By Becky Zimmer
The fact that farming comes with risk is an obvious understatement, especially as farms continue to grow in size.
The total number of farms in Canada has gone from 246,923 in 2001 to 189,874 in 2021, a reduction of over 57,000 farms in 20 years, according to Statistics Canada. In the same data set, the only individual farm size categories to grow were those under 100 acres (a 1,000 farm increase) and those over 3,520 acres (a 3,000 farm increase) over the same time span.
If farmers manage to grow their operations, how does their sense of risk change?
Ten years ago, as an account executive at Westland Insurance Group, Steven Moulding could count on one hand the number of policies over $10,000 in premiums. Now he’s managing many farm insurance policies over $100,000.
Growth and inflation are playing a huge role in that increase. When equipment and infrastructure costs surpass one million dollars apiece, farmers must generate a lot of revenue to pay for it. There’s no choice but to grow.
Moulding reviews insurance plans on an annual basis with his clients. This helps prepare both the farmer and Moulding for whatever may come their way when a claim happens. Whether the farm has grown or shrunk, that review means the insurance needs change with the operation.
“I don’t care what policy it is or what customer it is, there’s always going to be little surprises when a claim does happen and we can mitigate that,” he says from his Wadena, Saskatchewan office. “It helps things go a lot more smoothly.”
Risk looks different for each individual farmer, whether they have a different operation or different needs than their neighbour down the road, or whether they’re new farmers compared to someone who has been doing it for decades. There always needs to be an extensive discussion on what they need for their farm.
“It focuses on the coverage and the type of coverage they have, the deductibles they have, the property they have insured. I have some farmers who don’t insure any bins at all; I have some that insure all of them; and I have some that insure maybe only the ones that they owe money on. The same thing applies with machinery.”
Some farming practices are being directed by insurance policies and farmers trying to save themselves the headache of having to file a plan. For example, Moulding is seeing a lot more farmers now, especially compared to 10 years ago, rolling most of their land to reduce the risk of combine ingestion insurance. Besides saving them the trouble of filing a claim, as well as saving the increase to their insurance premiums that come with such a claim, farmers are seeing many benefits in their investment of time and inputs.
“Even though you may have insurance coverage on that piece of equipment, it may be down for a week or two when you need it,” explains Moulding. “There’s more to it than just the cost of it as well.”
According to Heather Watson, executive director of Farm Management Canada, managing risk should be part of every farmer’s operational plan, but that can look different whether they’re growing nectarines in southwestern Ontario or operating as a beef rancher in Saskatchewan.
There are many different components of business management that farmers should be looking at, she says, but while risk management is just one small part of the bigger picture, it’s easier if farmers take that piece and look at it in isolation. Farm Management Canada has multiple tools for doing that, including workshops, questionnaires and training sessions.
Start by looking at assets and making calculated decisions on what is going on now and what has gone on in the past, Watson explains. A risk management matrix or a heat map can help farmers make decisions based on a few different factors, she adds. Using Farm Management Canada’s recently announced AgriShield tool, farmers can fill out a questionnaire to identify relevant risk levels using the likelihood or frequency of something happening compared to how severe the impact will be. There is some predictability in this, notes Waston, which can help farmers make decisions or be aware of potential risks before they impact their operation.
Watson provides the example of drought or flooding. What impact is that going to have on staff or levels of production? How about on everyone’s stress levels and mental health? If farmers are prepared, that could weigh in on how severe, or not, the impact might be.
“Even though it’s a high frequency or likelihood of happening and high severity if it happens, your actual profile for that risk is lower because you’re prepared,” Watson says. “We add that third layer on because the impact might be high, but if your preparedness is high, then it becomes a lower priority for you, and something you just need to keep your eye on and manage rather than worrying you need to do something about this right here, right now.”
As farms grow, the business environment becomes increasingly volatile and complex. Everything comes with pros and cons, but as farms grow, risk management becomes more challenging and important, says Watson.
“The bigger they are, the harder they fall,” says Watson. “But there are lots of wonderful things that can happen there too: the capacity to invest in new technology, or new ways of doing things, or to hire a CFO.”
Farms will continue to grow, but Watson believes there is a place for everyone in the agriculture industry. And while risk management is not one-size-fits-all, it’s something everyone needs, and this goes beyond just a focus on the right insurance policies and programs and the impacts of production and markets.
“Running the farm is a business,” says Watson, “and the finances are a big part of that.” But often the risk to the people running the farm – including family, non-family staff, contractors and even the farmers themselves – is overlooked when discussing on-farm risks. Talking about the financial risks and working with farmers to create a proactive and comprehensive approach to risk has opened a larger conversation than the ag sector is used to.
Farm Management Canada conducted a recent study about farmers’ mental health and the stressors they are dealing with. According to the study, three-quarters of Canadian farmers are feeling overwhelmed, with the top three stressors listed as: unpredictably in the agriculture sector/feeling a loss of control; financial pressures; and workload pressures/lack of time.
“When you look at the stress of uncertainty and farmers feeling the loss of control, well, if only a quarter of Canada’s farmers have risk management and business plans in place, and all these other things that we know provide certainty and peace of mind, then it’s no wonder the vast majority are stressed.”
Humans tend to avoid doom and gloom, says Watson, so convincing farmers to be proactive about their risk management can be a challenge. With assets in the tens of millions of dollars, transition planning is such an important part of business planning and risk management, yet less than half of Canadian farmers have a successor in mind and only 12 per cent have a written plan in place, she adds. Worrying about the future, especially if you don’t have a plan in place, can have a huge impact on farmers’ mental health.
Increasing operation size can also mean an increased potential for environmental risk, according to Lisa Nadeau. As program director for the Agricultural Research and Extension Council of Alberta’s Environmental Farm Plan, Nadeau works with farmers to assess their environmental risk and then comes up with a plan to address it.
Risk doesn’t always mean that environmental damage will occur, she notes, but farmers should always be looking at their environmental impacts no matter the size of their operation. Additional livestock could mean changes to manure management and more surface runoff into groundwater. If farmers are growing their acres, that could mean additional fertilizer or pesticide applications, which might impact sensitive environmental areas.
In Alberta, farmers are being more cognizant of their environmental impact, says Nadeau, and that includes registering for the Environmental Farm Plan program. Their workbook is free, voluntary and confidential, and is adaptable to farms of any size. Farmers are also paired with a program technician in their area to work through how they can manage environmental risk.
All farming comes with risk, whether that’s drops in production, market volatility or making sure the farm is insured for the season, but it also means managing people and the environment.
As farms grow, farmers need to keep an eye on how these things change their management plans, and what impacts old and new challenges will have on their changing business landscapes.
