Risk Management and its Role in Enhancing Perceived Resilience Capacities of Farms and Farming Systems in Europe

In facing future challenges, risk management (RM) is essential for European farming systems (FS). This article synthesises lessons learned on RM based on a farm survey, interviews with farmers, and focus groups involving a range of FS actors. In contrast to previous literature, we broaden the definition of RM to include strategies that target long-term structural challenges, as well as expanding the level of analysis from the farm to the FS level. The results were consistent across the different methods. We found that farmers mainly worry about economic challenges: in particular long-term pressures. We also found that European farmers have implemented diverse RM strategies in the past 5 years, and that no single strategy has been applied by the vast majority of farmers. In line with perceptions of future challenges, there is a demand for the reorientation of RM strategies towards long-term pressures, rather than short-term shocks. FS actors were found to perceive RM as enhancing resilience capacities, especially adaptability. The results of interviews distinguished between major learning strategies and the attributes of farmers for enhancing robustness, adaptive, or transformative capacities. Focus group discussions revealed that the future development of RM strategies requires contributions by all FS actors.

Long-term challenges and short-term shocks are inevitable in agriculture and affect the management of any farm or business entity in the farming system. Systematic application of management procedures and practice to the tasks of identifying, assessing and monitoring risks is often defined as risk management (RM) (e.g. Huirne et al., 2000). We broaden the definition of RM in the context of resilience, including not only strategies to deal with shocks but also with long-term pressures on economic, environmental and social functions of farms and farming systems. While existing literature mainly considers RM in the context of challenges and risks for economic functions (e.g. Barry and Ellinger 2012;OECD, 2018;Schmit and Roth, 1990), we focus on diverse challenges to the economic, environmental and social functions of farms and farming systems and include all RM strategies that can address those challenges. Furthermore, when conceptualising RM from a resilience perspective, we explicitly highlight that RM should not just be aimed at ensuring short-term robustness, but should also enhance capacities to adapt or transform in the medium and long run.
Previous literature provides extensive theoretical and indicator-based assessment of RM and its linkage to resilience in Europe (Dahms, 2010;OECD, 2018). Yet, little attention has been devoted to perceptions of RM, its various components, and its role in enhancing resilience capacities. This article synthesises five major lessons learnt about RM in the context of resilience in Europe based on three types of methodologies (Box 1, Tables 1, 2). In contrast to the majority of the existing literature, we extend the focus to farming systems (FS) and hence opt for a multi-actor approach, including actors that affect and are affected by farmers, e.g. cooperatives, processors, local government and citizens. To this end, while a survey and interviews were conducted with farmers, focus groups targeted a broader set of actors in the farming system. We asked farmers across all eleven FS about the major challenges they expect to face in the next 20 years by using a combination of open and closed survey questions (Spiegel et al., 2019).
In the open question, farmers were asked to list the three major challenges that they expect to face in the coming 20 years. We categorised the challenges along two dimensions: (i) the type of challenge (i.e. economic, environmental, social and institutional challenges); and (ii) the time horizon (i.e. short-term shocks and long-term pressures). Our findings ( Figure 1) reveal that farmers are most often worried about economic challenges and that they perceive long-term pressures (e.g. improving long-term profitability) as more challenging than short-term shocks (e.g. short-term price volatility). As for institutional long-term challenges, changing agricultural policies, Brexit and the Russian trade embargo are mentioned as the major long-term pressure and short-term shocks, respectively. Farm succession is the most cited social long-term pressure, followed by concerns about working conditions and changing social perceptions of agriculture, while lack of workforce contributes to social shocks. Unlike the other three categories of challenges, environmental shocks, namely extreme weather events and pests, weeds and disease outbreaks, are perceived as more challenging than long-term environmental pressure (e.g. climate change).
