Al's Obs on holons and business structures

by Allan Nation

I have read that possibly as much as 90% of the difference in profit between businesses in the same industry results from the business model that the entrepreneur initially follows.

And yet, most of us make this most important decision without much forethought.

For example, multiple-species production models, multiple enterprise business models and holonic business structures all sound similar but have very subtle differences that you need to be aware of.

To fully understand these differences we must go to the very heart of agriculture - the energy source you use.

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All land-based agricultural production systems exist to capture solar energy in some form that can be converted into human energy. These enterprises all measure their profits on a land unit acre basis.

A beef feedlot, confinement chicken or hog house is not a land-based agricultural production system because the energy is captured on land elsewhere and brought to the animal.

Such feed importing enterprises typically do not measure their profitability on a per acre basis but on a per animal basis.

Again, this difference may sound subtle but it is not. Here’s why.

Of all the world’s energy sources human energy is the most expensive and solar energy the least expensive.

Therefore, production margin per acre is the widest when solar energy use is maximized and human energy is minimized.

Industrial agriculture has done this by substituting petroleum energy for human energy. However, the widest of all per acre margins occurs when an animal harvests its own feed directly from the land where it is grown.

With fruits and vegetables this can be a pick-your-own business model, but in animal agriculture this means direct-grazing.

Everything and anything that intervenes in the capture and conversion process diminishes the return per acre. If you can grasp this simple fact, you are 90% on your way to making a high return from agriculture.

MULTIPLE SPECIES GRAZING

If we study nature’s production model, we find that animals find it energy conserving to not compete directly with other animal species for their food supply. As a result, they develop specific feed niches.

Among ruminants, the four major feed niches are coarse grass, fine leaf grass, broadleaf weeds and browse. These four feed resources are found in all natural temperate environments but vary as to the percentage mixture. This variation is primarily a function of the reliability of rainfall but also is impacted by slope, aspect and periodic flooding and fire.

It was the dominant feed mix that determined which species was the dominant grazer.

For example, grass niche bison tended to be a dominant species in the mostly grass North American Plains whereas deer tended to dominate in the browse-rich East and Southwest.

However, there were deer in the Plains and Bison in the East because there were still the four feed niches - just in differing amounts.

The point to remember is that nowhere in nature was there only one species of grazing animal. There was always a mixture. Africa has the highest natural meat production per acre in the world because it has the most diverse mix of grazing animals. Think of the African giraffe browsing the tops of the trees. You don’t see that kind of species diversity in North America or Europe and so the harvest efficiency is lower.

The bottom line is that multiple species grazing always increases the economic harvest from a land area. The key is that the dominant species should match the dominant forage group.

Increasing net return in agriculture comes primarily from increasing the solar interception interface (pasture density) and the efficiency of harvest (MiG and multiple species).

Graziers with only cattle do not see broadleaf weeds and brush encroachment as an economic resource but as a problem to be eliminated.

Add sheep and goats and the problem becomes a source of cash flow.

Conversely, a prepared seedbed sward of annual ryegrass, offers little opportunity for multiple-species grazing because there is no feed diversity.

Holistic economist, Peter Senge, said we must realize that “we and our problems are always a part of the same system of thinking.”

The system of thinking that creates most of our problems in grassland agriculture is that we try to impose “human centric” policies upon nature. By human centric, I primarily mean the eternal human desire to simplify things so as to eliminate the need to think.

At the heart of industrial agriculture has been a “dumbing down” of how nature works.

For most modern farmers, weed control can only come from a herbicide.

Internal parasite control can only come from a wormer.

Winter feed only comes from a large roundbale or the silage wagon.

And, soil fertility only comes from a fertilizer sack.

All of these are easy solutions that require no thinking. Just bring your checkbook.

The problem with this approach is that it narrows the monetary margin per unit of production and therefore requires an increase in volume to offset the loss in knowledge.

As organic farmers show us, there is always a “natural” solution to every problem in nature. The problem is that this “natural way” always requires more knowledge, forethought and pre-emptive action.

In other words, if your goal is to maximize margin per unit of production you must primarily work on preventing problems rather than trying to solve them. To prevent problems you must understand the root cause of the problem and then avoid that situation.

That requires knowledge and knowledge requires learning time. In other words, obtaining knowledge is never “easy” because it always requires time.

NATURE IS ALWAYS A WIN-WIN

All natural plants contain toxins know as “anti-quality” factors. These toxins help prevent that plant from being totally removed by its grazing “predators” such an insects and ruminants.

But, these anti-quality elements help prevent internal parasitism in ruminants and are also thought to help prevent cancer and other maladies.

