- Author: Molly Nakahara
We like to get farmers and ranchers together and ask them this question: What could go wrong? Preferably after they've had a good night's sleep and a filling breakfast and at a time of year when their farms and ranches are relatively quiet. It is not the happiest of conversations, to say the least. But we feel that talking about farm and ranch risks, and hopefully, taking steps to create resilience in the face of these challenges, is critical to the success of agricultural businesses. Having a plan of action in the face of unforeseen crisis can be the difference between making it and losing it all.
Here are a few topics that came out of recent Risk Management discussions held during our Farm Business Planning short course and Farmer-to-Farmer Networking Breakfasts (for info on both of these events, visit our Foothill Farming website.)
Human Risk – What happens if you get hurt or sick?
This is not a fun topic. Knock on wood, you will be fit as a fiddle into a ripe old age. But what if? You need to buy health insurance. Period. You don't have the money or time to deal with being uninsured when you need health care. Take it from a gal who's racked up hundreds of thousands of dollars in medical bills, health insurance is well worth the investment.
You also need to have an Operations Manual. Do it right now! Write down each enterprise that your business relies on and the basics of keeping it functioning from day to day. It can be rough but should be enough information that a person could read the thing and keep everybody/thing alive. Print it out and keep it in an obvious place, like a binder that says “Operations Manual.” Tah Dah! Your business just became more resilient.
Now you need a designated person/persons who can read the Operations Manual and run your farm in your absence. Employees are a good place to start as they probably have a good idea already. How about a neighbor or good friend? Have them over for a cup of tea and show them where the operations manual is kept. Maybe walk through a typical feeding of the animals or watering the greenhouse. How about a farm buddy system? I'll be your emergency farmer if you'll be mine.
Marketing Risk – What if there is a sudden change to your sales outlets?
Marketing risk is a much tougher nut to crack and prepare for. We build our businesses around projected sales to retail outlets, restaurants, and farmers' markets. What if one of those outlets suddenly became unavailable? You've produced the product and may not have another buyer lined up, so what options do you have?
Jim Muck of Jim's Produce has a good strategy. He tries to always have three potential outlets for a farm product, e.g. Restaurant A, Restaurant B, and Grocery Store X. While he may have made a commitment to Restaurant A for the season, he knows that if Restaurant A were to go out of business both Restaurant B and Grocery Store X would likely be interested in the product he was supposed to sell to Restaurant A.
So what are your options? Would your wholesaler buy more? Do you have a relationship with a Farmers' Market Association that will allow you to attend a market at the last minute? How about a place that will always take a bulk order to make jam or salsa? As Paul Muller of Full Belly Farm says, a successful farmer must spend her time “100% farming and 100% marketing.” Take a moment to identify your most risky marketing outlet and create a back-up plan for that product.
Legal Risks – Are you above board with your employees?
If you aren't filing payroll tax and covering workers with workers compensation insurance, you're walking on thin ice (and technically, breaking the law.) While talk of the costs may have dissuaded you from hiring employees the right way, it's time to make the switch. And if you think you can't afford minor costs like payroll tax and insurance, you may have bigger problems in your production plans than you realize. These costs are insignificant enough that you should be able to pay for them if you can afford hired labor. The risk of getting busted for violating labor laws is significant and fines could very well put your farm or ranch out of business. Time to read up on how to follow the law (getting legal?.
Financial Risks – How well do you understand your Cash flow?
It is likely that your farm and ranch business goes through ups and downs in your cash flow cycle. Our work is largely dependent on the seasons and cycles of animals and therefore there are times when we have a lot of cash coming into the business and there are times when there is not a lot coming in. For many of us, when we have the least amount of cash coming is also when we have a lot of cash going out! Create a cash flow budget for your farm that shows the months across the top and different categories of income and expense along the side. You can then go through and project income and expense by month. This will help you plan for when cash is short, and budget more stringently when income is strong. Another strategy to weather a lopsided cash flow is to move major bills and payments to times of the year when you have income. For example, pay for liability insurance in August instead of February.
Production Risk – Do you have a plan for wildfire?
