What's the first thing you think of when the topic of farm growth comes up? Buying out the neighboring farmer, right?
While that may work out fine for some, growing your farm– that is, generating greater sales and profits – can be accomplished without adding any more acres at all. In fact, most farmers today find it's too risky to buy expensive farmland and instead, squeeze more productivity from their current land base through better agronomic practices or adding drainage or irrigation.
"In the business world we have to think about something other than just buying assets," says Mike Boehlje, who spoke with fellow economist Brent Gloy at this week's Top Farmer Crop Workshop held at Purdue. "When you ask a business man about growth, they don't talk about building a new plant, or buying additional assets. In the business world, growth is growing "topline," – or sales. With increased sales you grow the top line, and that results in a better bottom line."
A company's bottom line is its net income, or the "bottom" figure on an income statement. More specifically, the bottom line is a company's income after all expenses have been deducted from revenues. These expenses include interest charges paid on loans, administrative costs and income taxes. A company's bottom line can also be referred to as net earnings, or net profits. The top line refers to a company's gross sales, or revenues. When people comment on "top line growth," they are making reference to an increase in gross sales or revenues.
Top line growth on a farm might start with better management resulting in higher yields, which should result in higher gross revenue. Another approach is through mergers and acquisitions or strategic alliances with other businesses.
To determine if you can grow your business without adding to the land base, start by taking a critical look at your farm's resources and managerial skills says Boehlje. Look at land, labor, capital, and most important, managerial skills, to determine if your business is 'good to grow.'
Improving land is always a solid way to grow without adding acres, but if you are in the market for land, always buy property that has inherent, potential productive capacity but needs help, such as tiling or timber cleanup.
Take a good look at any slack resources you have in your operation, adds fellow Purdue economist Brent Gloy. Could existing equipment and labor be put to better use, through custom work for example? With today's technology most equipment can be put on a 22-hour schedule 24/7, with three labor shifts. Can you bring outsourced activities back to the farm to save costs?
"Doing this kind of analysis may make you realize you simply need to do less of some things, and more of others," says Gloy. In any case, the two economists make it clear: there are ways to grow without pulling out a checkbook for farmland.
"Acquiring purchased land is not always an attractive way to grow," Gloy says. "If you think beyond acres, it greatly expands the playbook."