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Download full report (250k) This publication is only available a an electronic download
by Matthew McCarthy & Don Thomson
May 2007
RIRDC Publication No 06/040 RIRDC Project No FM-5A
Executive Summary
What this report is about
This report documents the
attitude and behaviours exhibited by a sample of broad-acre farmers towards
risk and decision making. It also reports on the analysis of what factors
influence risk attitudes and risk management behaviours.
Who this report is aimed
at
The report is targeted at
industry bodies, researchers, farm advisory and service providers.
Background
The presence of risk is
inherent and significant in most farming businesses. Many key decisions
made by farmers have the potential for factors outside of their direct
control to have negative impact on the outcome. Farmers have traditionally
assessed and managed risk with an informal or ‘gut feel’ approach. However,
a challenge is emerging as business risks become more sophisticated. As
broadacre farming trends towards more intensive production systems, identifying
and managing risks will become even more important due to the potential
impact on the bottom line.
This research was an initial exploration to enhance understanding of current risk management practice by farmers with a view to future potential development of farmer friendly, formal approaches to risk management.
The corporate sector has for some time now embraced formal risk appraisal and risk management processes, including integrated risk management. This is now recognised and endorsed in the Australian/New Zealand Risk Management Standard (AS/NZA 4360:2004).
In 2003 Farm Management 500 facilitators presented the Risk Management Standard to Farm500 members and attempted to apply the AS/NZA 4360:2004 methodology to farming family businesses.
The uptake was poor due partly to the corporate focus of this methodology, difficulty in placing it into context for farm businesses and a perceived lack of enthusiasm for adoption.
Objectives
The objectives of the project are:
The potential beneficiaries
of the research are farming families and farm businesses through improved
risk management and decision making.
Methods
Two existing Farm500 groups
were chosen to conduct initial focus groups sessions in August 2004.
These groups were situated in the Victorian Mallee and Wimmera districts. It was evident from these focus groups that perceptions of likelihood and consequence were very individualistic and were likely to change considerably over time as circumstances changed. Information gathered from the focus sessions with Farm500 members was used to develop items for a broader survey of landholders, to quantify risk attitudes, perceptions and behaviours and the relationships between these factors.
Of the 350 surveys distributed, 220 usable responses were returned. Seven ‘farming styles’, or groups of people who share similar attitudes about farming, were identified.
Results
Attitudes towards risk were
not generally related to structural and demographic characteristics, but
were more likely to be related to ‘farming style’, which is derived from
farmer’s more general attitudes to farming. Where structural and demographic
characteristics were related to risk attitude, it was only in relation
to ‘financial risk’.
There were significant relationships between responses to some of the questions about farmer’s ‘comfort’ with various areas of risk and their ‘farming style’ and ‘business stage’, but not to any other structural or demographic factor tested. These results confirm that ‘comfort’ with risk is an individualistic response, informed by attitude (and therefore perception), and in some instances informed by the different stages in the business cycle.
Analysis of decision-making preferences at strategic, tactical and operational levels and the relationship with attitudes towards risk revealed that attitude to risk is more likely to be a factor influencing strategic decision-making, and less important in influencing tactical and operational decision-making methods.
This preliminary and exploratory research has demonstrated that risk perception and attitudes to risk are highly variable and individualistic. They are determined by individual biography, experience and world-view. Furthermore, attitudes about and perceptions of risks are highly variable over time due to the vagaries of climate, agricultural commodity prices, terms of trade and personal circumstances.
Structural and demographic characteristics are very poor determinants of risk perception and behaviour, although some financial risk perceptions and behaviours are often related to particular business situations.
The outcomes of this preliminary research suggest that the priority need is to develop a farmer specific ‘personal risk profiler’ to enable farmers and farming families to better understand their own attitudes to risk and decision making. Increasing self knowledge amongst farmers and raising the profile of risk attitude in farming businesses and decision making is considered to be the best way of progressing towards a more integrated, professional approach to risk.
Implications
The qualitative component
of this research – the focus groups – demonstrated that farmers are aware
of and actively think about the risks associated with farming. The quantitative
results have confirmed our observations from the focus groups that these
perceptions of risk are highly variable, and very place and time specific.
Hence, the outcomes of this preliminary research suggest that the priority need is to develop a farmer specific ‘personal risk profiler’ to enable farmers and farming families to better understand their own attitudes to risk and decision making.
This has implications for farm industry bodies, extension and advisory agencies and farmers.
Recommendations
It is recommended that:
 
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