The basic function of a competitive market is to drive the average producer to economic breakeven through supply and demand responses. At that point, the below average are losing money and being forced out, the average are hanging on and the top are still making money. Anyone who is in the business of farming for the long haul or with the intent to pass it on to the next generation has to be constantly striving to stay in the front of the pack.
For more than 25 years, I have been an advocate for promoting peer advisory groups as the best tool for farmers to improve their management abilities. Although there’s great value in educational programs and seminars, peer advisory groups represent the missing link in terms of follow up, follow through and continuous management improvement.
The difference between the top quarter and the bottom quarter of producers is not just one factor. During a study of farmers I conducted from 1982 to 1987, a particularly trying time in agriculture, I discovered the top 25% were about 5% better than the overall average in terms of production per unit, cost per unit and net price received per unit. The bottom 25% were about 5% below average on the same metrics. In addition, both groups tended to do it over and over again, and the combined compounded cumulative effect was incredible.
It isn’t exactly comparable, but it’s indicative of the differences to look at FINBIN data from the University of Minnesota’s farm business management records. In 2012, net farm income for the top 20% averaged $844,000, and the bottom 20% averaged $14,000. Dave Kohl, Virginia Tech economics professor emeritus, notes the difference has increased every year since 2003.
In the roughly 25 years I’ve worked with farmers through The Executive Program for Agricultural Producers (TEPAP), I’ve learned:
1. The very best managers reject the status quo. They recognize that however well they’re doing, there soon will be a way to do it better.
2. A big difference between the top 10% and the rest of the top 25% is timing. The difference is even greater if you compare the top 25% to the bottom 25%. The timing factor relates to when they start farming, expand, contract or get out and redeploy resources elsewhere. It’s obvious when it comes to marketing or buying land, but timing is critical to every area of the business. Some success can be attributed to luck, but most of it is the result of better information and management.
3. The best mangers are intentional networkers. Much of what they learn is from the experience of others and from looking outside of agriculture.
No one model of peer group will fit everyone. Those who don’t associate with the best and the brightest, or focus inward too much, are going to be left behind. If you’re not changing at the rate of the leading edge of your competition, you’re falling behind the pack even if you’re moving ahead.
Unfortunately, it tends to take on political overtones, but, unless the successful are penalized and the unsuccessful subsidized, it is an economic reality that success requires continuous management improvement at a rate set by the competition and not by your own comfort zone. Don’t fall into the trap of keeping up in terms of size—I’m referring to continuously improving and employing the best management practices.
The last thing I want is the U.S. to lose one of its major competitive advantages: superior management. I believe peer advisory groups, composed of the best of the best, afford that opportunity. Recognize it’s often the things you don’t like to hear that you need to hear most.
This peer-to-peer network consists of small groups of like-minded producers who meet twice a year for sessions with a professional facilitator. A signature event and members-only website advance learning and networking. For more, visit http://www.agweb.com/tpen