Report Synopsis

How diversification in production is understood and used by farmers to manage risks

Artur Falcette

The theme of diversification in production and how it has been used and understood by farmers in complex, since diversification can be, and is, addressed in different aspects by farmers around the world. This broad spectrum of analysis is influenced by the most diverse topics, from practical business issues to the production culture of a given region, the history of the country, its origin and even in the relationship of its population with agriculture.

Theme Motivation

My motivation from the study comes from the many misunderstandings regarding diversification and risk management in different groups of farmers, and during the process of training professionals in agribusiness/agriculture. Since university, when risk management is discussed, emphasis is always around future market tools, with heads, derivatives, options, etc.

Diversification appears hidden within some discipline of economics when it comes to economies of scope and scale. There is barely a structured discussion of risk management and how the company, whether rural or not, should look at the topic. Therefore, I tried to understand how farmers, in practice, see the subject, study it and consider it within the management of their businesses.

Recommendations

The recommendations made in this report are there to encourage farmers to seek knowledge on specific topics, rather than to create a prescription on the subject. It is also not claiming to suggest generic implementations, which would in no way apply to a large group of farmers, given the heterogeneity of rural enterprises and farms. But is intended to generate reflection:

  1. Knowledge about a business must be organized and described, regardless of the size of the company, seeking to facilitate its understanding is the mapping of processes, the uniformity of this information among the members of the company and, consequently, enable the beginning of more complex analyses.
  2. Understanding and separating the end/core activities and other/middle activities of the company is fundamental for the construction of a long-term strategy, as well as for the analysis of possible synergy gains within the business, whether these gains come from diversification or not.
  3. Creating risk matrices to better map, understand and manage them is fundamental for businesses, thus seeking to support the strategic planning of companies, as well as expansion and/or diversification analyses.
  4. Specialization and diversification should not be treated corporately as paradoxes. These are often interdependent processes, having an impact on each other and sometimes happening with a cause-effect relation.
  5. Economies, both scale and scope, have great ability to impact business by reducing average cost of production. Thus, it is recommended that, through studies, seek to understand how each one applies to its business.
  6. The eventual increase in complexity in the management of a business due to its diversification should not be neglected, since technical and market factors can derail a project or the business entirely.
  7. The use of tools of technical and economic viability should be considered essential for investment in any activity, whether to diversify or not. In this phase of the study, the necessary resources should be spent so that the study can anticipate different scenarios to have more accuracy, thus reducing the chance of an error in implementation.

Other Stories

I also present in the report some stories of how I could see the theme from different perspectives during the trips, whether direct or indirect in this theme. In addition, some data collected in order to gather more information that helps to define the knowledge of farmers on the subject, thus enabling greater capacity to generate recommendations from the study.

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