Including risk in enterprise decisions in Australia’s riskiest businesses

This study uses measures of revenue volatility to make comparisons between the business environments experienced by Australian and international farm businesses, and also between Australian farm businesses and businesses in other sectors of the Australian economy. The results indicate that Australian farm business managers operate in a more volatile business environment than is the case for virtually all national agriculture sectors world-wide, and also that businesses involved in Australian agriculture experience more than twice the level of volatility on average of businesses in other sectors of the Australian economy. These findings highlight the differences between agricultural and non-agricultural businesses, and therefore the need for different approaches to business management within different sectors. The research also examines measures of volatility for different agricultural commodities, and available evidence of changes in volatility over time. Finally, the research examines available financial data for broadacre farms in Australia, to ascertain the extent to which farm managers and their business advisors have been able to successfully manage volatility in their business decisions. Available farm survey data indicates that crop businesses have less successfully managed business risk over the past two decades than mixed enterprise farm businesses involving both livestock and crop production. The research concludes that the evidence points to a need to develop a more sophisticated approach to farm business management in Australia which includes greater consideration of risk in comparisons of gross margins for different farm enterprises, and also includes a more systems-based approach to farm management advice so that farm business managers are able to more adequately consider the cost of volatility or risk in making management decisions.