Forget the silver bullet, whether it’s some nonexistent piece of machinery or the latest snake oil crop input. In reality, the key to boosting a farm’s bottom line is incremental improvements that add up.
Kristjan Hebert (@kristjanhebert) is a farmer from Fairlight, Saskatchewan and a proponent of the “five percent rule” — a philosophy advanced by Danny Klinefelter of Texas A&M that stresses minor (and realistic) changes to generate better than average returns. And as Hebert explains in this first episode of the Mind Your Farm Business podcast for 2016, it’s an ongoing effort to learn and improve.
“You only get 35 to 50 chances to get better,” he explains, referring to the span of a typical farming career in annual production cycles.
When speaking to other farmers, Hebert applies the five percent rule to a canola crop as an example: a five percent improvement in canola yield (from 40 to 42 bushels/acre), selling price (from $10 to $10.50) and cost of production (from $350 to $332.5/acre) results in a more-than 100 percent increase in net return (from $50 to over $108 an acre.)
While understanding cost per acre is important, knowing cost per bushel can be more helpful as it ensures decisions to reduce costs, such as skipping a seed treatment or fungicide application, don’t actually hurt a farm’s bottom line, he explains.
“If you only look at costs per acre, you can drop your costs per acre by $10 or $15, but the problem is it actually increases your cost per bushel because you’re producing less grain,” notes Hebert.
He also stresses the value of shifting from cash to accrual accounting on-farm for tracking costs (hear more on this topic in this earlier MYFB episode).
“If it’s not accrual, you don’t actually know anything about your costs,” he says, noting this should coincide with a regular budgeting process.
So where does he find time for all this tracking and budgeting?
“Make it one of the goals, one of the top priorities for the farm,” he says. “Do you have time to sweep your shop?…You could hire the same kid that works at Subway to come sweep your shop once a week. Is it worth your time at 12 bucks an hour to sweep the shop or should you be creating a budget and figuring out where you can fix your finances? It just has to be a priority.”
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