04 Dec 18

Risk minimization in profitable agribusiness

One of the most important sectors for the national economy is in the field of profitable agribusiness. However, this is one of the areas with the greatest risk exposure, which begins at planting and goes through to commercialization. Overall, companies have been increasingly concerned with such threats.

Risk can be defined as an uncertainty that affects the well-being of individuals. And in the area of ​​risk management in agribusiness, the elements of supply and demand are reaching an increasingly international and agile dimension.

In the agricultural sector, the producer always expects to obtain a record harvest or to fatten the animals in the necessary period. However, there are occurrences that can change the prediction of success, which ends up not happening due to agricultural risks.

The risk in profitable agribusiness is associated with negative and unpredictable results, such as biological variables (insect infestation, mad cow disease), market (exchange rate, saturated market, fluctuation in input prices) and regulatory variables (changes in legislation).

The Brazilian market is among the first to produce poultry, corn and pork, as well as being one of the world’s largest exporters of red meat, soy, sugar, orange and coffee. Thus, at the national level, the importance of agriculture becomes even greater, allocating about 33% of Brazilian jobs and 43% of all exports.

Because of this, it is necessary for professionals in the field to identify threats to the strategic business positioning, so that future challenges are measured and countered.

Mechanism for disaster risk reduction in agriculture

According to the Food and Agriculture Organization of the United Nations (FAO), around 25% of the damage caused by natural disasters in the world affects the agricultural sector. The disasters consist of environmental occurrences, fires, lightning strikes, explosions and climate change, which can be costly for the agrarian entrepreneur.

In order to minimize risks in profitable agribusiness, the United Nations has announced the launch of a special mechanism to help countries improve their food production sectors, reduce risk exposure, reduce impacts and improve preparedness to deal with disasters.

It is estimated that $ 2 to $ 4 will be saved for every dollar invested in disaster risk reduction. Asia, for example, over a period of 10 years, had an estimated loss of $ 28 billion, an average of almost $ 3 billion a year.

This makes clear that investments made in the area of ​​risk minimization make the agricultural sector of any country more profitable.

Profitable agribusiness in Brazil

Maquinário operando em plantações de soja no Centro-Oeste brasileiro.

Profitable agribusiness has a relevant role for Brazilian society, since even with the fall in international prices in dollars of agricultural commodities, the development of the sector is remarkable and the crops continue to grow.

Producers and agrarian industries have been attentive to the need to manage their risks with caution and competence.

However, in the country, the average annual loss of the sector related to environmental risks is R $ 11 billion, according to the Brazilian Agricultural Research Corporation (Embrapa). In addition, according to market estimates, only 15% of the Brazilian planted area is insured.

Small farmers, ranchers, fishermen and forest dependent communities are particularly vulnerable to disasters that destroy or affect crops, food, seeds, livestock, equipment, crops and stored food. Therefore, it is imperative that businessmen in the industry hire insurance for their planted areas.

Human capital and benefits management

Benefit management has recently presented one of its greatest challenges, especially with regard to medical care, since it represents the second largest expense to companies after payroll.

Because of this, the search for efficiency and competitiveness is in the sights of the entrepreneurs. Therefore, corporate management processes must take into account the analysis and risk management when developing investments in the agricultural sector, since this presents significant challenges.

Climate risk management

Climate risk management is fundamental to the competitiveness of profitable agribusiness. Among the world’s agricultural producing and exporting countries, Brazil is one of the largest.

However, this competitiveness condition can be threatened if countries – including Brazil – do not pay attention to the climate issue. As a result, there is a need to reduce greenhouse gas emissions.

Profitable agribusiness is among the sectors that most need to contribute to achieving the goal of reducing greenhouse gases. In the case of Brazil, this consists of combating illegal Amazon deforestation and greater incentives for reforestation programs.

Because of this, international funding sources have considered the issue of global warming.

Thus, the reduction of CO2 (carbon dioxide) is crucial so that countries are not exposed to monetary risks.

Profitable agribusiness and the world economy

The agricultural sector is responsible for more than a quarter of the national GDP in countries such as Burkina Faso, Burundi, Central African Republic, Chad, Ethiopia, Kenya, Mali, Mozambique, Niger, among others. Because it is dependent on agriculture, the population must pay attention to the risks of the sector, since it directly impacts the general economy.

There are also indirect and significant losses in subsectors that depend on agriculture and the consequences on trade flows are alarming.

Did you already know all the methods of risk minimization for a profitable agribusiness? Do you have any questions or would you like to know more about it? Leave your comment below and continue to follow our publications for more information.

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