I participated in an excellent discussion this summer about the recent good times in farming, including what was observed as being both the positive and not-so-positive outcomes.
The discussion took place during the International Farm Management Association Congress in Poland in July. Close to 200 people attended, representing 37 countries, including nearly 20 Canadians.
The not-so-positive outcomes are connected to the fallout that happens when the good times end or significantly change.
One way to minimize these less-desired outcomes is to avoid the bad habits that creep into a business or organization when times are good.
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When times are good, things can slip through the cracks.
This common occurrence is not specific to farming. For example, an article by Dustin Walsh published July 6 at www.autonews.com talked about a similar situation in the auto manufacturing supply industry.
Walsh said suppliers have been “running at maximum capacity since late 2010, when the U.S. auto industry began its rise from the ashes.”
Suppliers survived the preceding industry collapse by reducing overhead and streamlining operations but are now “moving at breakneck speed, with dozens of new model launches annually for the foreseeable future.”
However, he noted a downside.
“When you move that fast, managers can take shortcuts or don’t adequately plan, and that can lead to legal trouble or expenses. It’s an issue expected to heat up more this year.”
The problem might become worse soon, because analysts project light vehicle sales this year could fall from recent robust levels to pre-recession levels.
Producers need to watch out for these bad habits:
- Overcapitalization — When farmers have available capital, they often invest it in equipment. If the purchase is used as a tax management strategy, check with a tax specialist to see what other options may exist.
- Buying non-productive assets — Building a new house or buying a cottage or that condo in Arizona are not necessarily bad decisions. However, they can tie up capital and make it hard to access if the financial situation worsens and money is needed quickly.
- Margin management — What process or factors do you use when deciding how much fertilizer to apply or how many chemical and fungicide applications to make? The importance of these decisions is the same in good or bad times. However, when times are good, farmers tend to be a little more liberal with spending. It does not matter whether times are good or bad; getting the best margins possible should be the objective.
- Plan deviation — Plans are often not followed with discipline when times are good. These plans don’t have to be etched in stone, but caution needs to be taken when deviating from them.
- Salary expectations — There’s more money around when times are good. Try to avoid the scenario where salary or compensation expectations for family members become entrenched in lifestyles. It can be devastating to a family to have to re-examine lifestyle choices when things change. Personal debt is often attached to lifestyle choices, and this compounds the problem. For non-family members, keep the compensation equal to the contribution the worker makes. If you want to “spread the wealth,” use some kind of bonus system as opposed to increased salaries.
