Often positioned at the other end of risk, value is regarded as the opposing force, or that desired state of farming operations which can ‘cancel the costs and impact of risk’. To my mind, ‘value creation’ and ‘risk mitigation’ are two sides of the same coin of any profitable business. Many would argue that for as long as the financial value derived from the farming operation ‘outweighs’ the real and experienced, and potential risks, the farmer ‘will stay afloat’. My response is that a boat with even a single hole in its hull is already sinking, perhaps slowly, imperceptibly, but nevertheless its seaworthiness has been compromised and it is sinking, albeit slowly. Hidden and/or unmitigated risk is that single hole!
Although traditional value chain analysis is in its own right a useful management tool, it really focusses on one side of the coin – the ‘heads’ side. Broadly speaking, in business, a value chain is comprised of three core elements as follows:
Inputs Productive Actions Outputs
Inputs can be regarded as the ingredients to be added, and could take the form of intellectual or monetary capital, physical labour or commodities.
Actions or activities might be single events, systems or processes, no matter which, the objective is the production of, reconstitution or enhancement of value in the form of an output.
Outputs might be in the form of products or outcomes for example service provision, or in the case of a sheep farmer growing wool, commodities in the form of a certain number of bales of a desired grade of wool to be sold at a targeted and profitable margin by a certain time. It is worth noting that four overarching dynamics and permeating realities, form the context of all value chains, these being Time, Energy, Space and Ideas. Of course these four are also present as inputs, productive actions and outputs. In some way each step in the value chain can be measured and adjudicated in terms of its efficient application of these four contextual dynamics. For example, the selection of a stud ram based on its ability to convert dry feed into body weight, as measured in time and energy costs, would provide a sound indication as to whether the capital invested in the ram will ‘pay off’ in his progeny and how long this will take. Again, we see that each element of the value chain is exposed to risks which will, if left unmitigated and unmanaged, begin destroying the value which the ‘chain’ of action intends to create! A simplified and generalizable schematic of the value chain of such a production unit, could be represented as follows:
CONCEPTION PREGNANCY LAMBING WEANING …
… JUVENILE X to Y TEETH MATURITY INTRO TO PRODUCTION
FINISHING/FATTENING SALE/SLAUGHTER
Each of these elements in the development of the lamb from conception to the final objective of either being sold or slaughtered, or its introduction as a production unit for breeding or wool, carries risks. Since most often in both the life of business and the business of life, the devil is to be found in the detail, careful and thoughtful investigation and analysis is required.
Consider for example the role which TIME plays in the production value chain of mutton growers. If my calculations are accurate, then the 36 month period after the loss of the last milk teeth at age 12 to 18 months, to the eruption of the 5th and 6th front teeth, in other words the chronological age of the sheep from the end of its first year to its 4th birthday, represents the highest risk period for the farmer in the production value chain of every sheep. The high costs of insemination, pregnancy, lambing and raising the lamb to yearling status have all been paid for, and the farmer’s patient management is now required for a further three years before any significant return can be expected, especially if the animal is being raised for its meat. For wool growers, the period is much shorter as the first profitable shearing most often occurs after the animal’s 1st birthday (hogget wool), depending on health and weight of the animal, quality of the fleece, weather conditions and shearing cycles.
In my simplified and generalizable schematic of the value chain of a sheep as a production unit (see above) the period of possibly 36 months for mutton growers (i.e. sheep at 4yrs old or 6 teeth), falls within what I have termed the ‘X to Y TEETH’ element. In the next article in my series I will focus on this element of the value chain of production on the sheep farm to illustrate the functionality of risk mitigation and management, and innovations aimed at resolving and/or minimizing the associated risks.
If you would like to communicate directly with the author, you are invited to contact PJ at the following email address: This email address is being protected from spambots. You need JavaScript enabled to view it.
