Egg producer Gerald Renkema didn’t start out with big changes in mind, but his ongoing financial analysis of his farm has taken him in unexpected directions.
Soaring feed prices hammered every livestock producer last year, but Gerald Renkema was partially insulated from the blow, thanks to a pair of old chain-driven feeders that were always breaking down.
There is not, of course, a direct A-to-B connection between the troublesome equipment that Renkema replaced several years ago and how he coped with feed prices that shot up by more than 20 per cent last summer.
But the relationship between the two demonstrates how financial analysis can drive innovation and boost profitability. It’s an approach Renkema has practised since he started farming.
“It all goes back to how I set the farm business up,” says the 41-year-old egg producer from Baden, Ont.
“I wanted to be able to both work in the business and on it. I wanted to do the everyday farming and production piece of it, but also be able to step back and think about ways to drive the business forward.”
Renkema grew up on a layer operation near his current farm west of Kitchener, but his brother took over the business, his father concentrated on cropping, and he became a certified management accountant. He did well in that line of work, and was rising up the ranks of a major insurance company when he decided his real passion was farming. So in 2005, he and wife Kathy bought an existing operation with 20,000 units of breeder quota (worth $3 million) and three barns – two with “temperamental” feeders.
“On any farm, you have your sources of frustration, and mine were the chain feeders,” he says. “You move a lot of feed in a short amount of time and there’s a lot of weight on them and periodically – well, more than periodically – they would break.”
During the week, his regular employees could handle repairs. But he typically had students working on weekends, and a breakdown would be followed by a call to his house.
“Invariably, I would get a call on a Saturday or Sunday morning and it would be a two-hour job to get it up and running,” he says. “There was nothing fundamentally wrong with the equipment, but the type of equipment and the type of labour I had didn’t mesh well.”
There was an alternative – an auger-driven pan-feeding system – that was not only more reliable but also allowed more precise control of feeding, which both lowers feed costs and produces a more uniform bird. (Along with producing three million eggs annually, Renkema also raises 36,000 replacement layers.)
The problem was the cost – $20,000 per feeding system. So Renkema worked the numbers, using spreadsheets to analyse various scenarios and compare the costs, the benefits (notably reduced labour, more efficient rations, and improved productivity), and the payback period. When he added in an automatic feed weighing system, the numbers worked.
“I sort of mixed it all together until I got the right package,” he says. “And it also meant I would no longer have to babysit the feeding system.”
There was also a larger strategy at play. Renkema describes his business approach as “first focusing on what’s happening within the farm gate and then beyond the farm gate.”
“Sometimes there is a little bit of a leap of faith,” he says. “When you’ve redesigned the business so it’s operating more efficiently, you are now able to take advantage of other opportunities. Sometimes an investment can be marginal and you say, ‘Well if I do it, it won’t be a huge payback.’ But there can be fringe benefits – such as freeing up your time, so you can evaluate other opportunities.”
Which is what Renkema did. Replacing the old chain feeders focused his attention on his feed bill (the third-highest operating cost on his farm) and whether he’d been right in assuming it was something over which he had no control.
“In the financial statements, feed appears as one line,” he says. “I kept looking at that line and asking, ‘What can I do about this?’”
Making his own feed wasn’t practical. Poultry feed is precisely formulated and Renkema didn’t want to lose the guarantee of quality that his supplier provides. But he realized that if he grew his own corn and soybeans, he could essentially hedge his feed prices.
Once again, he carefully analyzed the costs and benefits. Eventually, he decided to take back 70 acres he had been renting out, bought some additional property, rented still more and for the past two years he’s been cropping 250 acres.
And while you could argue that replacing the chain feeders and taking up cropping are separate items, Renkema sees a connection.
“The core of your business needs to be strong,” he says. “For me, if I was trying to take on something new like cropping while still being dragged back into the barn for two hours at a time to do these repairs, well, I think the cropping thing would get dumped pretty quickly. Or I’d be neglecting the poultry side because I was so busy in the fields.”
Instead, he says he now has two complementary businesses. Last year, corn and soybeans generated about one-quarter of his income and roughly matched his feed costs.
“This is also important for cash flow,” he says. “The cropping side is helping me smooth out the lumps and bumps on the poultry side.”
This type of approach can work on any farm, Renkema says.
“The circumstances are different on my operation, but the opportunities are the same on every farm,” he says. “Every farmer has the opportunity to look at another business that might complement what they do now. They have the same opportunity to develop their skills that would allow them to go into a new business. It’s really all about driving profitability using business management techniques.”
Renkema doesn’t just take this approach on his farm, but helps others do the same. He assisted in the development of the Growing Your Farm Profits program, a business-planning workshop that more than 3,000 Ontario farmers have taken since its launch in 2009. As chair of the Agricultural Management Institute (takeanewapproach.ca), Renkema has been a driving force for the newly launched Advanced Farm Management initiative – five days of intensive management workshops spread out over the winter months.
A major advantage of this approach is that it allows you to look at your operation in a new way and opens up possibilities you might not otherwise have considered, he says.
“It’s fair to say that I wasn’t thinking of cropping when I first looked at feed costs. It was looking at the financials that led me to consider that.”
He’s quick to add you don’t have to be an accountant to do what he did — just have a firm grip on your cost of production and on what really makes you money.
“Certainly you want your core business to be strong. Then you can look around and say, ‘What else can I do?’” says Renkema.
The goal isn’t about doing more. It’s about obtaining a greater reward from all the effort you put into your farm, he adds.
“It gets frustrating when you’re spending all your time just maintaining the business. It’s a lot better when you give yourself an opportunity to develop it.”