Risk Management Needs and Challenges for Agriculture

Risk management

Risk Management Needs and Challenges for Agriculture

Agriculture is a field that is always at risk from weather fluctuations, natural hazards, pest infestations and diseases. Moreover, its dependency on natural resources and climate conditions makes it even more tricky for farmers to manage their farms. Similarly, declines in market prices and supply shortages are major issues affecting agriculture. Farmers can deal with all these challenges by adopting specific risk management strategies. 

Types of Risks

First, let us understand the types of risks and challenges farmers face in agriculture

Challenges appear when the outcomes of a decision are only partially the way farmers expected them to be. This unfavorable situation may or may not cause adverse consequences affecting farmers’ production, market situation, finances and livelihood. 

Production Risk

Such risks directly or indirectly affect agricultural produce either in quality or quantity. When a farmer sows seeds in his fields, his crops may get ruined because of bad weather conditions. Moreover, they also have to look for changes in government policies, trade bans, transportation issues, strikes etc. All these factors can adversely affect their produce as it is these farmers’ main revenue source. 

To deal with these risks, some risk management tools and techniques must help these farmers come up with the best solutions. 

  • The best way to reduce this risk is by choosing an enterprise with a considerably lower risk than an enterprise with high profitability and an increased risk. For example, if the farm field is prone to droughts, the farmer can choose to grow a crop like millet that does well in droughts rather than selecting a profitable crop that fails. 
  • Farmers can also prevent these risks by choosing multiple enterprises to grow in one season so that they increase the production success ratio. For example, if a farmer has grown different enterprises, but one of them catches the disease, he can use his other enterprises to sell in the market. It will keep the money flow active. 
  • Another diversification method is to grow the same enterprise but in different locations so that there is a high probability of succeeding at least in one place. 

Marketing Risk

Marketing risks are another significant risk farmers must consider to avoid sales losses. These risks mainly occur because of fluctuations in product prices in the market and the uncertainty of these prices in the future market. When a farmer chooses to grow a crop, he has to consider the current market and price variations to calculate his risks. Sometimes, these fluctuations lead to significant losses, affecting farmers’ survival. 

Certain tools can help them deal with these marketing risks:

  • Farmers can store all their produce after harvesting and sell them in different parts throughout the year, considering changes in the market and finding the most favourable and profitable windows. This strategy is not good, but it saves the farmers from experiencing significant losses. 
  • A farmer who is farming near high-population areas can sell his produce directly to the customers. It can increase profitability and reduce risks, but it requires the farmers to have a good idea about demand and target customers; otherwise, they will end up experiencing more loss. 
  • Another way to deal with market risks is by signing contract agreements with traders. It saves the farmers from price fluctuations as the amount to be paid to them is already fixed in the agreement. 

Financial Risk

Many farming operations involve significant investments. Farmers borrow money from lenders to manage their expenses. Farmers often cannot repay the credit because of issues like the inability of land to produce quality crops, changes in repayment schedules and interest rates. Similarly, weather conditions like untimely rainfall or drought can also adversely affect the produce and its supply chain flow. 

Farmers can manage these risks by following specific risk management tools:

  • If the lenders increase the loan money given to farmers, it can help them repay their other outstanding loans. Moreover, offering loans to farmers according to their conditions will also help them avoid financial risks. 
  • Another way to deal with financial risks is through liquidity. If a farmer has additional lands, farming equipment, machinery etc., then they can put these assets on lease so that they can have an extra income, build equity and avoid debts. 

Personal Risk

If a farmer gets sick or is facing a family situation, it can affect the production and marketing process of the crops. Approach an Agri-tech Risk Management Company like Leads Connect, which offers efficient Human Resource Management services tailored to provide risk assistance to farmers. These Human Resource services include hiring skilled workers, handling communication, ensuring safety and well-being, maintaining discipline, help in planning and executing tasks. 

These are the significant risk management tools that can help farmers in planning their farming routine in an organised and efficient manner. Companies like Leads Connect offer all these services to make farmers’ lives easier. 

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