Langemeier unveils agricultural strategic risks

By Scout Nelson

Purdue University agricultural economist, Micheal Langemeier, a Nebraska native with a background in farming, delves into the diverse risks encountered by agricultural producers. He emphasizes the often-overlooked aspect of strategic risk, which pertains to long-term external factors affecting operations. These encompass shifts in government policies, consumer preferences, technologies, global competition, climate change, and macroeconomic conditions, all potentially impacting farm and ranch operations. Langemeier, speaking at the Top Farmer Conference sponsored by Purdue University, highlights how changes in government policies can significantly influence profitability.

Examining government policies, Langemeier cites examples like the demand surge for renewable diesel, driven by state and federal policies promoting its use. He underscores the impact of federal renewable fuel standards (RFS), state incentives for ethanol production in Nebraska, and free trade agreements (FTAs) fostering agricultural exports. While various policies, including federal farm programs, crop insurance, county zoning, and tax policies, can affect profitability for Nebraska producers, strategic risks often go unrecognized.

In their paper, "Resilience to Strategic Risk," Langemeier and colleagues, Maragaret Lippsmeyer, James Mintert, and Nathan Thompson, attribute the oversight to a perception that strategic risks are beyond operational control. Farmers may adopt a laissez-faire mindset, believing management efforts are futile. The authors propose that producers can mitigate strategic risk by enhancing agility and absorption capacity. Operations with agility possess flexibility, clear goals, and a proactive approach to opportunities. Absorption capacity, on the other hand, involves an operation's resilience to shocks, characterized by low per unit fixed costs, diversification, and a robust financial foundation.

Recognizing and managing strategic risks is crucial for agricultural operations, requiring a proactive stance to build resilience and navigate external challenges effectively. More information on managing can be found here.

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