Dr. David M. Kohl
Professor, Agricultural and Applied Economics
Virginia Tech
Blacksburg, VA 24061
(540) 231-7727 (Jill Albert)
(540) 961-2094 (Alicia Morris)
e-mail: sullylab@vt.edu
Weekly Website Columns:
Ag Globe Trotter: www.farm-credit.com
Road Warrior of Agriculture:
www.cornandsoybeandigest.com
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
women’s role
Drivers of Change
in the Food System
Blue Sky
Incident
Passporting &
Traceability
Economy
Consumers
Environment, Global
Water &
Natural
Resources
Government
Policies
Domestic
Biotechnology
Information
Technology
Global
Competition
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
American Consumer
“Meal 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
Food Preparation Time
food preparation time at home has been reduced
dramatically, driven by higher incomes and technology
Food Preparation Time at Home
3
2.5
2
5
minutes
1.5
1
0.5
0
1930
1950
1970
Source: Wye College, University of London
1990
2015
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
–
–

digestion
–

high fiber foods
arthritis
–

foods with sodium
fats, cholesterol
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
Top Snacks & Times of Day
Morning: 45%
snack bars/ granola,
dairy products,
crackers, cookies,
chips/pretzels, leftover
pizza
Afternoon: 57%
chips/pretzels,
popcorn, seeds, nuts,
cookies, crackers,
snack bars/granola
Evening: 74%
popcorn, seeds, nuts,
chips/pretzels, cookies,
fresh fruit/veggies,
crackers
Seven Business Models of Agriculture
Early 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
Needs
Super 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
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
Needs
Traditional Commodity
wealth preservation
exit plans
production to business acumen
transition management
Vertical Integrated Agriculture
large livestock crop units
more younger producers
gains benefits of financial stability
technology from parent
companies
Contract Agriculture
high technology
younger producers
mixed and diversified producers
alliances and large agribusiness
farms
Needs
Contract 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
Lifestyle
proximity of population centers
off farm employment
less than $50,000 in sales
MAXIMIZE lifestyle
agriculture compatible with
employment
natural amenity
Value Added/Retained
exploits location, production
service agriculture
90 percent domestic markets,
10 percent international
people marketing skills
natural food
organic agriculture
Recreational Rural Experience
hunting and fishing
bed and breakfast – rural
experience
natural resource / location
natural amenity
people marketing skills
Needs
Recreational Rural Experience
operational advice
technology
time
project managers
opportunity interface
Rural Community Analysis
Quadrant I
Regional Trade Center
Characteristics
plentiful soil / water
globally competitive agriculture &
agribusiness structure
mix of large farm family units &
industrialized agriculture business
modest gov’t payments
Examples
Olds Alberta
Willmar MN
Emporia KS
Lexington NE
Western NY
Rural Community Analysis
Quadrant II
American Gothic
Characteristics
lack of infrastructure
schools
highways
hospitals
lack of natural amenities
gov’t subsidy zones
older producer & rural base
loss of capital
tweener farms
Examples
Prairie Provinces
Western Plains
Rural South
Rural Community Analysis
Quadrant 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
Rural Community Analysis
Quadrant 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
Global Competitiveness:
The Ag Side
RATING GAME





soil, water, human resources
infrastructure/technology
political stability
financial stability
market accessibility
Global Competitiveness:
The Rural Side
schools
hospitals
internet access
roads & infrastructure
amenities
cost of living
30-45 minutes from a mall
Managing People by
Generations
“The Leadership Challenge”
Veterans
Boomers
Xers
Nexters
Outlook
Practical
Optimistic
Skeptical
Hopeful
Work Ethic
Dedicated
Driven
Balanced
Determined
View of
Authority
Respectful
Love/hate
Unimpressed
Polite
Leadership by
Hierarchy
Consensus
Competence
Pulling
together
Relationships
Personal
Sacrifice
Personal
gratification
Reluctant to
commit
Inclusive
Turnoffs
Vulgarity
Political
incorrectness
Hype
?????
Motivating Generation X
delegate tasks & authority
acknowledge performance
establish own goals and selffulfillment 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
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
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 McDonald’s farm that
touches all senses
beef cows that drink beer and
get massages in California
ethanol plant and tropical fish
in Kansas
Four Cornerstones of Managing
A Small Business
P = O + C + L +
C
O
Profits
L
M2
2
M
Five Elements of Value Earned
& Retained Agriculture
outside-the-box thinking
money vs. time
niche commodity
working capital
exit plan
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
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

don’t put all your eggs in one basket
Rule #10 - missions and goals

a goal is a dream with a deadline