straight from the hip Report highlights need to manage capital, focus on marketing, and become better employers
The Conference Board of Canada is set to release a Canadian food strategy in March based on results of two previous food summits and some on-the-ground research.
One of the supporting documents is, Seeds for Success: Enhancing Canada’s Farming Enterprises, which is a broad look at farming that makes recommendations that may surprise you.
While we all recognize that farming has changed, the authors suggest management perhaps has not kept up. They argue farmers must be increasingly skilled at managing their business. Although Farm Credit Canada reports 98 per cent of Canadian farms are family operations, the conference board notes a growing number are now incorporated. But although many farms are now technically corporate, the heart of the company is the family.
Perhaps what surprised the authors the most was the variability in farm profitability. You might assume all farms in supply-managed commodities were profitable, but this isn’t true. In fact, farmers competing in a completely open market were often just as profitable.
The two drivers behind this were cost-production management and marketing. Not surprisingly, farms that also incorporated value added into the operation were often quite healthy. On the whole, the cream for net profit is shared between the dairy, oilseed and grain sectors.
When it comes to farm management, the conference board identified four key areas.
Capital management led the discussion because farms are very capital intensive. To remain competitive there needs to be a balance between what is owned (asset value) and operations. More capital almost always leads to greater investment in equipment and supporting technologies. The trend to rent or lease is gaining in popularity and as the farming population ages, this works for both parties. The idea of managing capital is to take the entire enterprise and maximize value.
Marketing on the farm is more exciting than ever. Marketing doesn’t look like it did 10 years ago and new opportunities are opening up for buyers and sellers. Many commodities are risk managed and marketed electronically, without the intervention of a middle person. The use of electronic platforms and the farmer’s ability to connect with the end-user is a huge shift. Managing this can be pure joy… or a nightmare. It takes a lot of work and attention, and I like to see a member of the team designated to it. The conference board agrees, suggesting farmers need further education in this area.
Another area where the report says farms could use a little help is in how to attract, keep and protect their workers. It is one thing to offer a wage, but quite another to build a team and ensure its long-term health, wellness and commitment. Some farms have issues applying this approach with their own family members, let alone employees. Young and technically advanced farmers also need the stability of the employee who can handle a shovel. So the balance is delicate. The authors say workplace safety and standards need to be in place before farmers even ask for employee commitment.
This discussion all rolls into relationships and that was identified as a key management area. There are diverse styles of legal business relationships and of gaining knowledge, but they are not always used. We are all connected to the same earth and the same sky, so going it alone is really not going forward. The conference board strongly implied that improved skills in relationships are very important to manage all this capital and the marketing challenges.
At the end of the discussion, the authors made recommendations for a stronger farming industry. They suggest farmers maximize operations and assets by creating the right mix between capital requirements and costs. The idea of scale is hard to pinpoint and I prefer to call it optimization of resources, capital, human capital and operational costs. At some point, we may become overcapitalized because it requires another half-person, half-tractor or half-combine. Farms that contract are often doing so for reasons of optimization.
Of course, a writer in Ottawa is going to include value added and specialization as a recommendation. And that is good because as the farming community has more access to information, technology, markets and opportunity, the ability to grow profits increases.
But the conference board also recognizes this requires a different management skill set and farms must be prepared for this change. This is all part of innovation — which can be described as the application of better solutions — and includes process innovation. For some, that could be product development or highly evolved management models, while others focus on operational changes such as leasing or cost sharing.
It all starts with people. As much as we love the farm, others may not have the same affection. The report did not find that farming was a not-desirable occupation nor was it supported by incorporation of human resource or safety standards. That leaves agriculture with a big gap for we cannot produce food for people without the people to produce the food. Above all, attraction usually follows money and until farms focus on marketing first they may lack the stability to apply all the previous recommendations.