What Happens Above the Dirt may be More Important Than What Happens Below?
Young Farmers and the Need for Finance Acumen
I often laugh when looking back over the last two decades of agriculture. Through my teenage years on the farm, the most used one liner I heard was “there is no money in farming”. Now to be fair, most farms could rent the land for the cost of its property taxes, and the idea of a 20,000-acre farm was unheard of – but, I was still told to find a better life outside of agriculture.
Fast forward twenty years and here I am, still in farming. A university degree in commerce, a professional accounting designation, and working back in the dirt with primary producer agriculture. So, when I get asked what’s changed to bring me back into this world my answer is simple – everything.
As young farmers enter the industry, most have realized that today’s modern operations are no longer pitchforks and overalls (getting rid of those stereotypes!). The business of farming has become just that – a full fledged business with significant decisions to make with a number of zeros behind each of those decisions. I find it critical for the next generations of producers to be educated in finance, accounting, and fundamental commerce and business concepts. You will grow one crop a year, but you will make dozens of financial decisions each day. It makes sense that leaders in agriculture will need to possess financial acumen.
What are the most important reasons for experience in the financial side of primary producer agriculture?
- Risk Management – Most farms would not spray a chemical without knowing the outcome. Yet, many farms make business decisions prior to weighing the risk and rewards. Financial knowledge and experience when making large decisions, or doing strategic planning, is crucial to future business success. Knowing the worst and best outcomes of a financial decision often leads to easier and more accurate decisions by a management team.
- Growth and Diversification – Having an analytical business mind when making decisions that have a material impact on the trajectory of the operation is critical. The old concept of “gut decisions” no longer applies when your land is trading at high multiples of its original worth, and you now have the highest production cost on farms ever. Each decision on expansion, retraction, or diversification, requires the numbers to be run, and multiple scenarios to be analyzed. Being able to comprehend this will put you ahead of your competitors and will not put the farm at risk.
- Mental Health – In an industry where high stress situations are the norm and mental health awareness is important, having the ability to understand situations and make strong financial decisions without emotion is critical. Much like divorce statistics, financial problems are one of the leading causes of stress on primary producers. Being able to make sound financial business decisions while mitigating risk annually to an acceptable level, will also lead to less anxiety and stress-related issues.
- Volatility – In our operation, we often say that government policy is the only real risk. Many would disagree, but our strategic plan is to reduce volatility in terms of all controllable risks. This means that we have a minimum baseline we are comfortable with for profit, and we make sure each year we can mitigate our risk to that amount – whether through insurance, cost management, or proper marketing. The goal is to remove the valleys and keep as many of the peaks as possible. We may not always end up with the highest revenue, but we will know what the worst-case scenario is and make sure that it’s not detrimental to the operation. Young farmers need to realize that removing volatility is possible with sound financial planning and strategy.
I could go on with the number of other areas within an agricultural business where financial experience and knowledge is critical to the operation. However, the main idea is that our young farmers need further education and knowledge outside of just growing grain. The farms of tomorrow are multi-million dollar enterprises with diversified operations that need to be managed as such.
As Dorothy once exclaimed, “we are not in Kansas anymore”.
Is it your time to level up? Do you know a young farmer who is ready to take that next step? Check out our Farmer Coach programming launching this fall >> https://farmercoach.ca/programs/