As business owners, farmers have a firm grasp on most aspects of their operations. But as with any job, there are certain things that are simply out of their control – especially when it comes to Mother Nature. When natural disaster strikes, including drought, flood, fire, livestock diseases and insects, or other uncontrollable circumstances such as input costs and high commodity prices, it’s important that farmers be prepared. Doing so helps save as much as possible in the event of inevitable loss.
Mac Miller, Senior Vice President at AgAmerica Lending, advises his clients to “expect the unexpected and try to plan for it. Model conservatively and make sure to have both a backup plan and a buffer.”
The main purpose of an agriculture disaster preparedness plan is to make sure priorities are in order before, during, and after the disaster. Plans keep family and animals safe, crops preserved as best as possible, and financial loss minimized. The Texas A&M AgriLife Extension Service recommends that farmers keep an ongoing, updated inventory of property and livestock and have physical supplies ready before disaster strikes. It’s also important to think of places where livestock could be moved in the event of a flood, storm, or other disaster, and how to continue feeding them after relocation. These precautions are applicable to most natural disasters.
One of the most common natural disasters farmers face is drought. In order to be prepared, farmers must plan for both how their crops will fare in a normal climate for their state, as well as for extremes. According to the Natural Resources Conservation Service, having background knowledge about your local climate is extremely helpful in mitigating drought. Farmers may build water storage systems that hold water for irrigation in times of emergency, or, for livestock, make sure they have enough hay and forage for feeding even when it’s dry.
While having a concrete, thought-out disaster plan is important, it’s also wise for farmers to adopt business practices that will prove beneficial in tough times. These include practices such as crop diversification, crop insurance, and developing a strong financial plan.
Crop diversification is the practice of growing more than one crop, which can help tremendously if disease, drought, or another risk wipes out one specific crop. Many farmers also utilize cover crops, such as radishes, ryegrass, and oats in the off-season of their primary crop. Diversified farming also provides a backup income and that can help offset the losses from a natural disaster. Volatile commodity prices, the cost of equipment, and more can also hinder income, so it’s a smart move to broaden the range of crops. However, the team at AgAmerica emphasizes that while crop diversification is very important, it can’t completely eliminate risk. There’s always a chance that several crops may fail, so it’s more of a hedge against fluctuating market prices.
An established financial plan is also a helpful tool for agribusiness operations.
“Be aware of your operating costs, and make sure you have enough money in savings or available on your operating line to get through the next harvest or planting,” says Doug Moore, Loan Processor at AgAmerica.
Lending companies like AgAmerica can help farmers set up a 10-year line of credit to use for a decade of inevitable ups and downs.
“Track the financial markets, know the Farm Bill, and partner with a lender who will be there for you in good times and bad,” adds Miller.
Ultimately, risk management plans ensure that the things most important to a farmer – family, land, animals and livestock – stay safe when unpredictable disaster strikes.
Drought Risk Management Infographic: