Resilience is defined as the capacity to recover quickly from difficulties. Agility refers to an ability to move quickly and easily.
In a farm business, resilience and agility go hand-in-hand with liquidity and working capital — the ability to put up cash in a short amount of time.
“Those are the kind of metrics we use to measure financial resiliency,” explains Michael Boehlje, distinguished professor in the Department of Agricultural Economics and the Center for Food and Agricultural Business at Purdue University.
And it’s during the downturn in an agricultural commodity cycle that we’re most reminded of the importance of maintaining a healthy working capital position.
“We have a tendency to not have a full appreciation of the importance of working capital. I have a friend who says ‘I’ve got to keep my cash working and holding it in a reserve…I don’t understand this term working capital. Cash isn’t working if it’s sitting there and not earning any interest. How can that be valuable to you?’ It’s just like how we have feed reserves for our livestock. We typically have excess just in case we don’t get a full crop. It’s the same concept to maintain a strong working capital position,” he says, in the interview below, previewing his talk at the Agricultural Excellence Conference in Ottawa this week.
There are ways to build resiliency or working capital during a downturn, but all the options are more difficult than building it before the downturn begins — for example, selling land, refinancing loans, finding off-farm work.
Not only does a healthy working capital position buffer against downside risk, it increases upside potential, with downturns often offering the best opportunities for buying land and machinery, he notes.
The definitions for both resiliency and agility also refer to quickness. The ability to move quickly and easily when opportunities arise is often the difference between capturing an opportunity and missing out, especially when cash is tight, notes Boehlje.
“People get the deer in the headlights. They don’t know what to do. They become very indecisive and do more analysis than they should and have paralysis by analysis,” he says. “It is important to have the ability to have rapid response capacity.”
Boehlje will be speaking about increasing a farm’s agility and resiliency at the AgEx Conference in Ottawa November 21-23. Find out more here.
- Where to begin with benchmarking your farm business — AgEx ’17 Preview
- MYFB — Ep. 16: The Importance of Working Capital
Subscribe: Apple Podcasts | Google Podcasts | Spotify | RSS | All Podcasts