Flexibility key to farming change
There is growing consensus that New Zealand farmers are entering an era of increasingly rapid and complex change, that the environment New Zealand farmers continue to face is becoming increasing difficult to predict and can be classified as turbulent.
The main characteristic of this turbulent environment is an increase in shocks and uncertainty.
The increase in the frequency and severity of droughts is just one example of the problems that occur when faced with a turbulent environment.
Another example has been the change in the market for dairy products. Prices have generally moved to a new level, but price volatility is also much greater.
To cope with a turbulent environment, New Zealand farmers need to develop resilient farming systems that can cope with greater levels of uncertainty.
It has been argued that there is the need to shift the emphasis from shortterm optimisation and efficiency (i.e. stability) to fostering long-term adaptive capacity.
Resilience is the capacity of a farming system to prepare for uncertain events, respond to disturbance by seizing opportunities for reorganisation created by the shock while maintaining productivity capacity in face of variability in production, financial and market related factors.
This definition makes explicit that resilience is not just about coping with downside risk but it is also about being able to take advantage of upside risk that occurs as a result of uncertainty in the environment.
Focusing too much on downside risk can mean that systems performance is severely constrained and opportunities are missed.
Resilience can be separated into three elements: 1) buffer capacity, 2) adaptive capacity and 3) transformability.
These elements suit different degrees of change in the environment and require different degrees of change in the strategies and tactics a farmer needs to bring about.
Buffer capacity describes the amount of change a farming system can undergo and still function under its current basic structure.
Buffer capacity is used not only to mitigate the effects of downside risk (e.g. a drought), but it is also used by farmers to take advantage of upside risk (e.g. a good summer).
Buffer capacity is useful for coping with variation in the current environment but it is found wanting when that environment changes.
In this situation, adaptive capacity is important. Adaptive capacity is described as the degree to which the farm-system is capable of responding to change. There are two elements to this. First, a farmer must be able to identify when there is an important shift in the environment.
The second element of adaptive capacity is the farmer’s ability to develop strategies and associated tactics to minimise negative aspects of the new environment (downside risk) and take advantage of the positive aspects (upside risk). Learning is critical for adaptive capacity. The environment can change to the degree that adaptive capacity is insufficient to cope with the change and the system is in danger of becoming non-viable unless it transforms.
Transformability is defined as the capacity to create fundamentally new systems when ecological, economic or social conditions make the current system untenable.
In New Zealand, for example, dairy farmers have transformed to kiwifruit or sheep and beef farming and vice versa in responses to changes in the environment.
Learning, the ability to respond to signals of change, adjust existing knowledge, and then deploy that knowledge as new skills and practices is a key attribute of resilience.
So for this drought it is useful to reflect on what has been learnt from the experience, the highs and the lows and identify what you might change so that if another drought occurs, the business will come out of it in a better state.
Key areas to think about include the farm infrastructure, the farming system and the farm’s marketing strategies.
The first question to ask is what infrastructure needs to be improved so that the farm can better cope with drought.
For example, with some farms it wasn’t the shortage of feed that was the issue this drought, but the lack of stock water.
Things to reflect on include: water supply, shade and shelter, soil fertility levels and drainage, pasture species, access to yards and weighing scales, subdivision by aspect and contour, animal genetics.
Further investment in specialised infrastructure may relate to: water harvesting and/or irrigation, specialty pasture species (Lucerne, chicory, plantain), browse shrubs and fodder trees and the harvesting and feeding out of supplementary feed.
Any investment in infra-structure must, however, be assessed to determine that it is both profitable and feasible over time.
While it might seem perfectly logical after this summer to irrigate every possible hectare, you do need to do the sums to work out how sensible this is; it will be a trade-off between more debt and less risk.
In terms of the farming system, a key question to ask is whether it is flexible enough to cope with droughts.
In sheep and beef farms more flexible systems have a higher proportion of cattle, where the majority of these are trading stock often under a two year policy to provide further flexibility.
They may also run buffer mobs of trade lambs and ewe hoggets that can be sold if feed conditions deteriorate. These systems also finish a large proportion of lambs and cattle before Xmas.
To reduce market risk, livestock farmers are selling when other farmers tend not to and buying when other farmers are not in the market.
To reduce market risk for bought-in feed, farmers are using forward contracts or organising supplements and grazing earlier than other farmers.
When considering which strategies to adopt, remember that the adoption of a strategy may reduce risk in one area, but increase it in another. Risk is rarely reduced, but it is transformed into a different form.
For example, investment in irrigation may reduce exposure to production risk, but it will also increase exposure to financial risk because of an increase in debt levels.
Similarly, contracts may reduce market risk, but expose a farmer to contractual risk.