Ways of Risk Management

Essay by efanUniversity, Bachelor'sA-, July 2004

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Risk is defined as a chance taken during any event. In agriculture we take many risks every day. From the risk of the tractor breaking in the early morning, to the risk of the cows getting onto a busy road during the middle of the night, agriculture is filled with risks. Managing these risks is essential to ensuring the profitability of any agricultural operation. While managing the risks facing a modern farm can sometimes require a few extra minutes or a few dollars, the benefits of managing risk properly are well worth it. Growing up on a family farm, I have had the opportunity to see first hand the importance of having effective risk management strategies in place. The family farm on which I have been raised is typical of most farms in Kentucky. We are a small farm with some flat land, hills, and stepper terrain. These factors encourage one form of risk management strategies, diversification.

My SAE project includes fruit production, vegetable production, and forage production. By having many smaller production areas instead of one larger concentrated production area we are able to limit risks. If profits from one production area are decreased due to disease, bad weather, insects, or low prices, profits from the other areas of production can help to limit the amount of income lost. Single production operations are basically gambling in the hope that no elements negatively effect their one crop. While diversification is a sound risk management strategy, it is not the only one. Success or failure of an agricultural operation depends on ones ability to effectively market their products. It is essential to have a sound marketing plan and a method for insuring that one receives the maximum value for their product. In my SAE project, I utilized several strategies to...