With summer storms across the country dampening farmers’ optimism, more are turning to crop insurance to control the financial outcome of their yield. Through risk management strategies, the right farm insurance can be better identified.
Risk analysis has a key role to play in running a farm as well as overseeing a business. However, research from Ernst & Young (EY) indicates that many Australian companies are failing to adequately evaluate risk regularly.
Incorporating risk management in farming
“While we certainly can’t control Mother Nature, we can put some strategies in place to protect our crops and profitability.”
In a recent article, the Grains Research and Development Corporation (GRDC) outlined the importance of risk management strategies in the face of unpredictable weather. GRDC Northern Panellist Arthur Gearon notes that although the climate cannot be controlled, the risk can still be maintained and accounted for through measures such as farm and crop insurance.
“We recognised that with winter harvest coinciding with the onset of the storm season, it was important to cover our potential liability if one of those storms inflicted crop damage,” Mr Gearon said.
According to a GRDC study, Farming The Business, a 5 per cent alteration of yield, product costs or even the exchange rate can have a significant impact on profit. Furthermore, commodity pricing and yields tend to vary between seasons, often at a much higher rate than 5 per cent.
In order to minimise the financial impact, the GRDC suggests undertaking a risk management strategy. A simple way of completing one is through these three steps:
- Outline the risks to your business.
- Determine the chance of each one occurring against the financial consequences.
- Rank each risk and develop strategies to deal with the larger issues.
“While we certainly can’t control Mother Nature, we can put some strategies in place to protect our crops and profitability,” Mr Gearon added.
To reduce the risk of damage inflicted by storms and extreme weather, the GRDC concluded that the right crop insurance was the best way to manage the level of risk.
Improving business strategies through risk identification
Risk management is a key problem that arises in business strategies for more than simply farming. According to EY, the issue of failing to regularly evaluate risks is prominent in most companies.
EY found that only a marginal amount (7 per cent) of businesses are taking advantage of real-time analysis to evaluate risk on a daily basis. This is despite the overwhelming majority (85 per cent) recognising the business benefits of enhancing the relationship between risk and overall performance.
Including a more consistent risk analysis into daily business models can help identify the level of risk. This way, the areas requiring cover can be protected with business insurance, and modified when need be.
For any questions on what areas of your organisation – or farm – requires insurance, contact the brokers at MGA Insurance Brokers who have the knowledge, experience and access to a range of products.