Twelve Best Management Practices Danny Klinefelter Professor and Extension Economist Texas AgriLife Extension Texas A&M University

Back to Reality The function of a competitive market is to drive the economic return to the average producer to breakeven through supply and demand responses in both input and output markets. In equilibrium the top end are profitable and growing, the average are hanging in there, and the bottom end are losing money and exiting the industry. Business success and survival depend on continuous improvement at a pace necessary to stay in the front half of the pack. The function of a competitive market is to drive the economic return to the average producer to breakeven through supply and demand responses in both input and output markets. In equilibrium the top end are profitable and growing, the average are hanging in there, and the bottom end are losing money and exiting the industry. Business success and survival depend on continuous improvement at a pace necessary to stay in the front half of the pack.

Best Management Practices Strategic Management is about anticipating, adapting to, driving and capitalizing on change. Strategic Management is about anticipating, adapting to, driving and capitalizing on change. Wayne Gretsky quote Wayne Gretsky quote I recognized that I wasn’t bigger, stronger or faster than most of the people I played against. I believe that the biggest reason for my success was that most players were always going where the puck was, and I always tried to go where it was going to be. Jack Welch quote Jack Welch quote The only truly sustainable competitive advantage is the ability to learn and adapt faster than your competition. The only truly sustainable competitive advantage is the ability to learn and adapt faster than your competition.

Twelve Things that 95 Percent of Agricultural Producers Don’t Do 1. Coordinated revenue: cost management 2. What if scenarios and sensitivity analysis, i.e., contingency planning 3. Monitoring and analysis

Twelve Things (continued) 4. Accrual adjusted profitability analysis 5. Autopsies 6. Benchmarking

Twelve Things (continued) 7. The 80:20 Rule 8. The 5 percent rule 9. Analyzing what to stop doing

Twelve Things (continued) 10. The E Myth principle 11. Peer advisory groups 12. Strategic alliances, pooling arrangements and alternative business models

Peer Advisory Groups Purpose and objective Purpose and objective Structure and composition Structure and composition Guidelines and requirements for success Guidelines and requirements for success

Peer Advisory Groups (continued) Advantages of peer advisory groups Multiple vantage points and different perspectives Multiple vantage points and different perspectives Sounding board for plans and ideas Sounding board for plans and ideas Honest and constructive feedback Honest and constructive feedback Identifying alternatives and exploring what if scenarios Identifying alternatives and exploring what if scenarios Increased insight and objectivity Increased insight and objectivity Reducing or overcoming implementation issues Reducing or overcoming implementation issues Benchmarking Benchmarking

Peer Advisory Groups (continued) Advantages of peer advisory groups (Cont.) Seeing the bigger picture Seeing the bigger picture Expanded information access Expanded information access Drawing on different strengths and experiences and compensating for weaknesses Drawing on different strengths and experiences and compensating for weaknesses Needs based training Needs based training Accountability Accountability Overcoming isolation Overcoming isolation Encouragement, support and understanding Encouragement, support and understanding Pushing out of comfort zones Pushing out of comfort zones

To remain independent, many producers are going to need to become more interdependent.

Alternative Farm Business Models Capturing economies of scale, reducing costs, improving asset utilization and accessing greater technical expertise Capturing economies of scale, reducing costs, improving asset utilization and accessing greater technical expertise United Food Service Purchasing Co-op (UFPC) and Restaurant Services Incorporated (RSI) United Food Service Purchasing Co-op (UFPC) and Restaurant Services Incorporated (RSI)

Alternative Farm Business Models (continued) Management Companies, Service Bureaus and Pooling Arrangements Services, purchasing, marketing Services, purchasing, marketing Older and younger farms Older and younger farms Examples Examples CFO and accounting services CFO and accounting services Risk management Risk management Input purchasing and contracting Input purchasing and contracting Exporting and importing Exporting and importing Product and services advertising, marketing and sales (including contracting) Product and services advertising, marketing and sales (including contracting) Veterinary, nutritionist, and agronomic services Veterinary, nutritionist, and agronomic services Processing plants Processing plants Fertilizer, fuel, grain storage and handling Fertilizer, fuel, grain storage and handling Feed mills Feed mills Cold storage Cold storage Repair shops Repair shops Trucking Trucking Leasing Company Leasing Company Biofuels processing Biofuels processing Self insurance pools Self insurance pools Machinery and equipment Machinery and equipment Genetics Genetics Human resource management services Human resource management services