In the farming of the future, intellectual capital will be as critical to success as financial capital, says Bert Greenwalt. “The next generation of farm managers will face a much higher bar — and they will need a much more sophisticated skill set,” he said at the annual meeting of the Mississippi Agricultural Economics Association.
“The economies of scale have encouraged farm expansion and consolidation, and producers who have superior skills in management, marketing, and other areas will have a comparative advantage. Those who aren’t skilled in these areas will need to get outside assistance.
Greenwalt, who earned his Ph.D. in ag economics at Mississippi State University in 1991, is now a professor in the College of Agriculture and Technology at Arkansas State University and continues active in the long-time family farming operation at Hazen, Ark. He also is a member of the Federal Reserve Bank of St. Louis’ District Industry Council in the eighth district.
“More and more, we’re seeing large family farms operated by teams with diverse knowledge and skills who can cover all bases in production, marketing, finance, etc.,” he says. “If certain management roles can’t be filled within the family, they will need to be outsourced.
“The management team also needs someone from the outside to provide another objective, independent perspective in making decisions.”
Many trends and issues now have an impact on agriculture and agribusiness — consolidation, globalization, government regulations, greater capital/financial requirements, advances in technology — and, Greenwalt says, “Every farmer now is confronted with a need for management, production, marketing skills. In an earlier era, very little was required in terms of marketing what was produced; it’s very different today.
“Global competition has significantly increased pressure on profit margins. Farmers are operating on razor thin margins, with very little room for error.”
A major difference today, he says, is the amount of information available.
“Farmers are bombarded with information at every level — the dilemma is what to do with it and how trustworthy is it?”
Today’s producers also have to be more efficient in use of capital and equipment, Greenwalt says.
“A broad array of technology is available today, but it’s expensive and requires skilled labor to operate, so farmers need to analyze what’s the best mix for their business.
“As farms become larger and more diversified, farmers need to be cognizant of the acres-to-eyes ratio — not being able to see every acre on their farm as many times as they once did, and the greater dependence on added labor and consultants.”
For example, he says, in recent years cotton and rice farmers have been adding corn to their operations, which “has involved a whole new set of management decisions relating to production, harvesting, drying, storage, and transportation. This requires careful analysis as to the appropriate machinery complement, the need to improve irrigation and drainage, etc.”
There is also a general perception in the ag community that weather risk is increasing, Greenwalt says.
“Farmers who have the capacity to plant all their land within a narrow window in spring can get better yields than those who don’t have that ability. But big equipment is so expensive, it’s a challenge to fine-tune a farm’s needs. Irrigation and drainage are also critical in being able to take advantage of a short planting window.”
Herbicide tolerance issues are an increasing concern, he says.
“A big question: Could farmers adapt to the loss of Roundup Ready technology, which has enormously reduced management and labor requirements? It could be a struggle, particularly for some younger producers who’ve never farmed without this technology, to adapt to other, more demanding production methods.”
Pressure on water resources is an increasing concern, Greenwalt says.
“In many areas in recent years, agriculture has been taking out more water than has been going back into the aquifers. There has been a tremendous amount of construction of reservoirs and tailwater recovery systems, which increases management and maintenance requirements.”
The 1996 farm bill, with its market-oriented provisions, changed farm management significantly, he notes, giving farmers more freedom in planting crops and acreages they feel offer the best potential for profit, and in how they contract and sell those crops.
“It was a good change, offering planting flexibility and improved use of resources. At the same time, market risks have increased. Market pricing and timing are more critical than ever. When a farmer sold his 2008 crop, for example, would have made a big difference in money received.”
Marketing tools and procedures have changed dramatically, Greenwalt says, and “it all can be overwhelming for the manager who doesn’t have the training or abilities to deal with them.
“The volatility of input prices — fuel, fertilizer, seed, etc. — is an increasing challenge. There are many different varieties and technologies involved in seed purchases, with numerous pricing, delivery, and financing options. It can be a real burden to analyze every option that’s available and decide which is best for your business.”
There are also risks related to non-performance on contracts, with an increased requirement for due diligence research on those with whom a farmer deals.
Other areas that are increasingly challenging for producers, Greenwalt says, include finance, marketing, and regulations.
“The multi-entity farm structures that have become commonplace also require increased management and costs, and can complicate credit applications. Increased capital needs for large farm operations require a strong lender with agricultural expertise.”
There is some trend away from crop-share leases, he says, which increases the production/price risk for the operator.
A significant increase in the regulatory burden over the past couple of decades has also imposed additional time, management, and dollar costs, Greenwalt says.
“The cumulative impact over time can be extensive. Because so many regulations are vague and subject to interpretation, everyone is a potential outlaw. The market for regulatory compliance specialists, who can advise farmers on dealing with these rules, is likely to grow.
“Maintaining records on pesticide use and for other environmental requirements is another burden. Areas that may increasingly be a problem are emissions from diesel engines and regulations related to fuel tank maintenance and spills.”
Greenwalt, who grew up on the family farm and has been a participant in that operation since childhood, says, “It’s interesting these days that we don’t see as many youngsters going with their fathers to Extension and other meetings and seminars.
“When I was coming up, that’s how I got to know Extension and research specialists, and I formed many relationships that were valuable to me later in my education and farming life.”