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End of the Year Management Perspectives

Farm Business Management Update, December 2000

By David M. Kohl

In this, my last column for the year 2000, I will focus on information and perspectives that I have gained in my world travels and my second year of leave with Royal Bank of Canada. My purpose is to provoke thought and provide insight to managers and individuals who read this newsletter.

Are You Ready to Retire?

Net worth for assets outside the value of the home and personal belongings finds 44 percent in this age group under $100,000. One in six had $100,000 to $250,000, while 10 percent have net worth between $250,000 and $1 million. Four percent were above $1 million. As you assess your balance sheets and portfolios, how do you stack up?

Consolidation of Agriculture

Whether it's Australia, South Africa, Canada, or the United States, we are seeing consolidation of agricultural production without a decrease in farm numbers. Case in point: 8 percent of farms in the USA generate 72 percent of farm revenue. Two percent of dairy farms generate 30 percent of milk production. Fourteen counties in the USA generate a quarter of the milk production, 79 counties produce half. Excluding Europe, less than one million farms worldwide are generating 75 percent of world agricultural production.

The Marketplace

Global food markets are comprised of two major segments. The first, larger developed countries that are slower growing have a buyer's market with 80 percent of GDP. Second, smaller developed countries that are faster growing have a sellers market with 20 percent of the GDP.

A speaker in Pretoria, South Africa summarized it best. "To manage in the next ten years, you are going to have to be large and creative or small and creative. The marketplace in developed countries is going to demand convenience, health and medicine, food safety, and entertainment value. Creative strategies for success include marketing ability, quality control, relationship management, and ability to stay ahead of competition with new product development and service systems."

For the commodity producer who will serve the developing countries to meet the basic needs of their marketplace, basic nutrition and food security will be a prerequisite. Strategies include economies of scale, adoption of new technology, low cost production, and low levels of financial debt.

Food Retailing Trends

According to a report from Rye College University of London, food preparation time at home has decreased from 2.5 hours in 1930 to 1 hour in the Elvis and Leave it to Beaver days of the 1950s. Further decline to less than 0.5 hours was the trend from 1970 to 1990. An estimated time of 8 minutes is predicted for 2010.

You will see upward trends in e-commerce, convenience, and niche markets in food retailing in the next ten years. The implications to producers are to expand for economies of scale or niche market and expand your revenue by capturing more of the food dollar. In either case, consumer choices, identity preservation, and traceability of product will be critical in a management plan.

Are Virginia and the USA Competitive?

Throughout the world, everyone asks if the USA is competitive in agriculture. While many factors are used for comparison, the standard five are natural resources, soil, and water; productive labor; infrastructure; stability of the financial and political system; and market accessibility.

Our biggest competition from a general agricultural perspective comes from South America and Europe. If South America can continue to build its infrastructure and demonstrate political and financial stability, it could rival North America by 2010. However, the jury is still out on that one.

Europe competes with a subsidized agriculture, which meets their general philosophy of food security, agricultural diversification, and perspective rural area. Canada, the South Pacific, China, and Africa will be niche players with advantages in commodities such as apples and wheat.

The United States has a strong natural resource and infrastructure base and a stable economy. Political risk from the federal, state, and local levels is the biggest uncertainty.

An analysis of Virginia finds 10 to 15 counties as agricultural centers with the remaining agriculture niche based on selling to domestic, or in some cases, international markets. The strategic advantage of Virginia agriculture is its access to markets and financial stability. The major challenge is the loss of production until resource base and public policy and political systems attempt to balance rural and urban issues.

The end of the year column was designed to stretch your thoughts over the holiday period. Whether it checks your progress financially or how you think of the emerging needs of the domestic and international consumer and the structure of agriculture, the future of agriculture and rural communities is about as uncertain as the recent elections. Only time will tell.

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