Farm risk management: Protect your operation from the unexpected

Know your risks

The first step in risk management is to identify the risks. You can’t prepare for risks you don’t know, and the risks you don’t know could have the biggest impact on your farm.

Each unique operation will face its own unique risks. When creating your farm risk plan, consider what-if scenarios that relate to:

Production

• Weather
• Pests
• Diseases

People

• Labour
• Family relations

Finances

• Debt
• Cashflow

Markets

• Price fluctuations
• Inflation
• Interest rates

Farm transition

• Poor planning
• Technology risk
• Cyber security

Geopolitical events

• Supply chain disruptions
• Trade disputes
• New government regulations

You’re probably aware of many of those aforementioned risks but giving them the attention they need is often forgotten about, or put aside, until an event occurs that triggers one of them. Recognizing and listing the risks will help ensure you don’t forget about them in your planning.

Evaluate your risks

The next step is to figure out which of these risks are the most important for your operation. When you’re assessing risks, make sure you consider the frequency or likelihood of each one, the impact of those risks, and how prepared you are to face them. This will let you prioritize which ones to deal with first and avoid the overwhelming prospect of having to deal with them all at once.

Mitigate your risks

Once you know which risks need to be addressed in priority, how do you protect your agricultural operation? The answer lies in a proactive approach to risk management, which combines risk reduction and risk transfer.

There is a wide range of best practices that can be applied to reduce your risks, from the application of standard operating procedures and biosecurity, to hiring an advisor to guide you through your farm financials. These can be added to your action plan.

From a risk transfer perspective, Canada offers excellent programs for farmers, like AgriStability, that provides a security net when your margins drop too low. These programs should be an important part of your risk management plan.

This can be complex, so don’t be afraid to hire an advisor. As Dave Ramsey says: “When selecting a consultant or a financial advisor, be sure to choose one who has the heart of a teacher.”

The right consultant can ask the right questions and offer the knowledge and guidance you need to manage the risks you can’t handle alone. The benefits will far outweigh the cost.

Benefits of a risk management strategy

Managing risk in a comprehensive way has a variety of positive impacts on a farm, including:

1. Financial impacts: Effectively managing your risks can have a direct effect on your finances, including higher profits and lower debt.
2. Business impacts: Having a plan allows you to make faster, more informed decisions. If things go wrong, you’ll be ready to pivot.
3. Personal impacts: Having a risk management plan can also reduce anxiety.

Even knowing the potential risk and what to expect can reduce stress and put farmers in a better headspace.

A 2020 report from Farm Management Canada found that 62 percent of Canadian farmers report having mid-stress levels, while 14 percent said they had high levels of stress. The leading cause of this stress? Industry unpredictability, workload pressures, and financial pressures.

But planning for the uncertainty — like a risk management plan or business plan — can be helpful in alleviating these worries. The study found that 88 percent of farmers who follow a written business plan say it has contributed to their peace of mind. And 77 percent who do not follow a plan believe it would give them peace of mind.

Your partner in agricultural success

For more than 60 years, agriculture has been a key service offering for MNP. We now have more than 700 agricultural advisors stretching across Canada. Our Agriculture Risk Management Resources (ARMR) service is dedicated to helping Canadian farms mitigate their risks.

Our experienced advisors will help you create a personalized risk management strategy, including support from insurance and government programs. Our knowledge ensures farmers like you are prepared to navigate risks and achieve long-term growth and success.

To learn more, reach out to AJ Gill, Partner Director, Agriculture Risk Management Resources.