For more than three decades, Raymond Levallois has been telling farmers that production excellence alone is not enough. It’s taken a long while, but the message is getting through – at least to some.
“Today, even enterprises that are succeeding well from the technical aspect can fall down financially,” says the Université Laval professor.
“The challenge in the coming decades will be to turn producers who are agricultural technicians into true entrepreneurs.”
But Levallois is not just talking about learning to use spreadsheets or conduct cost analysis. At its heart, strong business management is about “putting the person at the centre of economics,” says the man regarded as the father of farm business management in Québec.
He uses the example of a dairy farmer planning to increase his herd to 60 cows from 40. When questioned, the producer admits he is tired of being tied to his farm and only wants to expand so he can hire an employee and finally start taking vacations.
“The problem with this is that the farmer will have more debt and an employee to manage, and he may not be comfortable with these new aspects of his business,” says Levallois.
“Instead of expanding the herd and facilities, buying quota, and hiring an employee in order to get more free time, an alternative would be to partner with other producers to jointly hire an employee.”
Knowing your “real goals” is a powerful incentive to engage in business planning, manage debt and risk, and do something truly revolutionary – question what you do, seek expert advice, and benchmark your performance.
Those who do will discover that strong management makes their farm business serve them – instead of vice-versa, says Levallois. However, as farms become million-dollar businesses, the price of inadequate management has risen, too, he notes. That’s why being a top-notch producer is no longer sufficient, he says.
As a farmer, you are a business manager with all the consequences that come with that,” says Levallois.
You can find an excellent example of what Levallois is talking about on a small but rather steep hill on Ferme D.M. Groleau.
The hill is on a 100-acre farm Denis Groleau and his brother Marcel bought in the late ‘90s as part of an expansion of their dairy operation. They needed the land both for growing feed and to spread manure from their herd, which now numbers 124 cows. But the hill was a problem.
“There were 50 acres past the hill and my tractor was not big enough to pull the manure tank up it,” says Groleau. “I would need a tractor with 200 horsepower or more. But for me, it was completely unacceptable to buy a big tractor for 50 acres.”
So instead, Groleau either took half loads or hitched two smaller tractors in tandem when hauling manure to those 50 acres. But as soon as he had time to arrange things, he spent $5,000 to pave the troublesome incline – a small fraction of the cost of a 200-horsepower tractor.
“Even buying used would be $80,000 or $90,000,” he says. “But I’m not sure because I’ve never shopped for one.”
It is a good story but only hints at the deeper one beneath. Groleau’s decision needs to be seen in a larger context, as part of a carefully crafted, long-term business plan with clear goals based on a thorough analysis of benchmarking data. Because he was committed to both the plan and the philosophy behind it, buying the tractor truly was “unacceptable” for him, he says.
However, without such a plan, it would be easy to cast this matter in a very different light. Firstly, someone tempted to buy a nice big tractor might find a great deal by shopping around and might reduce the outlay further by selling one or both of the smaller tractors. Instead of focusing on the capital cost, a person could choose to consider the annual amortization and interest costs. They could then factor in a host of benefits – such as lower maintenance costs if the tractor were newer, greater efficiency on the entire farm, or even the ability to take on some custom work. In this light, a big tractor could even be seen as a profit-generating investment.
Not so for Groleau. He and his brother Marcel (a well-known farm leader and president of Union des producteurs agricoles) started with 48 cows and 37 kilograms of quota after buying the 140-acre family farm near Thetford Mines in 1989, then slowly expanded to 124 cows, 115 kilograms of quota, and 370 acres. Buying the neighbouring farm and using its barn for heifers allowed them to delay constructing a new barn and manure pit, which was eventually built in 2003 at a cost of about $400,000. Those sorts of expenditures meant splurging on non-essential equipment simply wasn’t an option.
He also had very clear financial objectives. As a member of his local farm management club, which is part of the Fédération des groupes conseils agricoles du Québec, he has access to benchmark data generated from dairy farms across the province.
Three measures are particularly critical. One is debt measured against production. The 2011 average for dairy farms was $190 per hectolitre – Groleau’s is just under one-third of that despite buying quota, expanding the herd and land base, and building the new barn.
“I always ask 10 questions before I make a decision” is how he describes his approach to spending.
Second are a pair of measures tracking the amount of protein feed supplements needed to produce a litre of milk and what Groleau saves by keeping that cost as low as practical. Again he measures much better than the benchmarked average. That is why the farm does so well in the third benchmark category, with the profit margin per cow more than 30 per cent above the benchmark.
Benchmarking, along with seeking the advice of experts and his fellow producers, has been critical, he says.
“You can’t find your weaknesses without comparing yourself to others,” he says.
Groleau is not critical of others. He notes the developing of Ferme Groleau has been a 25-year process and it would have been difficult to stay the course if he had not rewarded himself with “little treats.”
“In agriculture, you work long hours and many people do not take vacations,” says the 50-year-old father of four. “Everyone needs to give themselves a bit of luxury sometimes. Some do this on the farm and buy equipment they don’t really need. I do it outside the farm by having nice vacations and spending time with the family.”
He is also seeing the benefits of many years of careful planning and frugal spending. In the last four years, exceeding the profitability benchmark has generated an additional $100,000 in profits annually, says Groleau. – more than enough to buy a very big tractor.
But the approach has not changed. Increasingly the “real goals” are about succession, and funding asset transfer while meeting his eventual retirement needs. Groleau’s two youngest children, both in their early teens, may want to farm and his oldest, Charles, will return to the operation after finishing college and spending two years working on another farm to gain experience on how another farm is operated. Being a strong manager will not be optional for his son.
“For me it was a prerequisite that he take farm management training and get his degree before returning,” Groleau says.