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Thursday, June 19, 2014

What Is Your Yardstick For Success?


As a farm operator or manager of an agricultural enterprise, how do you measure success?  Is it how well you can feed your family from year to year, or is it the yield you produce compared to similar farms?  What is the yardstick by which you may (privately) judge yourself?


Having the biggest and best-looking pickup truck may be a good enough yardstick for some, but others may want a different measure of success.  While this is not an effort to take a survey, all view points are welcome.  We start with the viewpoints of University of Illinois agricultural economics Nick Paulson and Xin Li.  Interestingly they found the absence of any long term performance data for farm management skills, but honed in on the data for over 6,700 farm operations for a 16 year period from 1996 to 2011, to determine whether farm management skills persisted over that period.  In short, they say, “There are better farm managers and their management skills persist.”



Those skills have to persist because of such outside forces such as commodity and input price volatility, weather, disease, and macroeconomic conditions.  And one of the issues that raises the importance level of the research is the fact that young farmers are few and far between and that may become a threat to US food production.


The economists say, “Given the number of managers in the market, the laws of probability would suggest that a certain number can outperform the average over long periods, not because of their skills but because they are lucky. It would not, however, be consistent if a disproportionately large number of these managers have the same skill.”  To be outstanding, a farm would need to have a good long term performance, as well as a consistent performance over time.  But one consideration is that poor operations would go out of business over time, and fall out of the farms being studied.


One facet that had to be addressed was the quality of soil on a given farm.  They said, “Some of the natural conditions, such as the soil productivity for particular farms, may be more favorable, which would cause the measure of a manager’s capacities not to be as accurate. Therefore, quantifying how much actual management and natural endowment affect management skill persistence is of interest.”


The economists concluded, “Overall results provide compelling evidence that the superior skills of star managers survive and are not an artifact of luck. Lenders and investors will be interested in the degree to which skill influences farm profitability. Funding issues for major lenders and the emerging regulatory design arise from commodity and farm-related credit market activity during the recent financial crisis. Ultimately, studying farm management skill persistence will help with the challenging task of prediction, and better predictions lead to greater farm performance.”




A successful farm operator seems to have a skill that will survive over time, regardless of the impact of markets, weather, or other outside dynamics.  Those skills are predictable, and will lead to a better prediction of the performance of a given farming operation.  While that is a important in the short run to lenders and investors, in the long run it will be more important with fewer farm operators at the helm.

Posted by Stu Ellis on 06/19 at 04:40 AM | Permalink

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