Risk Management for Farms: Let’s Work Towards Securing the Future You Want

Identifying potential risks to your farm business can feel overwhelming. However, analyzing risk, your risk tolerance, and developing a sound risk management strategy can help you manage risks positively and shape the future you want for yourself and your family.

Working in agriculture has never been without risk. Yet even for established operations seeking to maintain the status quo, today’s farming environment, with escalating land and capital costs and more adverse weather events, presents producers with new and unprecedented risks.

A sound risk management plan that considers various factors, such as your age, stage of your operation, family situation, and risk tolerance, can ensure the long-term success of your operation and help you minimize downside potential.

By evaluating your relationship to risk through a few key questions—outlined below—you can strengthen your position regarding risk and begin planning how to mitigate it.

What’s your appetite for risk?

Everyone has a different tolerance for risk. For example, some farmers may feel comfortable taking chances on new technologies, while others may prefer to wait until they have been tried, tested, and proven to work.

Knowing your risk appetite allows you to align planning and practices to your tolerance level and make decisions that allow you to sleep at night. How would you describe your risk appetite?

• Conservative: Caution generally guides your decision-making.

• Moderate: You’re relatively less risk-tolerant when compared to aggressive risk-takers.

• Aggressive: You’re willing to take on higher levels of risk, even if that means earning lower income in the process.

What specific risks are involved in your operation, and what impact would they have?

Once you know your risk appetite, you’ll want to assess specific risks to your business and their potential impact on your operation based on five primary categories:

1. Production – Risks related to quality, output or expected yield;

2. Market – Risks related to costs, prices, and demand;

3. Financial – Risks related to lower-than-expected profits, debt costs, and cash flow needs;

4. Legal and Environmental – Risks connected to your business agreements and contracts, along with related environmental liability and regulations, and;

5. Human resources – Staff-related risks, including illness, stress, management practices, and safety.

Taking the time to think through the most critical risks in each category and the likelihood of that risk occurring or creating an unfavourable outcome will allow you to take possible steps to mitigate or accept that risk.

Where are you currently in managing risk for your operation?

You may already have a risk framework in place, or you could be working through your risk appetite, identifying your risk, and determining how to tackle it for the first time in a formal way.

Whatever stage you are at on the journey, there are strategies and tools you can use to help you manage risk positively and with minimal downside. The right strategy will depend on your risk appetite, the type of risks your operations face and their potential economic impact, and the methods you may or may not currently employ.

To assist producers, we’ve created a Risk Management Guide outlining four main risk management strategies along with tools for managing risks in the different categories noted above.

Get in touch with an RBC agriculture relationship manager to see how we can help you assess, identify and manage risk in your operation.

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