Monday, March 5, 2012

Risk Management for Farms: Conference Notes

Farmers face many challenges!  There are many risks such as the fluctuating markets, the amount of competition (think of sayins like “a good year this year is a bad year somewhere else.”  Success in agriculture is short-lived and  risk must be managed.
·      Markets
o   Markets fluctuate and make a big difference
·      Competition
o   Good year this year is a bad year somewhere else
o   Success in agriculture is short-lived
·      Transportation
o   Going to farmer’s markets barely pays for the gas now
·      Labor issues

What is risk?
Possibility of loss or injury, uncertainty
Need to do a SWOT analysis and have a business plan.
Lots of resources for learning about risk management resources
Risk Management Website

Ag in uncertain times
The Agrisk lirary

Managing in tough times

Right risk
You have to manage your risk.  Answering to partners or mentors is important.  When I traveled to chili, I found that the chileans had been successful.  They had traveled the world looking at how to make things successful.  We need to travel around, talk to farmers, most will tell you what they’ve done right or wrong. 
It’s really important to have a plan and how  to implement it.  Not everything works.  We grew blackberries and thought rasberries would go well with it, this was before we had the policy that we needed to have a plan, but of course the rasberries didn’t sell.  There were other competitors who produced and sold them cheaper than us.  You have to be willing to pull the plug, get rid of them and start something new.
Diversification of crops is important.  We have all sorts of citrus so we can supply our markets all year long. Blackberries brought in a lot of cash in the summer when our water bill was higher.  We planted new varieties, blood oranges.  We talked to everyone about varieties…fourth year they weren’t producing.  Everyone we talked to said “oh I forgot to tell you they don’t produce until their fifth or sixth year and then they’re slow.”  We didn’t know and we did our numbers wrong.  You don’t always get it right.
If you can get your market secure, get your name out there.  People will pay more for your products.
The locally grown movement and direct deliver has been a trend of success lately.  People will pay a premium if it tastes good.  That’s why people go to a farmer’s market.  Don’t sell it if it doesn’t taste good. 
Don’t ever buy new
You can buy anything used.  
Know your cost!!!  Know every input, every cost.  Sometiems things that appear to be great and popular are actually making you lose your shirt.  Get rid of it!
Get solar!  When San Diego had a hike in electricity costs, our bill went from $5000 to $20000 over night.  We put in solar and said no one will ever have that kind of control over us.  There are grants and tax rebates.  We got a grant on recovering our reservoir NCRS.
Labor has been risky lately.  We have ventured out to do the H2A program, legal labor from Mexico.  Most troubling process ever been through.  We lost a lot of money in picking because we had to bring in contractors.  You can lose a lot of money on labor. 
Know who your market is before you start any new products.  Start small and see how it goes. 
(produce brokers sell to restaurants, don’t deliver yourself, it’s not worth it unless they’re very closeby)
Kow your strengths, know your weaknesses, and ask people for help on your weaknesses.  Talk to other farmers.

Read the whole farm bill and you’ll find a lot of obscure grants

Golden State Crop Insurance Presentation
Insurance is nothing more than how do I deal with risk?  If we were all Bill Gates, we wouldn’t need insurance.  We’d just take a little of our pocket money to pay for a disaster.  We have to deal with risk and its financial consequences.
Insurance asks how much are you willing to pay in a premium, versus what your cost is if the bad thing happens.  With crop insurance, you have a bit of an advantage because it’s subsidized by the USDA.  Private insurance isn’t.  You’re picking up the full tab.
Some of the things in the insurance world to help farmers:  From a livestock standpoint, you don’t always think of insurance.  If you have 20 lambs, you don’t always think of insuring them.  What if someone steals them?  They are a significant investment. 
Sometimes when you’re farming on a small scale, an evolving hobby farm that is becoming profitable, how you form your crop insurance or your risk package is dependant on who you’re talking to.  GEICO does a great job on your auto insurance, but not necessarily the right thing for your farm.  There are agents who do nothing but farm insurance. 
Talk to your agent on a regular basis and let them know you are going to do something new.  See if it’s covered under your existing package.  You don’t want a gap in coverage.  Every policy has limitations, be aware of them and make business decisions accordingly.
One thing we hear a lot about in the news is food safety and product recall.  The coverage for this in most insurance packages is exorbitantly expensive, but if you have a big risk for this then maybe you don’t need it.  If you’re nation-wide or state-wide and you have crops prone to this, look into it.
There are many different levels of crop isnurance.  One of the limitations in california is the diversity in crops and the kinds of operations.  When the feds invented crop insurance, they thought corns, soybeans and 1000 acres, not you with eight rows of peas and eight rows of potatoes and a half acre of cherries.  There is a catchall, but it is available only in six counties, naap

Get familiar with the farm service agency.

The naap program costs $250-700 a year to insure the crops you grow.  They’ll pick up small acreage crops not insured by federal programs.  If your production is less than 50% of normal production, you will get an indemnity payment.  Not that expensive for $250 a year.  More importantly, by having all your crops insured, you will be eligible to apply for supplemental revenue assistance program.  Sure helps when you have a catastrophic loss, and a revenue of less than 50%.

Naap, not enough boxes, based on yield.  SURE, not enough revenue
Farm bill is in negotiation right now.  Chances are that the subsidies to help farmers are going to dwindle.  The government is broke.
There are other non-federal programs available.  They are more specific and usually focus on a certain peril such as citrus freeze insurance or rain on tomato coverage or raising reconditioning coverage. 
There isn’t a lot of insurance available for a small grower.  You have to get out and do your research.  Find the programs.