Dr. David M. Kohl Professor, Agricultural and Applied Economics Virginia Tech Blacksburg, VA 24061...

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Dr. David M. Kohl Professor, Agricultural and Applied Economics Virginia Tech Blacksburg, VA 24061 (540) 231-7727 (Jill Albert) (540) 961-2094 (Alicia Morris) e-mail: [email protected] Weekly Website Columns : Ag Globe Trotter: www.farm- credit.com Road Warrior of Agriculture: www.cornandsoybeandigest.com

Transcript of Dr. David M. Kohl Professor, Agricultural and Applied Economics Virginia Tech Blacksburg, VA 24061...

Dr. David M. KohlProfessor, Agricultural and Applied Economics

Virginia TechBlacksburg, VA 24061

(540) 231-7727 (Jill Albert)(540) 961-2094 (Alicia Morris)

e-mail: [email protected]

Weekly Website Columns: Ag

Globe Trotter: www.farm-credit.com Road Warrior of Agriculture: www.cornandsoybeandigest.com

Landscape of Agriculture& Rural America

consolidation of food companies Top five:

– USA: 38%– Canada: 70%– Europe: 80%

two in ten year rule million producer rule North America

1/2 world production 1/4 total ag exports 1/3 grain ag exports

profit vs. lifestyle women’s role

Drivers of Change in the Food System

ConsumersPassporting &

Traceability

Economy

Biotechnology

Information Technology

Global Competition

Government Policies

Environment, Water & Natural

Resources

Blue Sky Incident

Global Domestic

The Bottom Line

the global food market is comprised of two major market segments...

...and must be served differently

developed countries large and important but slow growing

developing countries smaller and faster growing enormous potential for food imports

American Consumer“Meal demise; Snack arise”

average American eats 4.3 times per day

30% eat 6 times per day 20% of teenagers eat 16 times per

day mobile dining room surf & graze

Food Preparation Time

food preparation time at home has been reduced dramatically, driven by higher incomes and technology

Food Preparation Time at Home

0

0.5

1

1.5

2

2.5

3

1930 1950 1970 1990 2015

Source: Wye College, University of London

5 minutes

Redesigning the Food System To Meet Age Wave Needs

number of taste buds decrease from 245 at age 30, to 64 by age 80, a 64% decrease more spices more sweeteners food lines geared to taste

83% of those over age 65 have at least one degenerate disease hypertension

– foods with sodium– fats, cholesterol

digestion– high fiber foods

arthritis– citrus, gluten

overweight– double the adult population eating low calorie food and

drinks breakfast will become most popular meal

age 25-29 consume 6 pounds age 60 plus consume 10.4 pounds

Top Snacks & Times of Day

Morning: 45%

Afternoon: 57%

Evening: 74%

snack bars/ granola, dairy products,

crackers, cookies, chips/pretzels, leftover

pizza

chips/pretzels, popcorn, seeds, nuts,

cookies, crackers, snack bars/granola

popcorn, seeds, nuts, chips/pretzels, cookies,

fresh fruit/veggies, crackers

Seven Business Models of AgricultureEarly 21st Century

Super Commodity 10,000 to 50,000 acres up 10,000 to 100,000 head up more than $3 million in Gross Revenue multiple family units/investors prime agricultural areas/Great Plains access to markets rent / lease / control assets

NeedsSuper Commodity

requires specialist with knowledge of the business and industry

network and strategic alliances need cash sweeps and liquidity

management counsel on:

regulations marketing internationally environmental issues labor management value-added opportunities

strategic positioning with family & outside partners

outside partners/shareholders deal with large suppliers

Traditional Commodity

$150,000 to $600,000 in revenue last generation family farm Great Plains / commodity regions dying rural communities lack economies of scale / total

management

NeedsTraditional Commodity

wealth preservation exit plans production to business acumen transition management

Vertical Integrated Agriculture

large livestock crop units more younger producers gains benefits of financial stability technology from parent

companies

Contract Agriculture

high technology younger producers mixed and diversified producers alliances and large agribusiness

farms

NeedsContract Agriculture

require specialist with knowledge of the business and industry

counsel on: commodity marketing & value-added labor management growth/expansion management transition management investments networking lease strategic alliances

