Resilience–whatisit,doyou
haveit,anddoyouevenwantit?
FarmingfortheFuture
CartertonEventsCentre,Carterton
8March2016
Apresenta/onbyPeterFraser
Overview
1.  LessonfromTaleb:
– 
– 
Resilienceispassé
Alterna:veproposedbasedon
fragilityandan/-fragility
2.  Lessonsfromthedairyindustry
– 
– 
Threeexamplesofac:vi:eswith
unintendedconsequencesof
fragilisa:on
Canfarmsystemsbean:-fragile?
Fragilityandan/-fragilityhasthe
poten/altosubstan/ally
enhancethewaywethink
aboutfarmsystems
Part1:Philosophicalbit
LessonsfromTaleb-#1-risk
•  Statusquo:BeEerriskmanagement
leadstomore‘resilientsystems’
–  Risksassumedtobedistributednormally
soarepredictable,socanbepriced,so
canbemanaged
–  Riskmanagementislikeinsurance–it
protectsagainst‘badstuff’
•  Talebtaughtusnottobe‘fooledby
randomness’
–  Oncloserinspec:on,manyphenomena
aren’tnormallydistributedaQerall
–  Thankstonon-normality,extreme
eventshappen,andmuchmoreoQen
thanyouexpectyets:llnotpredictable
–  Extremeeventsor‘blackswans’‘just
are’;andcanbeeithergoodorbad
•  Fundamentallydifferentwaytothink
aboutrisk
LessonsfromTaleb-#2-systems
‘Fragile’and‘anJ-fragile’systems
• 
• 
• 
• 
Whatdoesitmeantobefragile?
Whatistheantonymof‘fragile’?
Whatdoesitmeantobe‘an:-fragile’?
What’sabeVerlabelfor‘resilience’?
Rethinking‘risk’as‘exogenousshocks’
thatimpactsystems
Fragile
An:-Fragile
Organisa:onaltypology
Part2:Farmsystemsbit
Dairy Industry as
a case study in industry induced fragility
•  Produc+on:up~65%since
2000
–  Intensivegrowth(boughtin
feed)
–  Extensivegrowth(expansion
intonon-tradi:onalareas–
typicallywithirriga:on)
–  Biggerfarms(esp.SI)
•  Debtfuelled:up~400%since
2000
–  One-thirds/two-thirdsstory
•  Coststructures:lowwouldbe
$4kgMS,butlotswithcosts
upwardsof$6and
downwardlys:cky
Isuspectthisis
goingtoend
badly...
Threeexamplesoffragilisa:on
1.  Chasingproduc:onviaintensiveand
extensivegrowthyetfailingtodis:nguish
betweenaveragecostsandmarginalcosts
2.  Increasingfixedcosts:
–  DebtfuelledPonzischemeinlandprices
–  S:ckycoststructures–especiallyinextensive
dairy
3.  Counterproduc:vedecisionmaking–e.g.
Irriga:onfor‘droughtproofing’
$w
$
Averagecostsv.Marginalcosts
Scaleeconomiesanddiseconomies
EoS
‘Biggeris
beVer’
ConstantReturns
‘Moremeansmore’
AC
DoS
‘Lessis
more’
MC
AC
MR=AR=D
MC=AC
MC
Minimum
EfficientScale
q1q2 QuanJty
Chasingproduc:ongivendiminishing
marginalreturns
•  Sold290:cketsbut302
seatcapacity
•  Sosell12more
•  But:Whatifyousell13
more:ckets?
•  Needanotherplane
•  Soproduc/onpasta
‘/ppingpoint’fragilises
thesystem
Fixedcostsands:ckycoststructure
•  Irriga:onmeansyou
canputcowsinnontradi:onaldairyareas
•  Butirriga:onnowa
fixedcost–notop:onal
•  Andshoulderperiods
needboughtinfeed
•  Adddebtservicing
•  Inflexiblecoststructures
fragiliseasystem
Droughtproofing
•  Waterstorageislike
insurance–provides
‘cover’whenyouneedit
–likeinadrought
•  Butincreasesyourcost
structure–i.e.Need~$10
kgMStomake
Ruataniwhawaterwork
•  So‘managing’onesource
ofvariabilitymerely
exposesyoutoanother–
sofragilisesthesystem
Canfarmsystemsbean:-fragile?
•  Howareyouplacedregardingposi:veandnega:ve
shocks?
Summary
•  Fragilitymeasureshowasystemrespondstoup
anddownsiderisk.
•  Cri:cally,asillustratedbythedairyexamples,ill
conceivedac:onscanfragiliseasystem–evenif
theinten:onwastheopposite
•  Some:mesit’snotwhatyoudo,butwhatyou
don’tdothatmaVers–basicallyavoiding
ac:vi:esthatfragilise
•  Challengeistodesignfarmsystemsthatare
exposedtoposi:veshocksbutlargelyensue
nega:veones
QuesJons?