Transcript Risk Management of Investment in Vegetable Production

Risk Management for Organic Producers
Organic Oklahoma 2015
•
• OSU/OKC
OSU-OKC Student Center
900 N. Portland Ave.
Oklahoma City, Oklahoma
January 27, 2015
Merritt J. Taylor
[email protected]
James W. Shrefler
[email protected]
• In risk management, the focus is on reducing
variability in net income
•
NOT INCREASING NET INCOME!
• Income stability ensures that producers can
meet personal and business obligations.
Critical to start
thinking of risk
management
strategies before
committing to being
a producer/marketer
Reducing Risk May be Costly
Less Risk
vs
Higher Returns
* These two do not often go
together
Factors That Effect a Person’s
Risk Tolerance
• Age
• Family Status
• Debt Level
• Psychological Makeup
Five Sources of Risk for
Specialty Crop Producers
1. Production
2. Marketing
3. Financial
4. Legal and Environmental
5. Human Resource /Personnel
Some of the Risks from RMA Web Site:
http://farm-riskplans.rma.usda.gov/index.aspx?action=riskman.home
• Production Risk: Managing | Diversification,
Alternative, and Sustainable Agriculture | New
Technologies and Inputs | Crop Production | Crop and
Livestock Insurance
• Marketing Risk: General Farm Marketing | Marketing
Tools | Direct Marketing | Livestock and Dairy
Marketing
• Financial Risk
• Human Risk: Personal/Family | Employees | Pesticides
• Legal Risk: Business Organization | Renting and
Leasing | Contracting | Environmental | Taxes |
Bankruptcy | Succession Planning
Production Risks
(Major Sources)
• Weather (drought, “excessive heat {2011}”,
freezes, wind, excessive rainfall at harvest,
“tornado {April 11, 2011 in Tushka, OK}” )
• Pests (insect damage, disease damage,
weeds, wildlife)
• Input quality (genetics), input availability,
machinery efficiency
• Fire, theft, & other casualties
Tools & Strategies to Deal With - Production Risks
• Enterprise Diversification
– Different types of Crops
– Grow Different Varieties
– Different locations
– Rotate crop land
– (Will they fit your operation and be
profitable?)
Tools & Strategies to Deal With - Production Risks
(cont)
• Get Off-farm Employment for the
owner or Spouse (small Farm) - To
diversify income sources –
Effectively Spreads the Risk
Among Industry Sectors (1st mention)
Tools & Strategies to Deal With - Production Risks
(cont)
• Technology to protect against weather events:
– Plasticulture
– Irrigation (drip, sprinkler)
– Frost Protection
– Tile Drainage (heavy rainfall)
– Hoop Houses
Crop Insurance (When used with a sound
marketing program, can stabilize income)
** May be extremely expensive for specialty
crops
Benefits of Plasticulture
• Solarization of Soils
– Kills insects, diseases, fungi, nematodes
• Heats the seed bed (earlier production)
– Black
– Clear
• Cools the seed bed (later production)
– White
– Reflective
Irrigation
Benefits of Irrigation
Irrigation helps to increase agricultural production.
It helps to utilize land for agriculture.
Diversified crops like corn, beans, peas and so on can
be harvested.
High valued cash crops are grown as annual crops
with the help of irrigation.
Benefits of Irrigation (cont)
• The yields from the irrigated fields are
stable and reliable. Assured production
targets can be met.
• Reduces fluctuations in the year-to-year
yields and the risk of crop failure due to
drought.
• Allows for continuous cultivation.
Irrigation - Sprinklers
Irrigation – Spray Jets
New Technology Certa Lok
Irrigation System
Plasticulture & Drip Irrigation
Drip Irrigation
• Producers also find they can get equipment
in the field when they need it rather than
waiting for the soils to dry. “The ground is
almost always dry enough to get a sprayer
or other large equipment in the field even
though you're providing moisture to the
plant roots.”
Pest Control
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•
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Scouting
Identification of Pest
Determining What will Control the Pest
Determining How To apply the Pesticide
1947
Modern Spray Plane
Precision Agriculture
Unmanned Aerial Vehicles
(UAV)
• There are two main platforms available:
fixed wing and multi-rotor. A fixed wing
platform has the advantage of covering
large areas efficiently, whereas a multirotor
shines in being able to remain very stable in
challenging conditions with large payloads.
Unmanned Aerial Vehicles
Requirements for Precision Tools
• GPS – May 1st, 2000
• President Clinton signed executive order boosting
civilian’s access to the Global Positioning System
providing more precision in navigation.
• Global Positioning Systems (GPS) are the backbone
of most spatial technologies. GPS on the UAV tells
the autopilot where it is at all times. In addition,
GPS links the data collected to it’s spatial position
(aka geo-referencing).
