Decision Making In Agriculture In Difficult Times
Making good decisions is hard enough when the birds are singing and the bees are humming in agriculture.
Decision making is far more difficult when everything seems to be against a farmer.
What has history told us about this subject and what has the writer learnt hard over a 40 year period? I look to the quote by Winston Churchill who once said if you are going through hell – keep going. Churchill also said that a pessimist sees the difficult in every opportunity and an optimist sees the opportunity in every difficulty.
Everything in agriculture is a 'trade off' and that is why many farmers tend to be fairly conservative with their farming decisions. A good example of this lies with weeds. Weeds are a fact of life for farming yet if farmers worldwide ignored them then we could expect worldwide food productions to decline by probably 20 per cent or more. The trade off of letting weeds grow would be lower crop yields.
Governments around the world have been taking more interest in farming decisions around droughts and the lack of water. Add to this the low milk payout and there is a multiplier effect of these three issues outside the farm gate on the urban population.
From this we can safely gather that every farmer needs to nail down their water rights and water easements formally with the powers-that-be. Sometimes attack is the best defence with some agricultural issues such as being perhaps an early mover in droughts. Complacency is highly toxic and removes the capacity for improvement.
Often if you slow down you will be overtaken by the slow people. Sometimes though taking action on the third bounce rather than the first bounce has a place. There is a Chinese proverb that says the winds of change are blowing ever harder – as a result some will build a shelter and some will build a windmill.
Abraham Lincoln said the best way to predict your future is to create it.
Time does not stand still – and we can see this with how long the following new inventions or ideas took to reach a market audience of 50 million:
- Radio 38 years
- Television 13 years
- Internet 4 years
- Iphone 3 years
- Instagram 2 years
- Angry Birds (video game) 35 days
In New Zealand the present production base and profitability that Mum and Dad have will probably be marginal for the next generation – there is a constant requirement for increased income if only to hold today's profitability.
Years ago I remember a farming client saying to me that he felt that he was not that smart – it was just that he stayed with problems longer. Another farming client told me if you are understaffed by half a man things are always on top of you but if you are half a man overstaffed you are always on top of things – he recommended the latter to me.
People are fundamentally hardwired to fear losses more than they value gains and this can easily impair decision making. Be careful about fixating on multiple objectives as there is a good chance that none will be achieved – often focusing on one war at a time is the best approach. Also question if your decision making is in a rut as decision making by habit can camouflage opportunities.
Fascinatingly, 75 per cent of farmers feel they are in the top 25 per cent – there is some faulty thinking and understanding here but maybe it has a positive side effect.
The farming industry needs to concentrate much more on using its good profit and cash flow years to cope better with the poorer years. Past experience is important when making complex decisions and this tends to result in complex decisions being conservative. Delaying a decision due to uncertainty can be the worst thing you can do – continually watching and waiting only solves a small percentage of key decisions.
Celebrate your small successes. Winners make it happen and losers let it happen. Winners fail successfully and losers fail miserably. Winners follow through and losers reluctantly follow.
I find farmers are starting to lose faith in the 'rules of thumb' – with the combination of climate change, rising costs and price uncertainty, this loss of faith is perhaps not surprising. Farmers often make decisions after running through options with other farmers whose opinions they respect. Often the farm decision making process moves through a confusion to confidence sequence of questioning, thinking, talking to the spouse and advisors, storytelling, making a budget and feeling better about the decision. Often if the decision looks as though it will work on paper then this is a good start.
The question should be asked: What is the real risk if it does not work – can the farm carry the loss or can you carry it? Don't bet the farm and ask yourself if your medium to long term goal is worth the risk.
Don't make any mistake about it, farming in New Zealand is a complex business involving many difficult decisions. Relative to the decision making required, the profitability is nothing like good enough, but that is another story.
Pita Alexander is an accountancy and agribusiness advisor at Alexanders.