A Turbulent World
Governments, financial institutions and businesses are increasingly worried about the effects of multiple hazards on the security of the food systems and on the financial health of businesses involved in or dependent on the supply of agricultural products.
These concerns are more acute as efforts to mitigate climate change fall well short of what is needed to limit global warming below 1.5 degrees (or even 2 degrees) celsius, and as trade flows are increasingly disrupted by wars and disputes.
Experiences from the Covid pandemic and various cyber-security incidents have raised the issue of business resilience, with those that have demonstrated the ability to recover quickly and resume activity following crises have tended to do financially better over the long-run.
How to think about Resilience
Resilience is the ability to rideout and recover from adverse events and conditions. The term has come into widespread use in recent years (particularly since Covid). In parts of the business world, resilience is even replacing sustainability as a stated objective.
Resilience Ratings are measures of the resilience of various entities to specific or groups of hazards pioneered by Resilience Constellation. Resilience Constellation has applied these ratings in the food and agriculture sectors to populations of farms (usually specific types of farms in a region), to companies involved in food and agriculture (upstream or downstream) and countries (national crop production systems).
Why Measure Resilience?
The main reason for wanting to measure resilience is to understand objectively how and where to allocate resources for recovery, adaptation and transformation:
- Where to allocate capital? – Which groups need support and what level of support?
- Is adaptation succeeding? – Are adaptive efforts making the system more resilient?
- What are the critical points of failure? – Are deeper interventions required?
Without measurement the allocation of resources is likely to be driven by special pleading or political motives.
Measurement basics
When measuring resilience, it is important to frame each assessment to produce meaningful, comparable results:
What is it that we want to make resilient? For example, is it a farm as an economic entity or is it a farm producing a specific product, such as cocoa or coffee.
What is it that we want to be resilient to? Being resilient to a drought is not the same as being resilient to a flood or a certain pest. It is therefore important to understand what hazards are relevant to your group of interest.
What is the timeframe that we are interested in? We normally focus on the near-term (the next 3 to 5 years) because this is more predictable from extrapolation of current events. The further you go into the future the more difficult it is to predict how systems will evolve in response to external conditions.
The key components of Resilience:
Measurement of resilience involves consideration of the following components:
Exposure: what is the frequency and severity of the hazards that we are concerned about, and is this changing?
Sensitivity: when hazards occur what is the impact on the farm / business / output measure? How quickly can things recover? How do support networks support recovery?
Adaptability: is the business able to adapt to adverse conditions to either ride through them or recover faster, or with less long-term damage? In agriculture adaptation might involve changes in cultivation practices or the use of more resistant crop varieties.
Transformability: is the business able to transform its processes or business model in a deeper way to make it less sensitive or more able to recover? Transformation generally involves a more considered change to production systems and may occur over a longer time horizon.
A ratings process considers a range of supporting and constraining factors, including things like government support programs, financial services – such as the availability of loans and insurance, and broader social support networks.
Evidence used to generate ratings comes from a range of sources – farm interviews, production data, financial information and statistics.
Ratings exercises normally deliver a lot of useful information about the strengths and weaknesses within different systems. The identification of weak points can be as important as the final result because they represent opportunities for improvement.
Interpretation of Results
A (and A+)
Entitles (farms or businesses) that have limited exposure to the hazard and are able to rideout any adverse events with limited losses and within normal operational processes. For example, a larger business would not have to escalate issues to a senior management level, they would be able to deal with them within the local business unit.
A+ is a special category applied to businesses that are advantaged by the hazard. Some businesses can gain trading advantages when hazards strike, others provide recovery and resilience solutions that will be in demand if hazards increase in frequency and/or severity.
In the case of country-level resilience, A rated production systems will experience low volatility and productivity that is above the global average for that crop.
B
Entities that are experiencing hazards and are impacted but are able to recover within the resources and support available to them. This support might include social networks and cooperatives, standard public support programmes and insurance. At a financial level, entities are able to deal with hazards within available financial resources, although they may have to allocate some reserves or savings to weather difficult periods or make adaptive / resilience building measures.
C
Entities are experiencing impacts where recovery exceeds the levels of support available internally or through normal support networks. Investments in adaptation or recovery will require raising external finance or special public support. Adaptive actions remain viable but failure to take action in the short-term is likely to result in a deterioration of the business.
D
Entities are experiencing serious impacts that are at or exceeding the adaptive capacity of the business. More fundamental structural transformation should be considered (major change to production system). Transformational changes are often capital intensive and take place over several years.
E
Entities are becoming highly vulnerable and likely to become non-viable without intervention.
These top-level descriptions are simplified as a single rating will include some entities with a combination of lower exposure and lower adaptability, and others with higher exposure and higher adaptability. It is therefore important to understand the component factors that make up the final rating.
Important to Note
- Every farm and agri-related business is somewhere on this scale.
- Resilience Ratings are a snapshot in time and can drop if companies fall behind the adaptation curve or rise if they adapt or transform successfully.
- Farms must pass on adaptation costs to consumers. If they are unable to do so they will fall behind the curve.
- Governments need to recognise that if farmers are unable to price-in adaptation costs then public support will be needed, and if that is not available then this will reduce country-level production resilience.
- Farms often face multiple headwinds that can make adaptation more difficult. The three Ds: Debt, Demography and Diseases act as important constraints in many parts of the global food system.