Planning 2006: Expansion from the inside out
Growing the business isn’t just about getting bigger, say these RBC Royal Bank professionals.
It’s getting better at what you do and looking for fresh opportunity.
Once, farm business expansion was all about more:
more acres, more livestock, more equipment, quota
and staff. On one level, according to RBC Royal Bank’s
Brian Smith, that’s still true. Canadian farms continue
to increase in size, in terms of land base, equipment
and technology.
“There’s a lot of consolidation going on, and we expect
more of the same in 2006,” says Smith, Sales and Market
Manager, South Western Ontario, based in Stratford.
“The big are still getting bigger.” He oversees a team
of 14 agricultural account managers, serving sectors as
diverse as dairy, hogs, greenhouse crops and cash crops.
Increasingly, though, farm expansion is about more than
scale. In Smith’s analysis, the growth goal that farmers
aspire to is a higher level of overall management.
“There are some very good managers out there, and
planning for 2006, they’re looking at how to get bigger
and how to get better,” says Smith. “They recognize that
size doesn’t always guarantee success.”
ALL-AROUND MANAGEMENT EXPERTISE
Many farmers and ranchers will admit they’re most
comfortable with production issues, while finance,
marketing and human resources management are
harder to warm up to. Even so, forward-thinking
farmers are embracing a three-dimensional notion of
farm business management.
“We see people working on issues relating to financial
management and business management with more
energy than ever,” says Smith. “The top managers have
a voracious appetite for information. When they see
something they need to know more about – whether
it’s interest rates, foreign exchange or credit management
– they’re all over it. The Internet has greatly
increased their ability to obtain current information
on-demand.”
Smith sees the difference when he and his team
conduct planning meetings with clients.
Many no longer wait for their account manager to
propose credit solutions. If the business is in dairy, for
example, the producer might have already investigated
how to use a revolving term loan to buy quota. They
already know the pros and cons of leasing, rather
than traditional ownership, to acquire use of a
milking parlour.
As clients formulate their plans for 2006 and beyond,
Smith perceives a much richer understanding of the
factors that will influence financial outcomes.
“There’s more talk about risk management,” says Smith,
“and a greater desire to control what can be controlled.
Clients are doing more to manage input costs and
commodity prices. Both costs and prices are locked
in when market conditions are favourable.
“When you plan a large expansion today, the possibility
of interest rate increases has to be considered. Nobody
thinks we’re going back to 18 or 20 per cent mortgage
rates, but a 200 basis point increase can have a big
impact on the success of an expansion, and clients
are well aware of this.”
BACK TO THE OPEN BORDER
The morning of July 18 saw the first shipments of
Canadian cattle into the U.S. in more than two years.
This event provided an early indication that 2006
could be better for Canadian beef producers than
the previous two years.
Even so, as his beef-producing clients make plans
for 2006, Rod Whitfield, RBC Royal Bank’s senior
account manager based in Lethbridge, Alta., senses
a change in the air.
“There’s increased interest in international trade,
more broadly defined,” says Whitfield. “The lesson
that we learned through BSE is that we can’t be overly
dependent on any one market, even if that single
market is close and convenient. As an industry, we
lost a large portion of our beef export business for
two years. Now, there has to be a greater focus on
developing new markets such as the Pacific Rim.”
Proximity to the U.S. border was a long-time
competitive advantage for Canadian beef. Looking
to build on this natural advantage in other markets,
Whitfield believes producers and packers are seeking
to remake the competitive landscape. Toward that
end, 2006 could be the year that electronic cattle
identification takes a big leap forward.
Much like personal computers, cell phones and the
Internet, radio frequency tags on cattle could have
a future-altering potential that even early adopters
of the technology might be underestimating.
“Many Asian countries have stated they would be
more receptive to Canadian cattle imports if we can
provide a definite birth date, and other information,
on individual cattle,” says Whitfield. “The tags cost
about $2, and right now, packers are losing roughly
$200 per head by not being able to ship certain cuts
of beef to Pacific Rim countries.
“There’s huge potential in the Pacific Rim if we
make the right moves, and identification technology
will be key.”
Whitfield, like Brian Smith in Ontario, observes that
cost of production is a hot issue for producers. Many
of his clients know their costs down to the penny.
When new international markets open up, producers
will have the ingredients for long-term success.
Says Whitfield: “When you know what you’re
producing, and you can document everything
you’re doing, and you know your costs, that’s an
area where Canadian producers can really win.”
|
