Planning for Risk: Prelim Results from VT 2011 Risk Survey

In the farming world, we are all subject to risks that jeopardize crop or livestock product quality and yields. Which risk could have the most significant impact on your business? How are you managing that risk? This past winter UVM Extension asked 50 farmers about the ways they are managing risk on their farms.

Spring and Fall floods in 2011 were on many farmers minds. Second (and late) crop plantings in the spring and un-harvestable crops in the fall resulted in large shortfalls on yield and quality. We know that risk can come in other forms on the farm too. Traditionally, we organize risk into 4 categories.

Production Risk: this results from weather events or pest outbreaks that reduce yields or quality.

Market Risk: this results from changes in the cost of an input or the market value of your crops at the time of sale.  I’d include financial risk from floating interest rates in this category too.

Human Risk: this results from issues surrounding personal health, relationships and employer/employee issues.

Institutional Risk: these are the changes in policy or regulations that your business will be obliged to comply with.

UVM Extension collected a survey from 50 farms this past winter asking them about production risk they face on their farm. Just as importantly, we asked them what they are doing about it. In our group, 25 farms reported no crop/livestock  losses; 15 reported losses of up to 40 % and  10 of these 50 farms lost over 40%  or more of their total  production in 2011. Three of those farms lost over 70% of total production in 2011.

The most common causes of production risk over a 2 year period have been problems caused by excess moisture and/or flooding. The second most reported cause was pest or disease outbreak and the third most common cause of production risk was high winds.

So what are these farms doing about it? Every farm in the survey indicated that they were doing many things to mediate these risks. You can’t just select on catch-all risk management strategy.  The strategies mentioned most were:  1) non-farm income from the owners, 2) diversification and 3) having a pest management plan in place. Farms have adopted some strategies to mediate marginal losses. These may be small in magnitude but they may be frequent as well. A lot of small losses may add up! Other strategies are put in place to mediate large or potentially catastrophic losses.

Next we asked farmers to rank their most effective production risk strategy. First place goes to Diversification of Crops/Products. Second Place: Off farm income from the owners or close family members and Third Place was a tie between Crop Insurance Products and Pest Management Plans. Let’s not be deceived by titles of first place. I know one VT risk management specialist that always gets asked the same question. “How much money did the farm save from that insurance product?”. His answer is always the same, “I don’t know, our goal is to never find out.” If you use a variety of strategies to manage risk, then hopefully it won’t be necessary to measure out any large single loss.

We asked several more questions that farm managers will find interesting. The final results of this survey will be published later this summer. You can contact UVM Extension Farm Viability Program to request a summary of the survey results or request a risk management field visit from our staff to work on your risk management plan.

 

Advertisements

About Mark Cannella

Mark is a farm business management specialist with UVM Extension based in Berlin, VT. He specializes in business planning, farm financial analysis and agricultural economics.
This entry was posted in Financial Mgmt, production information, Quality of Life and tagged . Bookmark the permalink.