February
20, 2003: Risk management, improved marketing opportunities
and increasing profitability became key topics at this year’s
Practical Farmers of Iowa (PFI) annual meeting.
On Jan. 24 and 25, more than 380 people attended the two-day
event in Ames, Iowa, that continues to draw more participants
every year. This year’s event featured 15 workshops.
During the breaks between the workshops, the conference center’s
hallways and gathering areas were filled to capacity with
farmers, journalists, students, and others who were eager
to discuss issues ranging from nitrogen management to swine
nutrition to renewable energy.
Hundreds gathered for the PFI keynote address, “Growing
Markets, Maintaining Values.” Two speakers presented
this year’s keynote. Rick Schnieders, CEO of SYSCO Corp.,
the nation’s number-one foodservice marketer and distributor
was joined by Michael Rozyne, managing director of New England-based
Red Tomato, a not-for-profit marketing organization dedicated
to strengthening small family farms. Read more about their
philosophies in a separate article here at NewFarm.org, coming
next week.
As a prelude to the keynote address, PFI Executive Director
Robert Karp introduced members to the group’s new vision
statement. What direction will Iowa agriculture head in the
next five to 10 years? Karp said PFI will focus on diverse
farms, vibrant rural communities and healthy food.
“This is just one indication of the kind of vision
and hope PFI is bringing not just in Iowa, but for the rest
of the countryside,” added Fred Kirschenmann, director
of the Iowa-based Leopold Center (http://www.ag.iastate.edu/centers/leopold/),
which promotes profitable farming systems that conserve natural
resources.
PFI’s vision statement reads:
Developing
a new marketing program
To promote this vision, PFI is creating ways to help
farmers market their products to institutional markets like
universities, restaurants and hospitals.
PFI discussed this new project during the workshop “Institutional
Markets: Supply Chain Development and Risk Management,”
which was held before the PFI annual meeting. The project
is funded by a $52,650 grant from USDA’s Risk Management
Agency.
“This will help farmers diversify their crops and income
sources. Farmers have been hesitant to meet the increasing
demand for local, fresh farm products because of risks associated
with the expansion necessary to do this. This project will
give them practical tools to directly address those concerns,”
said Rick Hartmann of PFI’s Food System Program.
Workshop participants studied various risk management strategies,
including do-it-yourself market research; forward production
and price agreements; cooperative marketing, distribution
or business formation strategies; and liability/legal issues.
PFI is encouraging fruit, vegetable and fish farmers to participate
in the new program. “This project is especially exciting,
because we’ll be testing and using the risk management
strategies in an actual commercial situation,” he said.
The group will work to supply institutions that buy larger
quantities of food on an ongoing basis. “For example,
I estimate during the school year that over 10,000 institutional
meals per day are served in Story County, Iowa, alone, but
virtually none of that food comes from local or Iowa farmers.
This project will seek to begin opening a very large marketing
potential to Iowa farmers,” Hartmann said.
Managing for profit
When it comes to any ag business venture, it pays to know
your numbers.
How often do you look at your financial records? Are they
an important part of your operation? Farm financials are something
more producers need to understand, says an ag lender who participated
in the “Analyzing Your Farming Operation” workshop.
“Too many people shy away from the financials of their
business and rely on us to handle them. But unless you manage
your financial records yourself, you won’t really understand
them. Many farmers think that if the bank renews their loans
each year, their financials must be okay. Your records shouldn’t
be something you think about once a year, though,” said
Roger Schlitter, a financial officer in Mason City, Iowa,
at Farm Credit Services of America.
When bankers look at your financials, what key numbers do
they watch for? Schlitter said there are four items—your
credit bureau score, your repayment ratio, your current ratio,
and owner’s equity.
“On your credit bureau report, we want to see a score
of 650 or higher. One of the most important elements we consider
is your character, but it’s also the least quantifiable.
That’s where the credit report comes in--it’s
a statement about the kind of life you’ve led,”
Schlitter noted.
