Economically Sustainable

by Grace Jacobson

Sustainability and marketing sustainability in products has been one of the most prominent trends in food and fiber the past few years. The word sustainable has been thrown around, but it encapsulates more than earth-friendly or “go green” efforts.

To producers and the livestock industry, the economic aspect of sustainability is typically the most important. This is because without an operation bringing in a profit and being economically viable, there is no farm or ranch.

However, producers do not have to choose what piece of sustainability they want to focus on. Typically, environmental, social and economic sustainability play into one another.

“If you don’t treat your land right then you’re not going to be able to graze on it, and you’re going to lose money,” said Dustin Pendell, Kansas State University professor of agricultural economics and Illinois native. “Don’t take care of your cows then they’re not going to be able to be re-bred.”

Viability Versus Sustainability

When you listen to popular agriculture radio shows or podcasts, you may hear the host and guests talk about what is sustainable or what is viable for an operation. Economic sustainability and economic viability may play into one another, but Pendell believes they are two different concepts.

“If you talk to three other economists, you would probably get four different definitions, but I believe economic sustainability is the practices an operation uses to create the longterm economic growth or economic profit while managing the environmental and the social aspects of the operation,” he said.

Economic sustainability is not something that happens overnight. It is being able to continue to maintain a profit year after year while still considering the environmental and social aspects of cattle production.

Pendell then defines economic viability as the costs and the benefits of different management practices and decisions. This goes back to the age-old question of “do the benefits outweigh the costs?”

Costs and benefits do not just have to be financial costs or benefits. There can also be economic costs and benefits, opportunity costs or other non-monetary benefits.

Advice for Success

Cattle producers are always at the mercy of the markets. Every year can be drastically different from the last. So, one of the first things producers must understand is how to reduce input costs while also maximizing potential benefits.

“If you can’t maintain profits, then you can’t be in business,” Pendell said.

There can be short cuts to this like over-grazing pastures when hay prices are too high, but there are other ways producers can maximize profits. Pendell suggests participating in branded programs, retaining ownership through the feedlot or even livestock insurance through the USDA.

However, those examples may not be the best for everyone. “No two operations are the same. Everybody’s unique and has their own constraints,” Pendell said.

For Curt Rincker, owner of Rincker Simmentals, using crop and ethanol production by-products is a way to use what may be considered waste into valuable feed. “We try to look at least costs rations that we think are economically sustainable for us,” he said.

A common theme to price risk management is planning. The best way to plan is by having a plan. A business plan and a contingency plan will be helpful guides when unforeseen circumstances arrive.

“Those plans can help drive those revenues,” he said.

Basic business practices like formulating and implementing a budget can ensure economic success of an operation down the road.

When executing a business plan, producers should collect different data points. These can be items such as feed costs, when calves are born or weaning weights. Collecting different data points can guide future choices like genetic selection which will help with overall operation efficiency and quality.

“Operations that don’t use off-farm income, typically what we see is they’re much larger. You don’t have to be large to be profitable and not have off-farm income,” Pendell said. “But these operations typically will keep records. They’re going to use that data when making decisions. They’re going to have business plans and contingency plans.”

Rincker believes that all good business starts with a business plan. Then a sustainable business is just good business.

The USDA reports that the average cattle herd in America is 44 head. With herds this size, off-farm incomes or supplementing cattle herds with grain farming is a normal occurrence. Off-farm incomes can be beneficial and a great tool to help support different cattle operations.

Value-added programs like direct marketing can also be great tools to help diversify a cattle operation. “Don’t be afraid to utilize as many resources as you can or capture every portion of that market you can,” Rincker said.

His advice for younger producers or producers just starting their operation is to try and keep a broad base to the operation. Specialization can narrow down potential business and can put producers into an unneeded tight space.

Together We Succeed

No matter if a producer is the fifth generation controlling the herd or they just bought their first head today, producers should surround themselves with experts in various fields.

“Make sure you have a good relationship with your veterinarian. I would say make sure you have a good relationship with your lender,” Pendell said. “Get to know and ask lots of questions to various leaders in the beef industry.”

County extension agents and staff are also important connections to retain for producers. They can provide information and expertise especially with new research and technology.

Rincker said the Illinois Beef Association staff and board members have important connections especially when he was not able to attend different functions or learning opportunities.

Outside experts and support are not the only people to maintain good communication and relationships with. With most Illinois cattle operations being familyowned, communication with family members is incredibly important, especially in terms of implementing an operation’s business plan or different production decisions.

Rincker believes family members should know as much of an operation’s business plan as possible.

Big Picture

Economic viability and sustainability are important to maintain individual operations. However, economic sustainability is important for rural communities. Pendell explained that when cattle operations fail, it can influence the local economy.

“You got producers that were making their livelihood through cattle and then spending their money locally. If producers aren’t able to reinvest that money, the local economy can suffer,” he said.

Land and pasture owners can also suffer greatly if cattle producers do not focus on economic sustainability. Most pastureland can only be used for livestock grazing and cannot support crop production.

Ruminant animals make unusable fibers and land into nutritious protein products. Grazing livestock are a large part of why the United States food system is as efficient as it is.

Most cattle producers’ goal is to have their children take over the operation and then gift it to their children. That means taking the necessary steps today and make a plan for tomorrow. Rincker said, “we don’t think we could have a fourth or fifth generation beef producer without trying to find sustainable ways to operate today.”

However, producers should keep in mind that not every year may be profitable. There may be years that markets, and prices limit the ability for producers to turn a profit. When that happens, producers should remember that if they have implemented different business and contingency plans, they should be able to survive.

Pendell said, “you could lose in the short run and still be you know, economically sustainable in the long run.”