The closed question asked farmers to assign a score, ranging from 1 (not challenging at all) to 7 (extremely challenging), to a pre-defined list of future challenges (Figure 2). The majority of farmers (39.4 per cent) scored institutional challenges as the most important for their farms. Environmental challenges were scored as most challenging by 21.34 per cent of respondents; economic challenges by only 16.74 per cent. It is worth noting that the major challenges (at the top of Figure 2) are characterised by left-skewed distributions, meaning that hardly any farmers gave them low scores and indicating that these challenges deserve special attention when designing future RM strategies. Again, the top-three future challenges refer to long-term pressures. The results of both open and closed questions indicate that perceptions of the most severe challenges are shifting from an operational and short-term character towards structural and strategic issues that have a long-term impact on farm businesses, hence supporting our broadened interpretation of RM.
Lesson 2: RM portfolios of farmers are very diverse, and there is demand for RM strategies that target long-term pressures rather than shocks Next, farmers were asked in the survey to select RM strategies that they implemented for their farms in the last five years based on a pre-defined list ( Table 3). The list was based on an extensive literature review (e.g. Flaten et al., 2005;Meraner and Finger, 2019;Van Winsen et al., 2016), as well as on discussions in an interdisciplinary team of researchers. We found out that there is no RM strategy that is applied by the vast majority of farmers: the most popular RM strategies -maintain financial

Box 1: Applied methodologies
This article presents the results of three types of empirical research: a farm survey, risk management focus groups, and interviews with farmers. Each methodology was applied in eleven farming systems (FS) across Europe. The FS were selected to construct a sample of heterogeneous farms in terms of size (from <5 ha per farm in the Romanian FS to >1,000 ha per farm in the German FS); specialisation (we consider different types of livestock and mixed farms, as well as farms specialising in arable crops, perennials, fruits and vegetables); climatic conditions; and political frameworks. The farm survey (n=996) contained different question formats, including open questions, multiple-choice-questions, and Likert-type-scales, and was conducted in different modes depending on the FS, including face-to-face, phone, mail and online modes. The survey aimed to capture perceptions of challenges, applied risk management strategies, as well as perceived past, present and future resilience at the farm level. Semi-structured interviews (n=130) sought to identify the influences on farmers' decision-making, explored how attitudes, beliefs and external factors influence decision-making, identified the learning strategies that farmers adopt and assessed what enables or constrains learning. Focus groups followed a multi-stakeholder approach (i.e. farmers, farmers' associations and cooperatives, financial institutions and value chain actors) and aimed: (i) to assess how risk management enables or constrains resilience of the FS, and (ii) to develop pathways to improve risk management in the FS. While the same farm survey was used in all the FS, a list of questions and activities was prepared to guide both the focus groups and the interviews in order to allow cross-farmingsystem comparison of the results. For instance, each focus group started by identifying the major challenges and risk management strategies in the respective FS. During the interviews, farmers were asked to share their experience of implementing a new practice or learning something new, including sources of information and ways of testing. savings and be a member of a producer organisation, cooperative or credit union -are only implemented by 58 per cent and 53 per cent of farmers, respectively. This reflects the broad range of perceived challenges and implies that no RM strategy is viewed by farmers as the ultimate remedy against all these challenges. On the other hand, we found that each RM strategy included in the pre-defined list is exploited to a certain extent; even the least popular RM strategies -open up the farm to the public and hedge (part of) production with futures contracts -are used by roughly 15 per cent of farmers. This highlights the need for a multi-faceted approach to RM and a focus on developing a broad range of RM strategies that can contribute to tailored RM portfolios. Furthermore, we hypothesise that the observed diversity of RM instruments at the farm level is a resilienceenhancing attribute of the associated FS: due to heterogenous RM portfolios, farms would be affected to different extents in case of a challenge, buffering the negative impact on the FS.
In order to capture future perspectives on RM, farmers were asked to name the three most relevant RM strategies for the next 20 years. Responses were categorised on the basis of the list used to collect information about RM strategies implemented in the past five years, as explained above. Hence, Table 2 compares RM strategies implemented in the last five years and RM strategies perceived as relevant in the next 20 years, identifying strategies that are expected to gain importance in the future (marked with '+') or to lose their relevance.
