Sunday, November 18, 2012

Farm Risk Management - Part One

Risk management is the identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events.

Over the next several months, Baker Heritage Farms will be providing a series of articles related to farm risk management and safety to improve the viability of the family, backyard, or small acreage farm.

Farm risk management is just as important to the financial success of a backyard or small acreage farm as it is to a large farm.

The risk management process includes:
  • Identifying hazards;
  • Assessing and prioritizing risks;
  • Choosing control measures;
  • Implementing controls; and
  • Monitoring and reviewing results.
General areas of concern include:
  • Loss prevention;
  • Insurance;
  • Clams management;
  • Health & safety;
  • Records management; and
  • Regulatory compliance.
When people think of risk management, they normally think of those risks associated with insurance, such as real property (buildings, structures, etc.) and personal property (household furnishings and equipment) damage (fire, flood, earthquake, theft, etc.), liability claims (slip and falls, damage to the property of others, etc.), and employment liability claims (workers' compensation, discrimination, etc.). While these are important, farmers, both big and small, have additional risks that must be managed, including:
  • Equipment (tractors, implements, ATV's, mowers, etc.);
  • Crop loss (insurable by large farmers, but not usually insurable by small farmers); and
  • General liability claims (e.g. food borne illness claims).
The primary concerns of the backyard or small acreage farmers include protecting from losses associated with:
  • Real property damage - including barns, outbuildings, fencing, etc. This damage may come from fire, wind, hail, weight of snow and ice, and other types of losses. These risks are normally insurable, and many times coverage can be extended from the homeowners policy (check your local area to see if you can obtain a farm and ranch homeowners policy);
  • Personal property damage - including hand tools, small equipment such as trimmers, small powered mowers, etc.
  • Automobile damage - both physical and liability damage. While automobile liability coverage is mandatory in most states now, it is just as important to consider physical damage coverage, particularly if you are using the vehicle for farming operations and need the vehicle to sustain your operation.
  • Mobile Equipment damage - including tractors, implements, ATV's, etc. In the case of small garden or lawn tractors, coverage can usually be extended from your homeowners policy (see above). Your homeowners policy may even extend coverage to ATV's, depending on use. However, most homeowners policy's will not cover farm tractors (including compact, utility, and larger) or their implements. In addition, these are high target items in many areas. A Mobile Equipment policy (or possibly a rider to your homeowners policy) is worth the small premium charged for such coverage.
  • Workers' compensation - this coverage is required if you hire any employees for your farm, even on a temporary basis or just for day work. If a temporary worker is injured while performing work on your farm, you are liable, whether you are negligent or not.
  • Liability claims - including products and completed operations. While we are all familiar with slip and fall claims, there are other liability risks that backyard farmers and small acreage farmers need to be aware of. If you are selling food products (meat, eggs, produce, etc.) you will need coverage that will provide you with defense costs as well as claim settlement costs if you are faced with a food-borne illness claim. There are many other forms of liability that a farmer can run into that require more discussion in the future.
This is just a short list of concerns that backyard or small acreage farms should address as they begin farming and grow their farming enterprise.

Having a strong, written safety program in place will help reduce the risk of injury or property damage to you and others (highly recommended if you have any employees). If you are selling food products, even if it is just a few baskets of tomatoes, corn, cucumbers, or a few dozen eggs, it is important that you have at least a basic Good Agricultural Practices (GAP) manual prepared and follow it. This is recommended even if you give away your produce. If you are selling meat products, your GAP handbook should be more complete and may need to include a Hazard Analysis & Critical Control Points management system.

Loss prevention (or loss control) includes ensuring that you have taken, and are taking, the necessary steps to protect your property (such as locking up equipment) from loss and protecting your neighbors, visitors, and farm customers from injury (such as having safety procedures in place).

Maintaining current records of your operations will not only help you in case of a claim, but it is good practice to ensure that your farm operation is successful (and profitable). These records can also be an excellent marketing tool if you plan to sell organic products (records are required if you intend to become certified organic).

Work with your insurance agent to ensure that you have the insurance coverage you need and that your agent (or his/her office) will assist in claims management should you have a claim.

The purpose of a risk management program is to reduce expenses related to risks associated with your operation, thereby increasing your profits. Do not depend on insurance for your risk management program. When you decided to become a backyard or small acreage farmer, you decided to enter the world of business. A well thought out risk management program will help you maintain low cost insurance coverage, and, without a proactive risk management program, you will be doing yourself and your customers and vendors a disservice.

Baker Heritage Farms

Don Baker has been providing insurance and risk management consulting services for over 30 years and has been a Risk Management Consultant for the past 8 years.

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