The fork in the road for dairy farms

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The Dairy Excel 15 Measures of Dairy Farm Competitiveness bulletin was published by Ohio State University Extension to provide dairy farmers the ability to evaluate business competitiveness using financial and production information.

Measure Fifteen, The Fork in the Road for Dairy Farms, is discussed in this article and will provide suggestions for those managers who are or want to become competitive.

Dairy managers who want to stay in business for more than 20 years must be competitive and should plan on exceeding most of the 15 measures in five years. Unprofitability, because of not meeting these measures, may force a dairy operation out of business. The strategies you use to increase your competitiveness will depend on your current situation and goals.

Already competitive

Managers of most dairy farms are already doing many things right. However, to remain competitive, you will have to continue to improve your management skills, adopt new technology and grow. As you determine the course of your business, carefully consider your alternatives.

Becoming overly complacent or attempting to implement change too rapidly are two pitfalls to avoid as you make important business decisions. If you become complacent, the industry will pass you by, and you will lose your competitive advantage.

Dairy farming is a dynamic business. To stay competitive, you must continue to change and grow as a manager. Continue to learn about management and how to apply the five functions of management — planning, organizing, staffing, directing and controlling. You also will need to become an expert at creative problem-solving, which cuts across all five management functions.

Becoming competitive

You may be in a position where income is modest, resources are available, you have good management skills, you possess a desire to improve and you want to continue operating a dairy farm long term. If this is the case, it is time for you to make some changes.

Mission statement

Before you do anything, you (and your management team and employees) need to develop or update the written mission statement for your farm. You must know why you are in business and what you want to accomplish to become competitive. Discuss your mission statement at length and revise it until it clearly states why you operate a dairy farm.

Goals

Next, your management team should prepare a preliminary list of goals that you believe will make your operation more competitive. Include more long-term goals on your list than you can possibly accomplish and don’t critique any of the goals.

Make sure your goals are written

Unwritten goals are like uncaught fish — just dreams. If you are better at coming up with good ideas than writing them down, ask your spouse, a key employee or a member of the family to do the writing.

Share goals

Share this preliminary list with members of your family and others involved in the management of the business. Involve everyone. This process will require all involved to listen to each other, discuss, and compromise. Others will likely suggest different goals. Be open to their suggestions and expect them to expand and help improve your preliminary list.

Encourage others to suggest additional goals or to modify those initially suggested.

There are a few questions to ask when you are coming up with goals. Does each goal fit with the reason you are in business? Is the goal realistic? Does the goal take advantage of your strengths and opportunities? Does the goal address your weaknesses and any factors threatening your business?

Prioritize

Select one or two goals from your final list as top priorities. Most small business managers cannot attack more than one or two goals at a time. Pick one that most of the management team agrees will have the greatest impact. Consider delegating responsibility for some goals to others on the farm.

Short-term goals

Identify short-term goals to support the top priority long-term goal you have chosen. A series of short-term goals lay the foundation for long-term success.

For example, assume that the first long-range goal for attention is to: “Increase net farm income from the dairy enterprise by 20% in the next fiscal year.”

There are some short-term goals that would help achieve the long-term goal. The management team could develop a budget by Jan. 1 to increase net farm income with the accountant taking leadership responsibilities.

The management team could review performance against budget at the first meeting of each month. The manager could find benchmark production and business performance data from similar dairy farms to compare performance at monthly meetings.

Analysis

A SWOT analysis allows you (and your management team) to list all the things you believe to be strengths, items that are holding you back (weaknesses) from achieving your goals, opportunities that are or may become available and items that are threatening the future of your business. See this Ohio State Extension Fact Sheet: ohioline.osu.edu/factsheet/anr-42.

Financial Planning

Regardless of whether you are or want to become competitive, it is strongly recommend you regularly complete a comprehensive financial analysis.

Ohio State University Extension’s Farm Business Analysis Program uses FINPACK, a software program developed by the University of Minnesota, to assist managers with assessing their current financial position and evaluate alternative plans. FINPACK allows users to evaluate their whole farm and separate enterprises to assess income, expenses, and evaluate profitability.

Contact your county Ohio State University Extension office to learn more about the program.

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(Chris Zoller is an agricultural extension educator in Tuscarawas County and a member of the OSU Extension DairyExcel team.)

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