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What
is Risk Management Education?
Effective risk
management is an important aspect of farm and ranch businesses.
Risk management involves choosingamong alternatives that reduce
the financial effects of the uncertainties of weather, yields, prices,
government policies, global markets, and other factors that can
cause wide swings in farm income. Risk management education, within
the context of the enabling legislation for the Extension Risk Management
Education Program, is defined as training that improves the ability
of agricultural producers and their families to effectively manage
risks. Five generalrisk typesassociated with farm and ranch businesses
are described below.
Five Types
of Agricultural Risk
Production risk derives from the uncertain natural growth processes
of crops and livestock. Weather, disease, pests, and other factors
affect both the quantity and quality of commodities produced.
Price or market
risk refers to uncertainty about the prices producers will receive
for commodities or the prices they must pay for inputs. The nature
of price risk varies significantly from commodity to commodity.
Financial risk
results when the farm business borrows money and creates an obligation
to repay debt. Rising interest rates, the prospect of loans being
called by lenders, and restricted credit availability are also aspects
of financial risk.
Institutional risk results from uncertainties surrounding government
actions. Tax laws, regulations for chemical use, rules for animal
waste disposal, and the level of price or income support payments
are examples of government decisions that can have a major impact
on the farm business.
Human or personal
risk refers to factors such as succession, disability, estate problems,
wellness, or human relationships the impact the viability of the
farm such as divorce, sibling rivalry, and intergenerational issues.
Labor relations or labor supply are another area of human risk that
can impact the financial well-beingof the farm or ranch business.
Risk Management
Target Areas
The Extension Risk Management Education Program identifies target
areas within the five types of risk. The target areas below define
the focus of the risk management education projects we fund.
- Improved
understanding and use of:
- Insurance
products
- Product and
enterprise diversification
- Market analysis
and outlook
- Cash and
futures pricing tools
- Marketing
strategies, plans, and clubs
- Direct, wholesale,
and processing markets
- Contract
production, branded or certified marketing, and value-added enterprises
- Financial
records, analysis, and bench marking
- Capital and
financial assets
- Credit
- Tools for
managing legal liability
- Leases, contracts,
and negotiating skills
- Plans and
tools to address succession, estate planning, health, and well-being
Improved:
- Business
and strategic planning
- Employee
recruitment/management/retention
- Interpersonal/family/professional/landlord
relationship skills
- Ability to
manage changes in policy and regulation
- Understanding
of the economic risks associated with new production technologies
Internet
Resources for more Risk Management Information
A seminal publication that has helped define agricultural risk management
is Introduction
to Risk Management by the Risk Management Agency, December 1997.
Additional online
resource materials can be found at the National
Ag Risk Education Library. An excellent publication in the General
Risk section of the library is An
Introduction to Risk in Agriculture by Dennis A. Kaan, Colorado
State University, September 2000.
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