What are the sources of farm risk and uncertainty?

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1. Production risk: Crop and livestock yields are not with certainty before harvest or final sale weather, diseases, insects, weeds are examples of factors which can not be accurately predicted and cause yield variability.

Even if the same quantity and quality of inputs are used every year, these and other factors will cause yield variations which cannot be predicted at the time most input decision must be made. The yield variations are examples of production risk.

Input prices have tended to be less variable than output prices but still represent another source of production risk. The cost of production per unit of output depends on both costs and yield. Therefore , cost of production is highly variable as both input prices and yield vary.

2. Technological risk: Another source of production risk is new technology. Will the new technology perform as expected? Will it actually reduce costs and increase yields? These questions must be answered before adopting new technology.

3. Price or marketing risk: Variability of output prices is another source of risk. Commodity prices vary from year to year and may have substantial seasonal variation within a year. Commodity prices change for number of reasons which are beyond the control of individual farmer.

4. Financial risk: Financial risk is incurred when money is borrowed to finance the operation of farm business. There is some chance that future income will not be sufficient to repay the debt. Changes may take place in the interest rates, scale of finance, and ability of the business to generate income.

raphael answered the question on August 12, 2021 at 06:21

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What are the sources of farm risk and uncertainty?

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