Question

Agriculture is an industry with many risks. These risks can be related to the owners/managers, the industry, macro environment, industry specific, political etc.

Identify ten risks and how one could mitigate each one of these risks.

Answer 1

Agricultural sector is one of the most high risk sectors, with minimal insurance cover in some countries.

Environment is one of the biggest risk factors, it can cause ruin and devastation in wide areas of crop production. One could mitigate the risk by depending on trustworthy forecast estimates, not cultivating crops on a large scale in such areas and instead be dependent on other areas of economy, as a means to earn.

Pest attacks are very common in developing nations. Farmers need to prevent such attacks by taking precautions in advance and procuring proper pest control measures.

The industry dynamics also plays a very important role, by way of low prices which do not cover the cost incurred by the farmer. Governments can make it mandatory to not let the price drop below a certain fixed amount. And maintain proper stock.

The produce manufactured goes waste a lot of times as there are no proper storage measures implemented, farmers don't get remuneration for much of this stock, to mitigate this risk, the government needs to manufacture and maintain proper storage warehouses.

Political environment plays a major role. If there is too much instability, many a times riots and political tension create disruptions which are difficult to control. Thus stable political environment needs to be there.

Farmers have serious debt burden, which results in land resource not being used efficiently. This causes production loss and wastage. In order to mitigate this governments need to improve the banking system in the economy where farmers are not charged exorbitant interest rates, thereby taking measures to address farmer issues.

The land which the farmer owns is often redistributed amongst the future generations, which reduces the land productivity. Governments need to take measures to improve productivity of such areas by ensuring that divided land has proper resources and fertilization.

Institutional risk is when government actions are harming the farmer. Farmers are sometimes taxed more and which leads to farmer distress. Government should take proper measures to estimate the tax rate so as no harm comes to the farmer.

Human health and personal relationships can affect the farm business. Health of village and country should be emphasized upon and water sanitation and availability should be addressed.

Efficient allocation of resources should be done so that farmers can get access to water. Many times governments spend on social services such as irrigation, but when there is an urgent need of water. The canals are often empty and farmers don't get easy access to the water. When government successfully completes irrigation projects, it should make it central to recognise whether the water is easily available to the farmer to mitigate this risk.