth

• Evaluate economies of scale

• Identify opportunities to increase efficiencies

Farm Business Management Planning

People

• Identify management structure and labour requirements

• Establish employee onboarding and training procedures

• Consider family dynamics and working relationships

• Develop an employee retention strategy

Transition

• Plan for the future of your farm

• Identify tax planning strategies

• Draft a will and estate plan that includes succession

Marketing (on-farm processing)

• Determine your competitive advantage

• Recognise customers and marketing opportunities

• Manage customer and industry relationships

Risk Management

• Analyze and assess farm business risks

• Consider risks beyond your control including economy, consumer, environment

• Adopt tools such as forward contracting, pre-paying inputs, etc.

• Develop action plans to prepare for various situations