Of course farmers have an excellent grasp of their input costs. As in any business, the lower the costs, the better the bottom line, so farmers are constantly experimenting with different fertilizer rates, seeding rates, equipment strategies and so much more.
And for everything they do, farmers track what it costs, what it produces and how big a difference it makes to overall profits.
So why aren’t they doing the same with their employees?
Labour is a growing input cost on Canadian farms and farmers increasingly need to pay more attention to it, says Dr. Michael Langemeier, associate director of the Centre for Commercial Agriculture at Purdue University, who has studied the topic of labour productivity extensively.
Few farmers are used to thinking about labour as an input cost that they can measure and manage. After all, getting more from your employees has to mean cracking the whip, doesn’t it? And who can afford unhappy employees who are ready to walk when you need them most?
But that approach, it turns out, may all be based on a misconception.
Farmers are used to hiring as many workers on a full-time or part-time basis as they think they’ll need, whether that’s one or 10, and the total wage-and-benefits bill is — well, it is what it is. You have to pay what you have to pay.
It’s an attitude that can make it seem useless to think about all the ways they can might get more return on their labour dollar (technically referred to as growing their labour productivity).
It’s a kind of short-sightedness that needs to change, says Langemeier.
“Two or three decades ago when there was only one farm operator with very few, if any, hired employees, labour productivity was not a big issue,” he says. “But most farms have grown substantially over that time, and as farms continue to grow, labour productivity becomes important to measure and improve.”
At the same time, it’s worthwhile to also track and evaluate your capital purchases. Looking at your capital and labour inputs together can yield interesting and important insights.
And while you’re doing this work, keep one more idea in mind, Langemeier says. “Numbers don’t lie.”
Crunching your baseline
First look at how to calculate your present labour productivity. All you need is to take the farm’s gross revenue and divide it by total labour costs (including money and benefits paid to both employees and family members).
If your labour cost as a percentage of gross revenue is higher than 10 per cent, Langemeier strongly advises you to get moving to reduce it.
To benchmark capital, take the total dollar amount you have invested in machinery and divide that by total number of acres of cropland. Langemeier does his research on farmers in the U.S. Corn Belt, and he considers anything higher than US$500 (about C$655 right now) to be too high.
“With baseline measurements for labour and equipment, we can then track how new machinery purchases and additional hired workers affect these baselines,” Langemeier says. “Of course, it’s certainly going to be harder for smaller farms to make improvements. They don’t have the acreage to spread the costs out on, and fixed costs are higher for smaller farms compared to their output.”
Increasing labour productivity
To improve labour productivity, Langemeier says, it’s essential to assess how efficiently you’re using your present workforce.
Start with three basic questions. Begin by thinking about your spring and about recent harvest seasons. Where are the bottlenecks? Also estimate how much of your employees’ time is actually spent doing productive work, rather than waiting for the next job to start.
Next, it’s also worth taking a really hard look at employee training, especially given the changes on today’s farms. As you buy a bigger combine and bigger trucks, are you training everyone to use everything? Training becomes critical. Everyone should be trained on as many types of equipment as possible.
Yes, training takes time, but if you can’t afford the time that it takes to have a fully trained, efficient staff, maybe it’s time to take a hard look at two options. Should you grow the number of acres you’re covering, either by renting more or by developing a custom service? That way it would be worth your while to do the training. Or should you think that maybe it’s time to hire out some of your jobs.
Then, also look at your seasonality. Can you generate more value from your employees when you don’t have enough work on the farm to keep them fully busy?
How much cost is it adding to your business to have employees perform with low productivity during slow times so that the farm can perform at peak efficiency for a few critical weeks?
Again, this links to your employees’ knowledge and skills. The more skills in the group, the broader the range of tasks they can take on. Consider how these skills might be applied in the off-season as well.
Langemeier also advises thinking about how you might be able to reduce the costs (and/or time) it takes you to manage your employees. This spans day-to-day management interactions, filling out paperwork, doing evaluations and much more. What should you delegate? How can paperwork or safety meetings be organized so that they are easier and faster?
