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sustainability

Sustainability

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I very briefly got into a Twitter discussion on Sunday with a few farmers when the question was posed
about sustainability, specifically if the ag industry in western Canada is actually advocating for
sustainability or just preserving the status quo. I waded in because “what is sustainability?”

My tweet was a question: How do you define sustainability? Is it agronomic, environmental, financial,
family? There are many factors to consider on the farm.

Sustainability means different things to different people. Kind of like the term “organic.” Neither are
clearly defined anywhere in a way that is unanimously accepted. Both then are open to individual
interpretation. I’m not treading into the organic/conventional battle here; I’m talking about
sustainability.

The responses to my tweeted question were all about soil and how if soil health is the primary focus,
everything else *should* fall in line. I respectfully disagreed. Good soil stewardship + poor financial
management ≠ sustainability. I was not trying to discount soil health, just hoping to expand their line of
thinking. I left the conversation at that point. The parties continued to banter about tillage, irrigation,
crop rotations, etc. I just wish we could see that there is more to farming than production.

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Agronomic Sustainability

If you don’t know what Cation Exchange Capacity is, what your C:N ratio means, or how to calculate
SBU, then hire an agronomist (of which I am not one.) Agronomic sustainability is as much an art as it is
a science, and if you’re not well versed in the art, or the science, of agronomy then being sustainable
might be a stretch.

Environmental Sustainability

This is a slippery slope with a whole lot of noise out there. Who should you listen to? I’m not touching it
with a 12’ pole. But all farmers know that the environment is critical to our success. ‘Nuff said.

Financial Sustainability

I could write a book on this. From cash management to proper use of leverage; from strategy to
operational efficiency; from knowing your numbers to management process, the pages would flow!
Same can be said here as for agronomy: if you’re not well versed, hire an expert!

Family Sustainability

This hits me directly right now. Since I made the decision to retire from active farming to focus 100% on
my consultancy business, the family dynamic has changed drastically. Looking back I can identify things I
should have done differently, but those choices were not apparent at the time. One choice that was
apparent was to set expectations very clearly on Day 1. It is safe to surmise that didn’t happen. Whoever
said “It’s never a problem until it’s a problem” is very correct in their vagueness. We all took for granted
that the family will work together and get along, a gross miscalculation as it turns out.

Direct Questions

When you hear the word “sustainability,” do you cringe expecting an environmental sermon?
How many distinct ways can you identify opportunities to improve or incorporate sustainability in your
business?

Are you putting in adequate effort to prepare for the unexpected so as to remain sustainable in all
aspects of your business?

From the Home Quarter

I fear for those who don’t recognize that their farm is about more than just production. I’m not
suggesting that production take a back seat because is it critical to success, but we must expand our
perspectives beyond the crop and the field to the markets, to the balance sheet, to macro-economic
forces, to family dynamics and HR issues, etc. This list could be endless, and everything on it must be
“sustainable.”

None of this is new news; we all know that we must be sustainable in all facets of our business to
survive. But I ask if we are all able to recognize the opportunities and threats to our sustainability in a
way, or in time, to do something proactive about it.

If you’d like help planning your farm for business and personal success, then call me or send an email.

planning

Decision Making with Incomplete Information

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“We rob ourselves when we make decisions in the moment with no thought of how those decisions will
impact our futures.” – Andy Stanley

It’s easy to look back at decisions we have made and say we could have done better. Are you ready to
head down “Metaphor Avenue”? Hind-sight is 20/20, so don’t beat yourself up; next time you’ll knock it
out of the park!

Why can you say that you could have done better in making past decisions? It is likely because you were
working with incomplete information. However, considering the vast availability of information today
let’s also suggest that too much information contributes greatly to incomplete information. There is a lot
of noise out there, and sorting through it all can be overwhelming.

So how does one make better decisions when working with incomplete information? It’s difficult, and
risky, especially considering the financial repercussions each decision can hold. Yet these decisions get
made regularly often based on emotion, a hunch, or some gossip.

Stick with your Strategic Plan

The strategy you have established for your business should rule when attempting to make decisions
with incomplete information. Any option that leads you to deviate from your strategy should be quickly
discarded. If a decision takes you away from your original strategy then either there are extenuating
circumstances or business has changed and your strategy wasn’t changed with it. Either way, you’ve got
some more work to do.

