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{"id":20307,"date":"2023-10-20T17:57:15","date_gmt":"2023-10-20T20:57:15","guid":{"rendered":"https:\/\/agribrasilis.com\/?p=20307"},"modified":"2023-10-23T11:20:33","modified_gmt":"2023-10-23T14:20:33","slug":"risk-management","status":"publish","type":"post","link":"https:\/\/agribrasilis.com\/2023\/10\/20\/risk-management\/","title":{"rendered":"Risk Management in Brazilian Agribusiness"},"content":{"rendered":"\u201cThe farmer produces with excellence, but fails in management\u201d<\/p>\n
Jos\u00e9 Lu\u00eds Bassani <\/strong>is coordinator of educational and student success projects at Agrinvest Commodities <\/strong>and executive consultant at Finfarms.<\/p>\nBassani <\/strong>has a degree in economics from the Universidade Estudual do Oeste do Paran\u00e1, with an MBA from the Escola Superior de Agricultura “Luiz de Queiroz” \u2013 USP.<\/p>\nJos\u00e9 Lu\u00eds Bassani<\/strong>, coordinator at Agrinvest Commodities<\/p><\/div>\n
\nAgriBrasilis – What do you mean by “if you do not have production insurance, it is definitely a loss of capital”?<\/strong><\/p>\nJos\u00e9 Bassani –<\/strong> When an extreme weather event occurs, there will be losses in agricultural production. If the farmer does not have insurance to compensate at least the cost of production, the capital invested in farming will be lost.<\/p>\nAgriBrasilis – What does risk management involve in agribusiness?<\/strong><\/p>\nJos\u00e9 Bassani –<\/strong> Risk management involves a series of measures that need to be adopted to mitigate financial losses.<\/p>\nIn addition to rural insurance, which can protect the farmer’s assets, income, and profitability, it is necessary to: pay attention to cash flow management; adopt protection strategies against the risks of fluctuations in commodity prices, such as futures, forward, and options markets; map environmental, labor, operational, legal and other risks that can cause activities to stop, generating loss of income.<\/p>\n
AgriBrasilis – What are the challenges related to credit risk analysis in agriculture? What do farmers need to know?<\/strong><\/p>\nJos\u00e9 Bassani \u2013<\/strong> The farmer needs to be aware of their debt level. A good monitoring index is to evaluate how leveraged they are in relation to the operating result, and the acceptable index has a value below 3.5.<\/p>\nWhen farmers go to seek credit, they have what we call in behavioral economics excessive optimism bias. This means that income projections will always be positive and growing, for example. This does not match reality: we live in economic cycles of booms and busts. This is difficult to predict, but it needs to be considered.<\/p>\n
The asymmetry of agricultural information, necessary for a safe credit analysis to be carried out by financiers, has decreased, but is still large.<\/p>\n
AgriBrasilis – What are the main financial management mistakes made by farmers?<\/strong><\/p>\nJos\u00e9 Bassani \u2013<\/strong> The main mistakes are the omission in cash flow management and the difficulty in separating personal finances from those of the business. The farmer has to be the protagonist in his management and decision-making, and not outsource, letting others decide for them.<\/p>\nThe farmer produces with excellence, but fails in management, especially when selling the production. Therefore, seeking knowledge about risk management is important for business continuity.<\/p>\n
AgriBrasilis – In what ways can credit be used as a tool for growth and protection of assets in agriculture?<\/strong><\/p>\nJos\u00e9 Bassani –<\/strong> When it will provide an increase in income in the activity. For example: to start a new agricultural activity, to purchase equipment that will generate greater efficiency and income, etc. These are factors that contribute to greater revenue, and if revenue is well managed, there will be growth in assets.<\/p>\nRegarding asset protection through credit, if the land is mortgaged, the farmer must take out insurance that protects all facilities linked to that guarantee.<\/p>\n
AgriBrasilis – Do farmers face credit constraints? Why are 27.4% of farmers in debt?<\/strong><\/p>\nJos\u00e9 Bassani –<\/strong> There is excessive optimism when taking out credit, often based on intuition and emotions, without evaluating the real situation. For example, the farmer, thinking that commodity prices would continue to rise, may have made hasty decisions. A clear example is the decision to change machines when it was not necessary.<\/p>\nThe lack of cash flow management is also a driver of this percentage. The mismatch between inflows and outflows in the middle of a due date leads to delays and, consequently, default.<\/p>\n
AgriBrasilis – <\/strong>How should farmers manage their farm’s cash flow, aiming for a more efficient and sustainable business?<\/strong><\/p>\nJos\u00e9 Bassani \u2013<\/strong> You need to be consistent and analyze the flow frequently, know all the possible expenses involved in the business, establish rules and budgets, define how much you will withdraw from work for family maintenance, and measure the final result, whether it was a profit or a loss. When you make a profit, you need to establish how much you will use to reinvest in the business. The farmer must always have an entrepreneurial vision.<\/p>\n <\/p>\n
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