MANAGING RISK
EVERYTHING THAT CAN BE COUNTED DOES NOT NECESSARILY COUNT MANAGING FARM RISK
BY ERIC TEGLER
Albert Einstein’s conundrum that “everything that can be counted doesn’t necessarily count” applies fairly neatly to managing farm risk. Today, there are more tools and strategies for minimizing risk than ever, but there are also more types of agricultural enterprises with more individual characteristics than ever. From financing acreage acquisition to offsetting livestock attrition, there is no single model for tolerating and managing risk. But there are some basics to consider. What’s in the mix in 2018? Here’s a sampling.
hedge against market variations, they can also allow the producer to effectively “time” the market. In Iowa, for example, corn is at its lowest price during the October/November post-harvest season. Producers who invest in on-farm storage (another risk strategy) can hold their corn until later in the year when it becomes scarce in regions like Pennsylvania, whose livestock-dominated production market requires feed-corn. “It gives the farmer the opportunity to not just be a ‘price taker,’” Harper added.
TRADITIONAL STRATEGIES
ENTERPRISE DIVERSIFICATION
Many of the risk mitigation strategies that farmers regard as vital today were just as important to their great grandparents. They may be mixed with newer technology and specific management tools, but the basic ideas are familiar to generations. None is more fundamental than diversification, which can be thought of in several subsets.
“Diversification is probably one of our biggest assets,” says Adam Voll, farm manager at Soergel Orchards in Wexford, Pennsylvania. “We’ve gotten out of some vegetable and fruit [production] and gotten into different foods, catering, and value-added products to spread risk a bit.” Established in 1850, family-owned Soergel Orchards is a good example of enterprise diversification: It started out purely as an apple-grower and wholesaler but expanded as times changed to incorporate its own retail markets, garden center, bakery, wine shop, cider house, and more. “We try to minimize our waste and maximize everything we can produce,” Voll said. The maximization he refers to comes in many forms, from spreading risk across Soergel’s two main growing acreages – half an hour apart – to raising and producing non-core crops/products including tomatoes/spaghetti sauces, Bloody Mary mixes, apple sauces, and apple cider. Such value-added products lower risk by increasing sales/ retail diversity and utilizing “seconds” or less-than-marketperfect fruit. Multi-channel activity helps to reinforce the Soergel “brand” as well. “Being able to offer our own local produce as part of our catering [service] helps set us apart,” Voll added. And the enterprise diversification doesn’t stop there. Like many fruit/ vegetable producers, Soergel is leveraging the “agritainment” phenomenon with pick-your-own orchards.
CROP DIVERSIFICATION Planting different crops to refresh/replenish the soil and to reduce dependency on just one market remains a risk management basic. “Not putting all your eggs in one basket is part of so many other risk management techniques you’re using as a farmer,” said Jayson K. Harper, professor of agricultural economics at Penn State University. “Even if you’re a major commodity-crop producer in the Midwest and you’re growing just two crops like corn and soybeans, you’re rotating them.” Corn and soybeans have long been known to be complementary from a soil fertility perspective but also from a commercial one. “Sometimes the [growing] year favors one kind of crop over another,” Harper noted. “By having a mix of things, you mitigate risk.” The practice applies to farmers from vegetable and fruit growers to livestock producers. Not only can multiple products 6