Risk can be defined as the chance of loss or an unfavorable outcome associated with an action. Uncertainty is not knowing what will happen in the future.
The greater the uncertainty, the greater the risk. For an individual farm manager, risk management involves optimizing expected returns subject to the risks involved and risk tolerance.
Risk is what makes it possible to make a profit. If there was no risk, there would be no return to the ability to successfully manage it. For each decision, there is a risk-return trade-off.
Anytime there is a possibility of loss (risk), there should also be an opportunity for profit. Growers must decide between different alternatives with various levels of risk. Those alternatives with minimum risk may generate little profit.
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Those alternatives with high risk may generate the greatest possible return but may carry more risk than the producer will wish to bear. The preferred and optimal choice must balance potential for profit and the risk of loss. It all comes down to management, and there are no easy answers.
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