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The Big Ag Business

From farmer cash flow to mergers and acquisitions

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Now more than ever, farming is dynamic. It is exciting, demanding, challenging and rewarding. The contemporary farmer and producer and the entire Ag industry deals with technology, a gamut of sciences, new ways of doing things and the essential business savvy to effectively manage the vital facts of ag life like the economy, spiking land costs, cash flow and the industry trend of subtle and giant Ag business mergers and acquisitions.

“With changing technology, farmers are generating vast amounts of data and they’re exploring ways to use it to become more efficient,” says Janine Sekulic, managing director of agriculture financing at ATB Financial. “Also, as operations get larger and employ more people, there’s a need for HR strategies that help attract and retain qualified employees.”

Despite the momentum of sophistication of the Ag business and while the contemporary farmer’s basics continue to change, three crucial areas for the business of modern farming continue – marketing, land and production.

“Today’s farmer must be knowledgeable about markets and pricing,” explains Lynn Jacobson, the industry-respected president of the Alberta Federation of Agriculture. “They must know how to use the gamut of marketing tools to maximize their returns. In many cases, producers are hiring marketing managers to help them.

“And when it comes to production, they must be expert with most of the new production agrology technologies to maximize their yields per acre, under varying circumstances.

“It is important for the farmer to be innovative and look for opportunities with new crops. In the near future, farmers are going to have to look at multiple enterprises for their farms to be profitable,” he adds. “For example, instead of just grain farming, look into supply managed agriculture or local food production. With the high costs (especially for land and equipment) of entering agriculture for new producers or expanding an operation to allow the next generation to farm, the traditional methods may just not be enough.

“Many producers today do not own the majority of their land,” Jacobson notes. “They are renting, custom farming or partnering with landowners or they have a company that has investors. I know a few very large producers that are using the investor model.”

In addition to the traditional purpose and function of farming – production – the contemporary farmer must understand and effectively manage various business dimensions of farming: from cash flow, operations, investments and the economy to dealing with the direct and indirect effects of a growing trend of Ag industry mergers and acquisitions.

“As capital requirements have increased, we’ve seen farmers focus on protecting their investments. Farmers are constantly evaluating their risk exposure. They invest a lot of time in planning, forecasting and enterprise analysis,” ATB’s Sekulic points out. “They know their costs down to the penny, and they’ll use combinations of production insurance, pricing strategies, unique marketing arrangements or business structures to be sure that in a worst-case scenario, they can cover those costs.”

With much experience in the Alberta Ag industry, she outlines that, for the Alberta farmer, agriculture is a long game. It is cyclical and the cycles are influenced by many things that are usually beyond an individual producer’s control.

“That’s why we recommend looking at trends over time, never at one particular year, good or bad. Changing conditions in the overall economy absolutely impact the business of modern farming. The important thing is to determine whether that shift is short or long term in nature,” she says.

When it comes to the big business of agriculture, some insiders are still reacting to January’s mammoth Ag industry merger. Saskatchewan-based PotashCorp, the world’s largest potash producer, and Calgary-based Agrium, the giant agricultural and chemical company, combined as Nutrien.

“Through this merge we’ve formed the world’s largest provider of crop inputs and services and have become the third-largest natural resource company in Canada,” explains Richard Downey, vice president of Nutrien investor and corporate relations. “We now have the largest crop nutrient production portfolio with an unparalleled global retail distribution network that includes more than 1,500 farm retail centres. A key driver was the opportunity to capture half a billion in synergies, through more efficient use of resources and assets, including transportation and warehousing costs.”

The new company is headquartered in Saskatoon and Downey emphasizes that “Calgary and Alberta will still remain an important centre for agriculture. And we will continue to have a significant presence in the city. Our Calgary office has over 350 employees and remains an important link to our global operations around the world.”

He accentuates that throughout the massive Nutrien integration, the company’s goal was to ensure the merger was completed in as seamless a manner as possible. “Everyone in our company has been working hard to ensure that we continuously improve our services and products to our customers and stakeholders with limited noticeable changes, other than the name change.

“We are focused on innovation and we intend to add more resources in the area of our retail business research and development of new products and solutions to benefit our grower customers.”

Perhaps the size of the merge, combined with the possibility that the conventional Ag industry is sometimes cautious about embracing change, some analysts have voiced concerns that the Nutrien merger is likely to affect hundreds of thousands of Canadian farmers, particularly as they shop around for products like fertilizer and seeds.

Ag industry concerns are mostly rooted in the business reality that giant companies can’t simply compete on one continent or in one region. They inevitably think globally.

Regardless, Sekulic is positive and upbeat, and underscores the essential business savvy of contemporary farmers. “Planning is key. Ask yourself what investments you are going to need to make in the next 12-36 months. Then prioritize – what are your ultimate goals? Knowing that, prepare for those investments. Understand what the cash flow requirement is going to be. Consider what adjustments you can make to accommodate another principal payment. Engage experts to evaluate financing options – do you need to own it, or does it make better sense to lease it?”

According to Downey, there is another key to a farmer’s business smarts. “Today’s farmers have a lot more technology, products and services to evaluate and utilize than they ever have before. This trend will only continue in the future, whether it’s precision agriculture, new seeds or new crop protection products.

“As we accelerate development of our own products and services for farmers, we have some upcoming interactive platforms that will focus on making it easier for growers to work with our agronomists to optimize their crop yields and their financial bottom line.”

With much invaluable experience in Alberta’s farming sector, Jacobson suggests the Alberta farmer is bound to be affected. “Most rural communities only have one Ag supplier and when they are merged with another Ag supplier, the competition for service and price between them is gone or they close one of the facilities, so producers usually have to travel further to access their inputs.

“When a merger of a major Ag company is going on, we do get contacted by the Competition Bureau for comments or concerns,” he notes. “The buyer may have to divest themselves of some of the assets of the merged companies to increase competition but, in most cases, I have not seen any lasting benefit.”

Sekulic highlights positive realities. “Consolidation is happening at all levels of the industry and has been for the last 20 years. Losing competition can understandably cause some discomfort. But on the flip side, Nutrien will be a huge global player. The efficiency gains resulting from this could have real benefits to the Ag industry.”

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