Risk Management Basics: What Every Farmer Needs to Know

— Written By and last updated by Patricia Burch
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Risk has always been a part of agriculture, but farming in America has changed drastically over the past few years. Increasingly, farmers are learning that it is now a game with new risks. The most successful farmers are now looking at a deliberate and knowledgeable approach to risk management as a vital part of their plan. For them, risk management means farming in a more rapidly changing world. It is the ability to deal with risks that comes with new farming opportunities.

One common method of classifying risk is to look at risk as it affects the various functions on the farm. Farmers generally deal with five types of risks. They are:

1. Production
2. Marketing
3. Financial
4. Legal Issues
5. Human Resource Issues

There are five action steps farmers can use to manage risks. They include identification, assessment, treatment, implementation, and evaluation. One of the most important risk management tools is purchasing crop insurance. Crop insurance provides two important benefits. It ensures a reliable level of cash flow and allows more flexibility in your marketing plans. Another important risk management tool is having irrigation for your crops, which provides a constant source of water.

It is important for farmers to select appropriate tools to manage risk and select a risk management team to help implement those tools. Free market agriculture is a new and unchartered path for new farmers. Clearly, we live in a global economy. As we gaze into the next century, the key to success for farmers is risk management.