Agriculture In Transition:

Farmers' Use of Risk Management Strategies

RCED-99-90: Published: Apr 7, 1999. Publicly Released: Apr 7, 1999.

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Pursuant to a congressional request, GAO reviewed the Department of Agriculture's (USDA) efforts to educate farmers about risk management, focusing on: (1) the extent of farmers' use of risk management tools; and (2) educational programs and projects USDA has directed or initiated to prepare farmers for managing risks and determining the groups or individuals who have participated in or been served by these programs.

GAO noted that: (1) in 1996, about 42 percent of the nation's 2 million farmers used one or more risk management tools to limit potential income losses resulting from falling market prices or production failures, according to USDA estimates; (2) the use of these tools varied by farmers' level of sales and primary commodity (crop or livestock); (3) the use of crop insurance and forward contracts to reduce risk was more prevalent among farmers: (a) with at least $100,000 in annual sales of agricultural products than among those with annual sales under $100,000; and (b) whose primary crops were corn, wheat, and cotton than among those who primarily grew other crops; (4) of those farmers who received USDA transition payments and had sales of at least $100,000, at least 70 percent purchased crop insurance, at least 66 percent used forward contracts, and at least 34 percent engaged in hedging in 1996; (5) in fiscal year 1998, USDA obligated $5 million for four educational initiatives to prepare farmers for managing risk; (6) to develop government and private sector partnerships to foster risk management education, USDA sponsored a series of risk management conferences targeted at bankers, agricultural educators, crop insurance agents, commodity brokers, and grain elevator operators; (7) however, these initial conferences reached only a relatively small percentage of these target groups' members; (8) USDA intends to use partnerships with private- sector organizations to further expand its educational outreach activities; (9) USDA awarded 17 risk management education and research grants that are primarily designed to develop risk management education curriculums for training such diverse groups as farmers with less than $20,000 in annual income, farmers who grow specific crops in individual states or regions, crop insurance agents, and grain elevator operators across the country; (10) the expected completion dates for these projects range from the summer of 1999 through the fall of 2001; (11) USDA provided funding to supplement land grant universities' risk management education efforts; and (12) USDA contracted with the University of Minnesota to develop an Internet library that, as of January 1999, contained over 700 risk management publications and other education materials for farmers.

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