How to Reduce Risk in Agriculture

Risk is a part of life for everyone, and farmers and ranchers are certainly no strangers to managing risk. We take risks everyday — some intentionally, some not. 

In agriculture, many of the risks taken are not by choice but are a part of the job. The types of risks in agriculture come from a variety of areas that affect business — production, pricing, finances, politics and personal life events. The best way to manage risk in farming is to understand how they occur and create agricultural risk management strategies to minimize the risks being taken. In farming and the agriculture business, you may not be able to get rid of risk altogether, but you can minimize it. Here's how.

 1. Production and Price Risks

Diseases can affect livestock. Weather-related damage can cause problems for your farming operation. Technology errors and other unforeseen circumstances can arise — and they all can pose risk to your production and to prices. 

Risk Management Plan: To manage what you can’t control, create a farm risk management plan filled with seasonal reminders to review your farm and ranch insurance policies, look at diversifying your operation and reevaluate the technology you use. This will help you take inventory of what’s working and consider potential changes to alter what’s not. Schedule regular reminders on your calendar to look at the plan and make adjustments as needed.

2. Financial Risk

In the agriculture industry, financial risks abound. You might take out loans, then struggle to pay them back. Or you might not fully understand how much your operation is worth and what financial assistance you may need to get through a lean year. 

Risk Management Plan: Make sure you’ve got great advice in your corner. For farmers, risk management should include meeting with a financial advisor to help you make the right choices about funding the next year of your ag business.

3. Political Risk

To outsiders it might not be obvious, but government decisions are a frequent source of risk and uncertainty in agriculture, both directly and indirectly. When new laws are passed or repealed, or new programs lose funding, unexpected problems can ensue. Government aid provided to farmers and ranchers can also be suddenly adjusted, and that’s beyond your control. 

Risk Management Plan: Stay informed! Keep an eye on the news and be aware of current legal discussions and decisions. When you know what’s coming, you can adjust and plan accordingly rather than being blindsided. Knowledge is the best way to be prepared for any new or changing policies that may pose a risk or asset to your operation.

4. Personal Life Events

Personal events you may encounter in life may have an impact on your business. An unexpected death, divorce, injury or other hardship can shift your life circumstances and make things more difficult than you expected. 

Risk Management Plan: Your risk management plan is your best ally. Creating a risk management plan also includes the people involved in the operation. This can be done by reviewing your insurance coverage for your staff and having any legal agreements updated when needed. Make sure you’re ready to handle whatever life might throw your way.

Protect Yourself

Risks can never be removed, but they can be minimized. Find out how you can protect yourself and your operation by meeting with a Farm Bureau agent today.