After six great days of presentation, we have finally come to the last day of the TEPAP conference.  This is only a morning session and our presentation on public relations plans was giving by Moe Russell of the Russell Consulting Group.

Moe shared that we had 3 sets of good time in the last 100 years (1) during the 1910′s, (2) during World War II and the period thereafter and (3) during the mid 1970′s.  He believes that we might be headed for our fourth set of good times.  However, in each case after these good times, a period of bad times followed.

Public relation plans can add to your bottom line.  These plans should be proactive, not reactive.  A good public relation plan deals with:

1. The neighbors
2. The press
3. Key influencers in the community
4. Landlords

When something bad happens, you probably have only 60 seconds to respond correctly to the situation.

Farmers need to know that they need to get green, grow green and stay green.  This trend will only to accelerate.

Reactive plans may be needed in case something goes wrong such as a chemical spill, fire, tornado, equipment accidents, etc.  You need to know how you will react.

When dealing with the press, remember to be:

• Honest
• Straightforward
• Brief, and
• Positive

Michael Mazzocco, Director at Verdant AgriBusiness Consultants, presented the afternoon session of day 6 of the TEPAP conference.  This session was on Market Growth Strategies for farmers.

To grow your farm revenues, you have seven degrees of freedom:

1. Increase sales – same customers; same product mix
2. Existing products; new customers
3. New products – same or new customers
4. Increase sales with better delivery / channel management
5. Expand geography
6. Change industry structure via acquisition/alliances
7. Cross industry boundaries

You can focus on only one of these or decide to incorporate a couple into your farm structure.

If a farm decides to grow, then there are three horizons of growth:

1. Horizon 1 – Extend and defend your core business first
2. Horizon 2 – Build your emerging growth business
3. Horizon 3 – Create viable options for that growth

Always be willing to shed your business of those operations that are running below your rate of capital.  By doing this, you free up resources to expand those operations that exceed your cost of capital.  This can be a double benefit.

We had a reader ask the following question:

“I ordered a new machine shed in December 2010, and put down a partial down payment. Can I take the bonus depreciation in 2010, or do I have to wait until tax year 2011 when the building will be erected?”

For new farmings buildings started in 2010, but not placed in service until 2011, the actual date when you can take the bonus depreciation is 2011.  Depreciation expense is allowed at the later of (1) the date bought or (2) the date available for service.  Even if you paid for all of the building costs in 2010, but did not finish the building until January, 2011, the bonus depreciation is taken in 2011 not 2010.

These date rules are true for equipment purchases as well.  If you buy a grain drill in 2010 that is unassembled and you assemble it in 2011, the depreciation is allowed in 2011, not 2010.

The morning session of Day 6 of the TEPAP conference was presented by Allan Gray, professor at Purdue University. This session focused on strategic management for farmers.Strategic management for farmers usually requires us to wear both hats – The General Hat (the leader) and The Troop Hat (getting the work done). We seem to spend too much time wearing the troop hat and not enough on the general hat.  

Strategy is all about change: 

•   Anticipating the future 
• Shaping the future  

 

• Capitalizing on the future

 

If you do not acquire the skills to anticipate the future, you will have a hard time either shaping or capitalizing on the future. It requires us to be proactive not reactive. Strategic thinking means looking outside our business to see how it affects our business. You must do your PEST analysis: 

• Political 

• Economic 

 

• Social 

 

• Technology

 

Strategic management requires hard work, but the effort will more than pay for itself if the process is taken seriously. 

SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis will help assess the current situation of the farm. The TOWS matrix will then take this analysis match external opportunities and threats with the internal strengths and weaknesses. Just doing the SWOT analysis does not create a strategy. A farmer needs to implement their TOWS analysis to create the farm strategy. 

The afternoon session of day 5 of the TEPAP conference was presented by Brent Gloy of Purdue University on improving profitability through process improvement.

On process improvement, it is important to understand that it is difficult to manage output, whereas is very possible to manage inputs. Farmers need to determine and manage the factors that cause our expected output to deviate from the optimal.

Remember that you can not manage what you can not measure. There are two causes of variation. Common cause variation is naturally occurring variation inherent in systems. You will usually not be able to manage this totally. Special cause variation is caused by a specific event related to the process. This is what a farmer must manage. It is hard to understand the common cause variation without removing the special cause variation first.

Summary observations are as follows:

• It can be easy to get overwhelmed or too far into the trees 
• It is easy to pick too big of a project – keep it small 
• Done right will take some time 
• It is critical to have employee buy-in 
• Don’t be afraid of the obvious 
• Look for unintended consequences 
• Find creative ways to incentivize performance

Almost every process on the farm can have both common and special variation and more than we can reduce and eliminate special variation, the better your farm operation will be.

