Klinefelter: By the Numbers

By Danny Klinefelter
DTN Farm Business Adviser

There continues to be a disconnect between how most innovative, full-time U.S. farmers view their business practices and how small-scale or local food advocates view theirs. Some of you have heard me say this before, but I've seen very little to make me think things are improving. Here's a list of what annoys me most as an agricultural economist who views farming primarily as a business.

1. Demonizing corporate farms vs. family farms. The general press and many farmers equate corporate farming to publicly-owned investor firms. In fact, more than 98% of corporate farms are closely held family businesses set up to limit liability and to share ownership of the whole business among siblings or multi-generation relatives rather than spinning off assets.

2. Preaching that factory/industrialized farming is bad. All farms are fundamentally biological manufacturing plants. Technological improvements and the development of more efficient processes/systems can be slowed by fear of change, but the result is typically a loss of competitiveness and productivity.

3. Encouraging victimism. This is the feeling that whenever anything goes wrong for them, it's someone else's fault. They are jealous of others' success when the problem is often their own unwillingness to change or adapt best management practices and a continuous learning mentality. People are different and have different abilities/skills. Some are gifted mechanically, while others, like me, aren't. Some are risk-averse, some are risk takers, some are better at managing people, some are better leaders, some are more innovative and visionary and some work harder or are more driven than others, etc. Being different isn't bad, but it does produce different results.

4. Lumping all larger and fast-growing farms into the alpha farmer or predator category. Ethics and values are one thing, abilities and priorities are another. These descriptions can be accurate and they'll eventually fall, but many of those who are the topic of coffee shop rumor mills are just better managers who are able to grow and obtain more resources because they are more profitable, better risk managers, better at getting things done through managing people and can afford to pay more.

5. Small, organic and local farmers demonizing larger conventional farmers. There is nothing wrong with the choice to farm the way they do, but we're going to need more food to feed a growing population and we can't do that by being all organic. There is a place for both and the public needs to embrace both. Ads like for Chipotle Mexican Grill are counterproductive to the industry and are totally self-serving.

6. Failure to recognize or acknowledge that everyone exists in four states of knowledge:

-- We know what we know;

-- We know what we don't know;

-- We don't know what we don't know;

-- We think we know something and it just isn't so.

The last two are the most problematic. No one knows it all. The best and brightest are the most open to listening to alternative points of view with an open mind and actually seek out challenges to their way of thinking in order to understand and look for ways to allow them to get better.

7. Discounting continuous learners vs. tradition-bound farmers. It's not about sticking to your values, but being open to and seeking out better ways of doing things. There is the old saying, "If it's not broke, don't fix it." I prefer Tom Peters quote in "Thriving on Chaos." He believes, "If it's not broke, you haven't looked hard enough."

There is always a way to do better. It is an economic reality that the rate of continuous management improvement needed to succeed and survive is set by the leading edge of your competition and not by your comfort zone.

8. Defining a good farmer primarily on the basis of being a good producer. It is one of the factors, but so are being a good marketer, a good financial manager, a good manager/developer of people and a good risk manager.

9. People who believe cash basis income and market value net worth are true indicators of business/management performance. Accrual income and earned net worth are even more important and accurate measures. Cash basis income has an advantage in managing taxes, but it can be very deceiving in terms of spotting developing problems in time to address them properly. Also, in terms of market values, remember the advice Indiana farmer and former USDA official Jim Moseley got from a successful older farmer in the late 1970s: "What inflation giveth, deflation can taketh away." Enjoy it and capitalize on it, but don't always count on it to bail you out.

10. Business owners who keep everything to themselves. Secrecy is a dysfunctional way to develop successors and to engage the whole team in helping to make the business better. Sixty percent of all management problems are the result of communication problems.

11. Letting fear of failure stunt development. You can't grow and be successful in today's agriculture without taking risks or making mistakes and learning from them. Farmers need to learn, understand and use more sophisticated risk management tools and risk mitigation practices. This is one area where a farmer isn't going to be able to get by being a laggard. There is too much volatility and it's increasing.

12. Basing decisions too locally and on just what they see in agriculture. We all need to think more globally and look for more ideas than can be adopted from outside agriculture.

13. Promoting government regulations to support small and beginning farmers without recognizing the economic realities of what it takes to succeed. These programs can be a good thing if they recognize they'll only work if the recipient is making progress towards learning the skills necessary to reach the point where they can function independently without being subsidized.

14. The ongoing waste of time and resources by reinventing the wheel when a solution already exists. This isn't, by any means, limited to agriculture. It is also true of Extension, where most states often redo what has already been developed in another state. It is one of the reasons I am a big proponent of peer advisory groups. One of my favorite quotes is by Douglas Adams in "The Breakthrough Company": "Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so."

This list could go on, but I hope you'll take a good look at yourself and your business to see if any of the points hit home. There will be ups and downs in farming, but the potential is increasing for the better managers to separate themselves from the herd. Just don't let your biases, old habits and traditional ways of doing things create fatal blind spots.

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Editor's Note: Danny Klinefelter is a professor and extension economist with Texas AgriLIFE Extension and Texas A&M University. He is the former director of The Executive Program for Agricultural Producers (TEPAP), a management short-course for farm producers held each January, and its alumni association, AAPEX. For information on the course and DTN's TEPAP scholarship program, go to http://tepap.tamu.edu/…

(MZT/ES/CZ)

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