unang17@yahoo.

com
Risk is the probability that a hazard will turn into a
disaster. Vulnerability and hazards are not
dangerous, taken separately. But if they come
together , they become a risk or , in other words,
the probability that a disaster will happen.

Nevertheless, risks can be reduced or
managed. If we are careful about how we
treat the environment, and if we are aware
of our weaknesses and vulnerabilities to
existing hazards, then we can take
measures to make sure that hazards do not
turn into disasters.
1. Production
2. Marketing
3. Financial
4. Legal
5. Human Resource

1. Production
Risk


Know that production risk is a
variation in production level

Agricultural production implies
an expected outcome or yield

Variation in expected outcome
affects your ability to achieve
expected financial goals
1. Production Risk and Production Risk Management Tools
Sources of Crop
Production Risk

Weather
Insect damage and weed competition
Diseases
Interaction with new technology

Weather and the environment
Disease effects in producing calves or finishing
Predators (coyotes, wolves, mountain lions)
Interaction with new technology
Sources of
Livestock
Production Risk
1. Production Risk and Production Risk Management Tools
Production Risk
Management
Tools
Enterprise diversification
Try different production practices or
practice enterprise diversification by
Growing different crops
Trying combinations of crops and
livestock
Identifying different end points in the
same production process
Growing different types of the same
crop
1. Production Risk and Production Risk Management Tools
Thinking of starting a new enterprise?
The answers to these questions can help
you discover any limiting resources you
might encounter
What knowledge and management skills
do I need?
What are the added labor needs?
Where are the markets?
What do your answers tell you?
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
Crop Insurance
Consider using crop insurance as a tool
to transfer your yield or price risk to
others
Crop insurance works the same way as
car insurance, the greater the coverage,
the greater the premium
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
The answers to these questions can help
you determine if youre getting the most
out of your insurance rupiah
What are the costs?
Which type offers the best protection?
How much coverage do I need for
adequate cash flow?
Which insurance product will best
complement my marketing plan?
What do your answers tell you?
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
Contract production
Be prepared to commit to deliver a specific
quality and quantity of product
You must meet the contract specifications
Manage the contracted risk with crop
insurance and sound management practices
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
The answers to these questions can help
you determine if contract production is a
solution for you
What benefits will a production contract
provide?
What flexibility will I give up?
Do I understand the terms of the contract
or should I seek legal advice?
What do your answers tell you?
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
New Technology
Some of the technological advances in
agriculture that have improved the
producers success rate
Planting improvements
Crop production chemicals
Harvesting equipment
Benefits of using new technology include
Lower production costs
Improved environmental quality
Higher quality product
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
New technology benefits for livestock
producers include
Advances in disease control
Improved feed supplements
Better management practices
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
Once again, knowing the answers to these
questions can help you determine if using
new technology is a useful production tool
for you
What is the economic benefit of adopting a
new technology?
Does the adoption of a new technology
reduce my risk?
Is crop insurance a better risk than adopting
a new technology?
What do your answers tell you?
Production Risk
Management
Tools
1. Production Risk and Production Risk Management Tools
1. Production Risk and Production Risk Management Tools
Year Crop A
(E
A
)
Crop B
(E
b
)
1 136 86
2 88 64
3 104 92
4 148 102
5 62 82
6 176 78
7 192 62
8 142 90
9 48 94
10 34 60
Mean (E)
113 81
Standard
deviation (V)
54,34 14,67
Variance(V
2
) 2.953,11 215,33
Correlation coeff
0.071
n E E
n
i
i
/ ) (
1

=
=
) 1 /( ) (
1
2 2

=

=
n E E V
n
i
i
2
1
2
1
) (
V
n
E E
V
n
i
i
=

=

=
Subjective approach:Probable future trends
- Demand increase
- New government regulations
- Increasing energy price
- Etc

