Realized net farm income (the difference between a farmer’s cash receipts and operating expenses minus depreciation, plus income in kind) for Canadian farmers fell 11.2% in 2009.
Nationally, farmers paid about 81 cents in operating expenses for every $1 in receipts they earned. This ratio is unchanged from 2008. During the past decade, this expenses-to-receipts ratio has fluctuated between about 78 cents in 2001 and 85 cents in 2003. (The ratio is calculated by dividing operating expenses by total farm cash receipts). When depreciation charges are taken into account, the 2009 ratio rises to 93 cents for every $1 of receipts. You can read more about these results in the Agriculture Economic Statistics series – November 2010, Volume 9, Number 2 at http://www.statcan.gc.ca/pub/21-010-x/21-010-x2010002-eng.htm
This is so distressing, and not new. But I just finished a set of account books for 3 years of a business (not mine!), and that business only had to spend 36 to 50 cents for every $1 of receipts.
I wonder who these statistics are really talking about. The graph below shows that about 35% of farms are making between $100,000 and $500,000 in revenues. Of course, they could be spending the same amount too!
Farmers need to seriously look at where they are spending their money. Managing expenses is the difference between successful farms and not so successful farms. Perhaps every farmer needs to be partnered with a financial advisor or business coach who, in a sense, ‘authorizes’ all expenses. I am always surprised how few people realize how much money they need just to survive. A wage of $15/hr won’t pay the bills. So you ever-so-important growers of food, please consider redesigning your business, because you should be making at least $18/hr. Yep! That’s net!
Farm Credit Canada (FCC) put out a great Knowledge Insider (www.fcc.ca/insider) about redesigning your business. They illustrate that to redesign, we need to look at building a new vision which likely will include diversifying, by looking at external drivers like consumer trends, and internal drivers such as ourselves and our labour needs within the business. We also need to take an honest look at our management skills and our relationships.
Here are some questions to think about:
1) If an article was written about my farm 10 years ago, and one was to be written today, how different would my story be?
2) What strengths do I have that I could put to better use? Am I spending too much time in my business, rather than on my business?
3) How can I change my vision to address change and increasing risk, such as rising input costs and challenging government regulations?
4) What can I do in the next 10 years that would be totally different to how I have been doing things? Is there somewhere I can learn about my idea?
5) Can I learn a new skill, or perhaps improve my management skills?
6) Going it alone does not work very well any more. It’s just too expensive! Who can I partner with? Can I share some equipment like a manure spreader? Can I get my customers more involved? Can I form a buying group to get better prices on inputs? Can I go into business with a compatible farm or production business where we can share marketing, processing, hauling and shipping, or customers.
To quote this FCC Knowledge Insider Redesigning your Business for the Future, “Agribusiness leaders stay ahead of the game by understanding competition, consumer trends, advances in technology and evolving government regulations. They constantly enhance their management skills and, when necessary, redesign their businesses.” The only constant is change!