99% of Warren Buffett’s net worth was earned after his 50th birthday.
I have a new cause for concern in the agriculture primary producer industry, comfort.
Over the last few months, I have had numerous client meetings showing trends that are positive for many families and individuals but are a cause for concern for the agriculture industry as a whole. A significant portion of primary producers today have accumulated enough wealth to become complacent.
Growing up I always knew times were tough.
Farming in the 1990s was not near as profitable as the last decade and land values had not begun to compound at that point. Of course, I was too young to realize many of the dire years my parents faced, but looking back it is now easy to see some of the cracks in the armour. I never did without, but my parents also never had much. Don’t take this as a slight against Manitoba, but their honeymoon was a trip to Winnipeg.
Today, times have changed. I always joke in my courses that the largest expense on most farm’s net worths is the “Malibu boat” sitting in the garage. It would be funnier if many of my clients didn’t own one.
With farming, and real estate values as they are today, many producers are now set for life including future generations. Agriculture is now sexy and that is attracting a new type of farmer back onto the land.
So, what’s the downfall of accumulated wealth? Too many farms today are comfortable on cruise control. Nobody is thinking “big” anymore.
My business partner has always had the expression “addicted to the game”. I never truly knew what this meant until I started consulting with some of the most progressive farms in the industry.
Addicted to the game identifies that it is not the wealth or acres or growth that keeps primary producers looking forward, it is the nature of the business. It is the constant “addiction” to changes in the industry and the ability to adapt and progress whether times are good or times are tough. This to me is the new “wage gap” in agriculture as those that are addicted to the game continue to grow while those that are not become complacent and comfortable.
I find where I’ve started to notice this the most is succession and transition planning. The older generation that has seen high interest rates and tough times have trouble seeing the reason behind continuing to take on risk.
Although I agree with risk minimization, I don’t agree with slowing an operation’s trajectory as a strategy to mitigate risk completely. In fact, many operations I work with have reduced risks in many areas through growth. Areas such as human resources, strategy, machinery efficiency and optimization, gross margin optimization, and many other factors that have been positively affected by growth in technology, business, profitability, and acres.
The old theory that “growth leads to more work” is no longer relevant; growth leads to more ability to hire strong people that are better than you at certain roles.
The second area I see this trend is in land accumulation. With today’s land values, it seems that most operations have pulled in the reins. Although I agree that making money farming $5K per acre land is not viable, as a real estate asset land appreciated over 15% last year per FCC’s last news release in Saskatchewan.
With high equity, high cash, and high profit farms, the ability to continue to invest in land is a strong return even if the operating company does not profit. Buffet did not make his billions off operating income; he made it off “passive” investment income (Coca-Cola and Apple to name a few). Sometimes in agriculture we get bogged down so much in being “farmers”, that we forget we are also real estate moguls and investors. Many of my large-scale clients today invest in venture capital, value-added processing, and other non-primary producer operations to diversify.
So, in conclusion, going back to Buffet. Where would he be if he said he was “comfortable” at the age of 40 and a net worth of $25M?
He would be roughly $109B less.