Risk Management

Effective risk management is an important aspect of farm and ranch businesses. Risk management involves choosing among alternatives that reduce the financial effects of the uncertainties of weather, yields, prices, government policies, global markets, and other factors that can cause wide swings in farm income. Risk management education, within the context of the enabling legislation for the Extension Risk Management Education Program, is defined as training that improves the ability of agricultural producers and their families to effectively manage risks. Five general risk types associated with farm and ranch businesses are described below.

Types of Agricultural Risk:

Production risk derives from the uncertain natural growth processes of crops and livestock. Weather, disease, pests, and other factors affect both the quantity and quality of commodities produced.

Price or market risk refers to uncertainty about the prices producers will receive for commodities or the prices they must pay for inputs. The nature of price risk varies significantly from commodity to commodity.

Financial risk results when the farm business borrows money and creates an obligation to repay debt. Rising interest rates, the prospect of loans being called by lenders, and restricted credit availability are also aspects of financial risk.

Institutional risk results from uncertainties surrounding government actions. Tax laws, regulations for chemical use, rules for animal waste disposal, and the level of price or income support payments are examples of government decisions that can have a major impact on the farm business.

Human or personal risk refers to factors such as succession, disability, estate problems, wellness, or human relationships the impact the viability of the farm such as divorce, sibling rivalry, and intergenerational issues. Labor relations or labor supply are another area of human risk that can impact the financial well-being of the farm or ranch business.

Risk Management Education:

Since 2000, Takele has conducted risk management education programs that would enable growers to stay viable and sustainable. With funding from USDA, programs included education in providing risk management tools, diversification and production of new and specialty crops, collaboration with local institutions and agencies for enhancing program delivery and implementation.

Takele, released a user friendly Microsoft Excel Basics Interactive Farm Budget Generator (FBG) computer software program that she has developed. The software is to help growers develop and analyze their enterprise budgets (cost-income of establishment and production of crops) and profitability. It also helps growers to compare their production practices with the overall county or regional studies. Also, this tool has a capability of multiple year data entry and analysis, hence allowing the impact of changes or improvements on costs and returns overtime.

Eta Takele conducting a training of how to use the Farm Budget Generator (FBG) computer software in Riverside County

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