A new study, Dollars and Sense, by Kynetec (formerly Ipsos Agriculture and Animal Health) has identified the top seven habits of Canada’s best farmers. For the first time, researchers have established a direct link between farm business management planning and higher farm income and profitability.
According to the report, leading Canadian farm businesses in the top 25 per cent financially out-perform those in the bottom 25 per cent by a wide margin: a 525 per cent increase in return on assets (ROA), 155 per cent increase in gross margin ratio, and 100 per cent increases in return on equity (ROE) and asset turnover.
“This is the first time we clearly see how specific business management practices positively affect a farm’s financial outcomes,” says Agri-Food Management Institute (AMI) executive director, Ashley Honsberger. “Management matters and this study illustrates just how much of an impact the top habits
The study, commissioned by AMI and Farm Management Canada, included 604 farms of all types and sizes, and farmers of all ages, nationwide, in the grains and oilseeds, beef, hogs, poultry and eggs, dairy, and horticulture sectors.
The leading driver of farm financial success is continuous learning. Farms in the bottom 25 per cent are three times less likely to seek out new information, training or learning opportunities.
Number two is keeping finances current so that key farm decisions are made based on an accurate financial picture of the business. Farms in the bottom quartile are three times more likely to have financial records that are months behind and are also almost three times more likely not to monitor their cost of production.
The third driver of farm success is seeking the help of professional business advisors or consultants. Farms in the top quartile are 30 per cent more likely to work regularly with a farm business advisor or team of advisors.
Four other drivers also ranked highly: having a formal business plan, knowing and monitoring cost of production, assessing and managing risk, and using budgets and financial plans.
Of the 55 poultry and egg farmers surveyed nationwide, 69 per cent felt the financial health of their farm was a little or much better now compared to five years ago.
The top 25 per cent of poultry and egg farms shows a five per cent ROA compared to 0 per cent in the bottom 25 per cent; 37.7 per cent gross margin ratio compared to 0 percent; 15.6 per cent ROE compared to 15.4 per cent; and 13.6 per cent asset turnover compared to 10.1 per cent.
Poultry and egg farmers lead the pack. Thirty-six per cent have a formal business plan, well ahead of the 25 per cent average of all other farmers, 36 per cent have a financial plan with budget objectives, which again is higher than the average of all other farmers at 33 per cent, and 26 per cent have a formal human resources plan, considerably more than the 17 per cent average of all other farmers.
The study also showed that 69 per cent use supply chain relationships to add value, which is significantly higher than the 49 per cent of all other farmers.
Honsberger advises farmers considering making business management changes to divide a large task into smaller steps, such as using the off-season to attend education events or meet with a business advisor.
A resource for farmers, dubbed “Pledge to Plan” can also help with business management activities for each season, support tools, and stories of producers who’ve already gone through the process. It’s available at pledgetoplan.ca.
The study was funded through Growing Forward 2, a federal-provincial-territorial initiative.
About the Agri-Food Management Institute
AMI promotes new ways of thinking about agribusiness management and aims to increase awareness, understanding and adoption of beneficial business management practices by Ontario agri-food and agri-based producers and processors.
Business management habits pay for poultry producers
Thirty-six per cent of poultry and egg farmers have a formal business plan.
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