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Efficiency over growth urged

Better is better” is replacing the concept that “bigger is better” in American agriculture, said David Kohl.

Efficiency over growth urged

Better is better” is replacing the concept that “bigger is better” in American agriculture, said David Kohl.

Expanding to overcome financial negatives is not the way to go, the Virginia Polytechnic Institute and State University economist emeritus told the 34th annual meeting of the American Agri-Women in Salem, Wash.

“Efficiency must come before expansion,” he added.

Kohl now works as a financial adviser for Homestead Creamery in Rocky Mount, Va. There, he has lived the advice of putting efficiency before expansion, when the company turned down a request from Walmart.

“They wanted us to put our milk in plastic, and we found glass to be our niche, so we turned them down,” he said of the Walmart episode. “To meet their demands, we would have had to increase our business by four times, but we weren’t ready for that. It could have meant failure.”

Kohl, who came to the creamery when it faced severe financial challenges, helped build a branded reputation of milk in glass bottles, focusing on what he calls “nostalgia milk” as a niche. With measured expansion into the ice cream market and the addition of eggnog and custard to the company product line, he nursed the creamery into success.

Today, it is a popular local dairy offering home delivery to 1,400 customers. The financial outlook for the business is positive, he said, because expansion was done piecemeal and only when the company was already on a sound fiscal footing.

Carefully planned improvements like this exist for much of agriculture, he said, predicting more opportunity for the industry in the next decade than existed in the past 30 years. But cash and liquidity will be king among economic planning factors, he said, adding the immediate future will be fraught with economic pitfalls.

Key Points

• Virginia economist Dave Kohl keynotes Agri-Women meeting in Oregon.

• Kohl underscores value of women to family farm success.

• He lists mistakes they make in business operations on the farm.

9 months of savings

His advice to farmers is to keep nine months of family living expenses in savings. “I am very concerned about what will happen when we take the training wheels off of the economy,” said Kohl. “We must develop businesses that will be able to slog along.”

Seventy percent of U.S. agriculture is dependent on off-farm income, so liquidity is “very important,” he added. “Seventeen percent of mortgages are now being paid out of savings.”

It will be more important than ever to “have a game plan” when facing bankers this season. “It’s going to be tough [getting credit],” he said. “It is no longer business as usual.”

Kohl told the annual AAW audience that “women are best at managing risk because they are not so close to the farm” in daily operations of planting, harvesting and other tasks. “A risk management program is essential,” he said.

Top 10 mistakes

But women aren’t always right when it comes to how they handle agribusiness, he added. Listing 10 mistakes agribusiness women often make, he offered these warnings:

• Woman have no access to financials when they sign loan documents. “You are partly responsible for the debt,” he said. “If you sign, you need full disclosure of financials.”

• Women are not involved in business meetings regarding the farm. “Open disclosure is very important for women in the family.”

• Women are party to failure to diversify investments on the farm. He advised investing 5% to 10% of net earnings outside of agriculture.

• Women are not insistent on minimizing the farm corporation’s tax strategy. “A lot of businesses go broke this way,” said Kohl.

• Women may overlook the value of not providing equal family farm business for each family member. Some children may not be as close to the farmwork, and Kohl’s advice is that these members should receive a fair and equitable role, but perhaps not equal to those who invest “sweat equity” into the farm.

• Women make the mistake of “love” of property. “There may be a piece of land nearby you have always wanted, and when it becomes available, you may make the mistake of paying too much for it,” Kohl explained.

• Strategic planning is left to the men. “All family members need to be involved,” he believes.

• Women do not insist on disability insurance. “This is something you should make sure you have,” said Kohl. “We are dealing with a dangerous job” in farming.

• Women don’t insist on a long-term health care plan for the business. With it, “cash flow drain can be avoided” if illness is prolonged.

• Women are not adamant about establishing complementary adviser teams for the family business. It should involve a “team atmosphere with formality,” rather than a laid-back environment where family partners readily submit to each other’s recommendations.

More women involved in farm details

Women are getting more involved than ever in the business end of farming, says the leader of the Oregon Women for Agriculture.

“We’re seeing a transition today,” says Tricia Chastain, who works in an agribusiness in Donald, Ore.

“Women are becoming more aware of the importance of getting involved rather than just signing papers,” she says of today’s farm family wife.

“My generation sees the value of taking an active role in the making of farm decisions, rather than accepting what those who work in the field suggest,” she adds.

Chastain, who holds an agribusiness management degree from Oregon State University, didn’t hail from a farm family, but grew up rurally as a steady participant in FFA and 4-H activities. She works with farmers as an appraiser, and is tuned into the business of agriculture, she explains.

More women are becoming interested players in formal family farm decision-making, she believes. OWA’s membership may reflect some of this, with membership growth heavy among agribusiness women, she says, as well as many seniors and women who hail from farm families.

OWA is concerned that many of its 300 members are elderly women, a scenario that causes leaders to question the future of the organization. Action to bring younger women into the organization includes a strategic planning session in January.

Key Points

• Women are taking a greater role in farm business decisions.

• Organizations like OWA can help women learn about farm management.

• Fifty percent of U.S. farmland is owned by women.

Bring younger women into fold

Chastain’s intention is to bring more of the younger active farm women into the fold. “Right now, we only see a handful of our memberships who I can call ‘active,’ ” she says, explaining that these is going on in the farm decisions, since they might find themselves alone in the decision-making process someday.”

OWA celebrated its 40th anniversary in 2009, making it five years older than the national affiliation of similar organizations, the American Agri-Women. OWA hosted the national convention of the AAW in Salem in autumn, with David Kohl, an agricultural economist, as keynote speaker.

Kohl presented his listing of “10 Mistakes Agribusiness Women Make” (see story above) and warned women who inherit the farm to beware of leasing or selling to the highest bidder.

“Sometimes, the highest bidders are those who will destroy your land,” he said. “There are a lot of young people who would like to get a start in farming who would be a better fit.”

The role of women in agriculture may be underestimated, said Kohl. “Fifty percent of the farm real estate in this country is owned by women today,” he said. “The ladies outlive the men by about seven years,” he noted, and suddenly become the main decision-maker of the business.

This article published in the January, 2010 edition of WESTERN FARMER-STOCKMAN.

All rights reserved. Copyright Farm Progress Cos. 2010.

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