Amid uncertain markets, unpredictable weather patterns, and increasing supply and input prices, dairy farmers need effective resources to operate and manage resilient, productive businesses.
Brady Brewer, assistant professor in the Purdue University-Agricultural Economics Department, shares practical insights for developing and adjusting strategic plans to align with prevailing economic trends and prepare for potential downturns.
He highlighted five strategic “levers” farmers can adjust to influence the profitability of their businesses.
- To adjust output price, manage the price received for what is produced.
- To adjust yield, manage how much output is produced.
- To adjust costs, manage how much it costs to produce.
- To adjust assets, manage the balance sheet and what tools are used for production.
- To adjust people, manage the people who help influence the first four levers.
“Every decision you make will impact one or more of these five levers,” Brewer said. “And the people on your farm are the ones who help you manage the first four.”
He pointed out that people actually comprise the fifth lever.
Brewer spoke at the recent Professional Dairy Producers of Wisconsin’s Business Conference, giving a session titled “Strategies for success” aimed to equip attendees with several tools to apply to their own operations. Session attendees participated in a digital poll to determine which lever they saw as the most important one. The real-time responses showed that managing operation costs was their foremost concern in regard to affecting farm profitability. That assessment is consistent with data from national surveys of crop and dairy farmers, he said.
One of the economic snapshots he reviewed was a historical look at inflation, charting the percent change from the previous year in Consumer Price Inflation. Dating back to January 2007, the overall picture plainly showed that inflation surged on account of more money, increased demand and supply constraints.
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“We’re seeing price levels continuing to go up, albeit at a lower rate than when inflation was at its 8 percent high in December and January,” he said. “At 6 percent, it is still well above the Federal Reserve’s 2 percent target.”
Brewer emphasized the importance of farmers creating a roadmap for their operations, starting with discussing and writing out both personal and business goals. Those goals become the foundation of business plan and provide a framework for future decision-making.
“Personal goals and business goals are interconnected, with personal goals often driving business priorities,” he said. “There is no one correct strategy that fits everyone, but when you have a plan in place you can be more deliberate in adjusting the five strategic-profitability levers to achieve your goals and priorities.”
Focusing on attracting and retaining a strong team is critical because the strategic lever involving people impacts every other part of the operation, he said. Plus labor costs associated with employees are a substantial part of the business budget.
“Across the entire labor market, the direct cost to train a new employee in 2022 was $1,678, with indirect costs averaging three to four times the total salary,” Brewer said. “When you think about the cost of training or bringing on a new employee, be sure to consider the time owners and supervisors spend training, the lost efficiency while the new employee is learning and the time co-workers spend working with them as well.”
Speaking to the value of retaining employees once they’ve been trained and on-boarded, he shared results of dairy-employee-engagement studies that surveyed 2,000 employees at dairy farms across the country. Employees said overall they felt valued and respected in their roles and were proud of their roles on the farms. But there’s room for improvement in the key areas of communication and being asked to provide input during decision-making.
“The person closest to the problem often has the best ideas about possible solutions,” Brewer said. “Allowing employees to have a voice in decisions on the farm goes a long way toward retention. Taking time to ask their opinions shows their value to the operation.”
A farm’s strategic plan will also guide decisions regarding investments and asset management.
“When you have a good financial year and the opportunity to invest in new equipment, make sure you know how that asset will improve your business to help you achieve your goals,” he said. “If the asset doesn’t benefit one of the five strategic levers, reconsider its role in your operation.”
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Shelly O’Leary is the communications and outreach specialist with PDPW. Email firstname.lastname@example.org to reach her.