Risk Management vs. Crisis Management

[cakadu]

In a nutshell, what is risk management and what do you think are the reasons small to mid-sized farmers/producers do not utilize risk management tools very quickly? What about technology transfer to small to mid-sized entities - how could we enhance or enrich tech transfer so that they are more able to get in the game? It seems to me that one of our biggest problems is tech transfer.

We tend to operate by crisis management versus employing sound risk management tools. How many of the larger farming operations are adopting risk management tools successfully?

[kaniteo]

Succintly, risk management is the process a producer/manager undertakes to deal with production factors that can impact negatively on his or her operation. Some people feel that risk management involves trying to eliminate all production risk, however, this is a management technique used by highly risk adverse managers and may prove more costly than accepting a certain amount of risk. Other producers are extremely risk tolerant and will chose to accept risk in return for the potential for higher returns (some say a gambler mentality). Other producers will chose to manage risk internally because the tools available are too costly to warrant using. This self-insurance is common amoung large operators with land holdings spread over a big area.

These same types of scenarios can be carried over to marketing risk as well, although you may find someone who is risk-adverse in production is extremely risk-tolerant in marketing and vice-versa.

I think one of the reasons small to medium producers do not utilize risk management tools readily is because these tools are inflexible and will not serve their purposes. Thus, they opt for "home-grown" risk management tools.

I'm curious as to your definition of tech transfer. Is it the transfer of production technology which seems to have tremendous uptake amoung producers or do you mean the transfer of computer, marketing, or management technology?

[tdarling]

I think that kaniteo has a pretty good definition of risk management, but it can be considered even more broadly. Risk exists in every area of a business - production, finance, marketing, human resources and strategic management. Many people consider risk management tools only as those that address financial and marketing risk. Examples are crop and liability insurance, hedging and options etc. However, risk management is also succession planning to ensure the business always has a capable CEO. It's also the use of diversified crop and livestock enterprises. In some ways, risk management is assessing risk (wherever it occurs in the business) and implementing strategies that will match the degree of risk with your (and your business's) ability to bear that risk. Risk management doesn't necessarily mean minimizing risk.

On the tech transfer topic, some of us like to make a distinction between tech transfer and extension. Tech transfer is helping someone adopt a new technology (eg. a new herbicide). Extension is a broader activity that includes tech transfer but also deals with the suitability of the technology and its ramifications for the individual, the business and the family.

[pandiana]

I think I would agree with your comments but would you care to be more specific regarding your comment about tech transfer? What technologies do you consider that many small to mid-size producers are lacking?
Also, what is a small to mid-size producer?