Uncertainty and Risk: How Do You Plan for It?

Now that you have done all of the background work, you can lay out your strategic responses to uncertainty. In other words, develop your plan. For example, you may modify and update your hedging strategy for addressing commodity price risk. You may examine your various insurance policies to see if your level of coverage is adequate to cover risks or uncertainties you have identified. Do you have someone in your business responsible for regularly monitoring changes in the Farm Bill and other government policies and evaluating the implications for your business? Have you considered the diversification of your business and whether you have the appropriate level of diversification to handle unexpected events?

6. Evaluate different strategies, make your action decision

In this sixth stage you implement your plan, and as you implement your plan evaluate how it is working and make adjustments accordingly. Once you have updated your hedging strategy, an important step in implementation might be in-service training for you and your employees so that everyone is onboard to implement the new strategy. Follow through with your insurance agent(s) and update your insurance policies. Sometimes updating insurance policies may even result in lower premiums. Even in those cases where you have higher premiums, remember that your analysis has shown that these premiums are worth it because your risk of exposure is now much less. Set up a time to meet with the employee responsible for monitoring changes in government policy to go over upcoming changes. Consideration of the appropriate level of diversification for your business — to address marketplace uncertainties — may be a good agenda item for a board meeting.

Implement strategy for risk mitigation

In the feed and grain business you face many risks and uncertainties. We identified some earlier in this article and you may also face storage and transportation challenges; feed contamination that results in sick or dead animals; changing market demands for new services such as identity preservation or special measurement of quality traits; loss of grain quality during storage in your facility; and technological risk related to new feed formulations or new grain handling equipment.

As you implement your strategy for risk management, keep in mind that many of these uncertainties represent opportunities as well as challenges. If you have backup plans in place for these unexpected events, you may well find yourself with a competitive edge over your rivals in the marketplace. Some strategic steps on your part might be to consider things like how much grain storage you have; what capacity you have for unloading deliveries and loading outbound product; safety training for all employees to minimize the risk of workforce accidents; and a deliberate employee retention plan to avoid having your key employees recruited away by your competition.

The take-home message of our column is that we can never reduce all the risk and uncertainties in the industry, and that it pays to think deeply and broadly about potential risks and how your feed and grain business might respond. While we don’t want to keep you up at night, risks and uncertainties in the marketplace can present opportunities.

Dr. Fulton is Professor and Associate Department Head, Department of Agricultural Economics and Center for Food and Agricultural Business, Purdue University. Dr. John Foltz is Associate Dean, College of Agricultural and Life Sciences and Professor, Department of Agricultural Economics and Rural Sociology, University of Idaho, Moscow, ID.