17 The Business of Prairie Agriculture Better Farming | January 2024 THE BUSINESS APPROACH “When profit is plentiful and easy, business planning and management skills don’t have to be strong,” says Kim Gerencser, president and CEO of Growing Farm Profits. “But it’s like anything else: Who wants to pay attention and put effort into a challenging and difficult task when things are good? There’s no need.” Average management can produce above-average results when profits are abundant thanks to good growing seasons and strong commodity prices. And for about the last 15 years, the farm sector has experienced periods when even the bottom 10 per cent of farm managers were abundantly profitable, he says. “There are plenty of large farms that have grown and are wealthy in spite of themselves because the markets and the weather have rewarded average management, have allowed them to grow and expand, and appear to be larger and more successful than they probably are. Those farms can be found everywhere,” Gerencser says. Lenders sending wrong signals Lending institutions also have contributed to many farmers’ indifference to change by not sending the signals that would encourage them to act. “I do think business planning and improved management skills would be elevated across the industry much quicker if the banks collectively got together and said, ‘We really want to see this from our ag clients,’” Gerencser says. But the chances of that happening are extremely slim if his experience in the banking sector is any indication. Gerencser found that lenders’ preferential treatment was given to farmers they deemed “low risk” instead of those who could share their long-term business goals and management strategies. “Low risk comes from profitability, cash flow, and meeting the bank’s leverage and debt servicing ratios,” he explains. “The lower your risk, the more preferential treatment you get.” Under these guidelines, even farms with average management were able to score low-to-medium-risk as a result of bullish commodity markets and favourable growing conditions, Gerencser says. Those that banks demanded more and better business management and planning from were higher risk operations, like borrowers who’d been delinquent in repaying their loans. “The need often forces the hand to improve the management skills. And the need is more often than not coming from the bank,” he says. In this way, banks are dealing with the symptoms rather than the disease. But when things are running smoothly, why rock the boat? Also playing a part in maintaining the status quo is the lending market’s ultra-competitiveness. As banks trip over each other to get at the best farm clients, they tend not to make loan agreements dependent on strict business management and planning criteria because they know a potential borrower can simply walk away and go to one of their competitors, according to Gerencser. Trigger events Watson says change is often precipitated by “trigger events” when the status quo isn’t sufficient to achieve desired performance. In farming, trigger events could include changes to weather, markets, inflation, interest rates, and cost of production – all of which farmers have experienced recently. “While some farmers try to wait it out – hoping to return to status quo Drought and extreme weather are trigger events that can impact the bottom lines of farm operations. Tracy Miller photo FARMERS LOVE MAGAZINES 92% of farmers use ag magazines monthly, compared to 44% for websites, 43% for radio and 10% for farm shows. (Verified Readex Research study)
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