| | Each fall, a few Alberta Agriculture staff assist Dr. Erasmus Okine with the Animal Science 474 Applied Beef Production course at the University of Alberta. I deliver a segment on economics, finance, business strategies and business management. A few of us guide the students through their class projects, which involves preparation of a business analysis of a "real" cow/calf operation … and many of them choose to assess their own family’s farm.
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After a few years in University most of the student's are well versed in the fundamentals of nutrition, reproduction and production management. By the end of this course, many have gained a 'comfort zone' in translating production basics into managing for sustainable profit. And … in each class, a few really 'figure it out'. After finishing University, they enter the real world with their eyes wide open, understanding the tight connection between production and economics. They realize that in the future, success in running a beef operation will rely more-and-more on their abilities to apply economics and business management skills.
By way of example, this past winter I received an e-mail from Melissa Reinhardt, a former student from south central Alberta. She was seeking information, references and direction in preparing for an AIA speaking competition. Her topic was "farm management information and skills today's farmers should possess".
Well, we didn't manage to get together. Melissa forged ahead, developing her presentation from course materials and what she could glean from AgriProfit$ material posted on Ropin' the Web. Later, she sent me her speech and what caught my attention was how she had captured the essence of the keys to success in managing a beef business.
Melissa began with a quote from Dr. Michael Boehlje from Purdue University, "family farmers of the future will be defined by their management of labour, production and marketing opportunities and less by their own labour and land holdings." What she read into this was "success on today's farms means farmers must have proficient skills in making knowledgeable management decisions." It's not what you have … it's how you use it.
Melissa proceeded to compare two hypothetical farms that, although having basically the same in resources, experienced drastically different financial performance. Her evaluation … the Jones' showed consistent profitability and low unit costs per lb. of calf produced. The Smiths' experienced constant financial stress and were high cost producers.
Melissa went forward from here, offering suggestions as to why the Smiths would continue to operate in this fashion and then what they could do about it. The Smiths managed their business on the basis of cash … they didn't recognize that:
- their time deserved a return,
- depreciation, a non-cash cost, had to be retired,
- in the long run, their cow herd had to cover the value, not just the costs of producing feeds.
By taking a "cash-only" view, the Smiths' worked themselves into long term economic and financial problems. The Jones', on the other hand, took steps to ensure that each of their profit centers pulled its weight in the long term, covering all cash and non-cash production costs. This guided their choices of what to produce, and how to produce … based on sound economics.
Melissa's suggestions for the Smiths'? Start out with a business analysis of important profit centers so that their own productivity and economics are known. Benchmark their performance over time, both in their business and compared to peers. Follow this up with an analysis of their business strengths and weaknesses … and let this guide their planning for the future. Finally, move to manage, constantly, by unit cost of production.
Melissa ended with a quote from Harlan Hughes, "… for the industry to survive, cow/calf producers must be driven by unit production costs, have information driven management systems, involve a high degree of management intensity, and be information based." If Melissa is an indication of the next generation of beef producers, the future of this industry is indeed bright!
Dale A. Kaliel
Sr. Economist: Production Economics
Phone: (780) 427-5390
Fax: (780) 427-5220 |
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