By ROBERT MILLIGAN
Most dairy managers have been waiting – yearning – for the TURBULENCE X TURBULENCE to end, so they can again face a business environment similar to 2-3 years ago. As I work with clients to understand the agriculture and business environments, I become more convinced than ever two years ago is “the good old days.”
To return to profitability and continue to prosper in the years to come will require “going to a new (higher) level.” To explain, let me address two questions: 1) Why is it not the world it was two years ago? and 2) What will business owners have to do to thrive in the future?
1) Why is it not the world it was two years ago?
• The hole is deep. The financial analysis completed by Farm Credit found the 2009 average per cow loss on the 544 Northeastern US dairy farms was $386. Depending on production per cow, that’s $1.30-$2.00/cwt. It will take most dairies two or more years to recover that loss and get back to where they were. Most farms will have made only minimal capital purchases during this period and will have a capital stock that is 2-3 years older and in need of a major capital infusion. Many agribusinesses have amassed large accounts receivable and not all will be recovered.
• There’s a new economic reality. Hopefully, we will never again see the swing in economic conditions we’ve seen in the dairy industry and in the general economy over the last two years. That said, nearly all of the conditions creating the swing – agriculture in the energy business, global market adjustments, inelastic price, the increasing rate of change – remain. The oil spill in the Gulf and the economic crises in Europe add even more uncertainty. High unemployment will likely contribute to weaken consumer demand, resulting in a sluggish economy for the foreseeable future. In addition, continued potential price variability and the lessons of the last two years are resulting in reduced availability of credit.
• External threats have intensified. For reasons we do not well understand (but need to), the dairy industry and modern agriculture has become a punching bag of the media. Will Rogers may be best known for his quote: “All I know is what I read in the newspaper.” Today the media is much more than the newspaper; however, the quote reminds us of the power of the media.
2) What will business owners have to do to thrive in the future?
• Be much more keenly aware of the external environment. Hockey great Wayne Gretzky always attributed his success to passing the puck to where the player will be, not to where the player is. Similarly, dairy business owners must make decisions based on their best judgment as to where their industry and the business environment will be, not based on where it is today. To know where “the player will be” requires an in-depth understanding of the business environment in which your business operates.
• Management to a new level. One of Albert Einstein’s most famous quotes is, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” This applies to the current situation, in the sense that we must take our management to the next level. This new level must include even more efficient and quality focused (no defects) operational management; however, the greatest strides in management are likely needed at the leadership level.
• You cannot do this alone. A greater reliance is needed on your workforce. One of the greatest business needs we have noticed during the last two years is more attention must be devoted to management.
This higher level of management will require owners to focus more on the chief financial officer (CFO) and chief executive officer (CEO) roles. Since there are still only 24 hours in a day, this will leave less time for operations and labor management roles. The result will be more reliance on other members of your workforce and your trusted advisors. Greater attention to attracting, retaining and developing an exceptional workforce will be key to success.
Are you frustrated yet?
Frustration over the slow and shallow economic recovery is the prevailing emotion currently expressed by many farm and dairy business owners. While understandable, you must trade your frustration for two other emotions – determination and focus.
I am confident that you and other managers can move to the required higher level. The first requirement is recognition that change is needed. You must then summon the determination to compete under the new economic realities, and then maintain the focus necessary to succeed.
Next month, I’ll focus on what is needed to manage at the next level.