Due to the advent of globalization, agriculture has become a serious business that can no longer be practiced casually. As a result of this phenomenon, small-scale farmers have become vulnerable to the ephemeral nature of agribusiness. Farming is nowadays considered to be risky because of its susceptibility to changes in climate, market prices, soil conditions, disease, and so on. In North American cities such as Denver and Fresno, agriculture loans have helped many farmers to plan their farm budget and allocate their resources optimally. The agricultural business in California is booming. In 2019 alone, Californian agricultural exports amounted to $21.7 billion, which is a 3% increase compared to the previous year. Agriculture, in the modern world, requires huge real estate or land to flourish. In this scenario, reaching out to the real estate consultants who specialize in providing commercial property loans and apartment building financing can be helpful. These consultants have a thorough understanding of commercial real estate loans and the different financing, as well as, available repayment options. Similarly, bridge lenders go out of their way to help farmers in securing short-term loans in case of an urgent requirement and these can be held until better long-term solutions are found. Traditional lenders often shy away from providing loans to farmers as they doubt whether the loans will be repaid or not. Thankfully, farmers can reach out to agricultural and real estate financers, such as Pact Capital as an alternative solution to this issue. Risks Associated With Agribusiness Before proceeding to discuss how agricultural risks can be effectively managed, it is important to pinpoint the risks that prevail in the agribusiness sector: • Production and Operational Risks To begin, farmers are highly vulnerable to risks related to production and operation. For example, if, as a result of pests and diseases, the crops’ yield decreases, it can put the farmers in a highly risky situation. Additionally, means of production, as well as, technological equipment need to function optimally. When farmers procure new equipment, they may be unaware of their real-time results and effectiveness which can create uncertainty. • Changes In Market Prices Supply chain management involves all aspects from the cost of production to the supply and demand for a product. Market prices cannot always be predicted with the help of seasonal trends. Lower yield production, inflation in prices, and many more factors play a role in the changing market prices. Due to these market fluctuations, farmers are often left in the dark about the revenue they will earn for their produce. • Personal Risks The breakout of an epidemic or disease can adversely affect agricultural practices. Even factors such as mass migration can significantly cut the number of farmers available. All these factors can put business owners and managers under great stress regarding how they will find enough laborers to employ in the fields. • Institutional and Fiscal Risk The policies of the government regarding the subsidies, exportation of crops, agricultural practices, benchmarks for prices, etc., make the farmers highly co-dependent and vulnerable. Institutions such as cooperatives, banks, and marketing organizations play a significant role in deciding the level of prices and subsidies. Additionally, procuring a loan from these institutions can also be challenging for farmers as their income is never certain or predictable. Top 5 Strategies To Manage Agricultural Risks Most of the risks associated with agribusiness can be attributed to a single factor and that is the unpredictability of financial resources and income. Well, with the help of fiscal tools that aid financial budgeting, one can effectively manage these threats: 1. Cash Flow Statements and Balance Sheets Financial farm budgeting goes hand in hand with proper documentation of profit and loss statements, as well as, accurate statements of cash flow. These help in creating monthly, quarterly, or annual records of the revenue earned and the expenses incurred. Having accurate insights into the number of liabilities, debt, etc., can enable one to make a well-informed decision about future investments. It is a highly effective method of deciphering the operational costs in agribusiness, as well as, the total net worth, cash, and so on. 2. Analysis of Marketing Trends Although the market is always prone to fluctuation, with the optimal usage of data analysis and insights about the upcoming marketing trends, any business can be made more predictable. It ensures that the risks are averted highly informed decisions can be made further on. 3. Crop Diversification Just like agricultural practices such as crop rotation keep the soil fertile and healthy, similarly, crop diversification can be applied to ensure that the risk is minimized and the prospects for yield improvement. Crop diversification refers to the act of planting versatile crops to ensure variety and financial safety. 4. Human Resource Planning Besides the incorporation of advanced technology that reduces risk, it is important to ensure the effective management of Human Resource (HR). Only those workers should be employed who possess suitable skills and experiences. Clear communication should be there between the farm owner and the laborers. Through careful planning, the laborers should be informed about the duration of work and safety measures to be taken. 5. Custom Lending and Fiscal Solutions By approaching farming and real estate consultants, agribusiness owners can greatly benefit from the incentives to improve cash flow, protect assets, and manage long-term liabilities. Whether it is a short-term bridge loan that is required or solutions to recapitalize the entire operations, companies like Pact Capital can assist you in the process. On a Final Note It can be concluded that agribusiness can be made less volatile with proper planning, resource allocation, and financial budgeting. Pact Capital is a top-notch company based in California, which specializes in agricultural loan solutions. This company is highly reputed for helping farmers to recapitalize and finance their businesses. So if you are serious about developing and refining your approach towards agribusiness, then contact Pact Capital right away. |
AuthorGet in touch with us at PACT Capital to manage the risks associated with real estate lending through our proprietary risk mitigation framework and asset class diversification. Archives
December 2021
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