Dr' David M' Kohl

1
Silver Anniversary Tour
1978 - 2003
Dr. David M. Kohl Professor, Agricultural and
Applied Economics Virginia Tech Blacksburg, VA
24061 [phone] (Jill Albert) [phone]
(Alicia Morris) e-mail sullylab_at_vt.edu
Weekly Website Columns
Ag Globe Trotter www.farm-credit.com
Road Warrior of Agriculture
www.cornandsoybeandigest.com
2
Landscape of Agriculture Rural America

• consolidation of food companies
• Top five
• USA 38
• Canada 70
• Europe 80
• two in ten year rule
• million producer rule
• North America
• 1/2 world production
• 1/4 total ag exports
• 1/3 grain ag exports
• profit vs. lifestyle
• womens role

3
Drivers of Change in the Food System
Economy
Blue Sky Incident
Passporting Traceability
Biotechnology
Consumers
Environment, Water Natural Resources
Domestic
Global
Information Technology
Global Competition
Government Policies
4
The Bottom Line
the global food market is comprised of two major
market segments...

• developed countries
• large and important
• but slow growing
• developing countries
• smaller and faster growing
• enormous potential for food imports

...and must be served differently
5
American ConsumerMeal demise Snack arise

• average American eats 4.3 times per day
• 30 eat 6 times per day
• 20 of teenagers eat 16 times per day
• mobile dining room
• surf graze

6
Food Preparation Time
food preparation time at home has been reduced
dramatically, driven by higher incomes and
technology
Source Wye College, University of London
7
Redesigning the Food System To Meet Age Wave Needs

• number of taste buds decrease from 245 at age 30,
  to 64 by age 80, a 64 decrease
• more spices
• more sweeteners
• food lines geared to taste
• 83 of those over age 65 have at least one
  degenerate disease
• hypertension
• foods with sodium
• fats, cholesterol
• digestion
• high fiber foods
• arthritis
• citrus, gluten
• overweight
• double the adult population eating low calorie
  food and drinks
• breakfast will become most popular meal
• age 25-29 consume 6 pounds
• age 60 plus consume 10.4 pounds

8
Top Snacks Times of Day
snack bars/ granola, dairy products, crackers,
cookies, chips/pretzels, leftover pizza
Morning 45
Afternoon 57
chips/pretzels, popcorn, seeds, nuts, cookies,
crackers, snack bars/granola
Evening 74
popcorn, seeds, nuts, chips/pretzels, cookies,
fresh fruit/veggies, crackers
9
Seven Business Models of AgricultureEarly 21st
Century

• Super Commodity
• 10,000 to 50,000 acres up
• 10,000 to 100,000 head up
• more than 3 million in Gross Revenue
• multiple family units/investors
• prime agricultural areas/Great Plains
• access to markets
• rent / lease / control assets

10
NeedsSuper Commodity

• requires specialist with knowledge of the
  business and industry
• network and strategic alliances
• need cash sweeps and liquidity management
• counsel on
• regulations
• marketing internationally
• environmental issues
• labor management
• value-added opportunities
• strategic positioning with family outside
  partners
• outside partners/shareholders
• deal with large suppliers

11
Traditional Commodity

• 150,000 to 600,000 in revenue
• last generation family farm
• Great Plains / commodity regions
• dying rural communities
• lack economies of scale / total management

12
NeedsTraditional Commodity

• wealth preservation
• exit plans
• production to business acumen
• transition management

13
Vertical Integrated Agriculture

• large livestock crop units
• more younger producers
• gains benefits of financial stability
• technology from parent companies

14
Contract Agriculture

• high technology
• younger producers
• mixed and diversified producers
• alliances and large agribusiness farms

15
NeedsContract Agriculture

• require specialist with knowledge of the business
  and industry
• counsel on
• commodity marketing value-added
• labor management
• growth/expansion management
• transition management
• investments
• networking
• lease strategic alliances

16
Lifestyle

• proximity of population centers
• off farm employment
• less than 50,000 in sales
• MAXIMIZE lifestyle
• agriculture compatible with employment
• natural amenity

17
Value Added/Retained

• exploits location, production service agriculture
• 90 percent domestic markets, 10 percent
  international
• people marketing skills
• natural food
• organic agriculture

