5 types of risks in agriculture

The five general types of risk in agriculture are as follows:

1
Production risks stem from the uncertain natural growth processes of crops and livestock, with typical sources of these risks related to weather and climate (temperature and precipitation) and pests and diseases. Other yield-limiting or yield-reducing factors are also production risks such as excessive heavy metals in soils or soil salinity.

2
Market risks largely focus on uncertainty with prices, costs, and market access. Sources of volatility in agricultural commodity prices include weather shocks and their effects on yields, energy price shocks and asymmetric access to information are additional sources of market risk. Other sources of market risk include international trade, liberalization, and protectionism as they can increase or decrease market access across multiple spatial scales. Farmers’ decision making evolves in a context in which multiple risks occur simultaneously, such as weather variability and price spikes or reduced market access (Holden and Shiferaw, 2004; Harvey et al., 2014; Lazzaroni and Wagner, 2016).

3
Institutional risks relate to unpredictable changes in the policies and regulations that effect agriculture (Harwood et al., 1999), with these changes generated by formal or informal institutions. Government, a formal institution, may create risks through unpredictable changes in policies and regulations, factors over which farmers have limited control. Sources of institutional risk can also derive from informal institutions such as unpredictable changes in the actions of informal trading partners, rural producer organizations, or changes in social norms that all effect agriculture. Farmers are increasingly supported by and connected to institutions, especially as farm production becomes more market focused.

4
Personal risks are specific to an individual and relate to problems with human health or personal relationships that affect the farm or farm household. Some sources of personal risk include injuries from farm machinery, the death or illness of family members from diseases, negative human health effects from pesticide use, and disease transmission between livestock and humans (Antle and Pingali, 1994; Lopes Soares and Firpo de Souza Porto, 2009; Masuku and Sithole, 2009; Arana et al., 2010; Tukana and Gummow, 2017). Health risks are a major source of income fluctuation and concern for farmers (Dercon et al., 2005). Farmers often cope with the interconnectedness of personal and institutional risks; for example, divorce or death of a husband can lead to the appropriation of land or livestock, due to institutional risks created by customary laws (Meinzen-Dick et al., 2014). In the literature, the words “personal”, ”human”, and ”idiosyncratic” generally refer to the same type of “personal” risks we considered.

5
Financial risk refers to the risks associated with how the farm is financed and is defined as the additional variability of the farm’s operating cash flow due to the fixed financial obligations inherent in the use of credit (Gabriel and Baker, 1980; de Mey et al., 2016). Some sources of financial risk include changes in interest rates or credit availability, or changes in credit conditions .