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What is your competitive advantage?

Farm Business: Recognizing your farm’s competitive advantage helps narrow your focus

Michael Langemeier

June 18, 2024

2 Min Read
A young cornfield with alternating rows of male and female groups
SOMETHING NEW: You can see some differences between the groups of four female rows and two male rows in this field of seed corn. With the right equipment, enough labor and proximity to a seed company, producing seed corn could be your farm’s competitive advantage.Allison Lund

One of the key components of a strategic plan is to describe your farm’s competitive advantage. Simply put, your competitive advantage — or strategic position — is what your farm does better than anyone else. 

Why is this so important? Without this knowledge, it’s more difficult to determine which opportunities to pursue, how to allocate key resources among enterprises, how to improve your management skills and whether you need to outsource a particular management skill. 

For a farm to be successful over time by having above-average financial performance, it must respond rapidly to competitive and market changes, benchmark to achieve best practices and establish a few core competencies. 

A farm can outperform other operations only if it can establish a difference that can be preserved. To do this, a farm must either deliver greater value to customers, create comparable value at a lower per-unit cost — in other words, improve production and cost efficiency — or do both. Delivering greater value allows a farm to garner relatively higher prices for its products while improving efficiency results in lower average unit costs.

Assessing success

Most farms concentrate on efficiency or per-unit costs. A farm that pursues this strategy successfully will have a competitive advantage. When discussing the concept of a competitive advantage, two important questions need to be addressed. First, how does a farm know if its strategy has been successful?  Second, what are the characteristics of farms that are successful? 

The answer to the first question is benchmarking. How does your farm compare with other farms of the same relative size in these key areas? It’s particularly important to benchmark the operating profit margin ratio, the asset turnover ratio, return on assets and return on equity. Articles on the Center for Commercial Agriculture website address benchmarks for these financial measures. 

The answer to the second question is not as straightforward. If the answer to the second question was simplistic, it would be pointless to discuss competitive advantage because all farms would use similar inputs to produce similar products. 

Even though it’s difficult to definitively answer the second question, there are some concepts and techniques that can be used. These techniques typically revolve around key or unique resources that enable an individual farm to create a sustained competitive advantage. 

These could include unique ways your farm handles labor resources, or perhaps it relates to how you manage your equipment lineup. Perhaps you operate your farm with a much lower investment in equipment than farms of comparable size. Maybe your competitive advantage boils down to capitalizing on specialty markets for corn and soybeans with specific traits, differentiating you from other commodity producers.

About the Author(s)

Michael Langemeier

Michael Langemeier is a Purdue University Extension agricultural economist and associate director of the Purdue Center for Commercial Agriculture.

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