How Agribusiness Owners can bolster Risk Management efforts
Agriculture is an industry that continuously must manage risks and ensure protection against several types of potential damages. When we talk about Risk Management in the industry, owners need to cover all bases from growing crops to machinery and going to market. In this industry, a delay, no matter the reason, could be the difference between a successful or unsuccessful season.
Risk Management in Agribusiness ranges from decisions to take on or avoid high-risk crops, diversification of income sources, and the formal insurance policies put in place by businesses. The correct Risk management plan will help void potential mistakes that can affect agricultural activities.
How Important is Management in Agribusiness?
Successfully managing any agriculture-based business depends on the quality of decisions made by the management team. Having a preventative approach will guide the correct use of resources to ensure every aspect of the business has the correct coverage.
To ease the task of identifying these potential risks, here are the five most common risks that the industry faces:
- Inadequate property insurance options.
- Employee health and safety.
- Climate change and weather patterns.
- Pricing and market risk.
- Lack of preparation for changes in operations.
1. Inadequate Property Insurance Options
Commercial property insurance prices have increased over the past few years. In fact, according to NU Property Casualty 360, “reinsurance will play a larger role in rates in 2021.” This is a problem for agriculture because of geography and location realities. Most agriculture-based businesses, like farms, ranches, and fisheries, are in locations with limited options for insurance coverage. This means a higher chance of paying more for premiums and services. Also, the possibility of not getting the best policies for unique risks.
The best way to avoid the risk of paying too much for property insurance is by taking the time to investigate all coverage options and make sure to choose the right fit.
2. Employee Health and Safety Risk
Agriculture workers face thousands of risks every day, and it is impossible to account for every single one. Some of the most common risks include dealing with heavy machinery and fertilizers, working with unpredictable livestock, and even spending long hours out in the fields.
In this scenario, employers need to make sure they hire educated and competent workers and carry Workers’ Compensation Insurance for employees. According to First Benefits, “the sector is also the second-largest in the U.S. in terms of the number of workers’ compensation claims it receives annually.”
While coverage for temporary farmworkers is not required in all states, by including workers’ compensation in a Risk Management plan, employers can have peace of mind and reduce their risk of costly litigation in the event of an incident. Always make sure to have the insurance protection that you will need.
3. Climate Change & Weather Patterns
Every year, the number and severity of natural weather events affecting agriculture businesses are increasing. Some weather-related events these businesses are experiencing include hurricanes, wildfires, floods, droughts, and extreme heat and cold.
For example, the wildfire season in California is growing in length every year. This is causing problems for residents, businesses, and especially those in agriculture. Just one small fire can spread and destroy fields of crops at any point in time. It only takes one storm, mistake, or natural disaster, like snowstorm Uri in Texas last winter, to ruin an entire year’s work.
Some areas where agriculture businesses see the biggest issues related to natural disasters are:
- Crops and livestock.
- Building and property damage.
- Heavy machinery damage.
To avoid the risks associated with natural disasters and radical weather changes, those in agriculture should take steps to assure their buildings and machinery are properly prepared for extreme weather events.
Teams should also be trained to assure livestock are properly cared for when there is extreme heat, cold, or flooding.
Finally, in the event of a disaster, business owners need to make sure they have the right insurance in place to pay for the cost of damage.
4. Pricing and Market Risk
The agribusiness industry is coming out of a commodity pricing depression, but there has been a warning that this may only be temporary. Trade wars with China and pressure put on American businesses from abroad have both contributed to this drop in the price of agricultural goods.
It is impossible to predict how inflation, the international market, and tax regulations will affect the prices of goods and when. Because of this uncertainty, business owners need to be aware of economic variables and other risks to make sure they price their outputs accordingly.
In extreme cases, agriculture businesses can qualify for subsidies from the Federal Crop Insurance Act. Congress passed this act in 1980, and it provides coverage for farmers who could not produce a full crop in a year. This coverage is important today as climate change, trade regulations, and changes in the price of goods are causing agriculture businesses to experience difficulties.
5. Lack of Preparation for Changes in Operations
When a business decides to take over an aspect of production that was previously outsourced, they need to be aware of new risks that will arise. For example, if a farmer buys a trailer and moves their livestock instead of paying a third party, they will need to make sure they have the right insurance coverage.
What if there is an accident while on the road with the animals? Well, commercial auto insurance is necessary for this situation. If the farmer does not have commercial auto insurance and is just relying on his personal policy, he will not have coverage for the accident since it is business-related.
Agribusinesses need to make sure they have a strong Risk Management plan in place to assure these new risks have coverage.
Are you looking to change how you operate your Risk Management plan? Contact us and receive more useful information on how you can automate your certificate of insurance tracking.
