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Managing Institutional Risk & Human Resource Risk in Agriculture

Abhijeet Banerjee
Abhijeet Banerjee

Agriculture business has various types of risk namely production risk, price or market risk, financial risk, institutional risk and finally human resource or personal risk. While production risk and market or price risk is the most key challenge that needs to be taken care by every farmer and farmer groups, it is the institutional risk a human or personal risk also needs to be considered important while running a farming venture. The human risk often gets ignored by most leading to adverse affect in achieving financial stability from the farming activity.

The Institutional risk refers to unpredictable changes in the provision of services from institutions that support farming. These institutions can be banks, cooperatives, marketing organizations, seed/fertilizer dealers even government extension services. Government policy changes is also a type of institutional risk as uncertainty of government policy affects farming, such as price support and subsidies, imposing stock limits etc. In fact it is often decisions taken by policy-makers and managers that pose threats for maintaining healthy income from farming. Subsidy announcements, regulations pertaining to food quality for export crops, changes in rules for animal waste disposal, revisions in price or income support payments are examples of decisions taken by government that can bear significant impact on the farm business in longer run.

Human resource risks in Agriculture normally refer to the threats or risks associated with individuals and their relationships to each other.  These relationships can be with family members, farm employees or with customers. It also refers to farm business being affected due to illness or death and the personal situation of the family members associated with farming. Farming operations are also impacted from Accidents. Labor migration is another example of human resource risk, which leads to labor shortages for the farm. In Malaysia, lockdown situation has forced most of the migrant workers to leave the country. The workers engaged in palm plantation of Malaysia, are mostly migrant workers from Indonesia, Bangladesh and India rather than the locals. As countries in Southeast Asia struggled to get the Covid-19 outbreak under control, governments have tightened restrictions on both side travel for workers. As a result the country experienced acute labor shortage due to which plantation of palm trees reduced significantly in last few months. Shortage of labor is also affected due to Political and social unrest. For example the spread of HIV/AIDS had a serious impact on labor availability and productivity in some areas. Uncertainty lies amongst farmers regarding sufficient availability of labor during sowing or harvesting or crops, or for managing the day to day activities of a farm.  

How to manage Human Resource risks in Agriculture:

  • There is need to develop and practice the ways of managing the behavior and mindset of farm employees as well as family members properly, so as to get the day to day tasks performed smoothly.
  • Considering labor availability threats one need to evaluate alternative sources of labor and seek them whenever required so that faming activities are not hampered.
  • Proper and profession training to be organized for the workers in the farm for upgrading manpower skills and improving individual performance.
  • Regular and necessary communication to be maintained with employees and family members in order to identify individual problems, understand shortcomings of the venture, or owners’ expectations for enhancing farm revenue etc.
  • The leading contributors and performers in the farming business to be recognized and rewarded accordingly.
  • Reviewing of wills, trusts, and powers of attorney as and when required.
  • Consideration of health and life insurance needs of workers as well as families, so that they do not have to worry for medical expenses or treatments in future.

How to manage Institutional Risks in Agriculture

Institutional risk can enhance the risk associated with the quantity and quality of inputs or outputs. Vertical integration can work out well in managing this risk because the vertically integrated firm retains ownership or control of a commodity across two or more phases of production and/or marketing. Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product. In vertical integration company assures the full control supply of raw material to manufacture its product. Therefore the farm owner is able to lower his concern regarding maintenance of regular supply of his produce.

Liquidity of farmers can be affected in case of interest rate hike by financial institutions like banks. Liquidity refers to the farmer's ability to generate cash quickly and efficiently in order to meet financial obligations. Liquidity problems can be solved by holding cash, stored commodities, or other assets that can be converted to cash on short notice without incurring a major loss. Getting reasonable price for the produce becomes uncertain due to unpredictable changes in the provision of services from institutions that support farming. Hedging can be a good option where one uses futures contracts to reduce the risk of adverse price changes prior to an anticipated cash sale or purchase of a commodity. Also, household off-farm employment or investment can generate some extra income which can offset the income deficit of the farming operation.

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