Follow your Tactical Plan

Strategy is what you want to accomplish and why. Tactics are how you will get it done. These 2 plans
should be closely aligned. Don’t get caught using justification that is “tactical” in nature to permit a
decision that goes against your strategic plan. To paraphrase the quote above, how will this decision
affect your future?

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Get Advice from Trusted Sources

Ideally, a trusted source has no vested interest in one decisive outcome over another. Although, a
trusted source can be someone who may have a vested interest, but whose integrity is above any
question you may have about his/her judgement. When information is incomplete or confusing, seek
out someone who has expertise and knowledge to help you sort through the noise and clear your focus.
A naturopath will always have a miracle product that can cure anything that ails you; a surgeon’s advice
will always insist that surgery is the best option. Vested interests….get a second (or third) opinion.

Direct Questions

Do you make business decisions without adequate information, basing your choice on emotion, a hunch,
or gossip?

Do your major decisions reflect your strategic plan? (Do you have a strategic plan?)

Do you have trusted advisors who you can call on for help?

Are you contributing to incomplete information from your own habits of improper data management?

From the Home Quarter

If we waited for perfect information before making every decision, we’d never make any decision. We
have always had to proceed with the best information we had at the time. And the fact is information is
never perfect. But don’t let that fact be an excuse to allow yourself to not manage your own business
information adequately. You have a responsibility to ensure that you provide yourself with information
that is as complete as you can make it. Business moves at the speed of the internet, so we must be in a
constant state of information management. Advisors can bring immeasurable benefit to your decision
making by either removing emotion or by providing insight from a position of unique expertise. And at
the end of the day, your best allies in decision making are planning and discipline.

If you’d like help planning your farm for business and personal success, then call me or send an email.

farm

Why Precision Farming Should Start in the Office

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We’ve been hearing about precision farming for quite a number of years now. It’s common practice
among early adopters. It’s getting a lot of face time in the media. It is a strategic decision that should
elevate a farm’s production efficiencies to new heights not seen before.

Proponents say that variable rate is not a treatment, but a management practice. They would be correct.

I’ve watched in awe the business men and women who recognize the benefits of increasing their
acumen in a certain aspect of their farm. One of those is precision farming/variable rate and it is
awesome. In fact, I believe that in the future VR will be the second greatest determining factor affecting
gross margins, second only to marketing of course.

But what is more awesome is seeing those farms that have taken precision farming into the offices and
applied it to financial management practices. Think about this: it was early December 2013, right after
the largest harvest in almost forever, as commodity prices were already on a crazy carpet for a ride
down the trading charts. I was in a conversation with an aggressive 30-something farmer when he said,
“I’m looking forward to $8.50 canola and $4 wheat, because I know I can still make money at those
prices and a lot of guys can’t. That’s going to create opportunity for me.”

You’ll recall Issue #3 of Growing Farm Profits Weekly on Cost of Production? Well, this guy knows his
costs on everything, right down to the penny per acre. THAT is precision farming!

Now imagine how easy it is for this farmer to make the decision on if he should invest in variable rate
right now or not, considering he knows his costs to the penny across his whole farm. He can quickly and
accurately calculate the projected benefit against the capital cost to invest in the technology. He isn’t
making decisions on emotion. He isn’t making decisions on pride (being the first guy in town to VR his
whole farm.) He’s making decisions on an expectation of profit. And trust me, his net worth statement
shows that he’s made several profitable decisions.

Direct Questions

Your farm requires excellence in 3 areas: production, marketing, financial management. Are you
focusing heavily on one or two areas to the detriment of the others?

Are you meticulous where your skills and interest lie, and improvident elsewhere?
Would decisions be easier to make if you knew exactly your financial position at all times?

From the Home Quarter

It’s been said time and time again that “you can’t manage what you don’t control.” Precision farming,
whether it’s in the field or in the office, is all about taking full control; it’s about collecting and using
data. It is projected that when under full VR, your farm can reasonably expect to gain ~$35/ac in a
combination of costs savings and increased yields once the practice has been in place for a number of
years. How long will it take to achieve a $35/ac benefit from implementing precision farming in the
office? I’d say pretty quick, depending on how committed you are to it. Plus, the capital investment will
be a lot less too.

