Farming Risks

In both the developing and developed worlds risk exposure and management are important aspects of farming. Variations in the weather, climate, yields, prices, government policies, global markets and other factors can cause wide swings in farm production and, in the case of commercial agriculture, in farm income. Risk management involves choosing among strategies that reduce the social and financial consequences of these variations in production and income.

Five general types of risk in the agriculture sector are recognized (USDA 2006a):

• Production risk derives from the uncertain natural growth processes of crops and livestock. Weather, disease, pests, and other factors affect both the quantity and quality of commodities produced;

• Price or market risk refers to uncertainty about the prices producers will receive for commodities or the prices they must pay for inputs, tte nature of price riskvaries significantlyfrom commodityto commodity;

• Financial risk results when the farm business borrows money and creates an obligation to repay debt. Rising interest rates, the prospect ofloans being called by lenders, and restricted credit availability are also aspects of financial risk;

• Institutional risk results from uncertainties surrounding government actions. Tax laws, regulations for chemical use, rules for animal waste disposal, and the level of price or income support payments are examples of government decisions that can have a major impact on the farm business; and

• Human or personal risk refers to factors such as problems with human health or personal relationships that can affect the farm business. Accidents, illness, death, and divorce are examples of personal crises that can threaten a farm business.

ttis paper focuses on production risks, and specifically the way extreme weather events and anomalous climate conditions contribute to production risk. In this context, production risk is the risk associated with undesirable and often unanticipated weather and climatic conditions that affect the performance of crops and livestock, tte relationships between weather, climate and production risk are well recognised (George et al. 2005). Some examples should suffice to illustrate the strength and importance of these relationships.

Climate-based models have been used to predict the potential for soybean rust spore production in the southern USA. ttis makes it possible to define regions where the climate is more favourable for rust to develop, expressed as the frequency of years a higher production of spores would be likely (Del Ponte and Yang 2006).

Figure 1.5 shows the likelihood that soybean rust in Texas, USA, will reach a severity of over 20 percent by late June if the rust is found in late May.

Figure 1.6 shows the strong influence of rainfall on cereal production in Niger. Figure 1.7 shows drought risk for Gujarat, which is situated on the western coast of India, tte drought risk map was obtained by integrating risk maps for both agricultural and meteorological drought. High drought risk prevails in nearly 30% of the area, ttis comprises districts that are major producers of food grains as well as oilseeds, emphasizing a critical need for drought management plans in these districts (Chopra 2006).

Figure 1.8 shows how anomalous climatic conditions in India influence food production.

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