We farm in a part of California with a particularly high threat of wildfire. Now is a great time to get your wildfire plan written down and understood by all involved. Do all of your properties have at least two exits? What will happen to your livestock if you happen to be out of the area when a fire threatens your farm? Did you know that Cal Fire does not want you to leave sprinklers on when you evacuate and would rather you place buckets of water around structures? Do you maintain 100 feet of defensible space around all outbuildings? There are a lot of great resources available online to help you get started creating a plan. Start off by reading this Foothill Farming blog post on wildfire planning: http://ucanr.edu/sites/placernevadasmallfarms/blog/?blogpost=19003&blogasset=24945
One of the most important parts of managing risk on your farm is preparing yourself for the emotional toll that accompanies all of these scenarios. By taking a moment to think through a list of potential risks and what actions you'll take in the face of these risks, you are making yourself more resilient. Understandably, an initial reaction to these scary situations is to avoid thinking about them altogether. By looking at these risks as hypothetical situations, we are training ourselves and our businesses to react effectively if and when we need to.
For more information on the types of risk your farm or ranch needs to prepare for, visit the Risk Management section of our Foothill Farming website: http://ucanr.edu/sites/placernevadasmallfarms/Farm_Business_Planning-_new_2/FBP_Risk_Management/Risk_Management/
- Author: Dan Macon
In early November, the California Rangeland Watershed Laboratory at UC Davis hosted a workshop/webinar entitled “Ranching and California's Drought” (for videos of the presentations, CLICK HERE). For me, one of the most interesting parts of the workshop was a panel discussion featuring several of the authors of the U.S. Drought Monitor (go to http://droughtmonitor.unl.edu/ for more information about the Drought Monitor). According to the Drought Monitor website:
“The U.S. Drought Monitor, established in 1999, is a weekly map of drought conditions that is produced jointly by the National Oceanic and Atmospheric Administration, the U.S. Department of Agriculture, and the National Drought Mitigation Center (NDMC) at the University of Nebraska-Lincoln. The U.S. Drought Monitor website is hosted and maintained by the NDMC.
“U.S. Drought Monitor maps come out every Thursday morning at 8:30 eastern time, based on data through 7 a.m. the preceding Tuesday. The map is based on measurements of climatic, hydrologic and soil conditions as well as reported impacts and observations from more than 350 contributors around the country. Eleven climatologists from the partner organizations take turns serving as the lead author each week. The authors examine all the data and use their best judgment to reconcile any differences in what different sources are saying.”
This weekly map is important for several reasons, not the least of which is the fact that it is increasingly used to determine eligibility for government-funded drought relief programs for farmers and ranchers. It's also used by the Internal Revenue Service to determine how long a rancher who has sold breeding stock can defer his or her capital gains tax bill. I learned during the workshop that the Drought Monitor authors rely on on-the-ground observations as well as remotely-sensed data on soil moisture, precipitation, vegetation and a variety of other factors. Most applicable to me, the panel discussed ways that farmers and ranchers can provide real-world information to the Drought Monitor, which will help them improve its accuracy and timeliness.
What types of information are useful?
Obviously, on-the-ground information about precipitation is critical information. Rainfall and snowfall amounts can vary greatly over short distances, and actual precipitation totals are an important dataset for the Drought Monitor. Most of us have rain gauges – we should be recording daily rain and snowfall totals for our own records!
The panel indicated that information on forage production and other vegetation responses to precipitation are most useful when placed in historical context – in other words, reporting that our annual rangelands produced 2,000 pounds of forage per acre in 2014 isn't as useful as providing documentation that last year's forage production was 77 percent of the historic average. That said, many of us have taken photographs of our farm or ranch on an annual basis – and these photographs often show differences in vegetation from one year to the next. I've started using an iPhone application called GrassSnap (go to http://centralsandhills.unl.edu/GrassSnap for more information) that allows me to take repeatable photographs from a specific spot. I'm going to start taking these photos of our home pasture on the first of every month – a quick and easy way to track forage production from month-to-month and year-to-year.
Another useful bit of data that I've been tracking (without realizing it might be important to the Drought Monitor) are bloom and leaf-out dates for some of the landscaping plants at our home. I've recorded the bloom dates for our lilacs for the last 13 years. I've also recorded bloom dates for our daffodils. Weather and soil moisture can impact these dates, and this information (because I've got some historical context for it) is useful for the Drought Monitor. I've also recorded the dates when I first see the blue oaks starting to leaf out – another helpful indicator. We have four enormous mulberry trees in our yard – I've generally tried to record the date when they've finally dropped all of the leaves (and when we can stop raking them up!). All of this information is related to our weather conditions.
