Northern Exposure (The Cup is Half Full)
Farm Business Management Update, June 2001
By David M. Kohl
While I have been working on my sabbatical assignment with the Royal Bank of Canada, I have had the opportunity to address nearly 7,000 producers and agribusiness professionals throughout Canada concerning business and economic trends and practices. At these meetings I have had the opportunity to informally chat with many producers and agribusiness managers/owners and their families. Producers and agribusiness managers/owners in Canada, like their counterparts in the U.S., have been facing many challenges such as competitive global markets, weather, and tight margins. Despite all these challenges, I have found a sense of resiliency and optimism and the evolution of new business models for success among conference participants.
Best Management Practices
Some common best management practices appear to be emerging. First, the pure production manager who focuses solely on livestock or crop production is being replaced by the agri-entrepreneur and business-oriented manager. Second, they are not only good production managers, but they know costs of production. They constantly seek the most profitable mix of enterprises and develop and execute marketing plans and agreements. They interface well with suppliers by seeking cost discounts and with consumers by seeking price advantages from those who purchase their products. Third, from a family standpoint they balance business, family, and personal goals to have generally modest financial lifestyles. Finally, they are always interested in the economic and consumer trends or big picture in the context of their business and agricultural industry.
It was encouraging to see the number of young people, ranging in ages from 15 to 40, and women attending the seminars with an interest for business aspects of agriculture. These people had a keen awareness and interest in successful techniques in business transfers. They were also successful in creating wealth through business and outside investments. These decision-makers realized they were going to have to manage and preserve this wealth throughout their lifetime by keeping an eye on futuristic trends.
Ten Percent Rule
In my 2 years leave, I discovered the 10 Percent Rule when comparing Canada to the United States.
Whether its population, economy, farms, and ranch numbers etc., Canada represents approximately 10 percent of the United States. Because of its vast size and small population, export markets are a critical element of the economy. Canadian agriculture appears to be much ahead of its U.S. counterparts in system of traceability. For example, in the Manitoba Province, 85 percent of the farm ground cropped has a record of fertilizer and chemical application, yield responses, etc. This input identification has given them a distinct advantage in product differentiation, particularly in the competitive global export markets.
As the United States is negotiating the components of the next Farm Bill, producers have asked the viability of supply management in certain crop enterprises. In Canada, the poultry and dairy industries are doing very well with these programs. The quotas, which are an extremely high investment, give the right to produce and market. However, many of the smaller, traditional sized operations are economically viable and are preserving the agricultural heritage and landscape.
Use of Computers
Whether its airport check-ins, banking, or on farm decision-making, computer usage and applications appear to be much higher. Many producers, up to 15 to 20 percent, go on line for banking and investments. The usage is generally higher in the Prairie Provinces where geographic distance is much greater. Producers and lenders often discuss financial projections over the laptop at the on-farm location.
The Creative Manager
I know many Canadian producers rightly criticize the record American subsidies. But on the brighter side, Canadian's minimum government supports have brought about a sense of creativeness in value-added marketing and have resulted in new techniques in gaining control of labor, capital, and information resources in a profitable combination.
One young producer (33 years old) from the Prairie Province was almost embarrassed to share his success story. He stated that the last three years of his grain/livestock operation had been the best years he had ever had for profit, giving him a six-figure net income.
From further probing, I found that he rents and leases his assets, shares machinery with his neighbors, and is a frugal family member. He received a premium for his products by having a system of quality controls in place, which was critical in his marketing agreements.
Yes, times are challenging in agriculture. But the mixture of good, old-fashioned business and economic best management practices, sprinkled with youth and shared decision making, with thinking outside the boxes creative management can result in the agricultural cup being perceived to be half full rather than half empty, either side of the border.
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