Influence of Management on Ontario Beef Operation Margins

The long term prospects for cattle farmers in the province of Ontario will depend on their ability to stay competitive in a changing business environment: managing the returns to farm operations will be critical to their long run viability. Focusing on good management practices that reduce operational inefficiencies and that increase gross margins may be the best strategy available to producers for reducing costs and increasing output (Kalirajan, 1981). Such short run management decision making should translate into long run business viability. Groth (1992, p.3) argues that businesses operate under an “operating cycle.” An operating cycle includes the assets, cash, raw materials, work-in-process, finished goods and accounts receivable of the business – with each component varying by type of business. Managed properly the operating cycle is the origin of economic returns to the business operation. Operating cycles are important because: (1) managers can affect the cycle over short time periods – hence, management decisions and actions can yield immediate results; (2) the manager often has the authority to make changes and implement them right away; and (3) greater levels of economic returns can be achieved through effective management which reduce operating risk and lower the cost of capital over the long run. We use contribution margin to measure operational performance of Ontario cow-calf farms for these reasons. We focus on how Ontario beef farmers can improve their operational efficiency by (1) benchmarking their performance against competitors using key performance indicators (KPIs) of effective enterprise management; and (2) understanding the management practices of high margin farms in order to improve industry performance.