Farm Risk Management

The primary goal of risk management and insurance is to protect your assets from claims and lawsuits that may result from injury to persons or damage to property from accidents that are associated with your business. Risk management is the process of recognizing potential problems that may arise and developing contingency plans to prevent or address these problems. In the farming world, there are several types of inherent risk. This fact sheet addresses the major considerations to be taken into account when considering your own liability and how to best approach risk management. 

Types of Risk

As a farmer, there are several types of risk that are inherent to your operations. Understanding the potential problems with each type is essential to employing sound risk management.

Production: There are many factors that may negatively impact your annual production – weather, pests, diseases, equipment, to name a few. To reduce these risks, you may choose to diversify your crop plan or streams of income, graze or rotate animals, or invest in technology to support crop storage, chemical inputs, or post-harvest processing.

Marketing: The best way to market your products depends on your target market and their values and priorities. Understanding the four P’s of marketing (Product, Place, Price, and Promotion) can be helpful in finding your niche. For more information on marketing your farm products, visit the “Assessing Your Market Potential” factsheet.

Labor and Human Resources: Other risks inherent in agriculture have to do with working with and employing humans. It is vital to adequately train employees and provide protections for them to work safely and effectively. For more information, visit the “Labor Laws” Factsheet.

Legal Requirements: As a farmer or farm business owner, you are beholden to certain legal requirements which may involve environmental stewardship, personal liability, zoning, taxes, food processing and safety. and/or handling chemical inputs. It is strongly recommended to work with a lawyer to understand the regulatory environment of parts of your business. Visit the Farm Commons website for resources around accessing legal tools. The Vermont Law School’s Center for Agriculture and Food Systems provides resources for farmers looking to access legal help.

Financial Management: Finally, one of the largest risks with operating a small farm business is successful management of cash resources. Solutions to mitigate financial concerns might include increasing financial literacy, purchasing crop insurance, participating in a government program, maintaining financial records, building your credit history, controlling expenses, diversifying income streams, and/or managing a sound enterprise budget. The USDA’s Risk Management Agency is a good basic resource for farmers.

Insurance

Effective risk management depends on combined efforts and close communication between yourself and your insurance company. Look for an agent with whom you are comfortable, who is well known and respected, who understands agriculture and businesses, and who will work with you to reduce your potential for risk.

When considering your risks, be sure to review the list below and describe your risks completely to your agent. You will not need all of the types of protection listed below, but it is important to know your options when shopping for insurance. Match your coverage to your needs for risk management.

Types of Insurance:

General Liability Insurance

Covers injuries to people and property for which your farm is judged liable and mitigates your losses from lawsuits

Automobile Insurance

Covers vehicle damage while in your vehicle or to another vehicle while traveling

HomeOwners Insurance

Typically covers fire, theft, personal property, lightning, riot, aircraft, explosion, vandalism, smoke, theft, windstorm or hail, falling objects, volcanic eruption, snow, sleet, and weight of ice. Usually flood and earthquake need to be purchased separately

Farm Insurance

Covers barns, rental housing, equipment, animals, and other farm assets

Workers’ Compensation Insurance

Required if you have employees or interns

Product Liability Insurance

For damages that may arise from the consumption, handling, use of or condition of products manufactured, sold, handled, or distributed by your business

Contract Liability Insurance

Covers the assumption of the liability of another party through a contract or facility use agreement. For example, you may be required to provide a certificate of insurance to buyers that includes $1 million in product liability and additional insurance

Environmental Pollution Insurance

Covers clean-up of manure, or pesticide spills

Crop Insurance

Can protect against annual production losses due to weather, pests and other insurable causes of loss. Federally subsidized coverage can be purchased from a certified crop insurance agent. Disaster programs provide up to 65% coverage for crops where crop insurance is unavailable and is provided by county USDA Farm Service Agencies

Life Insurance

To help your family in case something happens to the main earners

Health Insurance

For yourself and family in case you need medical care

Business Interruption Insurance

Will provide living expenses if you are hurt and cannot work

Vendor’s Insurance

Will cover your liabilities if you are selling at a farmers’ market or trade show

Umbrella Liability Coverage

A liability insurance policy. It provides extra insurance protection over and above your existing policies and typically carries a high deductible

See also the list and description of types of insurance in the next fact sheet, Farm Insurance.

Ways to Reduce Your Liability

If you have people coming to your farm, keep your property in good repair.

• Minimize or eliminate dangerous situations. This might include: aggressive animals, manure pits, moving vehicles or equipment parts, etc. Fence off hazards wherever possible.
• Bio-security is recommended. Provide booties and hand wipes for visitors who enter barn areas.
• When selling or serving foods, make sure all regulations are met and carry product liability insurance.
• All workers on your farm are required to be covered by workers compensation, even if they work for free! So, if you have interns, apprentices, or employees, you are required to carry insurance for them. See fact sheets 6 and 18 for more details on insurance and labor laws.
• Test your water supply annually for bacteria if your water is being used for washing produce or processing.
• Negligence is when you fail to take normal steps to eliminate hazards or you create a hazardous situation and fail to address it.
• Avoid making false statements or publishing incorrect information that may damage a person’s reputation as this can result in libel suits. Be careful of advertising claims or comparing your operation to others in a negative way.
• Manage your production techniques according to recommended best management practices.

Safety in Agritourism Act

In 2018 NYS passed the Safety in Agritourism Act, which protects owners and operators of agricultural tourism businesses from liability for visitor injury or death. But the law only applies if owners or operators adhere strictly to the requirements laid out in the legislation, including posting clear “Warning to Visitors” signage, clearly signing areas that are off-limits, and proper training of employees. The requirements go well beyond generic signage. It’s worth reading the guidance document provided by the NYS Dept of Ag to be sure you understand what you need to do to be protected by this Act.