Bankers also consider a farmer’s repayment ratio, Schlitter
said. “These are the dollars available to service your
debt. We like to see a 1.2 to 1 ratio. You should have a 20
percent cushion on your debts.”
When it comes to the current ratio, 1.5 to 1 is good. “We’d
like it to be even better than this. The current ratio is
current assets divided by current liabilities, and this tells
us what kind of reserve you have to pay your current liabilities
in the next year,” Schlitter said.
Lenders also like to see 50 percent owner’s equity
in a farming operation. “However, we deal with people
all the time who have more than this, and people who have
less than this. We look at what the farmer is proposing to
do, his track record for getting things done and his plan
for getting things done. Will he do what he says he’ll
do? If so, that’s who we want to do business with,”
Schlitter said.
So how do you put all this together and keep the kind of
financials that bankers need to see? Ask co-presenter Dave
Lubben, a PFI member who farms near Monticello, Iowa.
Lubben started writing a business plan in 1984. He updates
the plan regularly and uses it on a daily basis. Maintained
in a three-ring binder, the plan’s first document includes
the purpose and mission statement. “What is the focus
of my business? Where do I want to go? Answering these questions
keeps me on track, and it’s helpful to share this with
employees,” he said.
Next, Lubben includes balance sheets, accrual income statements,
and cash flow statements. He also includes pages on the actual
cost of production, based on an enterprise analysis.
“In my operation, I list corn, soybeans, hay, beef
cows and feedlot cattle. I take expenses and allocate them
across these five areas, based on what percentage of my business
each area includes. You can figure the cost of labor per hour,
and all this should get you as close to an actual cost of
production as possible.”
Next come marketing plans for crops and livestock. “Once
you develop this plan, you just keep tweaking it until it
works,” Lubben noted.
Also include financial ratios and analysis. “I like
to use ratios as a guideline, not as an ultimatum. I use Excel,
so I can draw charts and look at trends. If I’m improving
in my trends, I don’t have to compare myself to others.
Everyone’s operation is different, so you need to compare
yourself to yourself.”
Finally, include a performance evaluation and your lender’s
comments and evaluation. “In the performance evaluation,
list your strengths and weaknesses in production, marketing
and the financial aspects of your business. Keep working to
improve your strengths. Make your lender part of your team,
too, because he’s not the bad guy,” Lubben said.
Selling your products
to chefs
Along with good financial management, smart marketing is
one of the keys to success for many specialty crop and organic
producers. What makes customers, including chefs, purchase
from these farmers? Larry Cleverley, who raises specialty
crops, including garlic, on six acres near Mingo, Iowa, participated
in the workshop “Putting Your Farm on the Menu,”
and described some of his strategies.
“You need to supply quality products and become a
supplier that chefs can count on. Deliver what you promise.
Remember that chefs talk to each other, so use good word-of-mouth
to your advantage. Let your customers join your sales force,”
Cleverly said.
Get to know your customers and potential customers, Cleverley
added. “I work with a chef in Des Moines who won’t
buy anything from anyone who doesn’t eat at his restaurant
first. It makes sense—how can you sell your products
to someone when you don’t know their needs? Eat at their
restaurant, study their menu and see what you can sell them.
Then take them a small sample they can try.”
Want to really boost your marketing? Try using seed catalogs.
“When we show restaurateurs seed catalogs, they become
like kids in a candy store. This lets them see all the things
they can get from you that they can’t buy from other
suppliers,” Cleverly said.
Celebrating the culture
of food
The Slow Food movement has become a trend that complements
these direct marketing techniques for locally-grown foods.
What’s Slow Food all about? It’s a consumer reaction
against the fast food and supermarket industries’ industrialization
of food, learned PFI members who gathered for the workshop
“Celebrating the Culture of Food.”
“The Slow Food movement creates a counterpoint to the
fast-food culture. It brings people together around food,
especially foods that define local cultures and families.
It also makes people focus on how locally-grown foods are
unique,” said Neil Hamilton, a Slow Food member who
directs the Agricultural Law Center at Drake University in
Des Moines, Iowa.
