Maybe It's Time Someone Busted My Chops

October 12, 2015 12:00 PM
 
Maybe It's Time Someone Busted My Chops

Following a Mergers and Acquisitions Conference in Kansas City his summer, Nate Birt, Managing Editor of Top Producer wrote an article on AgWeb titled "Three Ways Farm Management Will Change," which summarized my comments at the seminar.  There was one positive response, one I’m not sure about, and six that said I was an idiot who had no idea what I was talking about.

Tom Burnham of Blytheville, Arkansas said “He has been reading my articles for years and I would be better served teaching the introduction of agricultural economics at a community college.  His predictions rarely, if ever, come to fruition.”

This may be true.  I hope though that I don’t make predictions of prices levels or timing the market.  All we can do in managerial economics is look at trends and driving forces, and trying to help people develop strategies that position their businesses to deal with what might happen.  Bill Gates says we tend to overestimate the amount of change that will occur in two years and underestimate the change that will occur in ten.

Dave Smith of Warsaw, Virginia said “I have no idea who this Klinefelter is.  I‘ve never heard of him, but the fact that he is a professor at a university speaks volumes.  He is right that more farmers will go out of business, but that’s simply because they owe more money than they can repay and that is not obsolete.  This will not drive mergers and acquisitions when the BTO’s have gone out of business.  Yes, the individual farmers will lose some independence, but will in exchange gain profitability.  I am in the process of banding with other small operators to increase my leverage.”

 

I think the last part of his comments are a great idea.  I’ve been encouraging farmers to consider joint ventures, pooling arrangements, service bureaus, closed cooperatives and collaborative farming – like Chris Barron and the FUN Group; Rob Rettig and New Vision Farms.  Mergers and Acquisitions were presented as something most farmers haven’t thought about and would make sense only if the entity being merged joined with a farm with better management as well as using it to preserve equity if they were going broke or didn’t see their operation being viable in the long run as a stand-alone entity.  Unfortunately, too many will wait until it’s too late or their lender denies them credit or forecloses.  The part I differ with is saying that having more debt than they can repay has nothing to do with management obsolescence.  In many cases, there are honest, hard-working people who lack many of the business skills and quality/timeliness of information needed in today’s agriculture.  The most dangerous phrase in business is “Because we’ve always done it that way and for many farmers, that’s their obsolete operating model.  It’s not about changing ethics or values, it’s about adapting new business methods that have proven to improve decision making.

Dan of West Centerville, Indiana said “If you looked at the lists of hosts (sponsors) you knew the whole article was B.S.”

The sponsors were Texas A&M AgriLife Extension, K·Coe Isom, Monsanto and CHS.  I obviously don’t feel the same about these entities, but everyone is entitled to their opinion.

Doug of Cottonwood, Minnesota said “Watching the new farmers of today; they may be undercapitalized, but they have the want and drive to go into this business and make it work.  Or do we want it all to be BTO that run it all, not worrying about a small town main street, just thinking about their profit?”

I don’t think a lot of big time operators are all about profit; but, they know if they’re going to survive, it better be near the top of their list.  Some of the most community minded and supportive farmers I’ve met fit the definition of a BTO.  They realize that if they’re going to survive and grow, they need good and talented people, and they can’t attract them if they don’t have a good place to live with good schools, shopping, medical care and amenities.  Growth is a natural by-product of profitability.  Farming has been getting more concentrated as long as there’s been a census of agriculture.  Part is due to bigger equipment, more modern and automated technology, part because of better and more specialized business management teams, part because of the cost of regulatory compliance, and part because of consumer demand for more traceability and verification of practices.  Agriculture is a capital intensive industry and is becoming more so.  I, also, would like to see more beginning farmers, but I think they’re more likely to succeed by going to work for or back to existing operations than by being a start-up, unless it’s part-time and producing specialized and differentiated products for a niche market.

John Pihl of Harvard, Illinois says, “Yes, kinda like the collective farms of 1960’s Russia.”

I personally don’t think those are going to be the winners.  They are too bureaucratic, dictatorial and their employees are unmotivated to do whatever it takes.  It will likely be the most innovative, entrepreneurial, best business managed, and those that go with the qualified supplier or differentiated/value added business models.

Craig of Minburn, Iowa says, “B.S.  Those who ignore your mergers model will fare better by seeking better management on existing acres and seeking valued added opportunities.”

I agree with the need to get better before you get bigger and that value added opportunities are a way to go.  But, it’s going to mean getting better all the time and providing value in the mind of your customer.  People relying primarily on niche markets or differentiated products will need to keep differentiating.  Good ideas tend to get commoditized as competitors come in and try to copy and improve on what we’re doing.  Just look at organics.  People saw an opportunity for a price premium and between the 2007-2012 Census of Agriculture, it was the fastest growing segment of agriculture; but, most of the growth occurred on larger farms.”

Jeff Stocker of Dalton City, Illinois says “Any federal efforts to regulate sustainability, which is the cat escaping the agenda bag.  Mergers and acquisitions don’t do anything to insure good stewardship.  The inverse is more likely true.”

Federal efforts are often well intended, but politically motivated and then run by bureaucrats.  Unfortunately, increasing regulation seems to be a reality in every industry.  I agree that acquirers can sometimes be predators, but just being big isn’t bad.  Some of the bigger farms are incredibly efficient and good stewards.  I think sustainability definition may be instituted by government; but, the growth will occur from pressures by food processors and retailers who will limit their suppliers to or pay premiums to people who can validate what they do which will often require expensive technology and  detailed enough information to support compliance audits.  They’re just going to be responding to what their customers or potential customers are demanding.

William Crow of Darlington, Indiana says “This is Monsanto’s plan to control the farm and the farmer.”

I’m not sure that Monsanto is any more guilty than any other firm who want to sell more of their product, make money and have better alignment from their suppliers in terms of timing, location, quality and protection of their technology patents.

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