The morning session of day 5 of the TEPAP conference was performed by Bernie Erven, professor emeritus of agricultural economics at Ohio State University (of THE Ohio State University as one farmer told me this week). His discussion was on Human Resources Management dealing with:

•  Be a Better Boss 
• Organizational Structure 
• Dealing with Problem Employees

Highlights of each are as follows:

Being a better boss primarily requires us to communicate with our employees better than we are doing right now. There are many ways of achieving this, however, in all cases it requires us to communicate better, both verbal and in writing.

On your organizational structure, it is extremely important to know your span of control. If everyone of your employees report directly to you and you have more than 5 employees, you probably need to fix your span of control. In most organizations, about 5-6 people are all that should report to one person.

In disciplining problem employees, it needs to consistent and follows the same procedures or it will not be perceived correctly. If you have chronic under performers, there may be up to 14 possible reasons for this. Many of these reasons relate to you as the employer versus the employee. Make sure that you can correct these issues first and then see if the employee remains an under performer.

In dealing with under performers, make sure to DO SOMETHING about it. Refuse to allow the problem to fester. Stop the negative effects on the business, the worker’s happiness and the worker’s effectiveness.

As an employer, you want to be friendly and fair with all employees, but be a buddy of no employee.

We had a reader send in the following question:

“I read a post from you a week ago or so about 100% bonus depreciation on farm buildings. Looking at putting up a machinery shop will I be able to deduct all of the cost my 2011 taxes if I put the building up this year and have the income to cover it.”

Farmers sometimes get Section 179 and bonus depreciation rules mixed up.  Section 179 has an overall income limitation that applies to the actual deduction that might be allowed.  For example, if the farm generates $200,000 of net income before the allowable Section 179 deduction (including depreciation on all other assets), then the total amount of allowed Section 179 deduction for the year is $200,000.  This is true if the asset placed in service costs $500,000.  Remember that farm buildings are not available for the Section 179 deduction.

Now, in the case of bonus deprecation, as long as the building is a NEW building, the income limitation do not apply.  Let’s take the case of the farm building costing $500,000 with net farm income after all other costs of $200,000.   In this case, the farmer is allowed to take a full bonus depreciation deduction of $500,000 and show a $300,000 farm loss.  If the farmer has no other income, they can carry the loss back two years to offset income in 2008 and 2009 and forward to 2011 and beyond until they use it up.

Remember on all new equipment, farm structures and farm buildings placed in service in 2011, the farmer can deduct 100% of the cost without worrying about the overall income of the farm operation.  Also, make sure to review this with your tax advisor to determine if your structure is set up properly to allow the full deduction.  If you are an S corporation and this bonus depreciation creates a loss greater than your available basis, you will not be allowed to deduct the full amount of bonus depreciation this year.

The afternoon session of day 4 of the TEPAP convention was presented by Gary Maas on dealing with all of the different personality types associated with a farm operation (or in life).

The interesting part of the presentation is how your personality based upon your natural style may be completely different from the style you adapt during your work career. To effective managers may be able to determine which of their natural traits can be changed to be more effective, however, you must be careful not to change too much which can cause emotional issues.

As a farmer in hiring decisions, are we making the decision based on quantitative (experience & education) or on qualitative (attitude, chemistry & attributes). It would be much better to stress the qualitative over the quantitative.

It is important to understand the personality traits of who you are dealing with so you can determine what is important to them and adjust accordingly.

David Kohl, noted speaker and professor from Virginia Tech University provided a morning session on Mega Trends for agriculture. Highlights are as follows: 

•  70% of North American farms will change hands by 2025. This is not just ownership, but who farms the land. This provides plenty of opportunities for American farmers.
• Volatility will require an offense, defense and special teams. Offense will be your management of revenues, defense will be your management of farm input costs and special teams will be your interest rate management. These will need to be balanced. You can not spend too much time on one at the detriment of the other two. 

• We must be careful of the “New Normal” of agriculture. We have had several years of bullish trends for cropland farming, however, we must protect from expecting the “New Normal” to be normal. 

 

• If oil prices continue their trend above $90 and exceeds $100 per barrel, the shock to the system could easily send us back into a second recession.  
• Our employees coming into our system no longer are motivated by compensation, but are primarily motivated by lifestyle issues. We need to understand AND embrace it. 
• We will continue to automate out the marginal workforce in both business and farming.

  

For the Tuesday afternoon session, we were privileged to have the last formal presentation done by Dr. William Carden, CEO of The Carden Group. Dr. Carden’s discussion was on effective delegation by farmers.

One thing that resonated with me was that as farmers, we need to delegate the expected results to our employees not the tasks. So many times, we tell our employees to get this task done, when we need to communicate to the employee in writing what our expected result is, not necessarily how to do it.

In summary, Dr. Carden stressed:

• Get rid of the thought “I can do it better and quicker”.
•  Delegate the results, not the method. 
• Delegate every decision down to the lowest-ranked employee capable of making the decision. 
• Acknowledge the work, no matter how trivial. 
• Once you have delegate a task, DO NOT EVER take it back unless there is truly an impending disaster.