Three RM strategies (increasing efficiency, preserving the environment, and being more consumer-oriented) were not included in the pre-defined list of RM strategies leading to missing data on their implementation in the past, yet these strategies were frequently mentioned as being relevant for the future. Focus on these RM strategies in the future is in line with our findings on perceived future challenges, since all three strategies are primarily oriented towards long-term pressures. The fact that financial savings, agricultural insurance and futures contracts are not considered to be important in the future is a rather striking result, especially in light of their implementation in the past. Financial institutions providing or  Lesson 3: Farming system actors perceived RM as enhancing resilience capacities, especially adaptability In line with our broader definition of RM, we define resilience beyond ensuring the robustness of a system by also addressing a system's capacities to adapt and transform and the ability to ensure the provision of the system functions in the face of increasingly complex and accumulating shocks and stresses (Meuwissen et al., 2019). In order to study whether risk management is perceived as resilience-enhancing, farmers were introduced to our definition of resilience capacities, including illustrative examples (Box 2), and asked to assess past (last 5 years), current, and future (upcoming 5 and 20 years) levels of resilience of their farms based on a 7-item-Likert-scale (1 -not resilient at all to 7 -highly resilient). The resilience assessment was based solely on farmers' subjective perceptions and not supported by any additional objective indicators, e.g. statistical ex-post assessment of farm performance. Next, we checked for Pearson correlation coefficients between the diversity (i.e. the number) of RM strategies implemented during the last 5 years and farmers' subjective resilience perception. We found a significant positive correlation between the number of RM strategies implemented in the past 5 years and perceived current and future resilience. Moreover, the estimated correlation coefficients differ across the resilience capacities with adaptability being correlated with the number of RM strategies to the strongest extent.
Although it might seem counterintuitive that RM is not perceived as primarily enhancing robustness, it is important to note that we did not ask about the coverage or duration of implemented RM strategies, focusing solely on their number. The fact that a farmer combines multiple RM strategies (even with lower coverage) might hint towards a farmer's openness to diverse practices and hence a willingness to respond to a challenge via adaptation.

Box 2: The three resilience capacities
Robustness is the farm's capacity to withstand challenges; adaptability is the capacity to change the composition of inputs, production, marketing and risk management in response to challenges but without changing the structures and feedback mechanisms of the farm; transformability is the capacity to change the internal structure and feedback mechanisms of the farm significantly in response to challenges that make business as usual impossible.

Illustrative examples of the three resilience capacities at farm level provided in the farm survey
Staying robust: a baker wants to earn a decent income. Currently he faces extremely high wheat prices. The ability to earn a decent income, even when the wheat prices are extremely high, makes the baker robust.
Adaptation: to deal with extremely high wheat prices, the baker adjusts his production strategy by changing the bread composition. He uses less wheat and cheaper grains to produce his bread.
Transformation: the baker thinks that it is time for a radical change.
He decides to open a tearoom as part of his bakery. Next to selling bread, the baker serves coffee, tea and cake to customers in the tearoom. This radical change shifts the business focus.
In order to ensure that survey respondents correctly understand our concept of resilience, specific attention was paid to resilience questions during the pilot stage.
EuroChoices 19 (2)    Lesson 4: According to farmers, learning is crucial for improving risk management and enhancing resilience in the future According to our definition of RM, all three sources for our analysis find that learning about challenges in agriculture as a RM strategy was frequently implemented in the past and remains important in the future (Table 3). Every second farmer in the farm survey reported that she learned about future challenges. Yet, learning is also an important guiding component of RM, in terms of understanding the strategies needed to manage challenges in the context of changing circumstances. In the focus groups stakeholders named peer learning, training and advisory services as major ways to improve RM and to enhance resilience, farmer interviews provided further insights in this regard. Analysis of the interview data identified a range of learning strategies and attributes across all three resilience capacities (Urquhart et al., 2019) (Table 4).
