Dairy has been on a roller coaster the past few years, making business planning seem difficult. A “tried and true” management concept – SWOT Analysis – can help.
By Gregg Hadley
Adversity like the dairy industry faced last year, while trying, offers managers the opportunity to reassess their current condition and future. SWOT Analysis is an important part of the business planning process.
“SWOT” stands for Strengths, Weaknesses, Opportunities and Threats:
• Strengths and Weaknesses refer to issues under the direct control of the farm or agribusiness. Strength is something the business is good at; a Weakness is something the it is not good at. For example, the managers of a dairy may find they have excellent feed bunk management (Strength), but poor somatic cell counts (Weakness).
• Opportunities and Threats refer to issues the business has no direct control over. A new milk plant opening in the area would be an example of an Opportunity for a dairy, because it may give the managers “opportunity” to exercise more negotiating power.
Threats are external influences that may adversely affect the dairy. If a country which normally imports U.S. dairy products is in a recession, it may not be able to buy as many dairy products. This “threat” may hurt the farm if it results in a decreased milk price.
You do not need a sophisticated computer program to conduct a SWOT Analysis. You simply need good data (production, financial, animal health, crop production, human resource management and marketing,) paper and a pen or pencil.
Because some managers may be overly generous or too critical in assessing their dairy, it may be helpful to ask fellow managers, employees, advisors, consultants, veterinarians and agribusiness representatives to assist in conducting the SWOT Analysis.
To begin, write Strengths at the top of a page and list everything the business seems to be good at.
Next, write Weaknesses on the top of a page and list everything the business is not good at.
Then, do the same for the Opportunities and Threats. Do not be surprised if an issue is both an opportunity and strength.
For example, urban encroachment may threaten a farm. This may make spreading manure more complex. On the other hand, urbanization may also increase land values, which increases the farm owner’s equity on a market value balance sheet.
Once you have listed the Strengths, Weaknesses, Opportunities and Threats, it’s time to do something with this information. Use the analysis to develop prioritized goals and a plan to achieve those goals. The plan should:
• build on your dairy’s strengths
• improve on its weaknesses
• take advantage of opportunities
• minimize the threats
As an example, assume a farm manager, Maria, has conducted a SWOT Analysis and found these results:
3 Very low cost of production
3 Great herd health
3 Lower milk production
3 Profits are positive, but too low to support the family
3 Milk price is expected to go up
3 Urban encroachment
Looking at the SWOT Analysis results, it is apparent to Maria that the farm needs to be more profitable for her family. There is the opportunity milk prices may go up, but, then again, they may not. She would rather not merely rely on that hope. Since the farm is profitable, she could consider expanding, but the urban encroachment might make expansion more difficult.
Maria notices the low cost of production and good herd health strengths, and the lower milk production weakness. She wonders if there is a way to increase revenues by increasing milk production without an offsetting increase in her cost of production or a dramatic increase in herd health problems. Maria decides to call her nutritionist, veterinarian, herdsperson and farm advisor to determine the feasibility of this idea and, if feasible, to help her develop and implement a plan to increase milk production.
Take home message
When developing future business plans, a SWOT Analysis is a good tool to use to determine the current strengths and weaknesses of your farm and the external opportunities and threats that may affect the farm in the future.
• Gregg Hadley is associate professor of Agricultural Economics and Extension Farm Management Specialist at the UW–River Falls, UW-Extension and the Center for Dairy Profitability. Contact him via phone: 715-425-3188; e-mail: firstname.lastname@example.org; or website: www.uwrf.edu/extension/GregH.php.