Developing a deeper understanding of resilience

Three different areas are important in understanding resilience, says Nicola. These are buffer capacity, adaptability and transformation, which explores how capable a business is of withstanding external changes.

Buffer capacity

Every farm business is subjected to shocks such as price drops or weather challenges. The business hasn’t fundamentally changed, so your buffer capacity is how you cope within that system, explains Nicola. “Are you vulnerable or are you less structured to cope with what we know happens within that system? Can you bounce without breaking? Do you have a business that can bounce whatever is going on, doesn’t fall apart and stays reasonably sound and survive?”

Adaptability

If the shocks being faced are beyond ‘business as usual’, then we are forced to change the system, says Nicola. “That’s when you need adaptive capacity – the ability to cope with reasonably significant change. For a business to change in a fundamental way, we need willingness to change, to recognise it’s coming and have self-sufficiency.

“I think many British farms are right at that cusp with Brexit and all the unknowns.”

Transformation

“The third one is when your current farming system is no longer tenable. Even though you have adapted it, it just won’t work.” That could be because there has been a total change in environmental legislation, for example. “It might be a change from one farming system to another, or it might be coming out of farming altogether. There are farms in New Zealand being planted with manuka and it’s all about making honey – total change. That’s what is called transformability.”

Short term success vs long term transformation

Another way of thinking about resilience is in terms of short-term optimisation and long-term adaptability – an idea which stemmed from ecological literature, but applies absolutely to farming, says Nicola.

“If you look at the classic agricultural economic text, it is all about optimisation. So we have a farm and we want to make it run as efficiently as possible. It’s about fine tuning the current system, with the existing resources and doing it better.

“That optimisation model is not built around change. It’s a staged approach so you have the short term, or the immediate, ‘let’s do the best with where we are now’. Then we might decide to change or adapt the system, use different resources, so we will be in transition to something new. We’ll optimise once we reach the new, but the bits in between are often quite messy and often not where you expect them to be.

“Sometimes when you are analysing a farm business, you have to ask where is it in that trajectory of change? If it’s doing what it has always done, it should be super-efficient. If the farm is undergoing a transition, however, then there will be more of a muddle in the numbers until this is complete.”

Have a portfolio of complementary strategies

“For dairy farmers in New Zealand, their key risk management strategy is actually managing debt. They have a 50% debt to asset ratio on average, but they see it as part of their strength – how you leverage off debt to build your business."

Managing climatic risk, for example, might involve buying in feed, so that when grass is not growing there is still feed available for livestock. “What you’ve done there is remove or reduce climatic risk, but added another which is market risk. Feed, feed price and feed availability have now been added to your portfolio of risks.

“You never remove risk, you just move it. All the time you’re just shifting risk until you reach a point where you say 'this balance of strategies is about right for my attitude to risk', and this will be different for every farmer.”

Capture opportunities

Some perceive risk as bad and believe that it needs to be mitigated and reduced, says Nicola. “But if you talk to a group of farmers, they say risk is where they make their money. Farmers are always looking for ways in which they can spin a dime out of something happening in the market – acting proactively to move into a space others can’t fill. It’s the sign of a really top manager if they are proactively managing risk and capturing opportunities on the way.”

Helping farmers manage risk is about sharing the experiences of those who currently manage it well and not just about financial tools like insurance or hedging.

There is much farmers can learn from each other on how best to manage risk. Ultimately, each individual needs to navigate their own path according to their particular attitude to risk and the resources available to them. Developing an understanding of resilience and its different forms is a vital part of finding a way through the challenges ahead.

About Professor Shadbolt

Nicola Shadbolt is Professor of Farm and Agribusiness Management at Massey University, delivering farm and agribusiness management research and education. She is also a Climate Change Commissioner and Chair of Plant and Food Research in New Zealand.

Although she grew up in New Zealand, Nicola did a Bachelor of Science in Agriculture at Nottingham University and spent time in Europe and North America. She has been a farmer for over 30 years and is currently a shareholder/director of both share and cash-leasing arrangements with five equity partnerships including 1000 dairy cows, sheep, beef, deer and forestry. In 2018, Nicola was awarded the Officer of NZ Order of Merit for services to agribusiness.