Étienne Gosselin | Agronomist | Journalist
It takes capital to grow, position and modernize your business. But Quebec's agribusinesses are finding themselves increasingly deeper in debt. So when it comes to investing in your agribusiness, making strategic choices is more important than ever.
The Quebec agricultural economy is closely tied to supply management, with its highly valuable quotas. In recent years, land value has peaked, pushing the market value of farm assets to record levels. As a result, farms have found themselves with artificially inflated margins.
"Net income is supporting increasingly large amounts of debt, which has a big impact on liquidity," explains Gilbert Lavoie, an economist with Forest Lavoie Conseil, a firm specializing in strategic analysis. He adds, "Today, for every dollar earned before tax, interest and amortization, Quebec farms are carrying $6 in debt."
Over all, there's less flexibility than in the past. How will today's farm sector fare in the face of unpredictable risks like interest rate hikes, international free trade agreements that undermine supply management, and animal health issues like porcine epidemic diarrhea?
More than ever, investments must be considered with an eye to business performance. Alain Gagnon, agronomist and Vice-President, Strategies and Marketing, and Marjolaine Carrier, agriculture and agri-food market analyst with Desjardins Group, offer 4 tips with this in mind.
1. Plan your developmentWhat phase of development has your business reached? Start-up, growth, expansion, consolidation, transfer? "To guide your investment choices, you need a comprehensive strategic plan that looks at where you are now and where you want to be in the future," says Alain Gagnon. "A farms' strength lies in how well it balances resources," adds Marjolaine Carrier.2. Get training and adviceVisit farms, go to conferences, take training, and hire experts to help you cover the technical and economic aspects of your business. Do everything you can to make sure your assets are working for you. "Make sure you're working from a solid plan. When profit margins shrink, you need to maintain a strong capacity to repay," says Gagnon.3. Write it all outWhether or not you're in charge of the project, you need to have a clear idea of every phase before you start, the budget, how much working capital you'll need, what the timeframe looks like AND be able to stick to the costs outlined in the business plan. Failing this, you might be forced to restructure and sell off productive assets like land or quotas.4. Manage the risksAsk for input from an expert, like an account manager, who can help you identify scenarios that could affect your bottom line (drop in prices, lower returns, increase in interest rates, etc.). Put your project through a sensitivity analysis and make sure you have a range of strategies to handle unexpected events. This shows the strength of the plan and the entrepreneur.