By Mark Twain's infamous definition, some would say that the cattle business is a whole lot like the weather: Everyone talks about it but no one does anything about it.
“When you sit down and look at the cattle business, whenever someone is making money, someone else isn't. That's why you have two or three years of profit and six or seven years of bad,” says Kenneth York, a purebred and commercial cattle producer from Marshall, Texas. “I'm still in the cow business and there are days that I hate it because someone has to lose for someone else to win.”
On the wrong end of too many consecutive years of drought, this unsettling reality pushed York to ponder how a lifetime in the cattle business was serving up a break-even livelihood at best. He didn't like what he saw. “We're only about two steps away from the back of a Skoal can for business management and we just can't do it that way anymore,” says York.
Rather than raise the white flag, though, York started looking for new ways to make the cattle business work. That's when he met a fireball from the permanent crops—fruit, nuts and the like—industry named Pierre DeWet.
Running the Reverse
“My dad used to say everyone cannot be the same and you be different. So, if everyone is making money and you're not, then there is something wrong with you. But, if everyone is losing their jackets, then there is something wrong with the industry,” explains DeWet who grew up in the family's farming business in South Africa. He continued farming when he came to the United States, went through the tail-chasing days of the 80's when folks were getting bigger to survive, which meant they had to buy bigger equipment, which meant more debt, which demanded increased size again to make the payments and so on.
“With our living standard in this country, we cannot grow commodities anymore,” says DeWet. “There are other areas of the world with less labor cost, fewer regulations and lower standards of living where they can grow commodities cheaper than we can...U.S. consumers spend 8.7 percent of their incomes for food and at that rate a farmer can't survive.”
Consequently, DeWet believes producers must uncover efficiency and add value through partnerships that start with the customer first. “There was a big deal made the last 15 years about vertical integration and so many people lost their shirts because suddenly they were trying to make a farmer into a marketer and a packer into a retailer,” explains DeWet. “So, I don't think that's the answer. I think the answer lies in strategic alliances where everyone involved can do what they're best at. That's what we're seeing more and more that the retailer is looking for an alliance with a grower and a packer in the middle all working toward the same goals.”
This isn't some sort of interesting conjecture, either. DeWet has proven the effectiveness of the strategy again and again since establishing Agtoprof in 1987 as a consulting company.
Today, Agtoprof manages 14,000 acres of almonds, pistachios, wine grapes, apples, cherries, oranges, tangerines and grapefruits in four different states.
Doing what you do best
Basically, the Agtoprof strategy is powered by an innovative administrative and input buying system developed by DeWet, which allows producers to manage their production more efficiently without having to spend all of the time doing such things as preparing bank and tax records, monitoring inventory, running to town to purchase supplies, making sure they are in compliance with regulations, etc.
“Our AgMin system allows you to make all of the management decisions while having someone else do all of the administrative work for you so you don't have to call 10 different people to find the best price, do payroll, deal with the insurance companies, put together budgets and the like,” explains DeWet.
In other words, the system gives a producer more time to do the things that he presumably got into the production business to do at the outset—raise the given crop to the best of his ability rather than ride a chair in front of a computer.
According to DeWet's father, “The best fertilizer a farmer can apply to his fields is his footsteps.” Yet, DeWet laments by the time most producers get done doing all of the paperwork there is little time left for taking care of the things that actually generate the cash.
“If you're out in the field you can catch most potential future problems at the time that you can manage them,” emphasizes DeWet.
Plus, the AgMin system combines the buying power of participants to demand lower prices be extended to local dealers on everything from tractors to chemical.
The price is right, too. “The percentage of dollars we take for the service (based on the products they purchase for participants) should not cost you anything,” explains DeWet. For the same dollars producers already spend on inputs, or less, they end up getting all of the AgMin services; and the extra time to manage their operations.
Giving them what they want
So, Agtoprof takes care of a producer's administrative and buying chores, while providing information tools that allow them to make more precise decisions. But, Agtoprof does all of this with an eye on what the ultimate customer wants. At least that is the model they adhere to for their current customers.
As an example, DeWet explains he and his clients went to one of the nation's largest orange buyers and asked him what it would take for to get a long-term growing contract. The buyer looked at them like they were nuts. All of the oranges in this country go to market during a very narrow window. During harvest there are more oranges than there is processing capacity. With that in mind, the buyer told DeWet and his associates he would give them a contract for all of the oranges they could bring ahead of the normal start of processing and a contract for all they could bring after the normal time the processor had to shut down production. Then, he would match that with a contract during the regular season for the same volume of oranges DeWet and his clients could deliver on both ends. These folks figured out how to adjust their production system accordingly, and that it would pay them to do so. Now, they have a long-time buyer for their product at a price that is better than commodity. They identified a customer challenge and figured out how to solve it.
Likewise, DeWet says, “We made a huge deal with an apple wholesaler and I kept asking myself why they would pay me a premium for apples when they could buy them on the open market for less. They said they needed consistency and a secure supplier.”
More to the point, DeWet says retailers are eager to sign long-term contracts with growers because they're worried how many producers will be left to supply them in the future.
Making it work in thecattle business
These are the kind of things Kenneth York learned from DeWet during the last year and a half. These are the kinds of things York believes can be applied quickly to the cattle business via the same AgMin system.
“For example, how would you like to have all of your records, buying and marketing done for you? How would you like to have three or four marketing options for your cattle?” wonders York. “That's what is possible with this system. The buying power is already there. We can unite the rancher with buying power that has already been there for a decade.”
Plus, York believes Agtoprof could hook producers into a vertically coordinated system where their cattle could command more as a value added product. He says the buyer interest is already there. In fact, York has already talked to two of the nation's largest food companies who tell him they'd sign a long-term contract immediately for a consistent supply of beef that fits defined specifications.
Although other systems today are offering value-added marketing opportunities to cattle producers, this would be the first to tie the marketing opportunity directly into an administrative and performance benchmarking system that took care of source and process verification as a standard course of business.
“I envision a network,” says York. “We can give the cow/calf producer better records and an information team to help him better manage his ranch and better identify problems.”
For instance, York explains, “In this system a producer can obtain records any time he wants. So at any given time you could call up and know immediately how much money you have wrapped up in the last heifer crop in order to make a marketing decision.”
Then, on the other end, York says the same collective power used to leverage down input costs can be used to ratchet up marketing opportunity.
As it is, however, producers are slow to wrap their arms around the innovation, in part because too many don't know exactly what their cattle costs or liabilities are in a multi-enterprise operation. Or, in a straight cattle operation for that matter.
With that said, York explains interest is picking up. And, the company is ready to offer the service to the cattle industry if their is enough producer interest to justify their involvement. In the meantime, Agtoprof is already aligned with a major feedlot that is aligned with a packer, which York says is ready to spring a brand new process on the world.
“This isn't 10 or 15 years down the road. This is right now. All of this can be done and I was told it couldn't be done,” says York. “I've learned more in the last 18 months than in the 30 years before it because I've started asking different questions and looking in different windows. I wasn't willing to gamble anymore.”