Risk Management: An Introduction

Risk has always been a part of agriculture. But farming in America has changed dramatically over the past decade. Increasingly, farmers and ranchers are learning that agriculture today is full of new rules, new stakes, and most of all, new risks. In addition to crop insurance, effective risk management involves selecting tools and approaches that reduce the financial effects of the uncertainties of weather, yields, prices, government policies, global markets and other factors that can cause wide swings in farm income and threaten economic viability.

The nation’s most successful farmers are now searching for a consistent and knowledgeable approach to risk management. Survival means farming with confidence in our rapidly changing world, filled with new, attractive farming opportunities.

There are five general types of risk associated with farm businesses which are described below:

Production Risk

Production Risk is a result of uncertain natural growth processes of crops and livestock.  Weather, disease, pests, and other factors affect both the quantity and quality of commodities produced. 

Market or Price Risk

Price or Market Risk is created by the variability of prices producers receive for their production, the access they have to markets for their products, and the prices and the availability of inputs.

Financial Risk

Financial Risk occurs due to the capital-intensive nature of farming and ranching businesses.  Volatility of prices, yields and income impact the debt-repayment ability and a business’s cash liquidity.  Changing interest rates, credit rules, and the availability of credit are also aspects of financial risk. Financial risk is often intensified by the lack of detailed financial analysis and planning.

Legal/Institutional Risk

Legal/Institutional Risk is generated by uncertainties surrounding and resulting from government policies and regulations related to tax laws, food safety, labeling and marketing, protected species, water use, animal health and welfare, chemical use, animal waste, other environmental issues such as clean air and water, government commodity and income support programs, and the legal liabilities of a variety of litigious issues faced by farms and ranches.

Human Risk

Human Risk refers to human relationships that impact the viability of farm and ranch businesses including communication, labor management and supply, business succession and intergenerational transfer of assets and management, estate planning, and human health and relationship issues including accidents, illness, disability, death and divorce.

News

• 2012 Women in Agriculture Educators National Conference  More >>
• 2012 Request for Applications is closed.
• 2011 Competitive Grant Awards
• 2011 Extension Risk Management Education National Conference Proceedings, St. Louis, MO More>>
• Review the 2010 National Women in Agriculture Educators Conference Proceedings More »

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