There are countless articles romanticizing farming and farmers. Media and industry magazines love to talk about the art of farming as if each plant gets nourished and touched by hand or that each field is only known to the alchemist-planter who has farmed it for 35 years.
I would contest that farming is a lot more like a factory than anything else.
However, that argument justifies another full discussion.
What is different about farming from every other industry is time and space.
Time
For farms and farm related businesses there is one cycle a year to make money. Generally, a piece of land will grow one crop in a year. This means a farm will have revenues from its operations once a year. There is one opportunity to improve operational metrics and one opportunity for business growth.
Many businesses can make changes on the fly. If a restaurant’s menu item is not selling well for a month or two it can be replaced. Despite the cyclical nature of the business, a landscaping company can pick up new clients and grow their business in throughout the year. In other words most businesses have a quicker and more accurate feedback loop which allows them to make changes to their business to improve what works and cut what does not.
There are two different ways for a farm or business selling to a farm to combat this problem.
- Prepare. The greatest coaches in any sport have limited control over a game once it has begun. If you read about John Wooden or Nick Saban, they focus relentlessly on process and spend vast amounts of time preparing for a very limited period where their teams can win or lose. The best farms and businesses around agriculture are the same way. They are ahead of the game; they anticipate what could happen and prepare accordingly.
- Diversify. With only one chance a year to make money the best farms are those that are not wholly dependent on income from a cyclical, commodity business. Historically farms make a little money or lose a little money four out of five years. The fifth year they make a lot of money. Much of the time farm related businesses are the same. Those businesses that best reinvest their windfall are often the winners. A processing facility, a service business, or a business that is unrelated to agriculture can often supplement the income from a farm and create further opportunities to grow the farm or invest in yet other businesses.
Space
There are few businesses that continually operate over vast amounts of space. A large farm could span 40 contiguous miles. Some have different operations in multiple states. However, even for a farmer with several hundred acres many of his vendors may be the next county over.
While a line on a factory may go down, the parts to repair the machines are often on site. At other times, the pieces going into the assembly are in warehouses just on the other side of the floor. In farming the pieces going into the assembly are often 20 miles away. If a part is needed 40 minutes or more is lost in travel to retrieve whatever piece is needed. Or if a decision maker needs to see a field or a mechanic get to a broken machine the time in transit can cost thousands. There are brief windows which are optimal planting periods for various crops and often rain will keep one from using half of the days in those periods. Missing those windows can cost a farmer with dramatic yield reductions. Further a machine, operator and implement which is not running is a cost to the operation without creating any value in the form of eventual revenue.
Space is a more difficult problem to solve. Its effects can only be mitigated.
- Prepare. Just as preparation eliminates many of the time problems it helps reduce the amount that space can effect any operation. A farm or agriculture business must understand how to best cover the territory over which your business spreads. Often this means positioning assets, shops or equipment strategically in order to reduce travel time. Further, working with vendors and other counter-parties in advance can ensure service no matter the location.
- Communicate. Often space prevents proper communication leading to errors. Any policy, procedure or program which facilitates ongoing communication will mitigate the effect of space. For someone driving a machine over a field he has not seen before, a map can allow him to perform the correct action in the correct space and move on to the next location. If he were to spray a chemical on the wrong field he could kill the plants in that field or prevent the intended crop from going there due to chemical residue that would prevent early growth. The more often and more clearly a team communicates the less space affects an operation.
So What?
These are the two biggest problems in farming no matter what the size of the business or how it interacts with a farm.
If you can create a businesses that helps combat this problem for a farmer, you should succeed. However, many businesses are built without these problems in mind. For instance, the “Uber for farmers” idea has been bounced around countless times. A company or two has even tried this idea and failed. The beauty of the idea is that a farmer could free up his balance sheet by sharing expensive assets with others. The problem is the farmer cannot prepare for any problems that might arise. If a harvester or planter doesn’t show up in time or in good condition, there is a real possibility of losing a significant portion of his crop by harvesting or planting it late.
To build a business which can withstand these problems one must be well capitalized, anticipate problems that might arise for one’s customer and address them ahead of time. Farmers are pitched new ideas, chemicals and seed all the time with little proof that they will work as well as advertised. The data to back up assertions is rarely useful. As a result, many farming businesses are skeptical of newcomers who claim they can execute on an idea that has not been tested.
As a landowner one must consider how well adapted a potential tenant is to these circumstances. Can they manage to execute at a bigger level? Is the farmer’s primary base of operations close enough to the land?
Any business selling to farmers or buying from them must understand the ability of his customers to send or receive the goods being moved. Logistics cannot be underestimated. Not only does one have to move large amounts of physical product over vast amounts of space, but weather can often get in the way by raising rivers to flood roads, keeping roads muddy and not allowing access to points far from asphalt, and delaying the use or harvest of product for significant periods of time.
The complexity of the two differences can be daunting, but knowing and planning for them in advance does much to mitigate their effect.
Pay Dirt 