Today, there are nearly 70,000 Slow Food members worldwide,
with nearly 10,000 members in the United States. What’s
driving the group’s expansion?
As the Slow Food Web site (http://www.slowfoodusa.org) explains,
“Recognizing that the enjoyment of wholesome food is
essential to the pursuit of happiness, Slow Food U.S.A. is
an educational organization dedicated to stewardship of the
land and ecologically sound food production.”
The Slow Food movement is attracting farmers, consumers and
chefs, Hamilton added. “We promote sustainability and
want to create an appreciate and demand for locally-grown
foods. Slow Food U.S.A. also works with producers who are
raising heirloom breeds of livestock like bronze turkeys,
and Slow Food helps farmers sell their products.”
Improving animal health
For livestock producers who provide locally-grown meat, meeting
consumers’ demands for high-quality, safe food ties
in with proper antimicrobial usage.
About 30 PFI members filled a small conference room to hear
animal health experts share some tips during the workshop
“Using Antibiotics Wisely.”
Producers need to develop standard operating procedures to
prevent problems. “The biggest problem with therapeutics
is not knowing what you’re trying to treat,” said
Dr. Mike Apley, an associate professor of veterinary diagnostics
at Iowa State University.
“If you’re going to use antimicrobials, first
identify the disease challenge. Why is the animal sick? This
step requirements an investment in a diagnostic test,”
Apley said. “Then determine which animals need therapy,
design a treatment regiment, apply protocols consistently
and evaluate outcomes.”
Wayne Fredericks, a pork producer from Mitchell County, Iowa,
has conducted on-farm animal health research for PFI. Looking
at his records, he found that he was spending $3.85 on antimicrobials
at the grow/finish stage for each pig that was marketed. The
treatments were used to combat diseases like mycoplasma, ileitis
and the common flu. That’s when he changed his disease
management program.
“We started vaccinating for these diseases, and pig
performance drastically improved. Vaccinations also lowered
our death loss by three-tenths of a percent. It helps animals
build disease resistance. It also recognizes that we may not
be able to always use antimicrobials,” Fredericks said.
Fredericks admits that he has spent more on vaccinations
than he did on antimicrobials. “Whether it’s financially
the right decision, I don’t know yet. We’ll continue
to evaluate this.”
Triticale: Feed grain
of the future?
Iowa livestock producers aren’t just focusing on animal
health from an antibiotic standpoint—they are also exploring
new feeds. Producers’ strong interest in the topic was
evident at the workshop “Triticale and Other Small Grains
on Your Farm,” which attracted more than 60 participants.
Iowa State University researchers say triticale makes an
excellent swine feed because of its superior lysine content
and high relative feed value compared to other cereal grains.
“Triticale is a cross between durum wheat and rye.
This makes it more hardy compared to wheat, and if offers
improved food and feed quality compared to rye,” explained
Margaret Smith, an agronomy specialist with ISU Extension.
Iowa State researchers are conducting swine feeding trials
at a research farm in western Iowa, comparing corn and soymeal
rations to various mixes of triticale, corn and soybeans.
Results will be available later this year.
“Triticale offers a lot of advantages. It has high
yields relative to other small grains. It’s like hybrid
corn, since it offers more tolerance to stress and diseases
than its parent crops. It also offers high straw yields and
is good for cover cropping. It provides erosion control and
adapts well to organic systems,” Smith noted.
Triticale poses some challenges, though. “These include
the availability of improved varieties, lodging problems,
and disease problems like ergot,” Smith said.
In addition, there is no established cash market for triticale
in Iowa. “However, research from Florida, Canada and
Australia indicates that triticale makes excellent animal
feed. We’ll continue to research this crop. For producers,
it takes willingness, knowledge and patience to integrate
small grains like triticale into a farming operation,”
Smith said.
To learn more about Iowa State’s triticale research,
go to http://www.agron.iastate.edu/faculty/lgibson/Triticale_research.htm.
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