Assessing and Managing Business Risks: Financial & Market Risks

Assessing and Managing Business Risks: Financial & Market Risks

Objectives: • By the end of the session, the participants shall have: • Identified the various types of risks farmers face when planning more commercial operations; and • Describe strategies how to manage risks.

Risk is any factor that may cause losses to the farm business. Implementation Problems

External Risk • Changes in market prices • Low rainfall or too much rain • Internal Risks • Decision on what to produce • Type of what input to purchase or use

Farmers can control the internal risks more easily, and there are also ways to manage external risks, provided these are recognized and addressed in time. Risk management is a guarantee for success, and often allows the farmer to effectively minimize the negative effects to his/her business.

Some risks associated with farm business Production and technical risks Marketing and price risks Financial risks Institutional Risks Human and personal risks Climate change Workshop

Risk management strategies • Risk-reducing inputs • Risk-reducing technologies • Selecting low risks activity • System flexibility • Production diversification

Risk management strategies • Reserves of inputs and produce • Spreading sales • Market price information • Contract farming • Selling assets

Risks • Uncertain and variable market prices • Greater chance of pests & diseases damaging a crop from more intensive agricultural production • Changes in climatic conditions • Failure in the production of a new commercial crops or livestock activity

Risks • Failure in the adoption of new techniques of production aimed at increasing yields in commercial activity • Institutional risks as farmers rely more heavily on the support and regulation of organization outside the village

Risks • Human or personal risks, such as injury to or the death of the head or main worker in the farm family • Borrowing risks that increases as farmers commercialize and borrow money to finance their new commercial operations.

Things to be considered to assess and manage the risks • Impact of the risk if it occur • Financial consequences if it occurs • Likelihood it will occur • The risks management strategy you should use

STEPS TO EFFECTIVE MARKETING Step 1: Determine Your Customer’s Needs Step 2: Analyze Your Competitive Advantage Step 3: Target Your Market Step 4: Use Your Marketing Mix to Satisfy Customer Needs

Step 1: Determine Your Customer’s Needs Ask Yourself . . . . WHO are my customers? ( Teenagers? Retired people? People with lots of leisure? People with special interest?) WHERE do they live? (Rural? Urban? Out-of-the municipality? province? region? Country?)

Step 1: Determine Your Customer’s Needs Ask Yourself . . . . WHY do they use me instead of the competition? (Personalized service? Prices? Quality? Store hours? Availability of merchandise?) WHEN do they come to me? (Daily? Once in a while? at unusual times?) WHAT particular services or products are they looking for? (What are my best selling items?)

Step 2: Analyze Your Competitive Advantage • Cost • Quality • Supply Reliability • Appropriate product innovation • Customer Service

Step 3: Target Your Market You must target your market because you have limited resources . It’s a question of focusing your time, energy and financial resources on those who will most benefit from your business while providing you with a fair return.

Consider these approaches . . . . . . . . Focus on a particular geographic area (perhaps a 5 to 10 kilometres radius from your production site) . . . Focus on your best selling products or service (if you have a winner, promote it!) . . . Focus on those who are likely to patronize your business (if you are selling vegetables- households; if you are selling blue jeans – teenagers)

Using the 80/20 rule of thumb. . . 80% of your PROFITS come from 20% of your CUSTOMERS 80% of your SALES come from 20% of your NORMAL PRODUCT LINE

Using the 80/20 rule of thumb. . . List your BEST customers: _______________________________________________________ _______________________________________________________ _______________________________________________________ List your BEST product and/or services: _______________________________________________________ _______________________________________________________ _______________________________________________________

Step 4: Use Your Marketing Mix to Satisfy Customer Needs PRODUCTS & SERVICES DISTRIBUTION PRICING PROMOTION & ADVERTISING

How to Develop a Market? By providing a space to display the product? Or constructing a market place? Is it enough? Online Marketing Cellphone/ Telemarketing

Market Development • a process of increasing demand and sustaining the demand of a product . . • in so doing . . . producers and handlers earn reasonable returns on investment

STRATEGIES IN DEVELOPING A MARKET • Effective producers organization. • Increase volume of sales • Keep channels as short as possible • Adopt appropriate technology & efficient infrastructure • Provide adequate financing

STRATEGIES IN DEVELOPING A MARKET • Maximize use of available resources • Improve on handling method • Know government rules • Establish linkage with other government agencies • Promotion and advertisements

ROLE OF DA & LGUs IN MARKETING • Gather and disseminate relevant market information. • Supply, Demand & Price • Conduct market matching • Provide market infrastructure • Farm to Market Road • Market Promotion • Fairs & Exhibits

Marketing Principles • Who is my prospect buyers. • Determine what the customers want to buy • Determine how much the customer want to buy • Produce the product the customer want to buy • Establish production and distribution scheme that fits your customers requirements • Learn from others

SUCCESS FORMULA: SUCCESSFUL BUSINESS = KNOW HOW+CAPITAL+RISKS

Salamat Po

Assessing and Managing Business Risks: Financial & Market Risks