What are the methods of reducing farm risk and uncertainty?

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1. Diversification: Production of two or more commodities on the farm may reduce income variability if all prices and yields are not low or high at the same time.

2. Stable enterprises: Irrigation will provide more stable crop yields than dry land farming. Production risk can be reduced by careful selection of the enterprises with low yield variability. This is particularly important in areas of low rainfall and unstable climate.

3. Crop and livestock insurance: For phenomena, which can be insured, possible magnitude of loss is lessened through converting the chance of large loss into certain cost.

4. Flexibility: Diversification is mainly a method of preventing large losses. Flexibility is a method of preventing the sacrifice of large gains. Flexibility allows for changing plans as time passes, additional information is obtained and ability to predict the future improves.

5. Spreading sales: Instead of selling the entire crop output at one time, farmers prefer to sell part of the output at several times during the year. Spreading sales avoids selling all the crop output at the lowest price of the year but also prevents selling at the highest price.

6. Hedging: It is a technical procedure that involves trading in a commodity futures contracts through a commodity broker.

7. Contract sales: Producers of some specialty crops like gherkins, vegetables often sign a contract with a buyer or processor before planting season. A contract of this type removes the price risk at planting time.

8. Minimum support price: The government purchases the farm commodity from the farmers if the market price falls below the support price.

9. Net worth: It is the net worth of the business that provides the solvency, liquidity
and much of the available credit.

raphael answered the question on August 12, 2021 at 06:24

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What are the methods of reducing farm risk and uncertainty?

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