This may lead you to think about technologies. What’s out there that could help increase how much employees can get done in a certain period of time or make record-keeping faster? What can technology eliminate?
Another area to examine is the extent to which you are harnessing employee strengths and showing them that they’re valued. Employees who feel important, and who are enabled, work harder and stay put because they are happy. Some employees need recognition more than others. Some have a need to be challenged and enjoy constant learning and applying new skills. You will never know until you ask.
Your role as manager
In addition to looking at the skill set of your employees, Langemeier notes that it’s also important for you to assess your own current management skills and gaps. “Skill checklists can provide this self-assessment,” he notes.
Langemeier has been working on a series of articles pertaining to skill lists.
Farms need skills pertaining to production, procurement and selling, financial management, personnel management, strategic positioning, relationship management, leadership and risk management.
The choice then becomes clear. Either internalize those skills so you can function at a competitive level, or fill your gaps by training or hiring someone who has the skills.
Circling back to equipment, Langemeier notes that because some farmers are reluctant to add employees, particularly employees who aren’t family members, it’s relatively common for farmers to continue to add machinery to the farm instead.
It’s partly why he advises looking at your equipment and labour together. “There are likely tradeoffs,” he says. “If you don’t want to hire more people, you are going to have to buy more machinery. Indeed, one of the reasons we have gone to bigger and bigger machines is so that we can grow the farm without adding more workers, and that’s fine, as long as you don’t have capital/equipment costs per acre that are too high. But farms that heavily invest in capital (e.g. machinery) should see an improvement in labour productivity. If they don’t, the farm leadership really needs to figure out why the improvement has not occurred. You can’t have both high labour costs and high equipment costs. It just won’t work.”
Farmers also mostly focus on equipment costs, he notes, because farm labour has historically consisted of family members — everyone does their tasks to run the family farm and the profits are shared.
Like others, Langemeier is seeing more cases with more and more family members wanting to work on the farm. This puts the farm’s leaders in the position of having to make sure the associated wage bill isn’t going to reduce the farm’s competitiveness. “It may be tough to accomplish this if the operation isn’t big enough, so the question becomes,” says Langemeier, “can the farm be expanded to be big enough so that it can pay every family member who wants to work there?”
Another stumbling block to higher labour productivity is an unwillingness to delegate worker management duties.
“It’s difficult for many farmers to accept the fact that they need to have a non-family member to supervise some or all of the farm’s workers, who might be both family members and non-family,” Langemeier notes. “It’s really a foreign concept to the single farmer who has been running the farm or to the two siblings who have been running it, to hire a manager to supervise workers. But the fact is, if the farm gets big enough, some of the people you hire will have to supervise other people. If you have never hired a supervisor, it’s a big step. Farmers have to get over that and get comfortable with it.”
Langemeier strongly believes farming is moving toward hiring managers. “You may need an HR manager or some farms now have a CFO (chief financial officer) who is not a family member because family members just don’t have the time to keep all the records straight and do everything else involved with that.”
Langemeier believes that agriculture is on the cusp of a technology revolution. Farmers must ask themselves, sooner rather than later, if they have the right people to handle these tools and technologies. “If not, where will they come from?” he asks. “And they have to be paid well. We have some farmers now who routinely come to our student job recruitment sessions where agribusinesses also come to hire.”
Langemeier also reiterates that it’s a big shift from a family farm with just the family working together to a large farm business with employees — and leadership is critical.
“Someone needs to step up to the plate and take on the HR aspect, and maybe someone else needs to take on technology management and someone else financial management and so on, whether they are on or off the farm, and they all have to talk to each other,” he says.
Overall, Langemeier encourages farmers to keep at it. Keep making changes to improve the productivity of your workforce and keep measuring the corresponding difference the changes make. “Just like you constantly analyze and change your fertilizer and seed rates, keep thinking about labour,” he says. “You’ll start to think about labour as an input.”