Understanding Risk Types
While there are many types of agricultural risk, the simplest way to categorize them is into three broad categories: Business, Financial and Strategic.
Business risk, which can also be categorized as short-term or operational risk, impacts the return on assets and includes price, costs and productivity. Business risks are relatively easy to manage in that there are clear approaches to managing them and they have low-impact outcomes or a low probability of occurring.
The seven main categories of business risk in agriculture (as suggested by the USDA) are:
Like business risks, financial risks are considered short-term, operational risks that are fairly easy to manage, and can impact return on equity. They include:
Strategic risks, on the other hand, are long-term risks that can be more difficult to assess and can include trends and variability in the business climate, and other factors usually outside of the organization’s control. Oftentimes, strategic risks can be discovered by asking the question: What risks does my current business strategy overlook?
The fundamental sources of strategic risk can be categorized into three areas:
Levi Huffman, general manager of Huffman and Hawbaker Farms, an Indiana grain and specialty crop operation, talks through various components of risk on his family farm and how the family has managed those risks.
At Huffman & Hawbaker, food safety is something Levi Huffman takes very seriously.
Levi Huffman discusses his farm’s process for hiring and maintaining a professional migrant workforce.
To farm owner Levi Huffman, few relationships call for more loyalty than that between a farm and its input supplier.
The Risk of Losing Ground
For Levi Huffman, losing valuable farm ground is the biggest risk of all. Here, Levi talks about the role relationships can play in mitigating that risk.
Farm owner Levi Huffman discusses crop rotation, irrigation and the use of fertilizer on high-nutrient soil.
Farm owner Levi Huffman discusses how diversifying into specialty crops has helped the farm maintain profits.
Expansion Into New Markets
Levi Huffman explains some of the considerations that need to be taken into account when contemplating expansion.