Managing agricultural risk to cultivate greater rewards
Posted 09-15-2015 at 09:11 AM by DavidRaonic
Risk is a part of any business venture, and this is especially true in agriculture. From the weather and natural disasters like floods to market fluctuations, farm businesses face many risks that are out of their control, as well as some risks that can be managed.
“Many people view risk as negative, but taking risks provides an opportunity for greater returns, and if you are not prepared you can't take advantage of them,” says Gwen Paddock, national director of agriculture at RBC. “The key is to identify potential risks and develop a plan for how to mitigate them.”
Here are Paddock's tips for managing risk in your farm business:
• Define risk: Risks generally fall in the following categories: production, marketing, legal, human resources, and financial.
• Assess the risk: This includes the likelihood a risk will occur and the size of any potential loss. It also covers “positive” risk like introducing a new crop or expanding into a complementary market.
• Identify the risks: Write down the top 10 risks your farm business faces and rank them in terms of importance.
• Develop a risk strategy: Plan tactics for managing each risk:
Avoidance – planning ways to help eliminate the risk
Reduction – reducing the probability the risk will occur
Transfer – shifting the risk to another party, such as financial arrangements with a buyer or purchasing more insurance
Retention – keep those risks that are low-impact and ones you might benefit from.
“Many people view risk as negative, but taking risks provides an opportunity for greater returns, and if you are not prepared you can't take advantage of them,” says Gwen Paddock, national director of agriculture at RBC. “The key is to identify potential risks and develop a plan for how to mitigate them.”
Here are Paddock's tips for managing risk in your farm business:
• Define risk: Risks generally fall in the following categories: production, marketing, legal, human resources, and financial.
• Assess the risk: This includes the likelihood a risk will occur and the size of any potential loss. It also covers “positive” risk like introducing a new crop or expanding into a complementary market.
• Identify the risks: Write down the top 10 risks your farm business faces and rank them in terms of importance.
• Develop a risk strategy: Plan tactics for managing each risk:
Avoidance – planning ways to help eliminate the risk
Reduction – reducing the probability the risk will occur
Transfer – shifting the risk to another party, such as financial arrangements with a buyer or purchasing more insurance
Retention – keep those risks that are low-impact and ones you might benefit from.
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