Could your business survive without farm program payments?
Farmers in Australia and, more recently, the United Kingdom have faced this reality as their governments moved to phase out agricultural subsidies. As proof that necessity is the mother of invention, producers in both nations have been forced to find new ways to manage their bottom lines.
Rather than give up or fail, they got down to the nitty-gritty of operational costs, learned to benchmark and analyze key performance indicators (KPIs) and focused on net margins. In the process, many have achieved levels of financial sophistication well ahead of their U.S. counterparts.
I’m not saying the U.S. will eliminate farm program payments, but relying on them has stifled creative thinking in farming.
A better approach is to learn from our global farming peers. No longer part of the European Union, the UK will phase out subsidies by 2027. Australia hasn’t offered sizable government farm support in decades.
SURVIVE THEN THRIVE
Dave Heinjus and Charles Whitaker are agricultural advisers who have helped farmers in those two countries thrive without subsidies. Heinjus is CEO of Australia-based Pinion Global, which guides farmers on strategy, policy and benchmarking. Whitaker is a managing partner with Brown & Co., which provides management and consultancy services to farmers and landowners throughout the UK and other countries.
Heinjus says Australian farmers have become more entrepreneurial and innovative without government support. Whitaker is galvanizing UK farmers to adapt to a future with little or no subsidy support. Here’s what they advise:
Heinjus: Every year, most of our clients undertake an annual benchmarking process to actually understand their KPIs. If you’re going to be in the commodity business, you have to recognize your only competitive advantage is your cost of production. Make it as low as possible. More reductions are possible than you think.
Whitaker: We see a 25% output differential between those who are on top of their KPIs and those who aren’t. Low cost is a competitive advantage. Also, pursue opportunities in locally sourced food and diversification, which have been great during the pandemic for farmers closer to consumers seeking local, quality and provenance. Renewable energy and the carbon market are exciting new income streams for landowners and farmers.
Tighter margins are forcing farmers everywhere to squeeze out more money from their operations. It’s time to change the mindset that your costs can’t be lowered.
Understanding your numbers, thinking like an entrepreneur and diversifying your income will be far greater drivers of success than relying on farm program payments.
