Risk can be well-defined as the chance of loss/damage or an unfavourable outcome related with an action. Uncertainty is not knowing what will occur in the future. The more the uncertainty, the bigger the risk. For an individual farm manager, risk management includes optimizing projected returns subject to the risks involved and risk tolerance. Agricultural manufacturers make decisions in a risky environment every day. The consequences of their decisions are usually not known when the decisions are made. Moreover, the outcome may be better or worse than projected. The two circumstances that most concern agriculture producers are:
1) is there a high probability of adverse consequences, and
2) would those adverse consequences significantly disrupt the business?
Risk is what makes it possible to make a profit. If there was no risk, there would be no return to the ability to successfully manage it.
Risk is what makes it possible to make a profit. If there was no risk, there would be no return to the ability to successfully manage it. For each decision, there is a risk-return trade-off. Anytime there is a possibility of loss (risk), there should also be an opportunity for profit. Growers must decide between different alternatives with various levels of risk. Those alternatives with lowest risk may generate little profit. Those alternatives with high risk may produce the greatest possible return but may carry more risk than the producer will wish to bear. The favoured and optimal choice must balance potential for profit and the risk of loss. It all comes down to management, and there are no easy responses. There is a broad array of established risk management tools ready to be used and new tools are always being established. By learning about and using these tools, crop and livestock producers can build the confidence wanted to deal with risk and exciting opportunities of the future.
December 04, 2017