Saturday, April 5, 2014

Agriculture - An Industry Perspective

Agriculture offers a complex management challenge, it is the harnessing and enhancement of natural systems; natural systems and all their complexity. Business and the bucolic ideals of rural life find both harmony and conflict in the modern agricultural complex, where agro enterprise is gradually usurping the family farm. One laments the de-ruralisation of Canadian society, as with it goes more than just the bucolic ideals of farm life, with it goes the agrarian culture that made Canada a place of compassion, independence and community.


Agriculture now, more than ever, has as its stock and trade commodities. Commodities have a market characteristic of having a trading price that hovers at or near the average cost of production, in this environment success and failure occurs at the margins. Efficiency is found in an agro enterprise that is at the optimum scale, to ensure full asset utilization, to ensure sufficient mass to access the technologies that come into play in the modern agro space and to have sufficient product volume to access the full array of financial management tools, so one can step away from being the speculator and focus on production.

There is opportunity now to occupy more and more of the supply chain given the panoply of technologies available, the business of agriculture no longer has to stop at the farm gate. As is exemplified by most of the livestock industry, as margins become compressed as the industry matured participation extend along the supply chain.  To be effective in extending participation along the full supply chain, from the field to the consumer, sufficient scale to have a presence in the market for the end product is required. For those who venture in to this space successfully they are supported by every trend in the modern food consumption matrix. People today want to know where their food is coming from and whats in it - the key here is to have the consumer pay a little extra as opposed to a lot and as the producer enjoy the profit garnered from every stage in the supply chain.   

It is critical to examine the land base as more than a farm or ranch, it is critical explore it opportunity across industries. Companion enterprise opportunities abound, and they add more than just revenue, they add human resource actuation that is synergistic and beyond what agriculture alone can offer. By way of example - a cabin on one acre of land can net $3000 dollars annually, that exceeds cropping opportunities by a considerable margin. The Poundmaker ethanol plant has been very successful in exploiting the synergies that arise from the proximal location of an ethanol plant to a large feedlot. Ethanol plants as stand alone entities are very marginal, feedlots as a stand alone entity are marginal - as companion enterprises they can become profitable.

See link below for land purchase assessment and market opportunities 
The dominate trend in agriculture is the burgeoning emerging economies and the capacity for them to generate a expanded middle class - people are going to eat more and better foods. The question then becomes, how can a specific operation access the benefits inherent in that trend. The challenge here is sufficient product mass to address export opportunity, much of the government's thrust in the integration of the supply chain has been for the domestic market - policy has been developed with the market garden mentality. The key here is to generate enough product mass to generate interest in any given market channel - the key here is scale scale scale. One needs to contemplate the product spectrum, assess a given landbase's capacity to produce a given product, determine the product mass required to effectively access a market and build the business model to suite. For this to occur one needs to free thinking from an existing landbase's dimensions and operating conventions.
  

In general today, the scientific expertise - agronomists, veterinarians, animal scientists etc.- are detached from the production process, it is rare for an operation to be of sufficient size to hold this talent in house. Much of the operational intelligence at play in agriculture comes from government extension programs. The the challenge that arises is acre by acre site specific data that informs the management process. How many operations have accurate enough yield versus input data to calculate accurately the marginal benefit of excelled use of one input or another. The calculations are simple enough, the challenge is getting the source data specific to a given operation. There is detailed work to be done to determine yield volumes vis a vis a given variable - variety, fertilizer application, water application etc.- yet farm specific data is lacking. By way of example, fertilizer recommendations are often regional, when there are variances in requirement at the field level. When operating in an environment affected by the realities of  commodities for an extended period of time - generations in some cases - investment in truly understanding your immediate circumstances can pay massive dividends, as small returns are compounded over a long operating horizon.

Applied technology today offers much opportunity, there is a massive amount of latent marginal benefit to be garnered by the application of technology - in today's environment its hard to know what is there functioning and its potential, and its even more difficult to be innovative in applying emerging and desperate technologies to optimize a given operation. You know as you read this that opportunities are passing you by, you are just unable to process the mass of information to find them - it is the corundum of the known unknowns. 

The future of agriculture is bright, people have to eat, there are going to be more and wealthier people - the key is to look at the horizon, pick the trends that suite your circumstance and build the business model to suite - of course I would love to help. 
    

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