Most farm owners spend plenty of time thinking about risk. Weather, markets, equipment breakdowns and input costs are part of the everyday challenges involved in running a farm.
But some of the biggest risks on an operation can be easier to overlook.
What happens if the only person who knows how to run a certain piece of equipment is suddenly gone? When was the last time someone went through the insurance policy line by line? And when a big decision comes up, who is the person you call when you aren’t sure what to do?
Those questions may not make it onto the daily to-do list, but they can have a big impact on how an operation handles the unexpected.
“That, to me, is what risk really comes down to,” says Michelle Goeke, ag attorney and chief operating officer with UnCommon Farms. “What can your balance sheet absorb from the financial perspective, and what is your risk appetite? Those two things will set up a lot of what we would call your risk management strategy.”
Goeke has seen what happens when owners plan ahead, as well as what happens when they don’t.
“I see it on the front end, when you think about what we are doing to mitigate risk, and then what happens on the back end when we don’t,” she says. “I can tell you the back end is far more costly than the front end if we don’t make the right decisions.”
Her colleagues Nicole Davis, director of human resources and people strategy, and Brian Long, an insurance specialist with more than 20 years in crop insurance, look at risk from different angles.
Together, they make the case for looking beyond weather and markets. People, insurance, cash flow and having a plan for the unexpected all deserve a place in the conversation.
Have Someone to Call
For Goeke, one of the biggest risks on many operations is trying to figure everything out alone.
“You can survive every one of these problems,” she says, listing labor, regulations, mental health pressures and generational complexity. “You can figure out how to work through it. But the hard part is doing it by yourself.”
Her advice starts with a question many owners probably can answer pretty quickly.
“Who do you call when you’re not sure you’re making the right decision?” she asks. “The last time you were questioning a decision, who did you pick up the phone and call? Was it a neighbor? A family member? A resource? How did you feel about the advice they gave you?”
For some, the answer might be a lender, insurance agent, consultant or another producer. For others, there may not be someone they regularly turn to.
Building those relationships before a problem comes up can make the next tough decision a little easier.
Goeke also encourages owners to spend some time thinking like a CEO instead of staying focused only on the day-to-day work.
“Ultimately what we want is to ensure the leaders of your operation are really thinking like a CEO — to step back and work on the business instead of always being embedded in the business,” she says.
That can start with three questions:
- What are we trying to build here? Income, lifestyle, equity or opportunities for the next generation?
- What can our balance sheet realistically handle?
- Who is in our corner when decisions get hard?
Those answers can help guide decisions about people, equipment, insurance and growth.
Don’t Rely on Just One Person
People are another area where a little planning can go a long way.
Hiring is tough. Training takes time. And when someone leaves, owners often find out just how much one person knew about the operation.
Davis says people should be viewed as part of an operation’s risk plan, not just another challenge to manage.
“We don’t often think about people as being a risk mitigation strategy,” she says. “But the reality is we all know the feeling, especially in season when we’re talking about harvest or planting. We all know that feeling when the crew is working well and things are going smoothly, and it feels like we’re in a rhythm. It’s almost like a dance. But we also know when it’s not working.”
Davis breaks people management into three areas.
Tactical and administrative covers the day-to-day HR work, including job postings, screening applicants, onboarding, payroll, H-2A rules, hours and time off.
Integrated means employees understand how their jobs fit into the operation. Equipment operators know what needs to get done and how to communicate delays. Livestock employees know the health and production goals they are working toward. Everyone understands what their role contributes to the business.
Strategic is where owners think about the bigger picture, including workplace culture, compensation and employee development. It also means looking at who could step into a bigger role down the road and what experience they need to get there.
“When we get focused on the ‘I’ve got to do all this paperwork’ side of HR, we treat HR as tactical and administrative,” Davis says. “We get better at managing our workforce when we start to look at the next two levels, where we connect our HR activities to our business goals.”
Have a Backup Plan
Davis often uses a row-crop example to explain the idea.
