How to think more about managing your farm risk

AWB,

The number of risks involved in managing a modern farm business can seem overwhelming. An approach to simplify how to think about these risks is to ask yourself these two simple questions.

 

1. What risks can I control or influence?

2. What risks are beyond my control?

 

Farmers are typically very skilled in managing the first risk, those within their control, through a number of management practices and production techniques. Decisions such as planting times, variety selection to suit environmental conditions and soil moisture conservation techniques are all designed to reduce, or influence, the amount of risk exposure.

 

The second question about risks beyond your control, deserves more attention as these are the risks that can have the most adverse effects on farm revenue. These risks include major market movements that affect price or significant weather events that impact the tonnes produced. These risks are beyond the control of growers and you should be thinking about how you would finance the impact if these risks occur. If you choose to retain these risks and finance them yourself then one tool you can use is the Federal Governments Farm Management Deposit scheme. Another method is to financially transfer the impact of the risk to someone else.

 

Tools that can help with managing price risk include financial derivative products. Companies that offer these products take on part of the risk of price fluctuations. When it comes to production risks, particularly weather events that can have a major negative impact, financing this risk, is effectively transferring the risk to the insurer. Typically crop insurance has only covered events like fire and hail, which are reasonably infrequent. To date, there have been limited options to transfer the risk of other events like frost or drought conditions that lead to a Crop Establishment Failure including the inability to plant the crop.

 

For the first time, AWB are offering Australian growers crop insurance for frost and crop establishment failure.

We want to make this easy so we are providing a frost cover option on top of the standard post-harvest fire and hail policy. AWB Crop Establishment Failure can be purchased with either your pre-harvest or post-harvest fire and hail policy. Quotes will clearly reflect premiums for each peril to give growers the information to make the insurance decision that suits them.

 

We also want to make this affordable for growers and ensure they are only paying for perils they can be impacted by, not a basket of perils that may or may not be relevant to their location or their business and inflates the overall cost.

 

It is an important decision that requires evaluation. We have AWB grower representatives in each state who are able to speak to growers, or a grower contact team who can provide information and quotes over the phone.

 

There is no way of knowing what risks each farming enterprise will experience this year, but what is clear is knowledge that there are more tools available  to help you manage the impact of these risks.

 

Speak to your AWB Representative for more information about AWB Crop Insurance. Alternatively, you can call 1800 447 246 to speak to an AWB account Manager for further details

 

Originally published May 15, 2018