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Growth by Management Function

28/09/2009


The management functions on a farm can be categorized into 4 key areas: Marketing, Operations, Human Resources and Finance. Marketing typically represents a farmer’s suppliers and consumers. Operations are considered as the work that is being done (i.e. seeding and harvesting). Finance deals with financial performance and Human Resources represents the ownership, management and labour components. The associated illustration represents these functions in a wheel format with the arrows suggesting a seamless movement from function to function. The wheel rolls forward relatively smoothly when the management functions are kept in balance. Success is a function of many elements and while there is no one ‘right’ way to manage a farm, farmers have traditionally treated the management functions independently. When managing a farm, events that impact the management functions can result in the wheel coming out of balance, creating a bumpy ride as the farm rolls forward. Long-term sustainability can be measured by a farmer’s ability to keep the wheel (management functions) in balance or as close to balance as possible.

Both internal and external events can take the wheel out of balance. External events, such as a change in a country’s trade policy or global grain supply changes can be very challenging to deal with, but nonetheless, must be managed. Internal events can at times be just as traumatic, but are typically within a farmer’s control. Management decisions made by a farmer can result in a scenario where the wheel is taken out of balance and usually come with undesirable outcomes. This can happen if the farmer is treating each management function (decision) in isolation and does not understand how the impact of decision will affect the function of another.

There is high correlation between growing farms and imbalance within management functions. For example, a farm has quickly grown from 2,500 to 6,000 acres. A typical cereal and oilseed rotation trying to get by with a 47 foot airdrill. The decision to go with one seeding unit is both a financial and human resource management function – not wanting to make the investment in, and having trouble getting people to run an additional unit. Operationally, seeding that many acres then requires an increase in the speed of the seeding unit. This results in poorer seed placement, especially the canola, which will correspond in lower yields. The work gets done but the lower yield results in decreased profit margins. Without making any adjustments to the management functions associated with the scenario, the wheel will definitely come out of balance.

Farmers can successfully manage growth in relatively smaller increments by focusing on the operation and marketing management functions of the wheel. However, as farms continue to grow to larger commercial units (5,000+ acres), they need to re-focus management on the finance and Human Resources functions. They also need to integrate all the management functions and not treat them independently. Intuitively, farmers understand this is necessary but prefer to focus their efforts on operations. Successful farmers recognize and accept this preference, utilizing external advisors to help keep the management focus where it should be, which keeps the wheel in balance.

Terry Betker is a partner with Meyers Norris Penny LLP, working out of the Winnipeg, Manitoba office. He is director of practice development in Agriculture – Government & Industry. He can be reached at 204.782.8200.