Farm risk management is important even to the small commercial grower. I'm going to examine the types of risks that small farmers may be exposed to, and identify some risk avoidance and risk mitigation strategies to avoid serious harm to the farm.
Parameters: The scope of this article is limited to the risks that may be faced by a small mixed family farm; it excludes large, commodity-type farming operations such as dairy and beef and poultry farms, and large grain operations.
The risks in these large enterprises are often associated with institutional risk – i.e the impact of changes to legislation and marketing board policies, and changes in commodity prices that are beyond their control.
This material is from Module 11 of the Bootstrap Boot Camp Success Plan, a course I teach to new and soon-to-be farmers and small growers.
There are 3 main categories of risk that are of concern to the small farmer:
Personal risks arise from events affecting the personal lives of the farmer and her family. Personal crisis often impact the farm business as well. This can include catastrophic events such as death or fire or flood; or it may be simply that the farmer and her partner disagree about the goals and objectives of the farm.
In the first instance, farm risk management means carrying the full suite of insurance against these perils. In the second case, the farmer needs to ensure her partner is 'on board' and that there is a common understanding of the goals of the farm.
It will be an unhappy little homestead if the partners disagree about the reasons for the farm, and the lifestyle desired. And divorce can bring an end to the farm as finally as any of the catastrophes listed above. Don't jump into farming without a complete understanding of each partners' reasons for doing so.
Production risks are those associated with weather and your farming environment – heavy rain, drought, hail, unexpected extremes of temperature, and insects and disease. Farm risk management against production risk include:
Financial risks result from inadequate cashflow to meet obligations. Inadequate cashflow in turn may be caused by high loan or mortgage payments, or buying more equipment than you can afford, or may be as a consequence of personal or production problems as identified above.
Here's a few ways to ensure financial farm risk management:
There is final type of risk for the new farmer, and that is the fact (s)he is new; inexperience and uncertainty about farm methods and the 'right next step' constitute a risk category of their own.
Farm risk management in this case means learning all you can about the enterprise you are planning. Visit other farms, read the books, and when you start, make sure it's at a scale within your ability to manage. Don't bet the farm (literally) on your novice skills.
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Being a good grower is only part of the answer to success. You also have to:
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