Cost of Production

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I got a little worked up last week when I saw a tweet that read “Cost of production matters in 2015 –
The Western Producer” and included a link to the article. Even though that wasn’t the article’s title, I still
had to sit down and scribe this.

Let me be very clear: cost of production matters every year. Period.

Cost of Production is the most basic principle that must be employed when making marketing decisions.
If you don’t have a clear understanding of your COP, then you are putting the survival of your business
at grave risk. Why? Because how would you know if you’re selling for a profit or not?

 

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The WP article states, “A 38 bu. (canola) crop and a $9.45 price could yield $70 per acre before labour
and equipment costs.” That’s nice, but why would we not include our labor and equipment costs? Will
the crop magically seed and harvest itself?

COP only begins with your seed, chemical and fertilizer costs. It must also include all other operating
costs AND your fixed costs.

Now work back from your actual, or projected, yield and we come to the real figure that matters: unit
cost of production.

If you know that it costs your farm $6 to grow a bushel of canola, isn’t a $9/bu selling price a nice
target? By the way, that’s 50% ROI.

 

Direct Questions

What was your gross margin per acre in 2014?

Do you include your fixed costs when working out Cost of Production calculations? If no, why not?
How do you know what is a profitable selling price for your crop if you don’t know what it cost you to
grow it?

Do you discover whether or not you’re profitable only when you receive the accountant prepared
financial statements?

From the Home Quarter

In the simple calculation of “Revenue – Costs = Profit,” how can we be expected to make profitable
decisions without intimately knowing our costs? Every business that produces anything, from ocean
freighters to widgets, knows exactly what it costs to produce one item. Why doesn’t every farm know
their costs the same way?

As a special offer to the readers of this blog, I will conduct a Farm Financial
Review™ for up to 5 qualifying farm businesses at $475 (normally a $875 value.) This will include a
review of your 2014 financial results and a Cost of Production Analysis. Work must be booked by the end
of January and completed by the end of February. Please call or email for details.

Nurturing Your Business

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In Issue #1 of Growing Farm Profits Weekly, we introduced how nurturing your business was one of
many critical factors that can affect your business success. This week, we’ll look deeper at nurturing
your business and how to leverage this often overlooked aspect of owning and operating a successful
enterprise.

Increasing wealth is the goal of any business, and only a healthy business can deliver accordingly. And
how you view wealth can be as unique as you are. The obvious answer is “profit at the bottom line,” or
“strong equity,” but some will argue that wealth is “discretionary time.” How do you define “wealth?”
Give it some thought; it will provide clarity in how you run your business.

There is a healthy ratio of nurturing that applies to 3 key aspects of your business:

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Crop

As discussed in the previous issue of Growing Farm Profits Weekly, your crop gets substantial amounts
of your attention because you know that investing significantly in your crop will grow you a better crop.
And a better crop leads to better marketing opportunities, which lead to stronger cash flow and higher
margins, which lead to profit. Simple as that? If only…

Assets

Yes, this means the tractors and combines, the trucks and trailers, the sprayers and swathers…the equipment on the farm needs to receive adequate nurture; these are the tools of your trade, and they need to perform when you need them. This is why you service regularly, send equipment into the shop for a certified tech to go through it in the off-season, and consistently use recommended operating procedures to ensure you minimize the risk of downtime.

But how much time do you spend nurturing your “other” assets?

Your HUMAN ASSETS (ie. your family and hired staff) require nurturing too. Unlike a piece of equipment
that runs the same whether you yell at it & operate with great disregard or if you treat it like a treasure,
your human assets often require a specialized approach. Just like you can relate and react better or
worse with certain people and their approach, your HUMAN ASSETS will also respond better or worse to
your approach. And if you view your human assets with the same regard you view your equipment, or
with less esteem than you give your equipment, then you’d better take a long hard look at your business
because it will be vastly different in a year or two.

