The Wrong Advice – Why We, as Farmers, Need to Question the Experts

The Dunning-Kruger Effect – A type of cognitive bias, where people with little expertise or ability assume they have superior expertise or ability. This overestimation occurs as a result of the fact that they don’t have enough knowledge to know they don’t have enough knowledge.

 

For me, the game is rigged. As both a consultant and a primary producer I get to hear all types of professional advice. I get to weigh it from both the primary producer mindset, as well as from a professional with over twenty years of industry experience mindset. Even better, I get to see the advice provided to hundreds of thousands of acres across Western Canada and the US. I will be as upfront as I can be at this point, there is a lot of bad advice out there.

 

I am not naive to believe that I am perfect. If I were all my producer clients would have long-term fixed interest rates at sub 3% and all of them would have liquidated their canola off the combine last fall. But as we say, hindsight is 20/20, and the difference between “the right advice at the time” and “the wrong advice period” is vast.

 

As primary producers today we are faced with many obstacles daily. This is the one occupation where the owners try to be the CEO, the CFO, the COO, the operator, and the janitor all within 24 hours. This is why there is a reliance on professionals and industry experts to assist in decisions in all these areas. The risk is that we choose the wrong experts, or we take the wrong advice. So, I thought I would touch on a few areas today where social media, or even professionals in the industry, continue to toe the line of the Dunning-Kruger effect.

 

Equipment 

 

Stop listening to social media for your advice on the distribution of capital. As a fractional CFO for numerous operations across Western Canada, I see more equipment deals than most. Last summer it was probably our top service line and has provided some strong benchmarks of what dealerships believe is the true cost of an X9. However, when I see farms comment on how the neighbours are “idiots” for making equipment trades or increasing their capital line at today’s prices, I must laugh. Many of the producers I work with run new equipment, and many have a lower cost of production than their neighbours.

 

Equipment allocation is about more than used or new. The number one cost mitigation tool on farms today is optimization or utilization. Case and point our operation. Last year we ran four 80’ drills across 32,000 acres and finished seeding within 18 days including rain delays (we have an internal goal of 21 days to avoid yield drop during harvest). So, when we had the opportunity to expand this spring to 40,000 acres it was an easy decision. No additional capital expenditure other than possibly renting a combine from a landlord for a couple of weeks and averaging all our current fleet over 8,000 more acres. This dropped our cost of production by close to $40 per acre. From the outside we are stupid for running new equipment, from the inside we have one of the lowest machinery cost structures in the province.

 

Land

 

Secondly, the land plight that we are currently faced with is fascinating. Yes, the armchair quarterbacks are correct and at today’s current levels, the farm operations most likely do not make large profits on these new acres. But, from a real estate perspective the appreciation on land is well above the current interest rate levels. Will this last, who knows, but for those that have fixed rates at sub-5% I am still buying overpriced land as an investment.

 

My best story is about farms that were talked out of some irrigation projects this spring. The cost of the pivots and infrastructure was not going to create enough yield increase to cover the future expenses. Many were talked out of the investment by their professional advisors because it was a “losing deal”. The issue is that nobody ran the other side of farming, the real estate investment. The cost of the pivots may have been around $1,500 per acre, but the value of the land once irrigated jumped by over $3,000. As farmers we say we never will sell land, as business owners who care about returns this decision was much easier than most made it out to be. Plus, government subsidies on a large portion of the costs were not taken at a time when they wanted to be provided. Again, my opinion, but this was the wrong advice.

 

Transition

 

Back to my unpopular opinion, transition has nothing to do with emotions. In every other industry, businesses are valued as such, and transitions are done through share transactions and goodwill. In agriculture, we have made it about the emotions. A lot of the blame for this gets put on producers, but to be fair the professionals continue to push the narrative that family and lifestyle come before business. This applied when farms were not making money, now they are multi-million-dollar factories that need to be treated as such. True transition is done in the boardroom, not the kitchen table.

 

When I came to Maverick with my business partner, it had nothing to do with our twenty-year friendship. It was based on three simple requirements, time, brains, and money. These are the fundamentals for going into business with any individual, family or not. You walk away from the deal if they cannot provide one of these three elements. A cold sobering truth for many family farms, during transition and succession plans a lot of these three principles are overlooked by professionals. Sometimes none of them are even discussed.

 

So, how do you know who to believe and who not to? I wish I could give you a black-and-white answer, but too many times I play in the grey. Lately, I have had multiple clients come to me to discuss other experts they employ. I must remain independent, but my answers are always the same. Do they bring ideas and strategies to you, or do you have to ask for them? Do they make you feel like you work for them, or do you truly feel like they work for you? As the business owner, if you are coming to me discouraged, have you already answered your question? And lastly when you write the cheque to them are you happy to do it? If my clients take me out for dinner, I believe I am winning, if I take them out then I have lost the value along the way.