Lifestyle

proximity of population centers off farm employment less than $50,000 in sales MAXIMIZE lifestyle agriculture compatible with

employment natural amenity

Value Added/Retained

exploits location, production service agriculture

90 percent domestic markets, 10 percent international

people marketing skills natural food organic agriculture

Recreational Rural Experience

hunting and fishing bed and breakfast – rural

experience natural resource / location natural amenity people marketing skills

NeedsRecreational Rural Experience

operational advice technology time project managers opportunity interface

Regional Trade CenterCharacteristics plentiful soil / water globally competitive agriculture &

agribusiness structure mix of large farm family units &

industrialized agriculture business modest gov’t payments Examples Olds Alberta Willmar MN Emporia KS Lexington NE Western NY

Rural Community AnalysisQuadrant I

American GothicCharacteristics lack of infrastructure

schools highways hospitals

lack of natural amenities gov’t subsidy zones older producer & rural base loss of capital tweener farmsExamples Prairie Provinces Western Plains Rural South

Rural Community AnalysisQuadrant II

Satellite CitiesCharacteristics growing or strong infrastructure natural amenities population grown 10% or more recreational opportunities mix of old & new economy property rights & farm / city issues value-added opportunities agri-entrepreneursExamples Guelph Ontario Kearney NE Lancaster PA Cedar Rapids IA

Rural Community AnalysisQuadrant III

Urban ConnectionCharacteristics infrastructure overload land development property rights farm / city issues growth of suburbia 10% in a decade value-added opportunities agri-entrepreneursExamples Kansas City Des Moines Toronto Vancouver Seattle Denver

Rural Community AnalysisQuadrant IV

Global Competitiveness:The Ag Side

RATING GAME soil, water, human resources infrastructure/technology political stability financial stability market accessibility

Global Competitiveness:The Rural Side

schools hospitals internet access roads & infrastructure amenities cost of living 30-45 minutes from a mall

Managing People by Generations

“The Leadership Challenge”

Veterans Boomers Xers Nexters

Outlook Practical Optimistic Skeptical Hopeful

Work Ethic Dedicated Driven Balanced Determined

View of Authority

Respectful Love/hate Unimpressed Polite

Leadership by Hierarchy Consensus Competence Pulling together

Relationships Personal Sacrifice

Personal gratification

Reluctant to commit

Inclusive

Turnoffs Vulgarity Political incorrectness

Hype ?????

Motivating Generation X

delegate tasks & authority acknowledge performance establish own goals and self-

fulfillment objectives create job description with

performance measures provide sufficient compensation let veterans mentor share & communicate strategic

plan/vision/legacy allow to make mistakes develop ownership balance work & lifestyle objectives

Critical Events in the Economy

capital investment Greenspan tax cuts global slowdown interest rates deflation ripple health care insurance consumer debt residential real estate trade other

In Search of Entrepreneurial Excellence in Agriculture

hunting rights in Arkansas 40-cow Jersey dairy herd in North

Carolina specialty soybeans in Virginia

exported to Japan selling cheese over the internet in

Canada the pumpkin patch that attracts

10,000 visitors annually the dairy herd north of Atlanta that

attracts 150,000 school children a year

designer pigs in Manitoba, Canada Old McDonald’s farm that touches

all senses beef cows that drink beer and get

massages in California ethanol plant and tropical fish in

Kansas

Four Cornerstones of Managing A Small Business

P = O + C + L + M2

Profits

CO

M2L

Five Elements of Value Earned & Retained Agriculture

outside-the-box thinking money vs. time niche commodity working capital exit plan

The Golden Rules

Rule #1 - business profit & success formula P = O + C + L + M2

Rule #2 - $40,000 to $70,000 net income prevents guerrilla warfare

Rule #3 - growth rule / annually 10 to 15 percent gross 5 to 7 percent net

Rule #4 - corvette rule family living is an overhead cost / credit card debt

Rule #5 - 20% expenses / networking capital cash is king

The Golden Rules(cont.)

Rule #6 - 3 to 5 years networking and labor management

Rule #7 - six years the hired employee for life

Rule #8 - 3000/500 hours time is the precious commodity

Rule #9 - 5 to 10% and 100 - age don’t put all your eggs in one basket

Rule #10 - missions and goals a goal is a dream with a deadline