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Eight strategies to make money in a competitive business

Your Farm Business

October 7, 2011
From Wayne Schoper and Rich Baumann - South Central College

(This information is from an article by Dr. Michael Boehlje, Purdue University Agricultural Economist, written a few years ago.)

As you read this headline, you may say that it doesn't apply to me, I'm not in a competitive business like Wal-Mart, I'm a farmer. Well, from my perspective farmers have been competing against each other since long before Wal-Mart began. Look at the decline in farm numbers since the Civil War and you can see that competition has been around for a long time. Those who adapted to the changes in production practices and applied the new mechanization and technology improvements advanced the farming frontier and survived the competition wars. Those who did not soon were working at other occupations. As we look to the future of agriculture, Michael Boehlje of Purdue University outlined eight strategies to make money in a competitive business at a conference I attended.

The first strategy is to create value. It is important to understand your customer and the benefits you can provide them. Differentiate your services from others. This may be reflected in quality of your production, storage, and just in time delivery. Look at value-enhanced products like non-GMO's, organic, identity preserved, seed production and other strategies.

Secondly, increase asset utilization (asset turnover). This can be done using several options. You can lease rather than buy. Work with a neighbor in a joint venture or simply share machinery. Outsource some of your production functions like crop consulting and custom farm or custom hire. This may be especially true of the dairy enterprise. Auto steer would be another example as it would allow 24-hour operation of a piece of equipment.

Thirdly, increase margins. This is done by controlling costs and buying right (even look on the internet). Use the best management practices recommended and use the latest technology. Do things on time. Improve your marketing. These are just a few of the things you can do.

Fourth, grow volume and sales. Increase productivity. There is a dairy farm in southern Minnesota that produces over 29,000 pounds of milk per cow on a 200-cow herd. Not only does this farm increase productivity but it also increases volume with less investment, which is another point Boehlje makes in this area. Joint ventures may be another way to increase volume.

Fifth, manage money and capital. Again, you should consider leasing as you look at controlling capital and assets. If your return on assets is higher than interest rates, you are effectively using borrowed money. When this is occurring you can expand your business on borrowed money and be profitable.

Sixth, use time effectively. Focus your time on management of the business. Hire skilled employees to do the work so you have time for management. Use schedules and work flow planners to most effectively manage your time.

Seventh, get smart. Hire consultants, crop consultants and livestock nutrition specialists are examples. Develop your management skills. Learn about the financial measures used by lenders to rate your loans. Learn how to handle labor. Network with other successful farm and non-farm business managers.

Eighth, manage operating risk. Use contracts, contract feeding or marketing contracts for hogs are examples. Crop insurance is a necessity. Forward price when the market gives you a profit. Use recommended production practices. Lock in long-term interest rates.

If you work at these eight strategies, you will be one of the farmers to continue on as you will be very competitive with your farming neighbors and colleagues.

 
 

 

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