The process of agricultural risk management has to do with recognizing the risks that are inherent in operating any type of commercial farming enterprise and developing strategies that help to minimize the impact of potential risks. Those risk factors can have to do with the weather, shifts in demand, economic changes, and even natural disasters. Proper risk management can mean the difference between remaining a stable operation and going out of business. Here are some of the ways that risk management improves the odds of being around for more years.
Preparation for Shifts in Pricing
Understanding market fluctuations and how certain events can impact demand and pricing is key to any risk management strategy. The goal is to be prepared for the worst case scenario even while hoping for the greatest level of productivity and net profit. By being prepared for a slow market or a downturn in price, it’s easier to know when to trim operating expenses and keep the company solvent.
Dealing With Adverse Weather and The Effects on Crops
Along with market conditions, weather is one of the more unpredictable aspects of commercial farming. The good news is that proper agricultural risk management makes use of historic data to project possible outcomes and plan accordingly. Being aware of what happened in the past because of droughts, excessive rain, or unusually hot or cold temperatures ensures there is a plan to minimize the damage. That in turn makes it possible to continue meeting demand and remain a viable business.
Ensuring There are Resources to Cope With Unanticipated Events
In the event of a natural disaster, rebuilding is often the focus. What happens to the business in the meantime? Proper agricultural risk management ensures there are enough financial reserves on hand to keep the company afloat during the rebuilding period. It also ensures there are plans in place that will help to use those resources responsibly so they will cover the entire recovery period.
Risk management is a complex and essential task. What would happen if your commercial farm was affected by different risk factors? If your current plan seems inadequate, now is the time to talk with a consultant. The outcome of those conversations could save your business in the future.