Speaking of dates, there are other useful weather and climate related dates we might record - the date of the first killing frost, for example. I've also recorded the date when I first hear or see the sandhill cranes flying over – either on their trip north in the early spring or their return trip south in the early fall. There may be other types of migratory wildlife on our farms and ranches that can help provide some indication of weather and climatic conditions. The dates when creeks start or stop running are useful information, as are the dates when vernal pools or stockponds start to fill or become dry.
I'm incredibly busy – why should I take time to observe and report conditions? Isn't that the government's job?!
All of us are busy – ranching and farming provide “opportunities” to work more than full time for most of us! Recording the types of information I've listed above takes time, as does submitting reports to the Drought Monitor. While improving the accuracy of the Drought Monitor is an important goal on its own, I've found that recording this data helps me become a better manager. For example, tracking rainfall totals last year helped me identify some critical dates for making decisions about stocking rates based on what our forage production was likely to be two or three months in the future. Someone once said that drought can sneak up on you – it's not like a snowstorm that's predicted days or weeks in advance. Keeping track helps reduce the element of surprise!
For me, at least, recording and reporting my observations is important psychologically, too. Most of us probably experienced a feeling of helplessness at some point last winter when we were in the midst of our 50-plus day dry spell. No matter how hard I tried, I couldn't make it rain. Keeping track of weather and climatic conditions – and reporting on these conditions to the Drought Monitor – gave me something useful to do. This might seem like a stretch, but there's something to it, at least for me – doing something is better than doing nothing!
How can I report drought impacts and conditions to the Drought Monitor?
There are several formal avenues for reporting impacts and conditions to the Drought Monitor. First, the National Drought Mitigation Center maintains a drought impacts reporting website (go to http://droughtreporter.unl.edu/). By clicking on the “Submit a Report” button at the top of the page, you can follow the simple, on-screen directions to submit your observation. The site is moderated, which means someone at the Center reviews each report and determines whether it can be considered a drought “impact” which can be used to inform the drought monitor map. Again, historical context is important - when you make a report, compare current conditions to previous years. For instance, you might report that a particular creek has never gone dry in the 50 years you've observed it. You can submit regular monthly observations as a “condition report ” to help build a historic record; summary information, such as how forage production compares to the historic average; or other observations or qualitative information on how drought conditions differ from normal.
I've also created an account on the Community Collaborative Rain, Hail and Snow Network (http://www.cocorahs.org/). This website allows me to report daily precipitation observations. To ensure uniformity, the network asks members to use a specific rain gauge (and a link to an affordable source of these gauges is provided). The Drought Monitor authors do review precipitation reports on the network website as they make their weekly updates. As an admitted weather nerd, I've also found the daily precipitation maps generated on this website to be very interesting – it's just one more way of “looking over the fence” to see what's happening at the neighbors!
The importance of our stories!
Finally, qualitative information about the drought is just as important as quantitative data. Our stories have importance, too – both for current research and future generations. This drought is the most severe in a generation. We need to share our stories with our families and with our neighbors – the colors on the Drought Monitor map will only impact public policy if we are willing to share the real-world effects on our land, our businesses, our families and our communities. Fortunately, most of us have access to technological tools that make recording our stories easy. One of the best sites I've seen for recording these stories is the SoundCloud Voices from the Drought site moderated by Brad Hooker at the UC Davis Plant Sciences Department. For more information about the project, go to http://ucanr.edu/blogs/blogcore/postdetail.cfm?postnum=13098. To listen to the Voices from the Drought stories, go to https://soundcloud.com/groups/farmer-and-rancher-voices-from-the-drought.
Dan Macon is a Community Education Specialist in the Placer/Nevada office of UC Cooperative Extension. Dan and his family also operate Flying Mule Farm, a small-scale commercial sheep ranch in the Sierra Nevada foothills. For more information, go to www.flyingmule.blogspot.com./span>
- Author: Dan Macon
If you’ve been reading our “Farming in the Foothills” blog over the last year, you’ll know that commercial farming is inherently risky profession. My fellow farmer Molly Nakahara (of Dinner Bell Farm) did a great job of describing farming risk in her October 28 post, “Farming, the Original Risky Business.” We farmers and ranchers face numerous uncertainties – from the weather to the marketplace to the regulatory environment. Some of these risks are short-term – like the snow storm that cancelled last weekend’s farmers’ market in Auburn. Some are long-term – like the potential impacts of new federal food safety standards on direct-market growers. Some risks can be eliminated, while others can only be mitigated. Our success as farmers and ranchers, in large part, depends on our success in managing these risks.