For instance, robustness-enhancing learning includes farmers learning from their own experience; reflecting on past experiences in order to adjust their current activities in response to shocks and stresses. Such farmers are committed to maintaining the status quo of the farm. While robustness-oriented farmers are willing to experiment, they prefer to wait until others have tried out new practices, as they are reluctant to take risks. For example, a robustness-oriented farmer is likely to make small adjustments in response to challenges, such as switching to buying young stock instead of breeding stock themselves in order to reduce costs, enabling the farm to cope with moderate financial stress.
Conversely, adaptive learning requires farmers to be open to new ideas and innovations, remain flexible, and be willing to take risks and engage in social networks to learn from others. These farmers are able to assess their current practices critically and make changes where needed. They are likely to learn through farm visits, experimental fields, their farming neighbours and farmers abroad (through social media or overseas visits). They are also willing to experiment with new technologies or innovations on their farm and will be horizon scanning to anticipate future changes and challenges. Findings suggest that these farmers are also better able to adapt personally to shocks and stresses.
Transformative learning describes a process where people gradually change their views on the world and themselves (Muro and Jeffrey, 2008) -it often occurs in the face of a 'trigger' or crisis to which people need to respond (Dougill et al., 2006;Maarleveld and Dabgbégnon, 1999;Pahl-Wostl, 2002) with the Covid-19crisis being an excellent example of such a trigger. These dilemmas or crises cannot be dealt with using existing knowledge or actions. Farmers that are able to transform their farm business are willing to change their farm activities radically in order to grow or to improve the business, or to enable their farm to become sustainable. They have high levels of self-efficacy and are willing to change their activities if needed, " Perceptions of the most severe challenges are shifting from an operational and shortterm character towards structural and strategic issues. often resulting in a shift in their way of thinking or their attitudes. They will actively seek out new contacts beyond their current social networks and will be at the forefront of innovation. A farmer demonstrating transformability may well be one of the first in a region to begin growing a new crop or to adopt a new technology. However, less pro-active farmers may also be forced to transform radically (or exit the sector) when faced with extreme shocks or stresses that make their existing business model untenable.
Lesson 5: Future development of RM strategies requires contribution of all actors in the farming system Our focus on the FS level is motivated by the fact that RM strategies involve a number of stakeholders, such as financial institutions, business advisors, cooperatives, unions, agronomists and research/education institutions. In this regard, FS actors in the focus groups were asked about potential options to improve RM. The suggestions obtained were later categorised in terms of the actor(s) that mainly contribute to the improvement. In almost every FS, participants agreed that every single actor can contribute to RM improvement, yet, in different ways (Soriano et al., 2020). For example, financial institutions can provide the financial means for implementing costly RM strategies and increase the number of employees with deep knowledge of the specificities of the FS; value chain actors can boost the use of con-tracts by experimenting and through training programmes, hence contributing to the learning process; and farmers' associations can improve RM by making a joint effort in collecting and spreading information on good practices such as sustainable farming, optimal timing of crop treatment, or the adoption of new technology (SURE-Farm Business Brief, 2019). This result suggests the need for closer collaboration between different actors and alignment of their diverse short-and (more important) long-term aims.
Calling on every FS actor, we conclude with three policy and business recommendations.
1. We recommend the adoption of our broad interpretation of RM. In facing future challenges, risk management (RM) is essential for European farming systems (FS). This article synthesises lessons learned on RM based on a farm survey, interviews with farmers, and focus groups involving a range of FS actors. In contrast to previous literature, we broaden the definition of RM to include strategies that target long-term structural challenges, as well as expanding the level of analysis from the farm to the FS level. The results were consistent across the different methods. We found that farmers mainly worry about economic challenges: in particular long-term pressures. We also found that European farmers have implemented diverse RM strategies in the past five years, and that no single strategy has been applied by the vast majority of farmers. In line with perceptions of future challenges, there is a demand for the reorientation of RM strategies towards long-term pressures, rather than short-term shocks. FS actors were found to perceive RM as enhancing resilience capacities, especially adaptability. The results of interviews distinguished between major learning strategies and the attributes of farmers for enhancing robustness, adaptive or transformative capacities. Focus group discussions revealed that the future development of RM strategies requires contributions by all FS actors.