Farm Management Minute: Can efficiency be improved?
Another instructor and I recently returned from the National Farm and Ranch Business Management Education Association meeting in Salt Lake City, Utah. While there, we heard from a number of speakers on a variety of topics. The one topic that stuck with me was on the subject of changing our operations to reduce costs and become more efficient. As I have worked in agriculture these past 30+ years, that is a subject that is near and dear to my heart. When I was working with dairymen, they would talk about increasing the size of their herd to become more profitable. I would discuss at length the benefits of increasing the herd efficiency instead of increasing numbers. In many cases, eliminating the lower producers in their cow herds did reduce the herd production but the savings of feed costs increased the profits on the herd. This scenario is similar to information I heard in Salt Lake.
Gregg Simonds, President of Open Range Consulting, spoke about matching resources for business sustainability and diversification. Controlling costs was an area of discussion. Simonds suggested producers look at their four highest costs and analyze them. Are the costs variable or fixed costs? Variable costs are easier to reduce. Are the costs influenced by inflation or not? If it is an inflationary influenced cost, there may not be much adjustment that can be made, but a non-inflationary type cost can possibly be reduced. Also, producers need to look at what they can quit doing to reduce costs and become more efficient. Are there changes that can be made in the day to day operation that can reduce costs? Sometimes, it is not always big changes that increase profit; it may be all the little changes that are made on an operation that influence the bottom line.
Capital assets are one of the cost areas that Simonds suggested needed some evaluation on most operations. He suggested listing all the equipment on the farm/ranch and asking two questions. Do we need all this equipment? Can we eliminate expense?
On this same note, many producers have gone to buying pieces of equipment and then doing custom work to spread the cost over more acres. If this is something a producer is considering, one must determine if there are available hours in the day, or season, to operate the equipment for custom work. The resource of time is a limited one and other enterprises might suffer if an operator has too many irons in the fire. Some producers in an area have joint ownership of equipment, with an agreement for how and when the machinery will be used, to spread the cost over more acres. Another option to reduce machinery cost is an old idea-trading work with neighbors.
If any producer would like more information on using recordkeeping to evaluate efficiency, the S.D. Center of Farm and Ranch Management can help. To contact the SDCFRM office or any of our instructors, call 1-800-684-1969 or email us at firstname.lastname@example.org.