Prairie Grains April 1998 Managing the Uncertainties of Farming

Issue 13
April 1998
Handling Risks Beyond Marketing and Crop Insurance

Library
Home

E-Mail

Back

Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.

Managing the uncertainties of farming
What is risk? Simply defined, it's the likelihood that actual events will deviate from what producers expect. But along with weather and price uncertainties, farmers face other risks as well, from reliable labor and equipment to broader macro-economic factors such as changing consumers and technologies, government policies, and competitors.

There are key considerations in assessing different risks, says NDSU ag economist David Saxowsky. To manage risk, you need to identify its cause or source, how substantial it is, and how much risk exposure your business is able (or willing) to tolerate. Then, respond to the risk in question by either 1) avoiding it; 2) managing it (shift, reduce, insure); or 3) accept the exposure.
Considering whether a risk is temporary or permanent is important, since this will influence a response. And, you need to consider risks associated with the chosen strategy; when you replace equipment, for example, you get increased reliability, but also increased costs.
Aside from crop insurance and marketing techniques, Saxowsky says there are different strategies for managing risk:

Diversify your business, or capture efficiencies of specializing.
Capture efficiencies of appropriate size, or downsize to reduce debt.
Replace equipment, or share equipment ownership.
Lease rather than own, or own rather than lease, whichever pencils out.
Train workers; learn new skills; develop off-farm income.
Use contractual relationships.

There is more consolidating and strategic alliances in agribusiness today. Saxowsky suggests that producers consider it as well.
For example, perhaps farmers share ownership of a business to retain capital, exchange or share labor among co-owners, or share ownership of assets such as seasonal equipment.
Growers might want to consider diversifying geographically (are there even opportunities to diversify over several growing regions, or internationally?) Or, diversify by sharing ownership of different businesses in which the other owners also specialize. For example, perhaps one farmer specializes in small grains and the other in row crops, and the partners rotate their crop land accordingly. Or, the partners specialize their skills; one handles crop production, one handles livestock, the other marketing.
Develop a plan, Saxowsky says, so you know what opportunities to look for, and are ready to proceed when they arise. n

Copyright Prairie
Grains Magazine
April 1998

Issue 13 April 1998	Handling Risks Beyond Marketing and Crop Insurance

Library Home E-Mail Back Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc., and the Minnesota Barley Growers Association.	Managing the uncertainties of farming What is risk? Simply defined, it's the likelihood that actual events will deviate from what producers expect. But along with weather and price uncertainties, farmers face other risks as well, from reliable labor and equipment to broader macro-economic factors such as changing consumers and technologies, government policies, and competitors. There are key considerations in assessing different risks, says NDSU ag economist David Saxowsky. To manage risk, you need to identify its cause or source, how substantial it is, and how much risk exposure your business is able (or willing) to tolerate. Then, respond to the risk in question by either 1) avoiding it; 2) managing it (shift, reduce, insure); or 3) accept the exposure. Considering whether a risk is temporary or permanent is important, since this will influence a response. And, you need to consider risks associated with the chosen strategy; when you replace equipment, for example, you get increased reliability, but also increased costs. Aside from crop insurance and marketing techniques, Saxowsky says there are different strategies for managing risk: Diversify your business, or capture efficiencies of specializing. Capture efficiencies of appropriate size, or downsize to reduce debt. Replace equipment, or share equipment ownership. Lease rather than own, or own rather than lease, whichever pencils out. Train workers; learn new skills; develop off-farm income. Use contractual relationships. There is more consolidating and strategic alliances in agribusiness today. Saxowsky suggests that producers consider it as well. For example, perhaps farmers share ownership of a business to retain capital, exchange or share labor among co-owners, or share ownership of assets such as seasonal equipment. Growers might want to consider diversifying geographically (are there even opportunities to diversify over several growing regions, or internationally?) Or, diversify by sharing ownership of different businesses in which the other owners also specialize. For example, perhaps one farmer specializes in small grains and the other in row crops, and the partners rotate their crop land accordingly. Or, the partners specialize their skills; one handles crop production, one handles livestock, the other marketing. Develop a plan, Saxowsky says, so you know what opportunities to look for, and are ready to proceed when they arise. n
Copyright Prairie Grains Magazine April 1998

Handling Risks Beyond Marketing and Crop Insurance

Copyright Prairie Grains Magazine April 1998

Copyright Prairie
Grains Magazine
April 1998