18
Recreational Rural Experience

• hunting and fishing
• bed and breakfast rural experience
• natural resource / location
• natural amenity
• people marketing skills

19
NeedsRecreational Rural Experience

• operational advice
• technology
• time
• project managers
• opportunity interface

20
Rural Community AnalysisQuadrant I

• Regional Trade Center
• Characteristics
• plentiful soil / water
• globally competitive agriculture agribusiness
  structure
• mix of large farm family units industrialized
  agriculture business
• modest govt payments
• Examples
• Olds Alberta
• Willmar MN
• Emporia KS
• Lexington NE
• Western NY

21
Rural Community AnalysisQuadrant II

• American Gothic
• Characteristics
• lack of infrastructure
• schools
• highways
• hospitals
• lack of natural amenities
• govt subsidy zones
• older producer rural base
• loss of capital
• tweener farms
• Examples
• Prairie Provinces
• Western Plains
• Rural South

22
Rural Community AnalysisQuadrant III

• Satellite Cities
• Characteristics
• growing or strong infrastructure
• natural amenities
• population grown 10 or more
• recreational opportunities
• mix of old new economy
• property rights farm / city issues
• value-added opportunities
• agri-entrepreneurs
• Examples
• Guelph Ontario
• Kearney NE
• Lancaster PA
• Cedar Rapids IA

23
Rural Community AnalysisQuadrant IV

• Urban Connection
• Characteristics
• infrastructure overload
• land development
• property rights
• farm / city issues
• growth of suburbia 10 in a decade
• value-added opportunities
• agri-entrepreneurs
• Examples
• Kansas City
• Des Moines
• Toronto
• Vancouver
• Seattle
• Denver

24
Global CompetitivenessThe Ag Side

• RATING GAME
• soil, water, human resources
• infrastructure/technology
• political stability
• financial stability
• market accessibility

25
Global CompetitivenessThe Rural Side

• schools
• hospitals
• internet access
• roads infrastructure
• amenities
• cost of living
• 30-45 minutes from a mall

26
Managing People by Generations

• The Leadership Challenge

27
Motivating Generation X

• delegate tasks authority
• acknowledge performance
• establish own goals and self-fulfillment
  objectives
• create job description with performance measures
• provide sufficient compensation
• let veterans mentor
• share communicate strategic plan/vision/legacy
• allow to make mistakes
• develop ownership
• balance work lifestyle objectives

28
Critical Events in the Economy

• capital investment
• Greenspan
• tax cuts
• global slowdown
• interest rates
• deflation ripple
• health care
• insurance
• consumer debt
• residential real estate
• trade
• other

29
In Search of Entrepreneurial Excellence in
Agriculture

• hunting rights in Arkansas
• 40-cow Jersey dairy herd in North Carolina
• specialty soybeans in Virginia exported to Japan
• selling cheese over the internet in Canada
• the pumpkin patch that attracts 10,000 visitors
  annually
• the dairy herd north of Atlanta that attracts
  150,000 school children a year
• designer pigs in Manitoba, Canada
• Old McDonalds farm that touches all senses
• beef cows that drink beer and get massages in
  California
• ethanol plant and tropical fish in Kansas

30
Four Cornerstones of Managing A Small Business

• P O C L M2

C
O
Profits
L
M2
31
Five Elements of Value Earned Retained
Agriculture

• outside-the-box thinking
• money vs. time
• niche commodity
• working capital
• exit plan

32
The Golden Rules

• Rule 1 - business profit success formula
• P O C L M2
• Rule 2 - 40,000 to 70,000 net income
• prevents guerrilla warfare
• Rule 3 - growth rule / annually
• 10 to 15 percent gross
• 5 to 7 percent net
• Rule 4 - corvette rule
• family living is an overhead cost / credit card
  debt
• Rule 5 - 20 expenses / networking capital
• cash is king

33
The Golden Rules(cont.)

• Rule 6 - 3 to 5 years
• networking and labor management
• Rule 7 - six years
• the hired employee for life
• Rule 8 - 3000/500 hours
• time is the precious commodity
• Rule 9 - 5 to 10 and 100 - age
• dont put all your eggs in one basket
• Rule 10 - missions and goals
• a goal is a dream with a deadline