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By Tim Welles, CIC Services
Agriculture has always involved uncertainty, but the scale and financial impact of that uncertainty has changed. Weather patterns have become more volatile, supply chains have grown more fragile and input costs have climbed faster than commodity pricing. According to Market Intel, fertilizer cost volatility has risen in 2025, with rising input costs occurring alongside falling crop prices. Labor costs have increased steadily as competition for workers intensified across rural economies. At the same time, NOAA data shows that the number of billion-dollar weather events has tripled since the 1980s, increasing the likelihood of operational disruption in a given season.
These pressures place more risk directly on the farm’s balance sheet. Many producers carry risk that was once either inexpensive to insure or unlikely to materialize. Today, that same risk is more expensive, more complex or uninsured entirely. The result is that farms can operate successfully year after year, only to experience financial strain when something unexpected disrupts operations or relationships.
Most growers understand the uncertainty they face. The challenge is not awareness, but the difficulty of making time for structured planning when production demands dominate the workday. Crop schedules, irrigation timing, equipment repair and market decisions require constant attention. In a world where the work never slows, long-term planning can feel like a luxury.
Yet the cost of delaying risk planning is real. A single uninsured liability event, a contract misunderstanding, a supplier interruption or a key employee departure can trigger a chain of financial effects. Cash flow tightens. Borrowing increases. Reinvestment slows. These pressures can undermine continuity. For family operations, this can alter succession timing and the ability to hand the business to the next generation.
The Need for Structure in Risk Planning
Risk planning often falls behind because it requires stepping back from daily operations to evaluate exposures, contractual dependencies, coverage gaps and financial resilience. Many farms continue renewing long-standing insurance programs that may not reflect current operational realities. The business evolves, but the risk financing structure may not.
Disruptions do not always arrive dramatically. They appear as delays, disputes, shortages and timing challenges. If the operation cannot absorb these costs, decisions shift from strategic to reactive. Over time, resilience weakens.
Continuity requires a structure to separate risks, categorize them and finance them intentionally.
A Layered Approach to Agricultural Risk Financing
The financial stability of a farm improves when risk is broken into categories rather than absorbed in one place. No single tool manages every exposure. A resilient farm uses a layered structure that aligns each type of risk with a financial tool suited to its scale and frequency.
Operational planning forms the first layer. Equipment redundancy, labor cross-training and diversified crop selection reduce the severity of disruption. These steps do not eliminate uncertainty, but they prevent small problems from becoming business-threatening ones.
The next layer focuses on how responsibilities and expectations are documented. Clear product specifications, delivery timelines, quality standards and recordkeeping reduce disputes and help protect relationships. Many farms handle these issues informally, but formal documentation provides consistency.
The first layer, commercial insurance, plays an important role in a farm’s risk structure, but it is not always straightforward. Availability and pricing vary based on geography, loss history and the specific nature of agricultural exposures. Workers compensation, liability tied to specialty crops and certain property or business interruption policies can be difficult or expensive to secure. Many policies also include exclusions or sublimits that leave gaps, especially for operations that rely on precision inputs, seed production or custom processing. Commercial insurance remains essential, but it works best when its limitations are understood and addressed directly.
The fourth layer is financial strength held within the business. Strategic reserves and retained earnings provide the ability to absorb short-term volatility without relying on reactive borrowing. Surplus is not idle capital. Surplus is stability during disruption.
The fifth layer applies to risks that are specific to the business or difficult to insure using standard commercial policies. Some farms use captive insurance companies to manage these exposures. A captive allows a farm to insure specific risks itself, set premium levels based on its own loss experience and retain surplus when losses are well managed. Captive insurance is not a replacement for commercial coverage. It is a financing mechanism for risks that sit between insurable exposure and the farm’s balance sheet.
The goal is not to eliminate risk. The goal is to ensure disruption does not destabilize the operation.
The Value of Layered Risk Planning in Practice
The value of layering risk tools becomes clearer when seen in practice. Arnusch Farms is a third-generation family operation outside Denver focused on value-added crops including seed barley for the craft brewing industry, black eyed peas and alfalfa. It is primarily irrigated and run by family members along with two full-time employees.
As the business matured, the farm identified exposures that standard property and casualty insurance did not fully address. Certain liabilities tied to key customers, key vendors and operational continuity were either difficult to insure or only available at high cost. Water access also played an essential role in the farm’s operations and related commercial activities, which heightened the importance of long-term risk planning.
In 2021, the farm established a captive insurance company to insure specific risks that mattered to its stability. The intent was not to replace commercial insurance, but to fill gaps that could affect financial resilience or critical business relationships.
The approach proved useful in the first year. The farm provided the wrong seed variety to a grower, who then lost the crop through routine chemical operations. The commercial program did not include errors and omissions coverage for this type of loss, but the captive policy did. The farm compensated the grower and preserved the relationship without disrupting its own operations.
The captive also supports balance sheet strength. Rising fertilizer, seed and chemical costs create pressure when markets tighten, and the captive’s surplus helps absorb that volatility. The farm has used the captive to insure certain risks within its family of companies, including coverage for a building purchase that carried high commercial insurance quotes. The structure also allows the farm to insure low-frequency but meaningful risks that conventional carriers may price prohibitively.
Arnusch Farms continues to refine its risk structure. The farm plans to expand coverage as its business evolves, including considering cybersecurity exposure. The captive is one layer in a broader strategy to maintain operational stability and support continuity across generations.
Risk Planning as a Leadership Responsibility
Risk planning is not an administrative task. It is a function of leadership. It requires setting time aside to evaluate exposures, align financial tools and plan for the events that do not happen often but matter greatly when they do. The operations that endure are those that take continuity seriously.
Arnusch Farms did not protect its future by eliminating uncertainty. It protected its future by deciding how to respond to it. Every operation can apply that same mindset. Identify the risks that matter, decide which tools fit each layer and build reserves and coverage that align with the business you want to hand down. Risk planning is how a farm moves from one generation to the next with strength rather than strain.
About the Author:
Tim Welles executes business development for CIC Services. His 26-year financial services career began in 1989 as the Director of Risk Management for Pi Kappa Phi Fraternity where he oversaw the risk management and insurance programs for the fraternity’s four entities and 130 undergraduate chapters.
Early in his career as a financial services consultant, Welles earned his CFP (Certified Financial Planner) designation and held the series 7 and 63 licenses. He has practiced as a financial consultant in the areas of employee benefits, investments, life insurance and qualified, and non-qualified retirement plans. In 2000, he co-founded, and was a principal, at Benefits Management Group, Inc. Much of Welles work during the course of his 25-year career has been with owners of privately-held companies. He received his BBA in Finance from the University of Oklahoma.
Also read: Connecting the Dots Between Prevention and Insurance for Smarter Business Protection
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