Learn more about financial management, innovation, risk management and sustainable sourcing practices to increase your profitability and sustainably manage risks.
Sound financial management is crucial to the success of any business, especially in farming where there are so many variables beyond the farmer’s control (weather, prices, yields, etc.). In its most simple form, farm financial management means optimizing the use of limited resources in a way that maximizes returns and profits. It requires knowledge, skill and access to sound data on its business and market.
Even in dairy farming a business can experience financial pressures when faced with volatile market prices for feed, reduced production due to disease or unexpected cost increases. To face these challenges, seek the support of professional advisors and extension services, which can assist you in assessing your business, examining alternatives, dealing with issues and making decisions. Always be sure to choose competent sources for advice and interventions.
Cost of production (COP) budgeting consists in estimating the costs associated with your productions and the expected revenue. Knowing your cost of production is vital to make farm-level decisions. It will help you maximize profits, optimize transportation and input use, properly manage purchasing and inventory, determine margins, etc. It is a key tool that you should access in order to optimize your production system.
Monitoring market prices can provide critical insight into business risks and opportunities and support sound decision-making to manage risks and sustain long-term profitability.
The use of financial ratios and margins to assess, benchmark and monitor farm performance can be useful in farm business management since they make it possible to evaluate asset performance and warn against potential areas or risk. Combining these ratios with an economic analysis of production costs and returns could provide an excellent basis for decision-making. However, like many other tools, these ratios and margins do not guarantee success. Still, their use will certainly improve a farm’s probability of success.
A dairy farm must allocate resources to strengthen its capacity to generate and increase profits over the long term. The enterprise must also invest for long-term solvency and profitability in order to remain in business and enhance its potential and growth. To do so, it is important to ensure that the financial aspects (e.g. budgeting, spending, investments, etc.) of your operations are well managed. Financial plans primarily determine how, when and why money is or should be spent on company activities. Financial planning also makes it possible to set priorities for the farm. Finally, it provides a guarantee for investors that their funds are used responsibly thanks to reliable internal financial records.
More and more, a farm’s competitiveness is related to its capacity to innovate and find new ways of enhancing its productivity and efficiency. These improvements chiefly rely on the adoption of new production techniques and on the implementation of new management practices.
On-farm research (including field trials, feed trials and farm field days) is valuable since it is typically conducted with a farm’s own equipment, land and management practices. The question of whether research results are relevant to specific soil types and management strategies is answered immediately. Furthermore, conducting on-farm research will make it possible to:
Dairy farmers operate in constantly changing physical and market environments. Implementing new technologies and practices that are consistent with your business goals is a way to cope with this situation. Examples of such innovations include automated milking systems (i.e. milking robots), precision agriculture (i.e. satellite farming), artificial insemination and cow pedometers, to name a few. By testing and using more innovative practices and technologies, you can improve your efficiency by producing more, minimizing your environmental impact and increasing your profitability.
Risk management is an important component of business management. Farm owners must identify and evaluate risks and then create plans to reduce the impacts. Most producers are well versed in handling risks related to production. However, there are also countless legal, human resource and financial risks that every operation faces and that are not always given the same amount of attention.
An income diversification strategy helps farmers reduce their economic risks. It may, for instance, involve growing multiple crops, selling crop by-products or having multiple livestock species or different varieties of the same crop (e.g. yellow maize, white corn or high-protein corn). Diversification also involves off-farm activities. The benefits of farm diversification include:
Successful diversification projects are the result of careful planning. They capitalize on current interests, skills and resources on the farm.
Farm profitability is directly related to how well your business can handle risks, whether they are natural, financial or legal. This is why a solid risk management plan is so important. Risk management plans are developed on an individual basis The key is to select risk management strategies that meet the needs and goals of your farm.
Farming is a risky business. While mitigating risk is important, it is also crucial to be able to cope with the consequences when unfortunate events occur. To do so, it is recommended to have adequate insurance coverage adapted to your situation.
By referring to socially responsible suppliers and products, dairy producers can contribute to reduce their environmental footprint and manage the associated risks.
By requiring information on the origin of the cattle diet (e.g. grass, roughages, grains, concentrates, food waste, co-products, minerals and vitamins) and the modes of production used (e.g. presence of GM crops, use neonicotinoid-treated seeds, use of irrigation), you could better understand their potential impacts and manage the associated risks.
By discussing the option to acquire products that are more environmentally friendly and less harmful to human health with farm input suppliers could contribute to reduce the environmental footprint of your operations.