At the start of the year few people will have given a passing thought to the Strait of Hormuz but the ongoing conflict between Iran and the USA/Israel has highlighted just how vulnerable business can be to events in faraway lands.
The waterway acts as a choke point between the Persian Gulf and the Gulf of Oman and, as we’ve seen in recent weeks, any blockage has the potential to send the price of oil and related petroleum products soaring as the region accounts for c. 20% of world oil production. We saw similar disruption to supply chains when Russia invaded Ukraine in 2022 which also led to higher fuel, fertiliser and feed prices.
Of course, whilst hugely influential, it’s not just major geopolitical events that can adversely impact a business. The current situation in the middle-east and the knock-on impact has prompted many of our clients to look at business resilience and make changes that will lessen the impact of future adverse events.
Resilience is defined as the ability to withstand or recover quickly from difficulties. Businesses, farming or otherwise, need to make themselves less vulnerable to external shocks.
Obviously we don’t know what challenges lie ahead, and no one wants to be the general who only plans to fight the last war.
But many clients across the agricultural sector are reviewing their businesses now to identify potential weak points, and are addressing these to put themselves in a less vulnerable position for the next crisis, whatever shape or form that may take.
The table below sets out some of the most common events that can cause serious disruption across the sector, the risks and weak spots often then brought to the fore in these situations. And the potential mitigation options you could consider to minimise adverse impacts.
| Event Type | Risks | Potential Mitigation |
| Supply chain disruption | Inability to secure inputs or secure inputs at a reasonable price | Order and delivery of inputs well in advance of use date
Secure storage for key inputs Greater use of home-grown feed Precision farming to make better use of inputs |
| End market disruption | Over reliance on one enterprise or end buyer | Review enterprise mix
Avoid dependence on one buyer if possible Consider collective marketing via a co-op to increase selling power Ensure sufficient storage in place in case movement to market delayed |
| Finance | Insufficient cash to operate business and meet personal needs | Maintain cash balance or significant overdraft headroom to cover unexpected events
Make use of alternative finance sources such as HP Ensure debt repayment profile is appropriate |
| Weather | Adverse weather impacting operations | Evaluate access to irrigation and efficient drainage
Buffer feed stocks Focus on soil health to make crops more resilient Plan for surplus machinery and labour capacity in case available working days reduced |
| Labour | Labour shortage at key times | Look at opportunities for greater mechanisation
Maintain access to reliable contractors Carry surplus capacity Invest in better training to boost productivity |
| Plant and animal health | Breakdown in plant or animal health | Explore lengthening of crop rotations
Securing replacements and seed stock from trusted sources Prepare for closed flock/herd Review bio security |
| Political | Adverse tax changes, increased regulation, loss of public financial support | Review business structure on a regular basis
Seek out appropriate advice Focus on improving core business performance to reduce vulnerability to political interference Strengthen balance sheet strength |
This list is of course by no means exhaustive, and the impact of different events will vary from business to business. The important takeaway is to review your business both now and regularly, not just in times of crisis. This gives you the opportunity to identify issues and, if possible, act now to make your business more resilient for the future/ Lateral thinking may be required, both to identify the issues and the potential solutions.
To find out how our agriculture team can support your farming or rural business through times of change, contact one of the team here.
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