Farmers, particularly those in South Africa, carry more than their fair share of risk. Agricutural pests and diseases, adverse weather, see-sawing market prices, unpredictable foreign currency rates, soaring input costs, and politics are all frequent threats.
But then, like business people everywhere, farmers face the occasional ‘black swan’, a rare, unpredictable event that has severe consequences.
You seldom forget the arrival of a black swan. Think of 9/11 and those horrific images of airliners being flown into the World Trade Center in New York.
Nearly 3 000 people were killed that day and the US stock exchange lost more than 7% of its value in the aftermath. As the world was on the road to recovery, another black swan flew in: the global market crash of 2008.
This was caused by greedy and corrupt executives of leading banks who made loans to people to buy overpriced houses they couldn’t afford.
When investors realised the risks of what was happening, the global sell-off of shares triggered a market collapse.
Volcanic ash and fresh produce
Do you remember the first TV images of the Icelandic Eyjafjallajökull volcano erupting in April 2010?
Ash rose 8km into the atmosphere, disrupting air travel across the whole of Western Europe and preventing the delivery of highly perishable products, such as flowers, fruit and vegetables. From a global perspective, it was certainly a lesser black swan event, but for
producers and exporters of these products in Southern Africa, it was a disaster.
We are now experiencing what might be the most damaging black swan event in living memory, the coronavirus disease (COVID-19) pandemic. At this point, panic and overreaction to the virus appears to have caused far more damage than the disease
Time will tell if this reaction is justified.
Black swan events are unpredictable, but one thing is certain: they will be here again. In all likelihood, they will take one or more of the forms listed below, and you need to do your utmost to ensure that your business can survive them:
• Natural disasters: Storms, drought and fire are common risks faced in South Africa, but are you prepared for a prolonged heatwave or a devastating cold snap?
• Disease: We’ve been warned for years about the risk of new, antibiotic-resistant bacteria. We’re facing a virus pandemic at the moment, but how will you bulletproof your business to survive one that affects not only humans but animals as well?
• Financial markets: The regulation of international markets by fallible humans has no chance of preventing another calamity. Will you be adequately diversified to absorb a black swan-sized knock?
• Politics: Toxic and unpredictable politics make for dangerous times, and black swans will rise up. There is little need to remind anyone in South Africa of the dire political risks we face.
• Energy: Over the past 25 years, the oil price has swung between US$20/ barrel (about R350/ barrel) and US$165/ barrel (R2 900/ barrel). The risk of major supply line disruption is ever-present. As for electricity, there is little to add to what we all know. Have you explored the possibility of getting your own energy source?
• Technology: Inventors of new technologies seldom grasp the enormity of the changes they set in motion. The steam engine, dynamite, the car, radio, aircraft, the satellite, the
Internet and the explosion of digital technology have changed the world. In the process, businesses that had been in existence for generations have been destroyed. Will your business be able to cope with developments like these?
It’s a tough world out there. Stay calm and carry on, but for goodness’ sake, be prepared.