Mar 5, 2012
Global view required for farms to compete today

Your farm exists in a world economy that, according to David Kohl, professor emeritus of agriculture and applied economics at Virginia Tech, can be compared to Swiss cheese.

He meant that some farms are having the best of economic times, while others are not doing well at all and falling out of the holes. What decides the fate of your farm depends on how well you pay attention to emerging trends within the world economy and how well you plan accordingly.

The keynote speaker at the 2012 Mid-Atlantic Fruit and Vegetable Convention in Hershey, Pa., Kohl said one of the demographics to watch in the coming year is younger people – most notably women.

“The woman’s role on the farm has seen a dramatic increase in recent years, and all signs point to it increasing,” he said. “They have gone from being a supporting member to the major decision maker.”

A greater number of young people returning to the farming lifestyle is due to the view of farming as an opportunity to succeed. But it can also be a dramatic opportunity to fail, Kohl said.

Some of the key trouble areas include familiar topics. Oil will be a major issue for farms in the coming year. Currently, $8 out of every $10 spent on a farm goes to oil and fuel, Kohl said.

Sovereign debt is another concern. The national debt is one thing, but most people don’t realize that there is an additional $11 trillion in U.S. funds tied up in European loans, meaning the value of the U.S. dollar is influenced by the European economy, he said.

And then there are unexpected events, like war or a natural disaster.

“You can’t always plan for what an unusual event will be,” Kohl said. “But you can plan to handle one should some event pop up. And they always pop up.”

The world economy needss three things, Kohl said: food, fiber and fuel. The greatest demand is coming from Brazil, Russia, India, China and South Africa, in ever-growing amounts. And they are increasingly looking to the Southern Hemisphere for supply.

“If you think that things that happen in the Southern Hemisphere don’t affect your farm, you’re wrong,” Kohl said. “Because of this increasing demand, events on the other side of the world have a direct effect on you, your economy and your future. Be informed and plan accordingly.”

One of the stories Kohl used to illustrate his point was that of the space shuttle Challenger disaster. When the craft broke apart seconds into flight in 1986, it was blamed on an O-ring seal that had gone unchecked for years even though NASA engineers knew it might be weak, Kohl said. And the crew didn’t perish right away. They could have been saved if they had access to parachutes.

Kohl said the disaster demonstrated two points. First, never let your farm get trapped in the “normalization of deviation.” That is, never get caught up in thinking that things you see as problems will not ultimately cause trouble down the road. In other words, “check those O-rings.”

Second, always be prepared and have a parachute.

“A minimum parachute for a farm in this economy is cash equal to two months of expenses and/or the equivalent of two years’ accumulated biggest losses,” Kohl said. “Also, never make the mistake of using your tax returns to base decisions upon. Always look at your accrual-adjusted records. They tell the story of how your business is doing with more accuracy.”

A parachute will save you when things are tough, Kohl said. It also can back you up when you’re trying to take advantage of new opportunities.

“The economy as it is today forces you to be cautious,” he said. “It also creates a landscape for great opportunities to be had by those that can take advantage of them. Don’t be afraid to jump, as long as you’ve got a good ‘chute.”

By Derrek Sigler, Assistant Editor




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