If we consider the cost of owning/leasing and operating your farm equipment, it’s a safe bet you’d be in
the range of $40-$90/ac. Yes, that’s a big range, but there are big differences in each farm’s expense
management (we’ll tackle this in a future issue.) Please note this does not include capital outlay for the
purchase price. The cost of ownership/lease and operation looks at operating costs (fuel, oil, repairs,
etc.) lease costs, and “real” depreciation (not necessarily what CRA allows you to claim as a non-cash
expense.) We also consider custom work when calculating machinery cost per acre. Now that we’ve
established that your iron has a significant cost, why would anyone consider putting a $15/hr operator
in it? In one hour, you’ve paid an operator $15 to run equipment across upwards of 25ac or so that can
carry a machinery cost of $500-$1,000. Again, if you view your human assets as dispensable, this isn’t a
surprise in your line of thinking. But then it also shouldn’t be a surprise when that same operator isn’t

too concerned about stopping to rectify those plugged hoses on the air-drill.

If you’ve spent time building specific processes around HR management, you already recognize the need
to nurture your human assets. Congratulations, you’re on your way to ensuring the future success of
your business. Some processes you will want to implement are:

  • Recruiting, interviewing and selection
  • Performance management
  • Wages and incentives

There are many more items for this list, but we’ll save that for a future issue.

Relationships

While grain farming in North America is a commodity based industry, successful operation of your
business requires your adeptness at managing several key relationships. These relationships cover the spectrum from your professional advisors all the way to the part-time weekend counter staff at the equipment dealer.

I’ve seen some who give their least regard to the relationship with their accountant. True story; they see
the accountant as a “necessary expense” in order to file the “necessary tax forms.” Sadly, there are
many farmers out there who share that view. They do not recognize the importance of evaluating
business results against expectations or projections. I suppose these are also the businesses which do
not make business plans or projections.

How about service relationships? It’s easy to commoditize the grain buyer, the inputs retailer, or the fuel
supplier because there is always competition vying for your business. But if you don’t nurture the
relationship with your fuel supplier, what are the odds you’ll get that urgent May long-weekend
delivery?

Do service relationships extend to your staff? Do you pay them to provide you and your business with a
service, or are they integral members of your farm team? What do they need? What motivates them?
Why are they working for you and not somewhere else? If you don’t know the answers to these
questions, you’ve got 4 more days this week to find out…get on it!

Direct Questions

How do YOU define “wealth?”

Are you getting the most out of your crop? By that I mean “are you maximizing the most efficient
processes” available to produce your crops? It’s not about the highest yield at the coffee-shop; it’s about
gross margin (yet another future issue.)

Have you calculated the ROI on nurturing your human assets relative to the ROI on your iron assets?
What processes and procedures have you implemented to support your efforts to nurture your human
assets?

Ask yourself how you value the relationship you have with the following:

  • Agronomist
  • Business Advisor
  • Accountant
  • Banker
  • Lawyer
  • Commodity Markets Advisor
  • Equipment Dealer
  • Inputs Retailer
  • Fuel Supplier
  • Family
  • Staff

Is there one way you can strengthen each relationship this month?

Are you nurturing one aspect of your farm to the detriment of another? Why? Have you calculated the
net cost of this practice?

From the Home Quarter

We invest our resources in a manner that we expect to provide us with a return. And no matter if that return is tangible or intangible, it all creates the net benefit to our business: positive or negative.

You’ll notice I will rarely refer to the weather in this writing because we cannot control the weather. As a
business advisor, I focus on what we can control. For example, how do we invest and allocate our
resources: financial, intellectual, human, equipment, and most importantly, time. I believe in Alan
Weiss’ theory that “wealth is discretionary time.”

For any business owner to achieve maximum discretionary time, he/she must recognize what they do
best, and get help with the rest. Business owners must nurture their business in such a manner that
maximizes ROI, because as Alan Weiss says, “real wealth is discretionary time, but money is the fuel for
that wealth.”

Don’t get so caught up in earning money that you have no wealth.

Profit is not a swear word.

Time is the most precious, non-renewable, intangible resource we could ever spend. Treat it as such.
Growing Farm Profits™ provides topical and pragmatic business management tips and tools for primary
producers in Canadian agriculture.