Risk Management Challenges to Agribusiness Investment Opportunities
Agribusiness is fraught with risk. And if Australia’s agribusiness sector is to remain sustainable, risk management must come to the forefront of agricultural debate—particularly in dealing with investment risk, to improve access to investment and asset acquisition opportunities that would support rural communities and boost the sector’s growth in domestic and international markets.
Besides the threat of fluctuations and loss of income for primary producers, the potential impact of catastrophic trading loss on Australia’s economy is serious enough to warrant more attention from policymakers at both national and international levels.
The welfare of Australia’s primary producers—and the financial health of our commodities—depends on stabilising the sector, and formulating better risk management solutions is the key.
The importance of investment risk
Without risk in agribusiness, there’s little reward. If primary producers don’t engage in beneficial trade and finance activities, Australia’s agribusiness sector obviously suffers under market destabilisation and trading loss—but when the weight of the risk so far outweighs the potential for reward, it’s understandable that they’re reluctant to embrace the few investment opportunities that are available.
This is particularly evident in vulnerable, resource-poor rural communities, where current guidance on industry investment activity risk management is virtually non-existent.The key to moving forward in the sector is sound risk management. Primary producers are more likely to take investment opportunities when their capital is protected, and financial intermediaries may be the key to promoting increased returns and improved capacity for investment through risk diversification.
But for investment risk to glean appeal with primary producers, challenges to rural finance first need to be overcome: the current capacity and structure of the system leaves a lot to be desired, and dealing with these issues is going to take a good deal of innovation.
The changing view of agribusiness investment
Australia’s agribusiness sector depends heavily on rural finance. But despite consistent investment from multiple public and private income sources, there have been little to no worthwhile improvements in most rural communities, and access to sustainable financial services is still inconsistent and unreliable. Part of the problem is in mitigating the dual risks on the business and financial fronts of rural enterprise.
The view of rural finance is changing, and stakeholders are looking for new ways to overcome the myriad challenges inherent in it to improve access to opportunities in rural investment and assets, but it’s a big undertaking, and one that depends on better assessment and management of the unique risks involved in primary production.
Until better risk management strategies, finance practices, and access to worthwhile investment opportunities are available, it’s unreasonable to expect that primary producers be willing to gamble with their livelihoods for the sake of the economy.
Strategies for agribusiness risk management
The success of both agribusiness and rural development depends on developing a better understanding of agricultural risk. Consultants who are flexible and skilled enough to assess the risk and vulnerability of smaller groups and individual primary producers will benefit the sector on a case by case basis, and contribute to the development of a better set of strategies that can be applied globally in the future.
A broad approach over the long term is necessary, because in its current state, the agricultural sector is blindly fighting risk on multiple fronts—including intensification of farming, market access, crop diversification, and financial challenges to investment opportunity. The diversity of agricultural systems within Australia, and the broad spectrum of risk types and severity they face, aren’t managed well with generic risk management solutions.
An approach to risk management consultancy that is based on accurate and reliable analysis, clear goals, and sound, personalised strategies—particularly for the more vulnerable primary producers—will deliver better financial opportunities in the sector. The formula for agribusiness risk management The risks to Australia’s primary producers are unique, particularly those that inhibit the capacity of individual farmers to engage in beneficial financial investments.
Vulnerabilities may manifest as market risk, credit risk, or systemic risks from the nature of agriculture itself—including inclement weather and reduced capital flow during poor crop production. But when infrastructural, political and social constraints are encountered on top of it, the potential for obliteration is always looming, and the sector will suffer under the weight of weak rural investment.
There’s no generic formula for managing agribusiness risk, at least not for Australian primary producers. But the key to reducing risk and improving profit margins may lie in using the right marketing strategies for individual producers. Experienced agricultural risk consultants can customise strategies—whether it’s storage, cash sales, improved contracts, or better insurance—to achieve good outcomes for Australian primary producers.
ARC Group are skilled and innovative agricultural risk and agricultural liability consultants. Contact us for more information on reducing your risk exposure and liability, or improving your business’s opportunities for growth, and we’ll be there to help you move into a more sustainable and fulfilling future in agribusiness