Fierce independence can often be as much the cause of problems as it is a source of opportunity. If national brands and Fortune 500 companies believe they achieve greater efficiency by working together, why should farmers with $1 million, $10 million or even $100 million in revenue think they are better off and do a better job by going it alone?
I'm not talking about business mergers or open membership cooperatives, but joining forces in separate jointly owned entities.
Farmers and ranchers can maintain separate ownership and operating management of their businesses while still achieving projected profits, lowering costs and using more quality and depth in specific technical/management skills.
The scale of these entities can and do vary, depending on the purpose and objectives of the parties involved. The following are some examples I've seen in agriculture over the past 10 years.
IN ONE CASE, three farms share the services of a chief financial officer (CFO) — who is also a certified public accountant with experience as a corporate controller — and a data entry secretary/bookkeeper to manage true-cost accounting and keep costs at an affordable level for each farm operation.
The CFO works part-time on a flexible schedule and is paid $75,000 annually for 30 hours a week. The secretary earns $35,000 and the overhead runs $40,000, for a total of $150,000 — an expense divided equally among the three farm operations. This is a small price to pay for two employees who also make sure bills are paid, manage vendor accounts, monitor budget versus actual performance variances, perform financial and feasibility analyses and generate a variety of management reports.
Another group of three farmers in different regions of the country jointly own planters and combines and share labor to lower per-acre costs and keep high-dollar resources working six months a year rather than two.
A third group of five vegetable producers formed a marketing company that generates marketing and production contracts for the export market. Contracts are first offered to the member/owners; but, the company also contracts with non-member growers for any additional volume or if the owners decide to pass on an opportunity.
Some farm operations instead outsource for specialized services they aren't big enough to justify the cost of internalizing or that they need only on occasional basis.
JOINT EFFORTS ALSO often extend to services that offer benefits only if there are multiple participants and perspectives. These can include research test plot and financial and operating performance benchmarking.
Another is needs-based training. Assume that several producers decide they need training in some area of personnel management, succession planning, process improvement techniques, options strategies or other topics. The type of program they need might involve anywhere from one to three days, and the quality of the presenter might require charges of $3,000-10,000/day, plus expenses.
Assuming that this type of program isn't available through an Extension service, the cost for one producer could be prohibitive; but, when shared by five to 20 producers, it could be very reasonable. In addition, the questions and perspectives of multiple participants would likely open up possibilities and issues that wouldn't otherwise be discussed.
Those who want to see their farms continue as full-time businesses beyond the current generation must continue to explore new ways of doing business. The possibilities are limited only by imagination. Unfortunately, many of us, including me, tend to be bound by tradition and our own experience.
My observation is that the top 1% of farm and ranch managers is 10 years ahead of the average producer. The top 10% are out in front by at least five years. Just being better than average is living on the edge.
OTHER SHARED-LABOR FUNCTIONS:
- Personnel recruiting, training and record keeping
- Risk management
- Input purchasing and contracting — some of these contractual arrangements are very innovative
- Product and services advertising, marketing, selling and contracting
- Veterinary services
- Nutritionist services
- Agronomic services
- Bulk feed, fuel, fertilizer and grain storage
- Processing plants
- Feed mills
- Repair shops
- Leasing company
- Biodiesel processing to produce their own fuel
- Self-insurance pools
- Genetic services, i.e., sires and donors for artificial insemination and embryo transfers
- Exporting and importing of breeding stock, fruits and vegetables and specialty grains
The above list obviously isn't exhaustive, but should make the point.
Danny Klinefelter is a professor and Extension specialist at Texas A&M University. He also serves as director of The Executive Program for Agricultural Producers. He may be reached by telephone at 979-845-7171 or by e-mail at [email protected].