Farmers and ranchers are largely price takers. Yes, we can influence the price we get to a degree by learning how to properly market, and we can add more to the bottom line by adding value to our products, and marketing them directly to the end users. But in general, profit is achieved by not spending money that does not have to be spent.
Probably the greatest enemy of profit in agriculture is heavy metal hypnosis. Trade shows are bad for hypnotizing us into thinking we need this new machine and that new gazingus pin.
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They are especially dangerous when we have had a good year, and we have to avoid paying taxes by putting down payments on as much equipment as we can.
The next greatest enemy of profit is what equipment the neighbours have.
A number of years ago, I was leading a holistic management course near Barrhead, Alta. It consisted of five two-day workshops spread over five months. Between two of the workshops, a farm couple had a machine shop fire, and their new tractor burnt with it. They had paid $84,000 for the tractor the year before and were thinking of replacing it with a similar model. They had a smaller tractor for chores, but it couldn’t pull the baler. They had no insurance on the shop, but they were in no financial danger as a result of the fire.
I divided the training participants into groups of five, and we brainstormed the ways this couple could get their hay put up, which had been the main purpose of their new tractor.
We came up with more than 200 ideas. Most of the ideas were off-the-wall, which is how they should be in a brainstorming session. But there were several solid, practical ones, including hiring somebody to do the haying, exchanging services with a neighbour to get it done, leasing a tractor for the haying season and buying another tractor.
The couple felt insecure not owning another tractor, so the rental and custom haying options were eliminated. But as we analyzed the situation, the couple realized they really didn’t need to own such an expensive tractor to get the work done.
By the time the following month’s workshop came around, the couple had scoured the classifieds in the Western Producer and other papers, and found a John Deere 4020 in excellent condition in southern Alberta that would do the job. They paid $4,000 for this tractor, so saved $80,000 they had originally planned to spend to replace the tractor that burned. Yes, the tractor they bought was old, but it was in good shape and you can buy a lot of repairs for $80,000.
A couple from another course, this time in the Red Deer area, carried out a gross profit analysis on every enterprise on their ranch, and a breakdown of the cost of operating their machinery. They discovered that for the number of hours they ran their tractor every year, it was costing them $65 per hour. They found they could hire a neighbour for $25 per hour to do the work they needed, so they sold their tractor and reduced their annual expenses.
Other course participants calculated all the costs of putting up hay and found if they could buy hay for $40 per tonne or less, it was cheaper than they could put it up themselves. This was during the 1990s. I don’t know what it costs to put hay up now. They also eliminated worries about rain or machinery breakdowns. The custom haying people they hired were also faster, better-equipped, and did a better job.
I realize I am talking about a sacred subject here. The modern farm needs lots of equipment, doesn’t it? In truth, probably no more than the modern city family needs all the toys and conveniences it buys.
Yes we need a certain amount of equipment to do our work, but again, much of the profit in agriculture comes from not spending money. And waking up from heavy metal hypnosis can be awfully good for the bottom line.
Edmonton-based Noel McNaughton speaks at conventions and for corporations on Farming/Ranching at Midlife – Strategies for a Successful Second Age. He can be reached at 780-432-5492, e-mail farm@midlife-men.com or visit www.midlife-men.com.