Statistical approach :
E
V
CV =
1. Production Risk and Production Risk Management Tools
2. Marketing Risk and Marketing Risk Management Tools
Outside forces that affect prices and
market risk are
Weather
Actions of US and foreign gov.
Farm programs
Regulations
Embargoes
Trade tariffs
Marketing
Risk
Personal considerations for handling
marketing risk include
Know your risk comfort level
Improve your current marketing skills
and learn new skills
Develop an integrated management
approach
Develop a marketing plan
Marketing
Risk
2. Marketing Risk and Marketing Risk Management Tools
Ways you can handle marketing risk
Reduce risk by avoiding higher-risk ventures
Shift risk to others
Maintain flexibility
Marketing
Risk
2. Marketing Risk and Marketing Risk Management Tools
Reduce risk and avoid higher-risk
ventures by
Knowing current market information
Using key business partners
Spreading out sales
Using contract production
Creating and following your business plan
Marketing Risk
Management
Tools
2. Marketing Risk and Marketing Risk Management Tools
Maintain flexibility by
Timing sales and/or purchase of
outputs/inputs
Placement where and from whom your
sales/purchases are made
Different forms of sales and input purchase
Marketing Risk
Management
Tools
2. Marketing Risk and Marketing Risk Management Tools
3- Financial Risk and Financial Risk Management Tools
Other financial risk can be attributed to
Poor planning
Failure to maintain control of the operation
Lack of financial understanding
Financial
Risk
Cost and availability of debt capital
Money or capital that comes from sources
outside the operation, such as bank loans
Work with your lender to create a solid
relationship and reduce your financial
risk when
Theres an increase in interest rates or
interest expenses from variable rate loans
You need to borrow and access credit to
maintain flexibility
Financial
Risk
3- Financial Risk and Financial Risk Management Tools
Ability to meet cash flow needs
Typical financial obligations include
Production expenses
Debt payment
Property taxes
Insurance
Family living expenses
Address with cash flow planning and
budgeting
Financial
Risk
3- Financial Risk and Financial Risk Management Tools
Your ability to increase owner equity in
your operation is an indication of basic
business profitability
If you notice a downward-trend in your
owner equity over time, you are seeing a
lack of profitability in the business
Financial
Risk
3- Financial Risk and Financial Risk Management Tools
Keep or increase your profitability by
Maintaining effective and up-to-date records
Implementing a professional financial plan
Financial
Risk
3- Financial Risk and Financial Risk Management Tools
Manage your financial risk by
Determining your acceptable risk levels
Putting controls and tracking
mechanisms in place to maintain your
acceptable risk level
Managing
Financial Risk
3- Financial Risk and Financial Risk Management Tools
Other ways to manage your financial
risk are
Budgeting cash inflows and outflows
Maintaining accurate and up-to-date
financial records
Conducting a basic financial analysis
Developing annual financial statements
Managing
Financial Risk
3- Financial Risk and Financial Risk Management Tools
Principle of
increasing
risk
3- Financial Risk and Financial Risk Management Tools
Legal risks include
Business structure
Contracts
Tort liability
Statutory compliance
Legal Risk
4 - Legal Risk
Business structure has many forms
Corporations
Limited partnership
Limited-liability companies
Partnership
Sole proprietorship
Trusts
They all have an effect on
Income and property taxes
Estate planning and transfers
Legal Risk
4 - Legal Risk
Contractual agreements are part of the
day-to-day management of most
agricultural businesses
The types of contracts that can affect
your legal risk are
Financial agreements
Leases or crop-share arrangements
Insurance instruments
Labor
Legal Risk
4 - Legal Risk
Tort and tort liability law is primarily
concerned with compensation to
someone injured or damaged by a
wrongful act or omission
Legal Risk
4 - Legal Risk
Tort liability includes acts of
Negligence or intentionally caused
damage related to
Farm injury
Farm discharges
Non-disclosure of known
farmstead hazards
Consult a legal professional to
ensure you have adequate
protection against this type of legal
risk
Legal Risk
4 - Legal Risk
Statutory compliance is defined as
meeting regulations imposed by
government agencies on your operation.
Statutory compliance risks arise from the
failure to follow regulations governing
the operation of your business
Legal Risk
4 - Legal Risk
You need to know that statutory
compliance involves
Tax reporting and payment
Wage and worker safety
Nondiscrimination
Pesticide/herbicide use regulations
Failure to comply can result in severe fines
or other penalties
Legal Risk
4 - Legal Risk
You can manage your legal risk better by
Obtaining professional assistance
Purchasing additional liability insurance
Contacting an attorney
Hiring an accountant or CPSA
Understanding the legal risks
4 - Legal Risk
Managing
Legal Risk
Labor risks you should become familiar
with include
Work that is not done, is done poorly,
or not on time
High indirect labor costs can be
incurred
Potential conflict with employees
Laws and regulations
Worker safety regulations
5 - Human Resource Risk
Human
Resource Risk
You can reduce human resource risk by
effectively training your employees
Training should be ongoing to encourage
motivation and skills development to
maintain peak efficiency
Consider shifting some jobs to contract
or custom labor
May provide a lower cost alternative
Specific tasks can be assigned to contract
workers
May outsource human resource administration
5 - Human Resource Risk
Managing
HR Risk
You can further reduce human resource risk
by
monitoring your operations hiring
practices
Always
Check personnel qualifications
Follow the hiring laws for your state
Also have plans for
Personnel transitions
Estate transfer
5 - Human Resource Risk
Human
Resource Risk

5 - Human Resource Risk
Human
Resource Risk