As a sheep rancher, there are two weather-related risks that foremost in my mind at the moment – one short-term and one long-term. As we wrap up our fall lambing season, we are in the midst of our regular early December cold snap. While the first week of December usually brings some of the coldest temperatures of the year, this year’s cold snap is especially severe and protracted. Since December 4 in Auburn, our morning lows have been in the teens, and our daytime highs have been in the high thirties or very low forties. At McCormack Ranch in Rio Vista, where we are lambing, the temperatures haven’t been much warmer. The cold weather presents a number of challenges: lambs that aren’t getting enough mother’s milk can quickly succumb to hypothermia. Lactating ewes that aren’t getting enough drinking water won’t produce as much milk. The sheep have to consume more feed just to maintain body temperature (let alone produce milk), so their feed demand increases.
From a longer-term perspective, we appear to be in the midst of a protracted drought. While we had a bit of rain in September, this fall has been dryer than normal. We finally got a germinating rainfall in mid-November – just in time for the weather to turn cold and the grass to go dormant. As a grass-farmer, I depend on fall grass growth to get our sheep through the winter months – and this year we didn’t get much growth. As we look toward next year, I’m very concerned that we may not have enough irrigation water to carry us through the summer months. The Nevada Irrigation District (NID) recently reported that we just experienced the driest January-November period in the district’s history – just over 20 inches of precipitation fell in NID’s upper watershed in the past 11 months. Unless we catch up soon, we may be facing reduced water deliveries next summer.
Obviously, these challenges can make for depressing conversations with other farmers, but there are some strategies we can use to mitigate (rather than eliminate) these risks. The weather is beyond our control, but our response to these conditions is not. Here are a few of the things we’re doing to manage these risks:
Short-term – sub-freezing temperatures
- As soon as we saw the forecast for sub-freezing temperatures, we moved the ewes who had not lambed into more sheltered paddocks. Lambs and ewes can deal with cold temperatures as long as they can avoid windy and wet conditions. These paddocks also had plentiful forage, which ensured sufficient feed intake for lactation and body temperature maintenance.
- We wrapped all of the pipes on the ranch to reduce the possibility of breakage (and subsequent time-consuming repairs). We also placed extra troughs in each paddock that we could reach with a hose from the water truck – if the permanent troughs froze, we could at least fill the temporary troughs from the truck.
- We moved the ewes with older lambs into the hills and increased the amount of hay we were feeding – again, to maintain milk production.
Long-term – drought
- We usually plan on culling 10-15 percent of our older ewes and replacing them with ewe lambs. We’ve been expanding our flock over the last several years, which means we cull fewer ewes and keep more ewe lambs. This year, we’ll consider culling more deeply – perhaps 20-25 percent of our ewes will be sold once we’ve weaned their lambs. We’ll also only keep ewe lambs out of our best and most productive ewes. While this will reduce our sheep inventory in the short-term, it will improve the overall productivity of our flock (measured in terms of lambing rate and pounds of lamb raised per ewe) over the long-term. Drought, then, allows us to improve the genetics of our flock.
- We’ll once again limit the number of lambs that we’ll keep to finish on grass and market directly to customers. As in 2013, we’ll base our decision on the amount of high quality summer forage likely to be available to us.
- We’ll evaluate the potential to invest in more efficient irrigation technology, like pod sprinklers. If we can make our irrigation water go further, we can grow more forage.
- Finally, we’ll also look for opportunities to graze alternative forages. This year, we’ve grazed crop residues and green “weedy” forage at Amber Oaks Farm in Auburn. We’ve also grazed alfalfa stubble in Rio Vista. Grazing helps to manage pests (plants and insects) on these operations while providing our sheep with higher quality forage.
