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5 Risks Farmers Are Prone To Get Affected By

When thinking about managing the risk to stabilize income from the farm, there is a total of five sources of agricultural risk that need to be addressed. These include:

1.Production
2.Marketing
3.Financial
4.Legal
5.Human Resource

To manage these risks efficiently, many tools and strategies are available. On that note, let us take a deep look into each of the risks systematically.

Production Risk

It talks about situation wherein output or yield levels are less than expected. Most of the risks happen due to weather conditions like freezes, drought, rainfall or planting. Apart from these sources, other possibilities include pests, failure of equipment and machinery.

Strategies to implement:

1. Recommended production practices should be followed
2. Variety of crops or new crops should be grown
3. Intensive growing practices should be implemented
4. Crop insurance coverage must be purchased to stabilize incomes during the loss phase
5. Risk mitigating practices like tile drainage, drip irrigation, trap crops or resistant varieties must be employed
6. Fields selected must be less susceptible to pests and frost
7. Crops should be rotated
8. Equipment have to be maintained and facilities must be kept in good working condition

Marketing Risk

This risk points towards the situation that either market will be lost for products or the received price will be less than expected. Common sources behind are low sales and prices owing to increase in competing growers as well as changes in customers preferences. Products failing to meet market standards or loss of market access due to relocation of wholesale buyer or processor are the other possible causes behind the risk.

Strategies to implement:

1. Marketing plan must have realistic sales forecasts as well as target prices
2. A marketing cooperative must be formed or joined to improve prices and win trust
3. Direct marketing efforts must be increased
4. Marketing should be done via various channels or outlets
5. Sales or price contractors with buyers are necessary
6. Harvest and sales should be spread over the season
7. Purposeful market research must be conducted
8. Whole-Farm Revenue Protection must be purchased

Financial Risk

Insufficient cash to fulfill desired obligations, losing equity in farm and generating profits lower than expectation; all these explain the financial risk. Sources include production and marketing risks. Besides, higher interest rates, higher cash demand, extra borrowing, increased input costs, unfavorable change in exchange rates and lack of cash or credit reserves are other sources.

Strategies to implement:

1. Strategic business plan must be developed
2. Financial ratios and enterprise benchmarks must be monitored
3. Major expenses must be controlled
4. Trend analysis must be conducted to determine change in profits and owner’s equity
5. Whole-Farm Revenue Protection must be purchased
6. Agreements must be renegotiated with suppliers and loan terms with lenders
7. Leasing and rental options must be considered
8. Possibility of contracting or expanding difference enterprises must be evaluated
9. Unwanted household expenses must be controlled
10. Non-farm investments must be used

Legal Risk

As the name says it all, this risk is associated with fulfillment of contracts and agreements. Not fulfilling these agreements costs quite high. Moving on to other reason, it is harming a person or property due to negligence.
It is related to environmental liability along with concern about water quality, pesticide and erosion.

Strategies to implement:

1. Business insurance policies must be reviewed
2. Liability coverage must be carried
3. Different business legal structure must be chosen, as sole proprietorship isn’t good always
4. Business contracts and agreements must be understood
5. Healthy bonding with neighbors is important
6. Good agricultural practices must be used
7. State and Federal regulations must be followed

Human Resource Risk

These are risks that are associated with individuals and their relationships with each other. They can also include negative effect that results from lack of people management skills and communication that’s not the way it should be.

Strategies to implement:

1. Alternative sources of labor must be evaluated
2. Good people skills must be developed and practiced
3. Training for employees must be provided
4. Performance must be rewarded
5. Health and life insurance needs must be considered
6. Wills, trusts and powers of attorney must be reviewed
7. Estate transfer and business succession planning must be initiated

The End

Understanding all the risk areas is not easy for an individual. However, there isn’t anything to worry, as professional assistance can be availed from bankers, attorneys, insurance and several other service providers.  

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