I Can Sleep Through a Storm – The Power of Preparation in Agriculture

Backstory:

I can sleep through a storm is a classic parable. It comes from a story about a farmer who hires a young farmhand whose only qualification was that simple line, “I can sleep through a storm.” The farmer was initially annoyed but hired him out of necessity anyway. Weeks later, a violent storm struck in the middle of the night. The farmer woke up in a panic and went to check on the farmhand, only to find him sleeping soundly. Fuming, the farmer went outside to secure the property himself. To his surprise, he found that the barn doors were already locked, the firewood was perfectly stacked, and all the animals were safe. It was at this point that the farmer understood: the farmhand could sleep through the storm because he had diligently done all his preparations while the weather was still calm. A true lesson in the power of preparation.

A small percentage of farmers behave like “true entrepreneurs”. They take calculated risks, they aggressively scale, innovate, and drive the bulk of commercial agriculture production. Most producers I talk to don’t want the stress and the risks that come with building, managing, and multiplying businesses. Can you blame them? Only this year did the local universities offer a diploma in entrepreneurship.

The problem is that there is a wide gap between the operators and the entrepreneurs in agriculture. While entrepreneurs will succeed or fail at a much faster pace, they also evolve, adapt, and strategize. Ordinary farm operations often stay complacent and will fight change, along with anyone pushing it. Only when put in a position of fear or pain do farmers truly look at becoming entrepreneurs in the truest form.

The Financial Scale

The goal of a farm is a return on investment. The investment in the land was not because grandpa homesteaded, but because the assets increased in value like the stock market. The hours working the land were because at the end of the year, a wage or a living was earned. Somewhere along the way, we started acting like agriculture owed a living to anyone in the bloodline. It doesn’t, and the farms that figure this out the fastest will remain sustainable.

I argued lately with a farmer over the merits of land ownership. I asked the question, “Would you have bought land ten years ago if you knew you had to resell it today to remain viable?” An honest question, but much more difficult for a farmer where selling land is a biblical sin. The truth is that in many areas, land has increased dramatically over the last decade, in some cases faster than the stock market. The return on investment of one quarter is more than most individuals in society will have over a lifetime. Yet many farmers would still say that if you have to sell land, you have failed.

The other interesting dynamic, most farms are not profitable or sustainable. In agriculture today, land equity has shielded a lot of poor margins and weak profits. If you look at the true return on investment on a farm, outside of real estate, you will see small to negative returns. This is why industry and large investors are not interested in farming; they are interested in the land we farm on. When you start seeing private equity buy into an operating farm, you then know that returns from farm profitability are back. I won’t hold my breath.

The Operational Scale

My barber, and yes, I still need a barber, is a true entrepreneur. He owns multiple locations and still cuts hair, but not out of necessity. While getting a cut the other day, we were talking about business, and he asked me could you leave the business for a week? A month? A year? Would it remain as profitable as it is, and would it grow? My answer was “no”, and his reply was “then you don’t have a business, you have a job.”

If you died today, would the farm operate tomorrow?

I can count the number of farms that are self-managed on one finger – not one hand, one finger. This is why farms currently only sell for the value of their asset base. Until we see a farm sell on a multiple, or with goodwill attached, we are not sustainable or entrepreneurial. The fact that zero value is put on the people, processes, or intellectual property of a farm says how far behind the industry continues to remain. Very few farms have created a business with value beyond the asset base.

Going back to the original story, almost all farms cannot sleep through a storm. They fear the weather, the markets, the government, and the industry in ways that most individuals could not imagine. Sleeping through a storm is one thing; sleeping through your own mind is quite another. In the end, you can disagree. You can tell me farming cannot be built around processes and people. You can even tell me that most risks are uncontrollable. Just make sure you put on your raincoat before leaving the house.