Risk Management

Just left an advisory committee working with the state Department of Ag regarding an indemnity fund designed to protect farmers selling in their crops in the case of a buyer defaulting. The state folks have taken the position that they intend to cover almost all risk in case of a default, i.e., virtually everything.

The regulators feel it is their duty to protect the farmer. My position is if one doesn't have a sense of risk involved in a transaction, prudent business parties will disappear and farmers will not concern themselves with making sure buyers are "good." Instead since the state is covering their risk, they will deal with anyone with the best price. The long term effect, I believe, will be (barring outside factors such as bankers) for "good" buyers to lower their creditworthiness to the lowest acceptable level, simply because it won't matter, the state will cover the loss and being any better will not gain market share or profitability.

I just worry that policy makers don't consider long-term impacts.