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​Risk Management

Risk is an important consideration of the farming business. The uncertainties inherent in weather, yields, prices, government policies, global markets, biological pathogens, and other factors that impact farming can cause wide swings in farm income. Risk management involves choosing among alternatives that reduce the effects that can result from such uncertainties and by having appropriate crop insurance, the types of which vary by crop and county due to the differences in each crop.

Production Risk 

Relates to the possibility that your yield or output levels will be lower than projected. Major sources of production risks arise from adverse weather conditions, such as drought, freezes, or excessive rainfall at harvest or planting.  Production risks may also result from damage due to insect pests and disease despite control measures employed and from failure of equipment and machinery, such as an irrigation pump. 

Market Risk

Relates to the possibility that you will lose the market for your products or that the price received will be less than expected.  Lower sales and prices due to increased numbers of competing growers or changing consumer preferences are common sources of market risk.  Market risks also can arise from loss of market access due to a wholesale buyer or processor relocating or closing, or if a product fails to meet market standards or packaging requirements.

Financial Risk

Relates to not having enough cash to meet expected obligations, generating lower than expected profits, and losing equity in the farm.  Sources of financial risk commonly result from production and marketing risks described earlier. In addition, financial risks may also be caused by increased input costs, higher interest rates, excessive borrowing, higher cash demand for family needs, lack of adequate cash or credit reserves, and unfavorable changes in exchange rates.

Institutional/Legal Risk

In part, legal/institutional risks relate to fulfilling business agreements and contracts. Failure to meet these agreements often carry a high cost.  Another major source of legal risk is tort liability - causing injury to another person or property due to negligence.  Lastly, legal risk is closely related to environmental liability and concerns about water quality, erosion, and pesticide use.


Is a strategic and integrated approach that encompasses the policy and regulatory frameworks (including instruments and activities) that analyze and manage risks in the sectors of food safety, animal life and health, and plant life and health, including associated environmental risk. The prevention and control of new pest and disease is an agricultural challenge that is attracting growing public interest. Farmers and producers need updated business continuity and mitigation plans to meet these ever-evolving risks. 

Human Risks

Pertain to risks associated with individuals and their relationships to each other.  These relationships include those with family members, as well as farm employees and customers.  Key sources of human resource risk arise from one of the “three Ds” — divorce, death, or disability. The impact of any of these events can be devastating to a farm.  Human resource risks also include the negative impacts arising from a lack of people management skills and poor communications.