Accuracy
• The Piksi offers centimeter level accuracy
inside a compact design ideal for small
UAVs. The improved accuracy will be
invaluable for autonomous landings and
improved accuracy of geo-referencing data.
Autopilot
• UAV autopilots have improved very
quickly with increased reliability, especially
within the open source community.
• Autopilots are essential for being able to
effortlessly fly over a whole area to collect
the desired data.
Autopilot
• Usually the UAV is communicating with a
ground control station (GCS) via radio link.
• GCS is usually just a laptop computer with
software such as Mission Planner. Mission
Planner is also used to set the flight paths
for the UAV missions.
Sensors (cont)
• Researchers are working hard improving
sensors for UAVs.
• Projects of interest include high accuracy
geo-referencing of imagery ‘on the fly’ and
the use of a hyperspectral push broom
scanner to collect data.
Benefis of a Hoop House
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Extend harvest in the fall
Enjoy greens through the winter
Get an early start in the spring
Be the first to harvest and sell in the spring
Keep rain from splashing soil on plants
Hoop House
Grow-it 6ftX8ft - $239.99 + s/h
Source; IGC Greenhouse Mega
Store
Hoop House
20ftX12ftX24ft - $2,989 +s/h
26ftX12ftX96ft - $6,245 + s/h
Source: Memphis Net & Twine Co.,
Inc.
Hoop House
26ftX96ft - $6,499 + s/h
30ftX96ft - $7,039 + s/h
Source: Clear Span
The US Government may provide funding for a
high tunnel pending the approval of your local
Natural Resource Conservation Service (NRCS)
office
Multiple crops
under one roof
Source: Clear Span
Multiple Crops and
different planting
regimens for season
extension
Tools & Strategies to Deal With - Production Risks
(cont)
• Site Selection
– Consider rented acreage away from home farm
which is less susceptible to identical weather
related events
• Rain
• Hail
• Freezes
For new plantings – Buy or Rent superior land
sites relatively close to home farm
Insurance
2014
2014
USDA’s New “Whole-Farm” Insurance
Program for Fruit & Vegetable Growers
“Whole-Farm” Insurance Program for Fruit &
Vegetable Growers (cont)
• Under the program, farmers can insure all
crops on their farm at once, rather than
insuring commodity by commodity. Many
fruit and vegetable crops have not had crop
insurance programs designed for them. This
allows farmers greater flexibility to make
planting decisions on their land.
• Starting with 2015 Crop Year *
“Whole-Farm” Insurance Program for Fruit &
Vegetable Growers (cont)
• The policy offers coverage levels from 50 to
85 percent; recognizes farm diversification
through qualification for the highest
coverage levels along with premium rate
discounts for multiple crop diversifications.
• Starting with 2015 Crop Year *
“Whole-Farm” Insurance Program for Fruit &
Vegetable Growers (cont)
• The Market Readiness Feature, as outlined
in the farm bill, simplifies insurance
coverage for producers under the program
by allowing the costs such as washing,
trimming, and packaging to be left in the
insured revenue instead of having to adjust
those amounts out of the insured amount.
• Starting with 2015 Crop Year *
“Whole-Farm” Insurance Program for
Fruit & Vegetable Growers
(& Livestock)
• The new policy is designed to meet the risk
management needs of diversified crop or
livestock producers including those growing
specialty crops and/or selling to local and
regional markets, farm identity preserved
markets, or direct markets.
• Starting with 2015 Crop Year *
The Whole-Farm Revenue Protection program
• Is designed to fit any farm with up to $8.5
million in insured revenue, including farms
with specialty or organic commodities (both
crops and livestock). The policy allows
these growers to insure a variety of crops at
once instead of one commodity at a time.
That gives them the option of embracing
more crop diversity and helps support the
production of a wider variety of foods.
Whole-farm revenue protection
• Sales closing date for the Whole-Farm
Revenue Protection program is March 15,
2015 for the 2015 crop year. Interested
producers and current policyholders are
encouraged to visit with a crop insurance agent
to learn how whole-farm revenue protection
may fit within their farm’s risk management
needs. Growers must make all of their
decisions on crop insurance coverage on or
before the sales closing date.
Whole-Farm” Insurance Program for
Fruit & Vegetable Growers (cont)
• Immediate Need:
– Critical to establish identity of farm with FCS
– Some established USDA programs need to be
terminated by January 31
Whole-farm revenue protection
• Federal crop insurance policies are sold and
delivered solely through private crop
insurance companies and agents.
• A list of crop insurance agents is available
at all USDA service centers or on the RMA
website at: www.rma.usda.gov/tools/agents.
