Whether you raise livestock, grow crops or own another type of agricultural business, there's no denying that your work is essential. Modern agricultural practices have played an outsized role in shaping our very way of life. At the same time, it's no secret that owning a farm business comes with more than its fair share of risk. From extreme weather patterns and diseases to safety issues and lawsuits, there's plenty of potential for scenarios that could seriously derail your business plans and compromise the success of your agricultural enterprise.
A high level of risk exposure doesn't mean no one should run a farm business, but it does mean it's necessary to identify a wide range of potential risk factors and devise a robust plan to address agriculture risk management. We'll cover the three broad strategies for agriculture risk management and methods of dealing with agriculture risk management.
Any risk management needs to have a multi-faceted approach, and agriculture risk management is no exception to the rule. Generally speaking, there are three ways to go about agriculture risk management:
So, should you avoid, control, or transfer risk? The answer is unequivocally for all three. These aren't individual strategies but rather a three-pronged approach to agriculture risk management. There are situations in which one strategy may not be possible or preferable, but the other two can fill in the gap and ensure that the level of risk is as low as it can be. Avoiding risk is often not possible, for example, because we live in a world where we have to take risks to reap the rewards—agriculture, in general, is an excellent example of that. However, in scenarios where risk avoidance isn't an option, controlling and transferring risk are vital methods of agriculture risk management.
You already know that those in the agricultural industry face an extensive range of possible risks regularly. Knowing more about the types of risk inherent in your line of work sets you up for success by enhancing your ability to assess the sources of risk and easing the decision-making process when you're trying to determine the best approach to risk management for your particular property and business.
This is probably the first type of risk that comes to mind for most people who work in agriculture, and that's completely understandable. If you grow crops or rely on livestock for your farm production, the thought of having anywhere from a year to several decades of hard work wiped out by a fire, disease, significant weather event, or something else is enough to keep you up at night.
Regarding production risk, avoidance entirely isn't an option, as that would mean not participating in agriculture at all. You can avoid certain risks, but not all of them. That's why controlling and transferring are so crucial in risk management for agriculture.
Controlling production risk involves numerous different precautions and tactics to avoid production losses. Diversifying income streams is well worth considering because if one stream is taken out by something like a species-specific disease or a crop failure due to unexpected weather patterns, you still have one or more other income streams to fall back on and see you through those production losses until you can mitigate the damage and get back to normal. Preventative measures are also critically important for controlling production risk. For example, suppose you invest in regular electrical inspections for your barn or livestock production areas or inoculate your livestock against common diseases. In that case, you are controlling fire risk and disease risks that could lead to significant production losses if left unchecked. Transferring production risk is also possible with certain types of farm insurance coverage such as crop insurance, production insurance, and, in some cases, more specialized types of coverage such as an orchard and vineyard growers' property endorsement.
As a farmer, you must rely on specific equipment, such as tractors, harvesters, and many other types of machines, to efficiently and effectively keep your production going smoothly throughout the year. Suppose one—or much worse, more than one—of those pieces of equipment is rendered unusable due to adverse events such as fire, natural disaster, theft, vandalism, mechanical breakdown or sudden accidental damage. In that case, it will result in a loss of production that could continue indefinitely if you cannot replace the equipment or handle repair costs immediately.
This is another situation where controlling and transferring risk is paramount when it comes to risk management for agriculture. Frequent maintenance is a crucial method of preventing risks such as mechanical failure and breakdowns, and everyone who is authorized to use equipment and tools needs thorough training on how to use and store them properly without exacerbating the risk of damage. Fire safety is also critical in controlling equipment risk and the risk of destruction to your commercial property, including buildings, materials, stock, and inventory. Transferring equipment and property risk is best accomplished with the right farm insurance coverage, such as commercial property insurance, contents insurance coverage, mobile equipment endorsements or tools and equipment insurance coverage.
There are plenty of issues that could cause an interruption to your business and result in significant financial losses, from damaged equipment or destroyed property to production issues or human resources issues. Suppose you are forced to stop or significantly slow down production due to an insured peril. In that case, it's not just the problem you have to worry about—it's also the financial setbacks caused by the business interruption. Most farmers don't have the option to simply not work until damage restoration or equipment replacement can take place, so if you have no choice but to halt or slow production, your bottom line will suffer.
Business interruption risk can be addressed with a specific type of farm insurance coverage appropriately named. Suppose your tractor breaks down right at a crucial moment in the harvest process, for example. Your equipment breakdown insurance on your commercial property insurance policy would make you eligible to receive insurance compensation to handle the cost of repairing or replacing your tractor. Still, if you also have business interruption insurance, you could receive financial assistance to make up for the loss of income you experienced while your tractor was unusable. This makes sense when it comes to risk management for agriculture, as there are many ways you could be forced to experience a business interruption.
Every business, including businesses in the agriculture industry, has some level of liability risk. There are many reasons why another party may choose to bring legal action against you in court, and even if you are ultimately found not to be liable, you'll still have to spend time, money and stress on your legal defence, including costs such as court fees, attorney fees and legal mediation. If you are found liable, you'll have to add the cost of settlements to the bill, and those can sometimes be astronomical.
You can control liability risk to some extent by exercising caution and taking measures to prevent situations that could lead to a lawsuit. Still, you can't wholly control other people's actions and allegations. As a result, it's necessary to transfer liability risk as part of effective risk management for agriculture. There are quite a few types of commercial liability insurance coverages for businesses in general and agriculture businesses in particular, and the kind of liability insurance you need in each situation depends on the reason you are being sued. Some possible reasons why you could be subjected to a lawsuit are allegations of:
Based on the reasons listed above, liability insurance coverages you may need for agriculture risk management include:
The exact types of insurance your business needs depend on your unique risk exposures. By speaking with a licensed broker at Morison Insurance, you can benefit from our professional experience in evaluating your most significant liability risks and developing the right solutions to transfer those risks to your insurance carrier.
Humans are an indispensable asset to any agriculture business. Of course, farms and other agricultural properties are full of safety risks that threaten that asset. Anyone working on a farm needs a thorough education in safety risk management skills and the necessary protective gear, tools, planning and supervision to follow through on that knowledge. By giving your employees the support, they need to make rational decisions about safety, you significantly reduce the risk of safety violations that could cost you valuable manpower—and, more importantly, you prevent yourself and everyone working with you from suffering potentially life-changing injuries. For that reason alone, avoiding and controlling risk are the best options for safety risk management for agriculture.
Knowing where to get started on risk management for agriculture can be challenging, especially regarding strategies such as transferring risk. Insurance isn't a simple, one-size-fits-all solution, so it's essential to be able to access professional advice and expertise when you're working on assessing your risk exposures and finding ways to transfer risk. That's where the licensed brokers at Morison Insurance come in. You can rely on our team to prioritize your best interests and ask all the right questions so we can offer you the benefit of our professional experience. Call us to learn more about agriculture risk management and the right insurance solutions for your business venture.
This content is written by our Morison Insurance team. All information posted is merely for educational and informational purposes. It is not intended as a substitute for professional advice. Should you decide to act upon any information in this article, you do so at your own risk. While the information on this website has been verified to the best of our abilities, we cannot guarantee that there are no mistakes or errors.
