Managing an Agricultural Business: The Ins and Outs

managing an agricultural business

With critical shortages in agricultural products due to the war in Ukraine (the breadbasket of Europe), increased costs for everything from seeds to gas, and family farms under increased financial pressure, managing an agricultural business is more important than ever since farm management is a critical aspect of any agricultural business. Managing costs, efficiently allocating resources, and increasing yields are all concerns for today’s farm businesses. If you are not in control of your farm, it can quickly spiral out of control as costs bury your business in debt. This blog post discusses four farm management strategies that can help you take back control over your business!

managing an agricultural business
Photo by Pixabay: Pixabay

The state of agriculture today

For centuries, agriculture was a common means of generating income. Even today, many US states rely on agriculture as the driver of their economies, and some, like Florida, might surprise you given the role of tourism in generating revenue in the state. But, over time, the business of agriculture changed to the point where you needed more than a herd of livestock or acres of fertile land. You needed to understand how managing an agricultural business means doing things differently than your parents or grandparents did.

In generations past, the nature of agriculture was vastly different from today. Below, we discuss some of these changes that increasingly pressure farmers to manage an agricultural business more effectively with modern tactics.

Higher costs

In earlier times, agricultural businesses relied on large families who lived and worked together from birth to the grave to supply much of the labor required to run an agricultural business. Today, families are smaller and fewer young people want to commit to the farm lifestyle. That means hiring workers and investing in equipment that allows a lone farmer or a few of them to run the business.

This equipment runs on diesel rather than horsepower or human locomotion. And, the cost of diesel skyrocketed over the last year.

At the same time, the cost of everything increased faster than inflation. While a farmer would retain seed from last year’s harvest for this year’s planting, today’s farmers more frequently use hybridized seeds to increase yields and product quality. Unfortunately, the big biological firms producing these seeds sell them for much higher prices and a farmer only gets to use seeds bought from the firm, not those from the crops he/she grows. Growing livestock isn’t any easier with the increased costs of medicines and feed.

New entrants

Women were always the backbone of farm life where more than 50% of all agricultural businesses are run by women. In today’s world, more women are entering this industry than at any time in the past. Of course, agriculture needs fresh blood to replace the over 180,000 people who leave rural communities for the city every year, reducing the workforce available for agriculture.

Gentleman farmers, especially women and people of color, increasingly make up a part of the agricultural landscape. These new entrants make up for their lack of experience with an approach to managing an agricultural business based on management concepts versus received knowledge from earlier generations. More about this later.

Of course, the biggest new entrants into the agricultural arena are big conglomerates such as Cargill and ConAgra. Not only do these businesses pressure small farmers with their huge economies of scale but they are diversified across the supply chain to make profits from seeds, chemicals, and other agricultural needs as well as profit from their farming operations.

Climate change

Despite increasingly dire warnings, global warming faces an inflection point where it may prove difficult to step back from the precipice. The warming of planet Earth impacts us all but agricultural businesses face the most pressure from hotter, drier summers, fierce storms and flooding, and soil erosion. Farmers are also under pressure from their communities as their practices contribute to climate change. For instance, the biggest single source of methane is cow flatulence. Plus, farmers in areas where water is scarce are accused of taking more than their fair share of water (agriculture consumes 70% of freshwater worldwide), especially for water-hungry plants such as almonds. The pesticides and fertilizers they use also pollute waterways and, in some cases, cause dangerous water quality issues.

Changing requirements

In the future, agriculture will face increased demand as the population grows and the amount of land suitable for farming declines. Consumer tastes also demand new products to replace less favored products, such as seedless watermelon. Plus, they want fresh produce year-round.

Managing an agricultural business

Managing an agricultural business in 2022 demands you first recognize that agriculture is a business endeavor and run your operation based on rational management concepts not emotion. Below, you’ll find some tools to help you run your business more effectively.

1) Understand your costs of production

This is the first and most important step in taking back control of your farm. If you do not know how much it costs to produce your crops or livestock, making a profit is more luck than planning. Keep detailed records of all of your expenses and inputs so that you can accurately calculate your cost of production. Allocate shared costs across all areas that benefit from those costs to understand the true cost of inputs.

If you are unsure about how to calculate your cost of production, there are many resources available online or through your local extension office. Once you have a good understanding of your costs, you can start making changes to reduce them.

One way to reduce your costs is by increasing efficiency on the farm. Do some research on the latest farming practices and technology so that you can find ways to do things more efficiently. This helps you save money on inputs and labor while still maintaining high-quality production.

2) Diversify your income sources

Another way to manage an agricultural business is by diversifying your income sources. This means you shouldn’t rely on just one or two crops or livestock for your income. If the prices for those commodities drop, you could be in serious financial trouble. Instead, diversify your farm so that you have multiple income streams. This could include growing a variety of crops, raising different types of livestock, or even starting a value-added business such as making and selling cheese from your dairy cows. By having multiple income sources, you are much more resilient to market fluctuations.

Increasingly, farmers incorporate tourism as part of their business model. Vineyards led the way in this aspect of agriculture by making wine on the property and inviting tourists with local music, food trucks, and other elements that make the property inviting to visitors. Companies that could never survive on wine sales alone, now do quite well by selling wine on the property (without the costs of transportation and intermediaries). Selling branded merchandise and overpriced food also supplement wine sales. There’s no reason other agricultural businesses can’t do the same.

Diversification can also help you reduce risk on the farm. For example, if one crop fails due to weather or disease, you still have other crops or livestock that provide income. This helps keep your farm afloat during tough times.

3) Regular maintenance is key

Another important step in taking back control of your farm is to keep up with regular maintenance. This includes things like mowing the lawn, fixing your fences and farm shed, and servicing and repairing equipment. By keeping up with regular maintenance, you avoid larger problems down the road that could cost you a lot of money.

It is also important to have a good relationship with your local veterinarian, extension agent, and other agricultural professionals. These people can help you identify and solve problems on the farm before they become too big.

Building good relationships with these professionals will also help you stay up-to-date on the latest information about new farming practices and technology. They can also offer advice on how to run your farm more efficiently.

4) Consider profit margins in making decisions

Although it’s not a new concept, as so-called factory farms became commonplace, your ability to make a profit on low-margin products such as corn and wheat makes these crops unappealing unless you have a very large operation that can survive on razor-thin margins. Booker T. Washington espoused this advice over a century ago when these farms didn’t really exist. He also espoused sustainable farming practices, but that’s a story for another time. He recommended farmers focus on high-margin crops such as blueberries and was even an early proponent of agricultural tourism by recommending using a “you pick it” strategy that used consumers to reduce costs.

Conclusion

In conclusion, these are just a few farm management strategies that you can use to take back control over your agricultural business. If you implement these strategies, you will be well on your way to success!

Need marketing help to support business growth?

We welcome the opportunity to show you how we can make your marketing SIZZLE with our data-driven, results-oriented marketing strategies.  Sign up for our FREE newsletter, get our FREE guide to creating an awesome website, or contact us for more information on hiring us.

Hausman and Associates, the publisher of MKT Maven, is a full-service marketing agency operating at the intersection of marketing and digital media. Check out our full range of services.