June 12, 2018
By: Dr. David M. Kohl
How will economic megatrends press the paradigms of future leaders in the agribusiness sector? This thought-provoking question provides insight into the challenges and opportunities that are ahead in the agriculture industry. What strategies will individuals and organizations need to implement to prepare for proactively managing and capitalizing on economic megatrends? While this subject could fill a semester of lectures in a university class, let’s focus on a few key aspects.
Historically, the agriculture industry has been required to navigate business operations in a volatile environment. The future leader will be confronted with extreme volatility in an economic environment of smaller margins. During the economic commodity super cycle from 2006 to 2012, high commodity prices were the norm, making it easier for producers to more easily absorb fluctuations in prices and cost. However, with today’s suppressed margins, the ability of a leader in the agricultural field to execute a well-managed game plan will be a requirement, not an option. In the future, these leaders will have to integrate changes in currency values and the impact of foreign and domestic trade negotiations into both short- and long-term strategies.
The agriculture industry has experienced a decade of low, flat interest rates. In the next few years, agriculture leaders must manage debt and capital in an environment of increasing interest rates. These rising rates, coupled with tighter margins, increase the emphasis on financial sensitivity analysis of cash flows, overall debt structure and repayment terms.
Special emphasis must be placed on working capital and overall capital management to absorb occasional negative changes in profits as a result of price, cost or interest rate variability. This will be the buffer for adversity, but also the catalyst for opportunity and change.
There is a saying that “90 percent of success in business is about alignment.” The forward-thinking leader will align land, labor, capital and information resources with talent and management. These two components will then be meshed with changes and forces in the marketplace. Closely watching consumer trends, both domestically and internationally, will be critical for future business leaders.
The marketplace has splintered as a result of shifts in consumer preferences of Millennials and Generation Z. These generations seek experiences, and agribusiness leaders must adapt to these changes.
The future of agriculture and agribusiness will not be one-size-fits-all. Some businesses will be best positioned for the commodity markets with a model based on efficiency and low cost. Other businesses will be adaptable and tap into niche markets to fulfill a need or provide a service. Some producers will employ a combination of both marketing strategies.
People management will be the differentiator of business performance in the future. Independent leadership will be replaced by individuals who are interdependent and can build a productive work and business culture of high-performing employees and customers. As younger generations move toward technology, maintaining the balance between interpersonal skills and technology will be a challenge. Future business leaders must embrace the confluence of these skills as an opportunity.
Many economic megatrends will impact the future of the agriculture industry. Volatility can result in opportunities, but it also can result in failure if not managed proactively. Interest rates will impact the cost of doing business and asset values. Consumer trends will require constant research and assessment. People management will continue to be an important business skill. There is a bright future for the agriculture industry when its leaders embrace these changes.
About Dr. David M. Kohl
David Kohl received his M.S. and Ph.D. degrees in Agricultural Economics from Cornell University. For 25 years, Kohl was Professor of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Tech, Blacksburg, Virginia. He was on special leave with the Royal Bank of Canada working on advanced initiatives for two years, and also assisted in the launch of the successful entrepreneurship program at Cornell University. Kohl is Professor Emeritus in the AAEC Department at Virginia Tech.
Kohl has traveled over 7 million miles throughout his professional career! He has conducted more than 5,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,000 articles on financial and business-related topics in journals, extension, and other popular publications. Kohl regularly writes for Ag Lender and Corn and Soybean Digest.
He has received 11 major teaching awards while teaching over 10,000 students, and 17 major Extension and Public Service awards from Virginia Tech, Cornell University, and state and national organizations. Kohl is a two-time recipient of the prestigious American Agricultural Economics Association's Outstanding Teaching Award. Kohl is only one of five professors in the nearly 100-year history of the Association to receive the award twice. He received the Governor's award for his distinguished service to Virginia agriculture, the youngest recipient to receive this award.
Kohl has addressed the American Bankers Agricultural Conference for over 30 consecutive years, and has appeared before numerous state bankers’ schools and conferences throughout the U.S., Canada, Mexico, and the world. He has also been one of the top rated instructors at the LSU and Colorado Graduate Schools of Banking, and is Chancellor of Farm Credit University, which has trained over 700 lenders using an online and face-to-face educational approach.
As facilitator of the United States Farm Financial Standards Task Force and member of the Canadian Agricultural Financial Standards Task Force, Dr. Kohl was one of the leaders in establishing guidelines for the standardized reporting and analysis of agricultural producers' financial information on a national and international basis. The Kohl Agribusiness Centre has been established in the College of Agriculture and Life Sciences at Virginia Tech in honor of his long-term commitment to practical teaching, research, and extension.
Kohl is currently President of AgriVisions, LLC, a knowledge-based consulting business providing cutting-edge programs to leading agricultural organizations worldwide. He is also business coach and part owner of Homestead Creamery, a value added dairy business in the Blue Ridge Mountains.
On a more personal note, Dave enjoys playing basketball and likes most sports, farms, dogs, and covered bridges; he dislikes lazy students, administrative bureaucracies, and paperwork!
If you would like to keep up with Kohl’s information and perspectives, you can find his weekly columns on the following websites:
Ag Globe Trotter: www.farm-credit.com
Road Warrior of Agriculture: www.cornandsoybeandigest.com
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