Success in agriculture involves balancing your expected risks and rewards. Risk management in agriculture, or almost any other business, is most commonly executed through management practices – decisions and actions made by managers with the goal of balancing risk and reward, as explained in the following examples: If you operate a landscaping service, you might manage the risk of employee injury by requiring personal protective equipment, conducting regular safety training, and monitoring your equipment for proper function and safety features. If you own a clothing store, you might manage the risk of inventory loss by 1) taking a regular inventory, 2) employing loss prevention personnel, and 3) using electronic tags that can only be removed by employees when a customer makes a purchase. If you run a ranch, you will probably vaccinate your calves to reduce mortality due to various illnesses. If you run a greenhouse, you might install an automated irrigation system to minimize the risk of plant loss due to a lack of water. In each of the above cases, the manager is choosing to spend resources (time and money) with some degree of confidence that the investment will generate a positive return; in other words, the benefits will exceed the costs. Sometimes managers practice risk management by diversifying their operation. As an example, if you own an Iowa farm growing 1,000 acres of corn, how might you diversify? Well, next year, you might 1) plant 400 acres of corn, 2) plant 400 acres of soybeans, and 3) begin transitioning the remaining 200 acres to high-yield organic corn, with plans to market the crop to a specialty feeding operation. As a final point, many successful farm and ranch managers work to be flexible in how they grow and market their crops. Production and market conditions change almost continuously – sometime your strategies should too. The concepts of diversification and flexibility are pretty easy to understand – the chance of all of your crops and approaches failing together is much smaller than the chance of failure for just a single crop or approach. In short, don’t put all of your eggs in one basket.
Risk management is defined as balancing risk and reward, which almost always move up and down together. High risk – high reward. Medium risk – medium reward. Low risk – low reward. Think about it – the reason we take a risk is to obtain a reward. And, the bigger the risk, the bigger the reward we require to justify the effort or exposure. For example, skydiving is risky – when it goes bad, it goes really bad! But, you get to experience the thrill of falling through the sky at around 120 mph. So, some people are willing to take the risk for the corresponding reward. Driving without a seat belt is also quite risky. However, this activity has no accompanying thrill or excitement; therefore, driving (or riding) without a seat belt is a risk most people wisely choose not to take – the added risk offers no real benefit (or thrill). If you are faced with an opportunity where risk and reward do not seem balanced, proceed carefully. You may be looking at a great opportunity. However, it’s more likely that you’ve missed something in your consideration of the opportunity’s risks and rewards. Please watch the video above to allow the topic to be marked as complete.
Please take a couple of minutes to watch the video to kick off your thinking about risk, especially as it relates to agriculture. Production agriculture is often considered to be a particularly risky industry, so a good understanding of risk is essential for success as a farmer or rancher. Remember, risk is defined as a chance of something bad happening. Also, for something to be risky, there must be a chance of both bad and good. Please watch the video above to allow the topic to be marked as complete.
Please take three minutes to watch the video above, which explains how agricultural risk is generally viewed across five categories: Production Risk – Can I Grow It? Market (price) Risk – Can I Sell It? Financial Risk – Involves factors that threaten your farm’s financial viability. Human Risk – Relates to the safety, satisfaction, and productivity of a farm’s owners and employees. Legal Risk – Events or actions having legal implications that impact your operation. Effective management of these risks generally determines the long-term viability of a farm or ranch operation. Please watch the video above to allow the topic to be marked as complete.
If you're just looking to get a feel for our content, take five minutes and get a basic understanding of the types of risk faced by farmers and ranchers.