Far too often farms and businesses that are struggling got there because they base too many decisions on bogus information. It was easily available and free, but, as they say, it's worth what you pay for it. What’s the background of the person who wrote it? Is the information even applicable to your specific operation?”
Further, there’s a tremendous amount of data, big data, around, but there’s not always analysis of that information. With all this information companies often make two mistakes:
The younger generation in agribusiness is very creative and ready to learn. They probably have more bank debt and are more concerned about profits next year and for the next decade. They are willing to engage with you and learn from you, and use the tools that you give them.
They make good use of computers and spreadsheets so that they are more aware of risk and are more willing to look at different methods to lay that risk off. This is creating more opportunities to provide training and education in economics and marketing. This is happening in both public institutions and through private companies.
Managing margins is very difficult. It was easier in the 1970s and early 1980s when you had some inflation. People would say: “OK, this year I’m going to increase my prices by 3 percent or 5 percent.” The folks on the other side wouldn’t like it, and they might negotiate and haggle with you some, but they wouldn’t flat out say no.
Now, with low interest rates and low inflation, it is really tough to increase what you’re charging somebody once you’ve established that initial price. In this environment, if, all of a sudden, one of your inputs jumps substantially in price your margins are going to evaporate pretty quickly.
As competition increases, too, raising your prices certainly will encourage your customers to shop around. There always is someone willing to do it at a loss for a year or two just to get their foot in the door.
The big players just keep getting bigger. When you look at companies like Cargill or General Mills, you see giant firms that keep on buying up small food companies. Also, farm sizes continue to increase.
As farms and companies get bigger they tend to become more efficient. There may be fewer total companies to work with, but the volume that they’re trading or the number of dollars they’re turning over is growing in total as well as for each company or farm.
It's a way of increasing revenues in an environment of shrinking margins. It used to be if you turned over $1 million and netted 20 percent you had a sweet business. You’re making $200,00 a year. Now if you’ve got a $1-million business and you’re operating at 8 percent, you’re left with $80,000. That’s pretty skinny. If something happens — you face unexpected expenses — you practically give up your margin.