“They maybe have one or even two people they’ve trained to run that sprayer,” she says. “When we don’t look at that as a strategy, what happens if we lose our only person spraying or one of our two sprayers? How do we backfill that role and get back up to maximum efficiency?”
The same thing can happen with almost any job on an operation.
Maybe one person knows how to make all the equipment adjustments. Someone else handles the books. Another employee knows how to fix a certain piece of machinery or manage a part of the livestock operation.
If those people are gone, someone still has to get the job done.
“When we understand what we need from our employees and we’re clear on their performance and metrics, and when we understand how our HR decision making impacts our business success, we are really mitigating retention risk,” Davis says.
She also points to a common habit among busy owners: doing a job themselves because it is faster than teaching someone else.
“You might do it because it’s faster for you the first time,” Davis warns. “But the sixth time you’ve done it, you’ve now spent 60 minutes on that same problem over and over again, and you don’t have anybody behind you who can actually resolve the problem.”
Her advice is to start small. Identify three or four jobs where most of the knowledge sits with one person. Pick someone who can start learning each job, then use slower periods to give those employees real practice.
The goal isn’t to have everyone know how to do everything. It is to avoid having a job come to a stop because one person isn’t there.
Talk About Expectations
Davis says labor risk is also changing as younger and international workers enter the workforce.
“One of the new realities of the workforce is this: the younger the new generations that are coming into our workforce, H-2A workers, they all have people behind them… that actually makes them much more aware of labor and employment law than we think they are,” she says.
Written policies, accurate time records and safe work practices can help an operation avoid problems. They can also help employees know what is expected of them.
Pay is another place where communication can make a difference.
“When we talk about compensation, it’s training our farm leaders how to have good conversations about the total value of the employee to the farm, and the total value of the compensation we give them,” Davis explains. “Do they understand all of the elements that go into their pay? Do they understand extras like fuel, a side of beef, or meals, and the after-tax dollars they’d have to spend to buy that?”
The same goes for busy seasons.
“It’s about being able to have that conversation with non-farm employees about what the cadence of labor requirement is on the farm and how it ebbs and flows,” Davis says. “If we rely on people who didn’t grow up in agriculture, we have to explain why there will be longer days in certain weeks and how we plan to balance that in slower periods.”
A little communication before the busy season can help employees know what to expect and give owners a chance to address concerns before they become bigger problems.
Take Another Look at Insurance
Insurance is another part of risk management that can be easy to put on autopilot.
Long says many producers renew their policies year after year without taking a close look at whether the coverage still fits the operation.
“The biggest thing we see is we don’t review those policies on an annual basis,” he explains. “Did you add a building? Did you add machinery? Do you have too much machinery on your schedule? That’s a direct cost you’re spending, and you may not have that implement anymore.”
An operation can change quite a bit in a year. New buildings get added. Equipment gets traded. Values of livestock, feed and other assets move around.
If the insurance policy doesn’t keep up, there can be gaps in coverage or money spent insuring things the operation no longer owns.
“Personally, my recommendation is to be looking at a property-casualty policy at least annually,” Long says. “From a crop insurance perspective, I think it’s an ongoing conversation. I think it’s at least quarterly to know what’s going on with your policy.”
During an annual review, Long recommends looking at:
- Buildings: Are values updated for current construction costs?
- Equipment: Are items listed that you no longer own? Are new purchases included?
- Umbrella coverage: Does the liability limit fit the size of the business and its assets?
- Livestock and feed: Are values still realistic for today’s market?
None of these steps are especially complicated, but they can be easy to overlook when the daily work of running an operation takes priority.
Risk management doesn’t always mean making a big change or buying another policy. Sometimes it means taking a step back, looking at how the business actually operates and asking where it would be most vulnerable if something changed.
Having someone else trained to handle an important job, knowing who to call when a decision gets complicated and taking another look at insurance coverage can all help an operation be better prepared when the unexpected happens.
