Contributed by Craig Chase, retired ISU Extension Farm Management Field Specialist
Agricultural risk falls into five basic categories: production, price, financial, legal, and human. In each of these categories there are methods to lower risk or transfer it. There is a lot of information on risk management at the Agricultural Risk Education Library (www.agrisk.umn.edu).
For production risk, enterprise diversification (longer term rotations) is commonly used to lower risk. Longer-term rotational crops tend to have different planting and harvest periods. Crop insurance is normally used to transfer risk.
Price risk is typically reduced through sales contracts.
Financial risk can be lowered through keeping good production and financial records, as well as understanding asset management. The key to agriculture, as well with other businesses, is the control of assets and not necessarily the ownership of assets. In many cases, risk can be transferred through rental or leasing agreements.
Legal risk for organic transitioning farms would focus on certification rules and making sure rules are met. If involved in producing food, then compliance with food safety regulations would also be necessary. Mitigation can come through various organizational structures and cooperative or collaborative agreements.
Human risks come into play primarily through the hiring of laborers.
I recommend reviewing the information on the agricultural risk education library (www.agrisk.umn.edu) and if you have specific questions, seek out your ISU Extension farm management specialist.
