This template is designed to help prioritise the operating risks in your farm business. Look at each of the 12 risk areas one at a time. Each risk area is split into two components. Place a score from 0-5 as per the risk assessment criteria for each component.

Risk assessment criteria

Download the Risk Assessment Template (104 Kb)

Drought risk as an example

Firstly, you need to know how frequent and how severe droughts are in your area.

Historical rainfall records provide the best indication of the frequency and severity of droughts. If you don’t have your own long-term records, historical rainfall records can be obtained from the Bureau of Meteorology Climate On-line web page: www.bom.gov.au/climate/data or with programs such as Rainman or MetAccess®. Reviewing rainfall records can tell you how often droughts or late seasonal breaks have been in the past and for what period of time the farm would have been without useful rainfall and therefore without pasture production.

The MLA Rainfall to Pasture Growth Outlook Tool (https://www.mla.com.au/extension-training-and-tools/tools-calculators/) goes further. It can provide locally relevant information, not just about rainfall, but, by assessing soil moisture, about potential pasture growth.

Once the likely frequency and severity of droughts have been assessed, the likely losses need to be identified and quantified. In the case of drought these are:

• The cost of feeding livestock through the drought
• The cost of protecting soil and pasture resources from overgrazing, resulting in erosion and loss of desirable plant species.

The cost of buying in fodder and the cost of feeding both need to be accounted for. Widespread drought conditions are invariably coupled with dramatic increases in fodder prices as the demand for grain, hay and other drought feeds escalates. It is important to use drought prices as the input cost rather than long-term average prices for fodder. This will enable you to make a rational decision during the drought about whether it is economical to feed sheep or sell them. StockPlan® (see signposts in procedure 1.4) can help.

Another large cost during drought often comes from overgrazing of improved pasture that can result in death of the sown species and/or wind and water erosion of topsoil with the associated loss of nutrients. Neither of these will be a cash cost at the time of the drought but they will affect the productivity of the farm for future years, or will require additional investment to repair. Either way, both costs can be significant and the pasture and soil resources must be protected in a drought.

Calculating the frequency and severity of drought in your region, combined with the financial stress associated with hand-feeding or sale and repurchase, plus the likely impact on the farm’s pasture resources will assist you to develop the most appropriate strategy to manage the risk. When making your decisions you should consider whether:

• There is sufficient finance to fund the chosen strategy until the drought breaks
• There is sufficient management expertise and labour to implement the strategy
• There are unmanageable animal health, welfare and disease risks associated with the strategy
• The chosen strategy will deliver the best financial outcome

Sheep producers have several options to cover drought costs. These are:

• Put profits away either as savings or investments
• Farm management deposits
• Purchase or conserve and store fodder.

Seek advice on the benefits of putting profits into savings, investments or farm management deposits from professional advisers/accountants for comparison with fodder conservation. The preferred methodology is less important than the fact that you have recognised the risks and have plans in place to protect your business from them.