Even with a risk management plan, these are the types of things that keep farmers and ranchers awake at night. While rain and wind never fail to awaken me from deep sleep, they keep me awake all night if they come in the midst of lambing. That said, a systematic approach to considering risk and adjusting to real-world conditions is critical to a successful farming or ranching operation. Ultimately, risk is just one of the many reasons that Tom Cruise isn’t a farmer.
- Author: Molly Nakahara
As we prepare to host another Beginning Farming Academy here at UCCE, we’ve been talking a lot about risk management. An economic concept, risk management is defined as the effect of uncertainty on objectives. In farming terms, I think of risk management this way: What are the vulnerable parts of my farm operation and what are my back-up plans in case of unforeseen events?
The risks of your farm enterprise will fall into five main categories:
Production – Example: A late frost knocks out your entire tomato planting.
Financial – You have to make payroll and your cash flow is not up to snuff.
Marketing – Your biggest account decides to buy from another producer.
Human - Your delivery driver doesn’t show up.
Legal – An employee files a Workers’ Compensation claim.
While you may never have to deal with these unforeseen situations, taking the time now (while the weather is clear and the bank account strong) to think through your risks and devise management plans, will save you time, money and heart ache.
Here are a few tips I’ve received along the way to insure my operation against the inherent risks of farming:
- Have access (aka pre-approval) to a line of credit (a credit card or loan) for as much money as your largest potential expense. Examples include replacing an irrigation pump, purchasing feed for livestock, making payroll, or replacing/repairing a delivery vehicle. Don’t use the credit unless it is an emergency. It reflects well on your business to have access to credit that you do not use. If you do use this emergency line of credit, have a repayment plan devised in advance. Recognize the red flag of using this borrowed money- What went wrong with the cashflow and how can it be fixed?
- Don’t short yourself on insurance. Yes, I know – it seems like just another, excessive administrative cost, but it is a critical part in protecting your farm equity, maintaining landowner relations (and therefor land tenure) and protecting the assets of your entire family. Ask around to see who is insuring other farmers in your area and then compare quotes from different providers. Remember, your insurance needs to cover the assets of anyone remotely associated with the farm business including family members (most notably your parents) and landowners. It is worth paying the premium for adequate insurance than facing the calamitous situation of not having enough coverage for a claim filed against you.
- Buy health insurance and require that all farm employees have health insurance. With recent reforms to health care legislation, health care is more affordable and more accessible than ever. It is incredibly important that all people on the farm have, at the very least, emergency health benefit coverage. Check out https://www.coveredca.com/ to see what may be available to you and your employees.
- Make a habit of inspecting your farm vehicles (including tractors), especially those that you rely on for delivery. Check tires, air pressure, oil, transmission and power steering fluid regularly. Deal with regular maintenance repairs now to avoid the catastrophic repairs (and potential accidents) that can occur due to vehicle neglect. Always have a spare tire, jack, first aid kit, oil, water, and basic tools in all of your vehicles.
- Have a clear and thorough emergency response plan. All of your employees (and anyone else on your farm, for that matter) need to know how to respond when someone is injured. This includes how to contact EMS (in rural areas it is much better to call 911 from a landline than a cell phone), how to direct EMS to your location (what is the street address of that piece of land you lease from your neighbor?), and how to get to the Emergency Room. I suggest you create a sheet of instructions and directions, laminate it, and place it in every vehicle on the farm and in every building on the farm. Where are your fire extinguishers? What about first aid kits? What is the plan for wildfire on the farm? Make a plan and make sure everyone knows the plan. To prevent injury and emergencies, make safe-farming practices a habit: use caution in extreme weather, have cold drinking water available at all times, recognize exhaustion and take breaks when necessary, teach safe tool and machine handling.
- Have a list of friends, family and neighbors who know the basics of your operation and can be called on at a moment’s notice to help out. Create a basic Operations Manual to house in your farm office that can serve as a reference guide to help run the farm in your absence. Include protocol for all aspects of your farm operation, particularly those that are integral to your business (contacts for big customer accounts, how to use electric fencing, how to irrigate the greenhouse, etc.)
Once you start thinking about your operation and potential back-up plans, the vulnerable aspects of your business will be clear. The good news: You’ve identified the problems, which is the first step in solving them. We’ve got a lot more information on Risk Management on our website: http://ucanr.edu/sites/placernevadasmallfarms/Resources/Risk_Management/. Take a look and see if there are a couple things you can think about or implement today to make your farm operation more resilient.