The consolidation of large food companies will drive farm business and dictate when, how and where farmers produce, says an expert in agricultural finance and business management.
The movement toward super-sized Wal-Mart stores with huge food departments will require farmers to shift from one-year plans to three- to five-year plans, said David Kohl of Virginia Tech, a featured speaker at the RBC agricultural series in Saskatoon March 1.
“It gets you away from the emotional decision making that often disrupts farm-ranch business planning,” he said.
Long-term plans can help manage the risks of the poorer income years and capitalize on the better times. They can also help uncover opportunities for niche markets or alliances with agribusinesses to challenge the large food companies.
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“If you plan on being average in agriculture, you’ve got a shelf life of five to seven years,” he said, stressing the pressing need for traditional commodity producers to change their strategy.
Kohl said it is important to analyze what is affecting the business, recognizing it could have little to do with on-farm management. He cited the example of the U.S. beef industry this past year that experienced many benefits from a closed border and the Atkins diet craze.
Farms will get bigger and super commodity farms with $1-$1.5 million in annual revenue will emerge.
They are likely to involve several family units rather than one. This group’s biggest challenge will come from non-farming family members trying to capture some of the wealth, he said.
Agriculture will also be affected by the changing farmer and the increasing influence and involvement of women in the business.
Lifestyle will drive the business model, with younger farmers wanting an improved quality of life. They want access to local health care, schools, high speed internet, highways and shopping malls.
Unlike retiring farmers who sacrificed much to maintain their farms, the next generations will want more balanced lifestyles.
“If you don’t balance the business with the lifestyle, you’re not going to have a successful business,” Kohl said.
The vertically integrated contract agriculture model seeks alliances with agribusinesses, while value-added models explore diverse on-farm opportunities.
Citing many North Americans’ desire to live in the country and raise crops or animals, Kohl said that presents opportunities for farmers.
As examples, he cited bed and breakfast operations, agritourism or entertainment farms, in addition to selling bales to the handful of horses living on the neighbouring acreage.
Kohl said farmers should find a model or blend of models that best suits their needs and operations.
Explore what is supported by family, what best exploits the farmer’s talents, financial situation and tolerance for risk, and which model delivers the desired profit, lifestyle and enjoyment, he said.
