What is Risk Management and Why Should It Matter to You?

There are many uncertainties that face a farming operation whether is involves weather, market prices, legal barriers and other factors. Risk management involves making decisions that reduce the financial effects of these uncertainties.

There are five major risk factors with farming:

  1. Production: natural conditions that affect the quantity and quality of a product produced.
  2. Marketing: price uncertainty.
  3. Financial: over borrowing, lack of record keeping.
  4. Legal: tax laws, government regulations.
  5. Human: human health or personal relationships affect a farm business. Accidents, illness, death, divorce threaten a farm operation.

Some strategies that deal with reducing risk:

  • Enterprise diversification including value-adding
  • Understanding farm finances and profitability
  • Appropriate insurance
  • Having a farm financial advisor team
  • Off-farm investments