How is this different from what I get from my own accountant looking at my farm financial statement?
Benchmarking data shows what all your data means to you as an agricultural producer. More importantly, it can lead you to ask questions of your farm operations based on that document. Anyone can produce charts, graphs, or tables. BDO’s standardized financial statements and benchmarking introduce meaning, understanding, context, and foundational support to take operations to the next level.
Am I in a good position to add equipment?
Together, we can review the benchmarking information, including the 5-year equipment graph. With that information, we can show you where your equipment spending falls against the benchmark. From this, we can determine whether adding equipment is a logical choice. We can also look at interest expense per acre to make sure you’re in line with the industry average.
My equipment costs per acre are well above the benchmark. How can I improve on this?
A review of the benchmarking information can lead to discussions on whether added acreage could be a solution to high equipment costs. Ask yourself: how many more acres could you farm without adding any equipment to your fleet? This opens up discussion on whether renting or buying is the best option.
Are producers that are spending less on fertilizer and chemicals yielding the same results?
Based on what we’re seeing in the trends: if every year, you’re investing more into fertilizer and chemicals than your neighbours, and your profitability based on the contribution margin is lower than theirs, your neighbours are benefiting from the lower cost. This is a conversation to be taken up with your F&C supplier, where they can discuss their suggested program for your farm.
Is my data really comparable to the benchmark?
Yes it is. The methodology and diligence that we employ in the preparation of our standardized financial statements forms the basis of the benchmark. All BDO offices gather and present the data of our clients in the exact same manner following guidance and rules provided by external consultants. To build a benchmark that has real meaning to our clients, our full team continues to honor the same commitment to ensure data is consistent.
How does this help me with my bank providing financing?
While the final answer to that question is with the banker, if our clients are collecting better information and having better-informed conversations around that information, we can engage in better conversations with the bankers.
When a client can demonstrate that they’re keeping pace with their peers or exceeding the expectations of their peers, the bank can then make a more informed decision on the risk of the operations they’d be investing in. If they’re not keeping pace and have the data in hand to clearly describe what the anomaly is, along with the plan to address that anomaly, the conversation with the banker becomes more valuable. Using better information in a positive manner will always yield better results.
Can you break the data down into more detail?
This is possible if we had the data from the books and records of the primary producers. Most producers do a great job of analysing the crop output; but it’s the data around the inputs that we don’t see broken out by commodity. To get a level of detail that would have meaning, we would have to ask all of our clients to stratify their seed, fertilizer, chemical, and machine costs by crop. That’s a substantial ask at this point in time. Theoretically, we could stratify the data being gathered and then look at the data within a small geographical area. However, looking at it on too small of a subset loses the statistical validity of the data. Theorists advise on looking at whatever the critical mass is to smooth out any individual anomalies—and we’re honoring that guidance.
Can I share this information with my neighbour?
If you’re comfortable sharing your financial data with neighbouring farms, absolutely do share. If you believe you can make better business decisions with this information, sharing with your neighbour could lead to better business decisions being made collectively throughout your community. New farmland is sparsely available within Canada, so we must all do our part to use what we have as wisely as we can.
Do we take into account whether farmers are established vs. newer to farming?
We address this by moving all the capital-related costs into a separate section—that’s where the differences will mainly fall out with potential lower interest costs, lower amortization, etc. Regardless of how long you’ve been in business, you still have to manage your costs in the same way and make the best decisions for your farm. Contribution margin would have the same benchmark regardless of how long you’ve been in business.
My feed cost seems to be out of control. How does this compare with others?
Your feed cost can vary from year to year based on many variables. Was it a bad year for weather? Did you have poor-quality haylage, therefore needing to increase supplements input? Did the market price of crops increase, making the feed price go up? Are you trying to give more supplements to increase your butterfat and milk income? While these are all factors that could cause your feed expenses to go up, we can analyze your feed cost over 5 years and compare the ratio with other dairy farms by looking at benchmarking data. We can determine if there is a trend or if the increase is just due to an unusual year. Together, we can also determine if the increase in supplement to increase milk production will result in actual increase of profit.
For any further questions, our team would be happy to continue the discussion.
Mark Verwey, National Agriculture Leader, CPA, CA; RFP, CFP
Francois Bourgeois, National Crop & Livestock Leader, CPA, CA