Throughout the Summer of 2004, Rutgers
Cooperative Extension of Salem County
developed and administered a risk assessment survey to 57 farmers
throughout the state of New Jersey.
The objective of this survey was to recognize what individual
farmers perceived as their most hazardous areas of risk, as well as
identify key risk management tools available to manage those risks.
The results from the surveys were analyzed and specialists from
several states were assembled to address the specific issues producers
face in their farm businesses. This
workbook is the compilation of these works and is designed to assist how
current and potential farmers deal with risks.
This CD should be used as a
reference guide in developing and maintaining successful farm
businesses. Throughout the
following pages you will find analysis and insight from both farmers and
industry professionals alike. The
ultimate goal of this guide is not to educate you on each and every
issue, but rather to inform and raise the level of awareness about
important information and industry specific trends.
This guide has been put together in such a way as to be useful to
every single fruit farm, whether it is used as a planning tool or a
reference for information.
Each section of this CD is composed of four subsections.
The first page is a farm profile of a New Jersey fruit farm.
These profiles were developed to highlight how farmers deal with
each individual area of risk. The
next section is an overview of the specific risks.
The final section is a detailed report developed by leading
industry professionals addressing one of the five areas of risk.
What Is Agricultural Risk and How Can it be Minimized?
management involves supervising/controlling the farm operation to avoid
loss or injury, AND
to make a profit.
It also involves comparing the costs and benefits of reducing
Questions to consider when
initiating a personal risk management plan include:
can cause a substantial shortfall in my business?
large might the shortfall be?
much shortfall am I willing and able to bear?
can I limit the shortfall to an acceptable level?
types or sources of risk fall simplistically into the following five
All of the above risks will be covered
in detail throughout this book. In
general, the sources of risk and the producer’s possible responses to
them are outlined below.
The primary sources of production risk
availability and quality
Some production risk tools include:
or minimize risk through management practices and information
production variability through diversification, applying technology, and
risk to someone else through contracting and insurance
Marketing risk issues include:
and unstable prices
to accurately forecast market prices
of market, no buyers
storage or transportation
in national or world economy
response to prices not consistent over time
Some marketing risk tools include:
Marketing is a very complex activity.
It is more than “selling” a product and should begin before
you plant not after harvest. No
single best marketing strategy exists.
What is important however, is having the product how
the consumer wants it, having the product where
the consumer wants it, having the product when
the consumer wants it, and making it easy for the consumer to get
ownership of the product.
Human resource and legal risks include:
a key employee at a critical time
or death loss
accidents and/or disability of owner
and managing farm workers
on agricultural chemicals
drift when applying chemicals
and run-off that contaminates water supplies
Responses to human resource and legal
– all kinds
compliance – know the laws
and legal management of farm labor
legal business structure
· Farm transfer planning
Financial risk issues include:
and availability of debt capital
to meet cash flow needs in a timely manner (liquidity)
to maintain and grow equity (solvency)
Responses to major financial risks
financial and production records
and limiting debt
investments with an investment plan
insurance to guarantee minimum cash flow
The risks associated with farming are
sometimes overwhelming. Professional
assistance can be found among extension educators, lenders, crop
insurance agents, financial planners, attorneys, industry and service
providers, and government agencies.
It is up to you the producer to become more connected and
informed. Knock on doors,
use the phone, get on mailing lists, utilize the internet, join
appropriate associations and clubs, and read farm publications, trade
magazines, extension publications, and industry newsletters.
You can do it!
Even though agricultural risk is
conveniently divided into the above five categories, everyone involved
in agriculture from service providers and industry professionals to the
producers themselves know that failure to minimize those risks always
and ultimately affects producers’ bottom lines.
That is to say, their net income decreases and thus either their
net worth suffers or their ability to cash flow is impaired.
In other words, inadequate response to any or all of the five
areas of risk can be measured in a dollars and cents decrease.