It’s Risk Management Season on the Farm: What That Means for Your Agribusiness

Across most fruit and nut production, the start of the new year is relatively less busy than most other months of the year. In addition to doing annual orchard maintenance, successful fruit and nut growers also take this “downtime” to evaluate the economic sustainability of their operations. Following are a few strategies for this type of evaluation:

Advertisement

Update budgets regarding cost of production and projected returns: Notice I said “update,” because successful growers should already be using budgets. The Department of Agricultural Economics at the University of California, Davis produces sample Cost and Return Studies that can be used as a baseline for many fruit and nut crops in California.

Note: these are meant to be samples, so they will not reflect precise budgets for a specific operation. If you are not a California grower, many cooperative Extension programs in other states will publish similar enterprise budgets, so check with a local Extension agent or specialist.

Evaluate risk: One of my favorite sayings of my grandparents (who are corn/soybean farmers in Iowa) is, “We don’t need to go to the casino to gamble for fun, we’re farmers.”

High economic returns and low risk rarely go together in any agricultural enterprise, so successful growers must compromise between risk and returns. Acknowledging risks in your operation is the first step toward managing for economic sustainability in the long term. USDA has a Risk Management Checklist farm owners and managers can access to help identify risks in their operations.

Top Articles
Have a Plan For Climate Change? Why Fruit Growers Need To Act Now

Update and/or create risk management plans: Once risks are identified, successful fruit and nut growers determine the best way to manage them. Which risk management strategy is chosen will depend on an individual’s level of risk tolerance.

Following are general strategies for risk management with brief explanations, but additional information can be found on the USDA Economic Research Service Risk Management website:

Accept — Knowing that the risk is there but allowing it to happen. This is ideal for small risks that won’t cost your operation too much money by ignoring them.

Avoid — Avoiding the risk means changing plans to steer clear of a risk altogether.

Transfer — Transferring risk usually involves paying someone else to take on the risk, in other words, insurance, whether that is crop insurance for price or production risk, workers compensation insurance for farm laborers, etc.

Mitigate — Risk mitigation refers to limiting the impact of the risk. Diversification is one way for farm operations to mitigate risk for a given crop enterprise. Not putting all of your eggs in one basket limits the impact of a disease, pest, market, or weather event that would affect a specific crop.

Exploit — We often forget that risks can create opportunities as well. Exploiting risk involves trying to increase the impact of or likelihood that the risk happens. Risk exploitation likely requires some strategic planning to set your farm operation up to take advantage of the risk. For example: If it is likely that a city nearby is going to expand in population, many nearby farm operations may view this as a risk of development encroaching on farmland. Instead, one could view this risk positively and take advantage of demand from new consumers by offering or expanding fresh fruit or vegetable production.

In my opinion, the start of a new year is a great time to take a step back and evaluate the short- and long-term economic viability of farm operations.

0