What is in this article?:
Think Different
Linden, Ind., grower Nick Frey has found three factors help contribute to WCI Family Farms’ success:
- Identify problems and finds solutions. No one software program fits all needs.
- Collect accurate and consistent data, or nothing matters.
- Be disciplined. Follow through, analyze and make use of your data.
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Think strategically
Strategic direction is what Michael Boehlje, Purdue ag economist, preaches, as well. He encourages farmers interested in growing their businesses to consider a two-phase approach.
"First, you need to think about growth beyond adding resources. Buying equipment and buildings or adding land is not the only way to grow," he says. "We suggest farmers grow gross sales and then grow bottom-line profit potential. Focus on being the best in class for one enterprise or activity on the farm."
Boehlje explains that means identifying a specialization and intensifying efforts to increase efficiency, productivity or some other aspect of the business not requiring additional land, labor or capital. "Once you maximize efficient size and lower your point on the cost curve, you are ready to expand in that space and look to buy or rent more land to grow production," he says.
Four possible strategies can be considered during phase two. The first is to replicate. Once you establish the minimum efficient size for your enterprise, replicate it, Boehlje says. "This has worked successfully in the dairy and pork industries where farmers determine the minimum number of animals – the optimal size pod – and add another plant or farm," he says.
A second strategy is to network or create joint ventures. Just like a co-op, farmers can link with other colleagues to purchase products or source inputs for more purchasing power or maybe sharing machinery. On the sales side, consider negotiating contracts together.
The third strategy is to vertically integrate. "Move upstream or downstream. Become your own seed or crop input dealer, or go into the processing or transport side of the business," he says. "Be aware that margins are typically tight in most businesses, and don't assume you will necessarily make a lot of money."
Finally, Boehlje advises farmers to consider diversifying into a business outside of agriculture driven by forces different than those driving agriculture. Related ag industries may give you synergies, but not reduce risk.
"Getting better before you get bigger can work in any business environment, not just a volatile one,” Boehlje says. “Recognize that expansion is more than deciding to buy assets. Have managerial skill sets you need in place, because expansion can be a frequent failure environment. Be opportunistic in the context of a strategy, but don't pour concrete before you have a plan."
