Discussing Key Resources and Risk Exposure in Your Farm Business Plan – farmdoc daily

Introduction

Developing a business plan for your farm helps align day-to-day operations with overarching business goals. In this article, we explore the importance of assessing current business resources and exposure to risk while creating a business plan. We provide discussion on risks to your business’s key resources, a framework to evaluate the strength of your farm’s resource base, and an outline of how to craft an effective business plan. These topics link back to our previous articles on integrated risk management (Lippsmeyer, Langemeier, and Boehlje, 2024a) and key resources (Lippsmeyer, Langemeier, and Boehlje, 2024b) where we discussed how macroeconomic factors and other external shocks can influence timing and effectiveness of investments in key business resources.

Assessing Resources

Availability and strength of key resources—including financial, physical, human, organizational, and information technology—should shape your business objectives and determine an effective business plan. Business objectives and business plans should focus on strengthening your farm’s key resource base. This resource base acts as a foundation for potential farm expansion, or ability to withstand shocks or stresses in the business environment. Evaluating key resources is a critical initial step in business planning, ensuring you have accurate benchmarks for your business’s resources. These benchmarks help to identify which key resources to leverage and which need to be strengthened.

In the next sections we discuss different types of key resources and major risks associated with each. In addition to this discussion, Figure 1 poses a series of questions which can be used to assess the strength of your farm’s key resources. These questions are intended to pinpoint potential shortcomings in a farm’s resource base, thereby assisting in the development of a business plan that addresses resources needing improvement. Figure 2 illustrates risk exposure by resource category.

Figure 1. Assessing Strength of Business Resources

• How good is your farm at …?

1. Financial Resources

• Using financial ratios to make on farm decisions.
• Maintaining low fixed costs relative to competitors.
• Keeping accurate books throughout the year.
• Comparing prices across suppliers prior to purchase.
• Accessing debt to help finance farm investments.

• Maintaining equipment/storage facilities.
• Routine soil testing and adjusting inputs accordingly.
• Keeping sufficient inventory for routine maintenance.
• Updating equipment.
• Storing and maintaining high quality crop inventories.

• Regularly developing and revising business strategy.
• Communicating company goals/ strategy to employees.
• Consistently hitting quality standards.
• Following through with planned deliveries or pickups.
• Maintaining contract agreements year after year.

• Retaining only quality employees.
• Attracting quality employees.
• Maintaining relationships with customers/suppliers.
• Sharing operational knowledge among employees.
• Recognizing/praising employee contributions.

• Streamlined data collection.
• Organized data storage.
• Analyzing data to provide operational insights.
• Analyzing data to identify operational inefficiencies.
• Using data to aid in decision making processes.

Adapted from Olsen (2007)

Organizational Resources

Organizational resources are the glue which binds together physical, financial, human resources, and information technology, giving direction and meaning to a farming operation. Organizational resources include business reputation, core values, operational structures, and systems, and play a vital role in differentiating your farm from competitors. For example, most operations can effectively produce yellow corn, but consistent product quality, reliable logistics, trustworthy relationships with input suppliers and product distributors are ways in which your organizational resources may yield a competitive advantage.

Many risks associated with organizational resources are considered strategic risks. Strategic risks are caused by external shocks or stresses which create a misalignment between a farm’s business strategy and available resources and capabilities (Lippsmeyer, et al., 2023). These risks lack off-the-shelf risk mitigation strategies, making them particularly threatening for businesses. Risks to organizational resources exemplify strategic risk: coming from a variety of sources, are known to cause brand erosion, tarnish reputation, obscure business strategy, and lack effective tools to mitigate these risks.

Adverse weather conditions reducing crop yield is often categorized as a production risk. However, if as a consequence your operation fails to fulfill a sales contract, the risk becomes a strategic risk, impacting your business’s reputation. Although distributors may have alternative sources to compensate for your shortfall, your farm’s reliability in meeting contractual obligations could come under scrutiny. This could adversely affect your future prospects of securing contracts with the same distributor.

Brand erosion and loss of reputation frequently relate to three factors: price, timeliness, and quality. Balancing a competitive price and product quality is a challenge which impacts a farm’s ability to maintain a positive reputation and retain customers. Moreover, perceptions of certain farming practices (i.e., production using certain chemicals or hormone treatments), negative publicity, or increases in competition may also contribute to brand erosion and reputation loss.

The clarity of a business strategy is another component of strategic risk. Business strategy may become compromised due to complexities of relationships between operators, employees, and outside parties; or through attempts to expand to seize economies of scope. For example, business strategy may become unclear during periods of high employee turnover or when a business expands into new market channels. Periods high turbulence

SDGs, Targets, and Indicators

SDG 8: Decent Work and Economic Growth

• Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation
• Indicator 8.2.1: Annual growth rate of real GDP per employed person

SDG 9: Industry, Innovation, and Infrastructure

• Target 9.1: Develop quality, reliable, sustainable, and resilient infrastructure
• Indicator 9.1.1: Proportion of the rural population who live within 2 km of an all-season road

SDG 12: Responsible Consumption and Production

• Target 12.2: Achieve sustainable management and efficient use of natural resources
• Indicator 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP

SDG 17: Partnerships for the Goals

• Target 17.16: Enhance the global partnership for sustainable development
• Indicator 17.16.1: Number of countries reporting progress in multi-stakeholder development effectiveness monitoring frameworks

Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The issues highlighted in the article are connected to SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation, and Infrastructure), SDG 12 (Responsible Consumption and Production), and SDG 17 (Partnerships for the Goals).

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s content, the specific targets that can be identified are:

• Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation
• Target 9.1: Develop quality, reliable, sustainable, and resilient infrastructure
• Target 12.2: Achieve sustainable management and efficient use of natural resources
• Target 17.16: Enhance the global partnership for sustainable development

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, there are indicators mentioned or implied in the article that can be used to measure progress towards the identified targets:

• Indicator 8.2.1: Annual growth rate of real GDP per employed person
• Indicator 9.1.1: Proportion of the rural population who live within 2 km of an all-season road
• Indicator 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP
• Indicator 17.16.1: Number of countries reporting progress in multi-stakeholder development effectiveness monitoring frameworks

SDGs, Targets, and Indicators Table

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Fuente: farmdocdaily.illinois.edu

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