Farming is a very risky business which explains why, for a very long time, banks and insurers were very reluctant to do business with farmers. It does not matter what agricultural enterprise you are engaged in, managing risk is an important part of your work as a farm manager or owner.
How you manage these risks determines whether you are a good or poor manager. Before getting involved in any agriculture enterprise, it is important to first establish the risks involved and work out a strategy of how to manage them.
The general trend among farmers in Uganda is to focus on the profits an agricultural enterprise is likely to give and ignore the associated risks, hoping everything will work out for the best. This is dangerous.
No wonder many farmers are caught unawares and end up losing everything when disasters like flood, droughts, disease outbreak and price change strike.
A farmer needs to develop a risk management strategy, or a combination of strategies to minimise and to protect their business against future uncertainties. For example, a dairy farmer keeping Friesian cows has to deal with fluctuating milk prices and may well need to study the market and develop a pricing strategy that adjusts according to market changes. Below are some of the common sources of agricultural risk: Personal risk. Sickness and physical injuries are examples of personal risks that can drastically affect farm operation.
Other sources of personal risk include a change in goals, divorce, death, fire outbreak or theft on the farm. All of these things can have a big impact on a farm’s performance. Lack of knowledge and experience on the part of the manager is another risk that needs to be considered. Production and market risks. These are risks that result from weather-related events such as drought, excess rainfall, hail storm, extreme temperatures, pest attacks and disease outbreak. Financial risk.
This can occur as a result of fluctuating interest rates on borrowed money and cash flow difficulties. As described above, farm businesses, particularly family farm businesses are exposed to many forms of risks such as personal, production, market, institutional and financial. What type of risk is your farm exposed to and what type of risks will it be exposed to in the future as you consider new products, farm management systems and labour strategies?
How will you manage these risks?
Common risk management strategies include minimising production and market-related risks, transferring risks outside of the business and building internal capacity to bear risk financial. Production and market risk management alternatives include enterprise diversification, cultural production practices such as irrigation and short season crop varieties, hedging with futures and options and storage. Risk transfer outside the business can be done by insuring your crops or animals.
Another way is to sign production and sales contracts, and participating in government programmes like the NAADS and NARO.