Agricultural risk management

No-one can escape the uncertainty of agricultural risks, but everyone can prepare for them

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Participants in the agricultural supply chain

Crop shortfall, liquidity problems, and unfavorable markets are not just the fear of every producer, these agricultural production risks loom large over all players in the supply chain. Every participant from input supplier and agricultural machinery manufacturers to grain traders, logistics companies, and the food industry has much at stake in the event of extreme weather that results in crop losses.

Effectively managing agricultural risks starts with a proper appreciation of their scope. Let’s take a look at the broad risk categories affecting the agricultural sector, as well as outline the best ways to manage them.

Agricultural production risks

Agricultural producers might face the risk of drought, hail damage, flooding, frosts, unseasonal weather, crop destroying pests and diseases. This has been made worse by the already noticeable effects of climate change: Weather events such as drought, hail and torrential rain are likely to become more frequent, depending on the region.

In addition, producers might have to contend with possible loss of production due to failure of agricultural equipment.

Agricultural market risks

Economic viability of farming can be severely impacted by adverse price movements on commodity markets. Price declines can be 30% or more in a short period of time, thus eating up annual profits. It can also be negatively affected by changes in costs of production such as unanticipated increases in fuel expenses.

Agricultural financial risks

Managing the inevitable negative cash flows inherent in farming due to regular upfront input costs is vital to profitable operation.

Obtaining the necessary loans is needed to protect cash flow and productive assets. This is easier said than done if the right safeguards are not in place.

Additionally, the steady advances in smart agriculture, particularly with regards to precision farming, can necessitate costly technological upgrades.

Agricultural supply chain risks

Next to the producers all players in the supply chain are affected by the financial impacts of crop shortfalls in slightly different ways. Input suppliers offering payment terms run the risk of not being paid on the back of a bad harvest. Grain traders are at risk of not meeting quotas. And food processors need to ensure they receive produce in sufficient quantity and quality at the right price.

Watch how global experience produces innovative agricultural risk management

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How we help manage your agricultural risks

Agricultural insurance remains one the most effective ways to manage your risk. We start by assessing the risk and finding the right parameters to measure it. We offer an optimized solution for any agricultural risk you might have, which might include a variety of parametric covers based on yield or weather indices, among others. Agricultural insurance can serve a lot of business targets, including the stabilization of income and enhancing financial credit-worthiness.

Benefit from Munich Re’s knowhow in structuring agricultural risk

Put our financial strength and global leadership in agricultural insurance to work for you in developing a comprehensive, innovative risk solution built around your specific needs and regulatory environment.

Our digital tools and unique approach, which includes the option to structure your risk transfer solution as insurance or as a derivative, will deliver a solution that is perfectly suited to your particular situation.