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

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:

Types of Business Risk

 

Financial Risk

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:

Types of Financial Risk

 

Strategic Risk

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:

Three categories of strategic risk.

 

Videos

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.

TomatoFood Safety
At Huffman & Hawbaker, food safety is something Levi
Huffman takes very seriously.
Business Risk

 

FarmerEmployee Labor
Levi Huffman discusses his farm’s process for hiring and
maintaining a professional migrant workforce.
Business Risk

 

Farmer walkingInput Suppliers
To farm owner Levi Huffman, few relationships call for more
loyalty than that between a farm and its input supplier.
Business Risk

 

Farmer in soybeansThe 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.
Business Risk

 

Combine auger unloadingProduction Issues
Farm owner Levi Huffman discusses crop rotation, irrigation
and the use of fertilizer on high-nutrient soil.
Business Risk

 

Lima BeansSpecialty Crops
Farm owner Levi Huffman discusses how diversifying
into specialty crops has helped the farm maintain profits.
Strategic Risk

 

SoybeansExpansion Into New Markets
Levi Huffman explains some of the considerations that need
to be taken into account when contemplating expansion.
Strategic Risk

 

 

Center for Commercial Agriculture, Krannert Building, Room 662, 403 W. State Street, West Lafayette, IN 47907, (765) 494-7004

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