Running a successful farming operation: Myths vs Facts
I can’t tell you how many times I’ve heard these sayings and phrases from people I meet while doing business, traveling and speaking at agriculture events in Canada and the U.S. We’ve heard them for so many years, some of us foolishly believe they are true. With the help of Evan Shout, Hebert Grain Ventures’ Chief Financial Officer, the two of us decided to bust some of the most common myths we hear in agriculture today.
1. Myth: Bigger is better.
Fact: Size is not a function or profit. Some of the best producers we’ve seen are what you might consider “small,” i.e. between 3,500 – 5,000 acres in western Canada. In Saskatchewan, we still have many hobby farmers and the average size is actually closer to 1,500 acres. The bottom line – even small farms can be profitable. Instead of “Bigger is better,” we like to say, ”Better is better.” Constantly assessing and optimizing farm management practices will drastically improve your bottom line per acre. Sometimes those efficiencies are labour, not machinery. For example, we added 5,000 acres last year, but didn’t need to add more staff. A unique value proposition is if you can scale better is better.
2. Myth: Machinery should be my most important investment.
Fact: Labour almost always trumps machinery Yes, every farm needs new equipment, but it shouldn’t be the focal point of your efforts. Instead, equipment should allow you to use your labour more efficiently. Recently, we did a combine trade that allowed us to reduce 2 machines from our combine fleet. While these are bigger combines, it’s actually less machinery, and they free up our staff to do other jobs. Also, consider the costs involved. A new employee may cost you $60,000 – $100,000, while a new combine these days can run from $250,000 to $1 million.
3. Myth: You should find low-cost labour during the growing season.
Fact: Farming can be a full-time career that pays well. At HGV, we pride ourselves on finding the best people, paying them well and keeping them on staff year-round. Our mindset is that farming is an attractive career and we needed to start paying our full-time hires what they’d be making in other industries, whether it be mining, oil and gas, etc. We don’t hire and fire, we don’t have the cost of recruitment and we rarely end up being short on labour. Instead of looking for the cheapest workers, find good people, make them feel like part of the team and pay them what they’re worth!
4. Myth: It’s impossible to run a 24-hour farm operation during seeding.
- Fact: We have been doing this for the last decade. By adding 12-hour day and night shifts, our productivity increased, and our employees were happier (some like the night shift!) and they didn’t feel “burnt out.” Because our employees were able to go home and get proper rest, our safety record improved as well. We have found historically that anything over a 16-hour shift will cause safety concerns and mistakes that could cost us in the long run. By implementing two shifts our employees work less hours per day than most farms that run during daylight hours. All it took was planning to proactively deal with challenges we may face at night.
5. Myth: Family farms can’t be treated like businesses.
- Fact: You must treat your operation as a business or it will not flourish and survive long-term. A great quote I heard from my friend, Gerrid Gust, is: “If you treat farming like a business, it’s a great way of life. Treat it like a way of life, it is a poor business.” At HGV, some of our team members have an ownership stake in the business, which is almost unheard of in agriculture. Setting up the business this way helps us attract and retain top talent so we can run the business more effectively. Treating it as a business does not take away from the family dynamic, which is at the root of HGV. The family legacy is still intact, the Hebert children will still have the option to run the business (if they want and are capable) and HGV has the best expertise it needs, which sometimes, isn’t family. It can sometimes be difficult, but families need to leave emotions out of business decisions.
6. Myth: We don’t need new technology on the farm.
- Fact: Technology is rapidly changing a farm’s profitability and efficiency. Agriculture has been slow to adopt new technology likely because it isn’t tangible – a farmer can’t really see it, use it and play with it and the ROI isn’t always immediate. About 75% of the farms we counsel have taken the leap towards adopting technological advancements, but 25% still seem stuck in the mindset of “We’ve always done it this way.” It’s a dangerous mindset and farms that don’t adapt will be left behind. Most farmers are cost-sensitive and technology isn’t cheap. But, its ability to make our jobs easier is without question. We find technology increases in ROI as farms implement multi-machine functions, whether that be multiple combines, sprayers, air drills, and even multiple yards and multiple operators. Technologies such as prescriptions and guided mapping during the seeding season may make operations and setting machines much easier and more efficient (fewer mistakes). We need to embrace, not fear, farm technology.
7. Myth: We don’t need data and analytics.
- Fact: Knowing your numbers can drastically decrease costs and increase profitabilityGetting really clear on your financial data is key and there are various platforms out there that can help you do it. Here’s a great example: last year we hauled our own grain while many farms hire a 3rd party trucking company. Once we analyzed our costs, labour, etc, we determined that we made money by trucking our own grain. We kept all full-time employees on the payroll, we chose how much grain and on what days – it was a win-win. But, that is something we would not have realized until we analyzed the numbers. There are many assumptions and misconceptions in farming, but your data will tell you the true story.
8. Myth: Weather is the biggest risk to my business.
Fact: currency and policy are the biggest risks. In farming, you can insure against the weather. There are a number of companies, including Global Ag Risk, that will insure against the weather so farmers avoid huge losses. You might wonder why many operations don’t make strong risk management choices. It’s a cost issue and many believe because they have had strong historical results that it won’t happen to them or they decide to gamble and take on the risk. If more farmers were properly insured against loss, if they fully understood how much equity they were risking, we would hear far fewer demands for government handouts and subsidies. If you could insure the highest net income you’ve ever had, before even putting the crop in the ground, why wouldn’t you do it?
- Currency and policy are two things that are out of our control as farmers. Government policies that aim to limit fertilizer, control the growing process, fluctuating exchange rates and inflation that then drive up the cost of inputs are the things we need to be worrying about. These are outside the control of insurance or decision-making.
9. Myth: We can’t share our ideas with other farms because it will make us less competitive.
- Fact: Sharing challenges and learning from others will help you avoid costly mistakes. Call it ego, competitive nature or rugged individualism, the biggest downfall for some farmers is their inability to ask for help and learn from others. Why do they think they must learn it the hard way? It’s simply not true. The growing prominence of peer groups, business coaches and farm financial advisors means you can share knowledge, ask questions and learn from others. This is the way it works in other industries, so why not farming too? Even though you may be in competition for land with a neighboring farm, it doesn’t mean you can’t work together to help each other’s businesses succeed. This is the difference between a growth mindset and a fixed mindset.
10. Myth: If I was not around tomorrow, the farm wouldn’t continue.
Fact: A properly run farm has a transition and succession plan in place. The HGV team is fully empowered to run the farm in the event of death, disability, or succession. This is largely due to the amount of trust the owners have instilled in one another and staff members. Many farmers refuse to let go and fail to adequately prepare the next generation to take over. Most farms haven’t separated the cost and value of labour, management and equity making the discussions very intimidating. The average age of a Canadian farmer is between 60-65, so transition planning is essential. Having a strong succession or transition plan in place, that includes staff, management, and leadership, is key to the continued legacy of most farms. The next generation depends on us being around long enough to transition OR having the proper plan in place to make sure the business is sustained. If you died today, would your operation run tomorrow?
Let us know if we missed any. We always appreciate your thoughts and comments. Please share with someone who might find this information useful for their operation.
Kristjan and Evan