Rows are continuing over the massive disruption and costs that have followed the Civil Aviation Authority decision to shut UK air space last week. Latest estimates talk of over a £1 billion for the six day closure. The CAA decisions were surely risk averse. Many lives were felt to be at stake. Does “absolute safety” however have a place in business decisions?
The financial crash of 2008 and subsequent recession has inspired a risk avoidance culture. The crash resulted from banks and hedge funds becoming over confident that they could take on more risk whilst making more money too.
As profits grew, so did their confidence. They thought they were safe and on high ground. Bad statistics, misunderstandings about probability allied to greed fooled them though and when it went wrong it went badly wrong.
Farmers are mans most active interface with nature. They gamble daily on weather patterns. Decisions to plant later or earlier, decisions to spray with the prospect of frosty mornings, decisions about disease and weed protection are all based on probabilities. Crops could fail, just like the aircraft.
Markets today are also highly volatile. The May 2010 futures price for wheat has ranged from £164.50 down to £93.75 per tonne – that quantifies volatility. Whilst our new politicians (may) continue to keep Sterling well separated from Euro, our agriculture will benefit. But currency volatility introduces yet another dimension.
Why is it that year after year farmers do not take prices that are “sensible”? So far barely 25% of new crop 2010 wheat has been traded, just one tonne per acre from a four tonne per acre prospect?
I suspect that today’s senior farmers are primarily producers and good ones at it too. Look at the steady rise in yields over the last 30 years of major arable crops. They did have a practical intervention market to fall back on. Their sons and daughters, the new generation perhaps, accept and apply the attention to detail integrated crop management requires. But also they enjoy using computers, discussing options strategies and studying fundamentals more than their parents did.
Underpinned with still substantial Single Farm Payments, irrigation measurements, application technology and computer modelling as well as on-combine yield performance monitors, with clear budgets they can afford an element of marketing risk and still exceed their financial targets too.
Farmers should be demanding yet more bio-tec research and application research. Between 1960 and 1989 productivity growth achieved 4% per annum, today our industry is down to 1%. Water is becoming scarcer, fossil fuel prices are increasing and the preservation of bio-diversity, habitats and the environment is becoming every more important.
Science has a vital role and the cities of Norwich and Cambridge along the A11 axis will have a major part in this in the future as well. The food supply chain is already tightening with greater understanding and consequent efficiencies – a type of risk reduction too. The widening European Union has also its role to play, providing consistent (simple) guidance and financial support with less bureaucracy.
This trio leaves UK agriculture confident to take risks, to invest, to plant, to harvest, to store and to sell. If population forecasts are half credible then a rapid growth in global food demand can be expected within the next 5 – 10 years. The UK should then be well placed to produce (and to export) more food.
DBP clients achieve their budgets by taking calculated decisions and measured risks. They sell forward – 2011 already being considered, and review their decisions in a disciplined framework. They will not “risk their shirts” but within that budgeted framework are pushing to loosen the brakes and being as bold as possible.
Well underpinned with valuable land and low interest rates, tomorrow’s venturers and risk takers have an attractive future. Agriculture is less risky than aviation. We do not need to hedge it all.