Whole-farm revenue protection
• More information, including availability of
the product, can be found on the RMA
website at:
http://www.rma.usda.gov/policies/wfrp.htm
l.
Marketing Risks
Major Sources
Price Risk – due to:
– Increases in supply
– or Changed Demand
• Market availability:
– Loss of Market Access due to:
• Plant Relocation or closing
• or Buyer Turnover
• Weak Marketing Power due to small size of
seller relative to buyers
Tools & Strategies to Deal With - Marketing Risks
(cont)
• Form or Join a Marketing Cooperative
– May enhance selling prices
– May reduce purchased input prices
– Guarantees a Market
– Evens out cash flow through deferred
payments
• There is a cost for deferred payments
in the form of interest. But most risk
management strategies have costs of
some sort.
Tools & Strategies to Deal With - Marketing Risks
(cont)
• Direct Marketing of products
• Receipts are likely to vary less than if
selling to processors or fresh market
wholesalers
• May be a better way to differentiate your
product in the marketplace, but requires
“retailing” skills
Tools & Strategies to Deal With - Marketing Risks
(cont)
• Contract Production – Can reduce
downside price risks (Also eliminates taking
advantage of a rise in prices)
• Inputs specified?
• Conditions and Legal Issues?
• Reduced Flexibility?
• Transactions Costs?
Financial Risk
Major Sources
• Production Risks
• Price Risks
• Inflation – Especially cost
increases of key inputs
• Increases in Interest Rates
Tools & Strategies to Deal With - Financial Risks
(cont)
•Maintain liquidity - current ratio, or
current assets/current liabilities at 2.0 or
above
•Maintain credit reserves
•Invest in making the business more
efficient or lowering cost/unit
Tools & Strategies to Deal With - Financial Risks
(cont)
Family expenditures –
There is an interaction between family
expenses and business obligations in most
farm businesses. Deferment of some
household expenditures when income is low
is obvious, but not always attainable.
Tools & Strategies to Deal With - Financial Risks
(cont)
• Off-farm employment for a spouse or other
family member-preferably in a business that is
not directly related to agriculture. (2nd mention)
• Benefits such as health insurance, group life
insurance, and a retirement program are
helpful!
Legal & Environmental Risks
Major Sources
• Tort liability (especially a concern for
direct marketers)
• Business structure
• Environmental liability
Tools & Strategies to Deal With
Legal & Environmental Risks
• Carry sufficient farm or business
liability insurance.
• The best advice is to be forthcoming
with insurance agents about all direct
marketing activities so that you can be
assured of adequate coverage
Tools & Strategies to Deal With
Legal & Environmental Risks (cont)
• Use “good agricultural practices”
• Good neighbor relations
Human Resource Management Risks
Major Sources
• Loss of an essential owner, manager,
employee
• The three D’s (Divorce, Death,
Disability)
• Injury
Tools & Strategies to Deal With
Human Resource Management Risks
• Good Human Resource management
practices (for family as well as outside
employees)
• Sufficient life insurance for key
owners to insure business continuity
Tools & Strategies to Deal With
Human Resource Management Risks (cont)
• Improve safety performance
• Reduce legal risk arising from
employee relationships.
• Control liability of employees
LED Lighting
• For greenhouse crops such as high-wire tomato,
which have self-shading problems while the sun
tracks across the greenhouse and on low-sunlight
days, LED arrays can be located within the dark leaf
canopy itself without overheating the plants while
lighting the leaves and fruit clusters for efficient
tomato production.
Food safety
• Microbial control of postharvest diseases
has been extensively studied and appears to
be a viable technology.
• Food safety must be ensured at each
postharvest processing step, including
handling, washing of raw materials,
cleaning of utensils and pipelines, and
packaging.
Improve Your Knowledge
TAKE ADVANTAGE OF
EDUCATIONAL
OPPORTUNITIES
Trinidad Moruga Scorpion – the hottest!
>2,000,000 Scoville Heat Units
Jalapeno = 1000 - 4000 Scoville Heat Units
Points to Remember
(cont)
• NOW is the Time to begin Planning the risk
management for your agricultural business.
• **(Especially if you are not currently in the
USDA – FSA System)**
• Don’t wait until the business puts you in a
difficult situation.
From 101 Rules of Risk Management by Tom Hallet
• Everyone is in business to make a fair profit
• Long-term, good faith relationships are not
obsolete
• Integrity is not out of style
• Common sense is still the single most
important ingredient in risk
management
Questions?
• Merritt J. Taylor
• Oklahoma State University
• Department of Agricultural Economics
• Cell: (580)-513-5555
• [email protected]
• James W. Shrefler
• Oklahoma State University
• SE Area Extension Horticulturalist
• [email protected]