Business & Policy
Stay, go or grow?
Part I: How to find the business strategy that's right for your farm operation.
November 15, 2007 By David Kohl
Farmers are faced with a hundred decisions to make every day. But one of the
most critical decisions they have to make is about where their businesses are
headed. As I see it, there are three possibilities: they can stay on the same
road; they can choose a different route and grow; or, they can head for an exit.
As a producer, you have to make a decision as to which road you want to take.
To help you do so, consider the following:
Drivers of change
Whether you are producing a commodity for a foreign market or a special crop
for a local niche market, consumers are the central drivers of change. Failure
to acknowledge the importance of the consumer can be a fatal error.
Consumers are expecting and demanding but they generally have three basic concerns.
The first is 'safety', for which a system of traceability is a requirement,
so they feel confident that the food they eat is safe. The second is 'convenience'
which is becoming more critical in this time-compressed society. The third is
'lifestyle'. Products and services that meet lifestyle expectations are becoming
more important to marketers than conventional demographics such as age and income.
Bottled water is a good illustration of this point. It is believed to be safe
and secure and conveniently available at most locations and events, and is packaged
for easy portability. No wonder then that the consumption has increased nine-fold
since 1985 with prices reaching $4 per bottle.
The question is whether the products your agribusiness or industry produces
passes these three consumer criteria, domestically and globally.
The big picture
Aside from these three consumer demands, what are the other factors that will
affect your business strategy in the years to come? This is where you need to
take a look at the global picture and ask yourself some tough questions.
Do you have the necessary quality of soil, grassland, water or strategic location
to be globally competitive in the 21st Century? What about the infrastructure
such as roads and internet access? Public acceptance of your agricultural practices
along with agribusiness stability, and market accessibility are an integral
part of your analysis as well.
Now conduct a rural community analysis. Your study should examine the quality
of schools, hospital systems, internet availability, roads, natural amenities,
cost of living and proximity to shopping centres.
How do government regulatory and program policies influence your business strategy?
Environmental and natural resource management are going to be more important
than ever with increased public scrutiny of farms and agribusinesses.
Get a close look
Once you have reviewed the big picture, it is time to take a closer
look at the factors that specifically relate to your own business:
- Efficiency and process.
- Cost of production.
- Financial position and resources.
- Human resources.
- Management team.
- Retirement and transition plans.
- Insurance coverage.
- Competitive analysis.
- Community image.
- Professional goals of each person in the business.
How these are managed can determine whether your business succeeds or fails.
Pay close attention to them.
In Part II of this story, we will look at how you can benchmark and compare
your strategy to businesses that are in the stay, go and grow modes of operation.
This will give you a better idea as to how to position your business in the
coming years. -30-
*Dr. David Kohl is professor emeritus at Virginia Tech University and
is a renowned agro-economist and advisor in agriculture to RBC Royal Bank.