Commentary: Risky business or manageable business risk?

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Are you a risk taker or risk-averse? Well, if you’re a farmer, you must be a risk taker. After all, who else would try to run a business in the face of roller coaster markets, fluctuating government policies, unpredictable weather and challenging, if not deadly, working conditions?

Today’s successful farmers may have more in common with professional poker players than with the stolid managers of generations past as crucial decisions balancing risk and reward must be made on a regular basis and, often, on the fly, agrees Brian Roe, Ohio State University ag economics professor.

So does this constant risk exposure make you more risk tolerant or less? One theory, says Roe, is that risk tolerant people seek entrepreneurial activities such as owning a small business or becoming otherwise self-employed.

But then again, farming isn’t your typical small business.

“I would argue that, more than other forms of small business, family ties are crucial to farming entry decisions because they often provide the key knowledge, experience and skills necessary to become a successful farmer,” says Roe. “And that’s not to mention the fact that family ties often provide the access to land and other crucial, expensive assets. So, while the city kid who loves risk will choose to run a small business rather than take a government job, the farm kid who, deep down, doesn’t really like to take risks, may end up running the family farm even if that safe government job was available.” 

In other words, risk tolerant people like to run their own businesses, yet it’s not unusual for farmers to be somewhat risk averse; however, they get over it. Confused? Somehow this makes sense to me, but then again, maybe it’s my convoluted thinking in action.

Roe set out to learn a little more about what makes farmers tick, and scientifically determine whether U.S. farmers, as a group, are more or less tolerant of risk than the rest of Americans.

Results from his work show that the general population and farmers have nearly identical risk tolerance. On a scale from 1 to 11:

  • About one-third rate themselves in the low category (between 1 and 4).
  • About 40 percent rate themselves in the middle (between 5 and 7).
  • About 27 percent rate themselves highly risk tolerant (8 or above).

The general population survey, asked if people owned their own business. Interestingly, when this group is broken out separately on the graph, it is quite obvious that non-farm business owners are more risk tolerant, according to Roe. Only 20 percent are in the low category while more than 40 percent are in the high category.

This doesn’t tell the whole story, though.

In general, farmers are older than the rest of the population; older people usually are less risk tolerant. So, when Roe adjusted for age, he found that farmers are more risk tolerant than the average business owner.

“If we make farmers ‘look like’ the general population, their risk tolerance jumps to 6.33 from 5.7; a 10 percent jump and now, they are clearly more risk tolerant than the general population,” he explains. Taking the statistical analysis deeper and making farmers “look like” business owners, Roe reports that now the jump is even bigger: nearly a 19 percent jump to a risk tolerance rating of 6.79. Now farmers risk tolerance is even higher than that of non-farm business owners.

Therefore, as a population, farmers are not terribly risk tolerant – you can’t distinguish them from the general population and they are clearly less risk tolerant than the average non-farm business owner. However, this is largely driven by the fact that farmers are older than the general population and the non-farm business owner population and, with age, comes less willingness to put up with risk.

So I ask again, are you a risk taker or risk-averse? I’m betting on the former. You went to work on your farm this morning.



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