Having said that, agriculture is generally known as a risky business to be in. Most producers cannot absorb all the associated risks themselves, which is why different risk mitigation or control measures are used. One way to reduce financial vulnerability is through diversification.
Benefits of diversification
Agricultural diversification involves re-allocating some of the farm’s productive resources, such as land, capital, equipment and labour, to other products or non-agricultural activities. Typical forms of diversification include the acquisition of land in different areas of the country to minimise climate effects, the introduction of livestock enterprises on crop farms or the cultivation of different crops.
Apart from managing risk, the benefits of diversification include stable or even higher income and improved, more efficient use of resources. Diversification also offers the potential for future growth. Other forces driving diversification include changing consumer demand and demographics, the export potential of certain products, value addition and changing market opportunities.
If managed properly, diversification can be a valuable business tool, but the exact opposite can also ring true if it is not well managed.
Diversification gone awry
I know of an irrigation farmer for whom diversification almost spelled disaster. He used to cultivate maize and wheat on a rotational basis.
One year, as a result of low product prices and increasing input costs, he decided to diversify and started researching more profitable crops. He then planted different crops each year based on the prices of the previous season. He planted dry beans, soya beans, sunflower, potatoes and even tomatoes.
This story is from the February 2020 edition of FarmBiz.
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This story is from the February 2020 edition of FarmBiz.
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