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The road ahead

Our panel tackles the question: What are the big farm business risks for the next five to 10 years — and what skills, actions and mindsets will be critical in taking them on?

Young farmer using laptop on field

Picture yourself driving in traffic. Then, you begin noticing that the traffic is increasing, not just in the number of vehicles around you but also in the speed they are travelling at. Some of the traffic rules seem to be changing too, and the driver controls in your vehicle are all new and confusing as well.

And that’s without even thinking about the weather and road conditions.

Although change has always been a part of farming, we all know that the speed of change has been ramping up since the millennium. And now it’s time to get ready for the fact that today’s speed may be nothing compared to the pace ahead.

The above example is from Rob Hannam, owner of Synthesis Agri-food Network consulting firm based in Guelph, Ont. And like the other panellists we’ve assembled for this examination of ag risk, he says you’ve only got two choices: adapt to the new pace and complexity, or pull over.

The good news is that with the right mindset, attitude and team, keeping up is definitely achievable.

The present and the past

Rob Hannam. photo: Supplied

“If you look at farmers who are now in their 60s and older,” says Hannam, “I think they were able to learn most everything they needed to know to make their farm businesses successful from their parents. Farmers now couldn’t get by with that. That’s been the case for quite a while. The older farmers needed to know about production. Their sons and daughters needed, and still need, to not only know production inside and out, but they need to acquire business skills and knowledge, and skills involved with working with technology.”

“The new generation, in their 30s, 20s and younger, are going to need to significantly step that up,” he says. “Some of today’s young farmers are ready for the business risk environment ahead, and already have a very sophisticated understanding of crop pricing, contracts, use of insurance, etc. But some do not.”

On the production side, there is a truly astounding amount of technology in farming that is coming soon to your farm, alongside tech that is already here and continuing to evolve. Precision farming (precision manure application, precision fertilizer and crop protection product application, precision harvesting and seeding, precision feeding of livestock and poultry) is on the rise, as is the use of various automated and robotic systems such as robotic dairy farms.

Rapid on-farm diagnostic tools to identify diseases and pests are coming, and Canadian technology for real-time analysis of milk is already here. Canadian bio­security and disease management apps are also poised to become the new norm, and real-time feedback on conditions in livestock transport trailers is well on its way.

But keeping up with technology is far from being only important for production.

Indeed, Hannam and others believe that disruptive technology is, and will be, a business risk that will need to be managed carefully.

“It’s most pronounced now with dairy and greenhouse operators, but all farmers will need to be able to work with data, to be able to get up to speed with new systems, to handle the changes in technology to come,” he says. “Autonomous farming is coming, and much more genetic enhancement to crops and livestock is ahead, with the advent of CRISPR gene editing techniques and more. These changes with animals and crops will need to be managed differently.”

Data management will be a critical part of farming. “When I look at field crop production and also some areas of livestock right now,” says Hannam, “there has been, and still is, more guessing in our management. With large amounts of data on all kinds of performance parameters, production and business, those days are coming to an end.”

Mathieu Lipari agrees that farm business management is being redefined by technology — and he believes farmers right now need to do more to keep up. “According to the 2016 Census of Agriculture, only 66 per cent of producers use technology to manage their farm, 56 per cent reported using laptops and 43 per cent reported using smartphones,” notes the program manager at Farm Management Canada.

Lipari and his colleagues expect these numbers to climb dramatically, in tandem with greater availability and use of apps, specialized software programs, systems and other tech tools.

Volatile markets

Running neck and neck with technological change are, of course, changing markets.

“We are beginning to see market disruption really become a factor in agriculture, and a significant emerging business risk,” says Hannam. “More and more, it’s a global marketplace. Canada isn’t the lowest cost producer in the world. Our labour is not lowest cost. Some regions of the world that were not global competitors 10 or 20 years ago are now in the game. Ukraine in wheat, Brazil in a host of commodities, India and China are improving their production of many things.”

Did you know, for example, that massive multi-level pig barns are now being built in China, with more to come?

“As other regions of the world become more efficient, what I see for Canadian farmers is that we need to be doing something more specific in terms of value-adding or other aspects of livestock or crop management,” says Hannam. “I see more customer-specific requests to come, similar to identity-preserved soybeans, specific ways of wanting something produced or with higher protein, more of this or less of that. Smaller markets. More customers may want to view the farm virtually, or through inspectors and auditors, to inspect production practices. If we don’t meet the needs of these specific markets, we are left in the main commodity market and again, we will not be able to compete. To mitigate these risks, we will need to know more about the customers and what they want — and what they will want. You don’t want to erode the equity you’ve built up in your farm and family members have built up. You will have to be a keen watcher of markets.”

As an example, value-adding and investigating market needs is not generally something grain farmers are used to thinking about, notes Larry Martin. Grain farmers, he says, are in fact among the farthest away from end consumers of almost everyone in agriculture — but like everyone else, they must start to both think about consumer desires, and act.

Larry Martin. photo: Supplied

“There maybe aren’t a lot of things a grain farmer can do, but you should certainly be asking questions,” says Martin, co-owner of consulting firm Agri-Food Management Excellence. “I have one client, for example, who is thinking that he has all these test results for his crop, protein levels and all the information on his production practices, and nothing is being done with that information with his customers. He is going to go to his customers, elevators and crushers and ask: how can we both use this information to make our businesses more secure, more profitable? He’s having discussions with his customers as to whether their customers have specific needs in terms of quantity and quality. Maybe he can sort on-farm to give a customer grain with a specific desired characteristic.”

