I have always maintained that each farming operation has different risk management needs because of varying debt levels, costs and a litany of other factors.
Yet every operation is similar in that all have only four economic resources available to them: land, labor, capital and management.
Let's take a closer look at labor, as managing people correctly is a key to risk management and making the best use of your time and talent.
In my experience, labor management is only second to marketing as being the most frustrating bottleneck for most large operations. It sounds easy. Just have the right people in the right places at the right times — with the right set of skills and doing the right things. That's easier said than done, which I learned in managing a staff of 500 people while at Farm Credit.
Where can you find qualified people? My partner, Terry, has a sizable farming operation and has had good success hiring retired farmers for part-time help. Two semi drivers, both well past retirement age, help him in the fall. Terry told me if he wants to talk to them before they start work, he had better be at the farm before 5 a.m.
Retired farmers are experienced at operating sophisticated equipment and are less likely to stick a corn head snoot through a tire on the grain cart than most others.
The pool of retired people is increasing and available. In Great Britain, every one out of five retired people have gone back to work. It's not because they need to work financially — it's because they're bored. So look around your neighborhood and draw on that talent if the opportunity arises.
Compensating employees correctly is another challenge. I've helped a number of our clients with incentive compensation ideas. Start by determining the one or two largest profit drivers in your operation that key employees can impact. Then determine the extra profit derived by incremental improvement in each of the areas.
I generally give employees up to 25% of the extra profit generated by meeting increased performance standards. It is a win-win for both you and the employee, since you keep 75% of the increase if the bar is raised and met.
An example is timeliness in planting. Howard Doster, emeritus professor and ag economist at Purdue University, says that for maximum efficiency in crop production, growers have 10 days to get a crop planted and 27-30 days to harvest it. You can determine the lost yields on both ends of those windows and figure the dollars at risk. Now you have a base for determining your incentives.
A client of ours in Missouri pays workers who run his planters a $1/acre bonus over a set number of acres planted each day. He says that it's a real motivator for his employees to get as many acres as possible planted in a day. Some data indicates that, after May 10, one loses ½ bu/acre/day and after May 20, 1 bu/acre/day.
Hiring the best people and paying them for maximum performance are important, but are only pieces of the managing-people pie. Another critical piece is determining who is in charge of what. We'll consider that in our next Riskwise.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell previously spent 26 years with Farm Credit Services as a division president. For more risk management tips, check his Web site (www.russellconsulting.net) or call toll-free 877-333-6135.