Farmers live with one gigantic underlying risk: the possibility that they won’t bring in enough revenue to cover their expenses.
That risk manifests itself in many ways: weather disasters that ravage production, market meltdowns that demolish prices and random events that overturn years of a farmer’s careful management and investment.
Each specific risk tends to have customized tools to deal with it, so getting the mix of risk management tools right is important. Some tools are offered by government, others by the private sector or through a farmer’s financial management.
Improving how this quilt of risk management is stitched together will be a key concern of Lysa Porth, the inaugural chair in agricultural risk management at the University of Manitoba’s Asper School of Business.
“It’s not restricted to any one risk,” said Porth, whose position was established with a $750,000 grant from global reinsurer Guy Carpenter and Co.
She plans to “listen to producers, find out what their risks are, go back and develop them into insurance products with government and private sector to roll those out as an option for producers.”
Porth thinks governments, private insurers and derivative markets can work more co-operatively to provide a better comprehensive safety net.
“Often we don’t see government and private sector working together, using academia as the bridge between the two.”
She said the support from Guy Carpenter shows there is a strong private sector desire for the insurance industry to develop and better understand agricultural risk management.
Porth’s education reveals the bridging approach she thinks is essential in improving farmers’ risk management systems: she has an interdisciplinary degree in actuarial science and agricultural economics.
Actuarial science is the study of insurance. Porth said while many people are trained in insurance or in agricultural economics, few have degrees in both.
That’s a problem for banks, insurers and other institutions that need professional staff that can assess both insurance and farming.
“They want to be able to hire actuaries that understand crop insurance or livestock insurance, but they can’t find anyone,” said Porth.
Porth hopes her position will help produce university graduates who can move into such positions.
She also hopes her research can better connect the government and private products already offered to farmers and help develop new structures that can fill in present voids. Farmers in other parts of the world can often work more easily and affordably with lenders because they have better programs, she added.
“I think that’s been a big shortcoming of Canada compared to other countries is access to credit for producers,” said Porth.