Martin says it just might be worth sorting on-farm and selling to specific market rather than selling to a middle man who sorts and sells to different markets instead. “You might find something much more profitable than what you were doing before,” he says. This is just an example, and the point is, you don’t know until you ask. You can never have too much information about markets.”

Lipari also believes market change is a growing risk. “Within the last two years alone, we have seen exponential volatility in agriculture,” he says. “What got us here is no guarantee for future success. Interest rate hikes, trade disputes, tax policy and shifting consumer demands are creating a world of increasing uncertainty for Canada’s farmers. However, according to a 2016 FCC survey, only one-third of farms have a risk management plan and even less have a business plan. These numbers are worrisome.”

Get trained or get help

If you are feeling a bit overwhelmed at this point, don’t despair. Experts like Hannam, Lipari and Martin all believe that as farm business risks increase in number and complexity, the availability of help will also increase.

Mathieu Lipari. photo: Supplied

“We advise farmers to do their best and hire the rest,” says Lipari. “This means assessing their own strengths and the strengths of their team, and investing in skills development and working with professional advisors to fill gaps in knowledge and expertise.” Producers needn’t be all things at all times, he says, but being a jack-of-all-trades and master of none simply will not cut it in the future management of farm business risks.

While Lipari and his colleagues note that farm business management habits haven’t changed a great deal over the last 10 years, they do hope to see a much greater change in the next five to 10 years ahead. “Fortunately, we are seeing rising levels of interest in business management from the generation of farmers that are now starting to take charge of farms, including more attention to business planning and risk management,” he says. “The business-savvy farmer is positioned to confront change with confidence and seize opportunity, carving out a steady path for sustainable growth and prosperity. Farm business management can no longer be taken for granted. Every farmer will need to be operating with a business plan to build the capacity of the farm and its people to confront change with confidence and seize opportunity.”

Indeed, Lipari says that looking ahead, he and his colleagues expect to see “quite a dramatic change in management” whereby farms will have a series of managers for business and production management, looking after finances, human resources, livestock, machinery, the fields and of course, the overall strategic direction and goals of the operation. “Farm managers (farmers) will not be going about it alone, as they tend to currently do,” he asserts. “Farm managers will find mechanisms to meet with and work with other managers to compare notes and use the latest and greatest business management tools — much like we see happening in production.”

Instead of comparing genetic varieties and equipment, he says, “farmers will compare processes for analysis, planning and team building. Believe it or not, farm business management will become the ‘in’ thing, as farmers recognize it’s their greatest strategic advantage for managing risk while growing their business.”

Other business risks

Martin identifies human resources as a big business risk management factor ahead for farmers, as it already is for many. He says that if you can’t properly delegate, and attract, develop and keep good people, that’s a risk to your operation. “A lot of people are starting to offer bonuses to farm employees based on performance and some are also doing profit sharing,” he notes. A generation ago, he says, “no one in ag was doing that.”

Debt is also a risk, but not just for the obvious reason of not perhaps being able to pay it, Martin says. Too much or bad debt adds stress, he says, which is a risk to a farmer’s health, and his or her ability to make good decisions and keep going over the long term. “Debt service issues may result from interest rates, volatility in prices going forward, weather,” he says. “New technologies are coming and they won’t be cheap. Margins are getting thinner and good management of debt and overall finances is very important. Part of that is having a good succession plan.”

Like Lipari, Martin says most farmers should probably get financial managers. Even those who are good at finances will need assistance in doing more complicated things and take things to the next level as time goes on. But staying abreast is also a must.

“We run an online course called ‘Managing Investment Costs of Machinery,’ and in it, we do a lot about capital budgeting and because we present the information in the right way, people can absorb it and put it to use,” he says. “But it’s hard sometimes to do things like marketing to maximize your returns. In 2018, June and July was a really good time to sell wheat, corn, soybeans and canola, for example, but then the market dropped. So you may need a marketing manager.”

No matter what the financial area of your farm, be proactive with getting outside advice, says Martin. “And starting asking questions. Don’t stop. Make a strategic plan. Adaptability can be learned, like any other skill, by practicing.”

Ability to pivot

In the end, Hannam advises farmers to become very cozy with a term they may not have heard before: change management.

But it’s obviously not just a matter of getting comfortable with the concept, but of actively living it.

“As I’ve said, this generation will need to be tapped into what’s coming as the pace of change picks up, and will need to be able to change quickly and embrace new ideas faster than any other preceding generation of farmers,” he says “They must do their best to get the farm ready, including the culture of their farm family, which needs to be flexible. The successful farmers will be focused on continuous learning and cultivating a mindset of being ready to adapt and change.”

As a first step, farmers must honestly ask themselves, in Hannam’s view, if their operation and their team is ready for the ramped-up pace of change that’s just about upon us.

“Are you ready to pivot?” he asks. “The prior generation of farmers made maybe one or two really big changes on the farm, putting up storage or changing crops or getting out of livestock. This generation is going to be making four or five or six major changes, maybe switching from selling domestically to mostly export, diversification, who knows what.”

“In the end, the pace of change is in itself one of the biggest risks to farmers unless they become adept at change management,” says Hannam. “Expect to be making many changes. Ready yourself to do that.”

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