In the beginning, farmers only went through the whole process of farming for the sustenance of their individual families, but along the line, the notion changed and farmers began to engage in production of farm produce for commercial purposes thereby creating a higher level of concern for the risks involved.
A risk is an uncertain event or condition that, if it occurs, exposes a household or business to a loss or damage “threats” or profits or gain “opportunities”. Risks occur if any “link” in the value chain is weak. Thus, disabling the movement of agricultural products from beginning all the way to the end.
Risks involved in the agricultural sector or farm business include production risks, marketing risks, financial risks, human resource risks amongst others.
Risk management is the systematic application management policies, procedures, and practices to the tasks of identifying, analyzing, assessing, treating, and monitoring risks.
It is continuous and adaptive process that needs to be integrated in all relevant aspects of the decision-making procedures of the farm organization.
How To Manage These Risks
When dealing with production risks, one should not limit himself to a single production practice, instead, why not try different production practices just as the saying, “do not put all your eggs in one basket”.
This will help in limiting the risks involved.Furthermore, practice of enterprise diversification by growing different crops, trying combinations of crops and livestock e.t.c
Crop insurance also helps in managing production risks as a tool of transferring your yield or price risk to others. Crop insurance works the same way as car insurance would, the greater the coverage, the greater the premium.
Another way is through adoption of new technology to aid in the farm business such as crop production chemicals, planting and harvesting equipment, and so many others.
The use of these new technology has immense benefits which makes engagement in the farming business easier, better, more profitable, and highly encouraging. Some of the benefits of using new technology include:
(i) lower production costs
(ii) improved environmental quality and
(iii) higher quality productIt is also a fact that use of new technology when practicing livestock production is advantageous as it:
(i) brings forth advances in disease control
(ii) improves feed supplements
(iii) improves management practices
Marketing risk involves price and market uncertainty, input costs, and some other outside forces such as weather, trade tariffs, and embargoes.
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Therefore, how do you manage these risks? As the market is an integral part of the whole business process.
•by reducing risk and avoiding higher-risk ventures which involves knowing current market information (what is actually happening out there), using key business partners, spreading out sales, utilizing contract production, and creating and following your business plan to the last page.
• shift risk to others by using contracts, participating in future and option markets, joining cooperatives, sharing leases, timing or modifying the type of sale, and purchasing crop insurance (highly important).
•maintenance of flexibility which can be achieved by timing sales and/or purchase of outputs/inputs, placement where and from whom your sales/purchases are made, different forms of sales, and input purchase.
Looking at the financial risks aspect, financial risk develops from regular business activity such as cost and availability of debt capital, ability to meet cash flow needs, poor planning/strategizing, failure to maintain control of the operation, lack of financial understanding, and capability of generating additional equity (that is, your ability to increase owner equity in your operation is an indication of basic business profitability but if you notice a downward-trend in your owner equity over time, you are seeing a lack of profitability in the business).
You can increase your profitability by:
• maintaining effective and up-to-date records and
• implementing a professional financial planYou can manage your financial risks through the following ways:
• determining your acceptable risk levels
• putting controls and tracking mechanisms in place to maintain your acceptable risk level.
• budgeting cash inflows and outflows
• maintaining accurate and up-to-date financial records
• conducting a basic financial analysis
• developing annual financial statements in order to keep accurate track of progress.
The human resource risks are risks that are inevitable, they simply can not be avoided.
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A farm organization no matter how small is made up of individual actors people that play vital roles in the day-to-day activities/running of the business – therefore, risks may arise when business activities require working with other people. These would include but are not limited to personnel issues, such as: (i) hiring and/or firing employees
(ii) injury, illness, or death
(iii) changing personal or operational objectives
(iv) marital statusEffective ways of managing human resource risks have to do with:
• training your employees, that is, training should be ongoing to encourage motivation, confidence, and skills development to maintain peak efficiency in the discharge of duties and responsibilities.
• consider shifting some jobs to contract or custom labor in order to afford adequate time for employees to execute their primary duties efficiently and effectively to the best of their abilities. Implementing this may provide a lower-cost alternative, ensure specific tasks are assigned to contract workers in order to reduce the workload of the employees, and it may outsource human resource administration.
• monitoring your operation’s hiring practices to gauge if the hiring practices are the best that there can be if they are meticulously being adhered to by those in charge in order to prevent hiring of incompetent employees.
• always thoroughly check and cross-check personnel qualifications for any form of falsification of qualifications.
In the presence of such, it will be discovered that such personnel will not be able to perform according to expectations which is a risk you would not want to gamble with.
Also, following the hiring laws for your state will serve as a guide for you when hiring.
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