Unfortunately, agronomists have been breeding these anti-quality factors out of forages to increase animal intake on man-made monoculture pastures.

As your doctor can point out, the only difference between a medicine and a poison is the dose. Grazing animals apparently dilute these plant toxins by grazing on many different plants which they can’t do on a monoculture.

For example, goats - which always eat sparingly of any one species at a time - can eat plants too toxic for cattle and sheep.

What causes “problem” plants such as Leafy spurge is the lack of grazer diversity. Every plant is a part of some grazer’s feed niche.

While we tend to think of cattle as a bulk-grass eater, sheep as a fine grass and forb-eater and goats as a browser, all three species can and do eat some of all four major forage groups.

European cattle, for example, evolved in a forested environment and relish, mineral-rich broadleaf tree leaves. Similarly, goats will also eat some grass.

That there is some cross-over does not invalidate that each species is primarily seeking a particular feed niche. This was because the feed competitors were always close at hand.

If we study nature, we find that most grazers grazed in close proximity to one another as this maximized protection from predators. However, this co-grazing also greatly helped in controlling species-specific diseases.

From a health standpoint, the most dangerous thing to do is to get cooped up in close proximity with a bunch of your same species. In other words, it is healthier to live in a house with your dog than with another human.

Most animal health problems, including animal parasitism, are species specific. Mixing grazing species helps to provide a natural “firewall” to contagious diseases and

For example, cattle are a dead-end host for sheep and goat internal parasites and vice-versa.

However, the pig is even more efficient at eliminating internal parasitism in ruminants as they concentrate on eating fresh manure seconds after it hits the ground.

In years to come, I think we will recognize that the free-ranging pig is probably the most important addition to a ruminant enterprise.

Fresh cow manure from green pasture was described in the old farming books as the most nearly “ideal” feed resource for producing healthy pigs.

As Gearld Fry has pointed out, unhealthy animals are not “natural.” Health is what is natural.

MULTIPLE ENTERPRISES

There is very little “natural” about the typical multiple enterprise farm or ranch.

In contrast to the close intermingling found in nature, most multiple enterprise farms firmly separate the species.

Pigs are in their own pens or paddocks. Chickens in theirs. Cattle in theirs. And, so on. There is no synchrony or self-reinforcement.

Separate feeds are formulated and used.

In most cases, the feed fed to the pigs and chickens is grown somewhere else.

In all such cases, the manure eventually produces a nutrient imbalance both where it is fed and where it is grown.

Because the animals are penned in close proximity to each other, animal health problems can be severe without chemical intervention.

So, why do we do it this way?

Because it is simple. And because it is simple it requires little knowledge and training time.

We can and do teach people right off the boat how to do it faster than they can learn English.

Your CPA loves it because it is easy to allocate costs and determine economic results.

And, there are a million very helpful salesmen willing to solve any and all of your problems just a phone call away.

But, it is a long way from capturing solar energy in a crop and direct-harvesting it with animals.

Even when the chickens, pigs, sheep and cattle are fed their precision formulated feeds on pasture, it is not a “natural” system.

While farmers and ranchers have been busy imitating industry, a handful of urban economists think that nature offers an economic model to industry. This is called “Holonic Development.”

HOLONIC DEVELOPMENT

This “natural” way of business organization was first discussed by Arthur Koestler in his book called The Ghost in the Machine.

In studying living organisms, he saw that entirely self-supporting, non-interacting entities do not exist.

Every living organism is dependent upon other independent living organisms for its survival. The key word Koestler emphasizes here is independent.

He noted in nature that no one had to organize and manage what was in essence a very complex operation.

Each organism is a self-managing “whole” unto itself and yet plays an integral role in another “whole”just by doing its thing.

Koestler noted that while nature was very complex it was very stable, highly resistant to disturbances and yet adjustable to change in the environment.

In contrast, industrial systems were very brittle because there was no self-reinforcing mechanism or synchrony in its various parts.

And, the more “efficient” it became the more brittle it became.

For example, today’s industries are dependent upon supply chains that stretch around the world. They are totally dependent upon low-cost, uninterrupted transportation.

If a hurricane ever hits a major container port, it will send economic shock waves around the world.

In addition to being very brittle, Koestler said that for there to be synchrony in an industrial system required a huge amount of communication and coordination between its various parts. As a result, management consumes a great deal of economic margin.

In contrast, nature hums along with no one in charge.

Koestler said this was because of the independence of the parts of the whole.

No one has to teach a pig to eat cow manure. It just “knows” to do this.

The pig is free to grow and develop fully as a pig and yet it is dependent in this situation upon there being a cow for its survival. The pig was a pig and yet a part of the cow and the cow was a cow and yet part of the pig.

While mutually beneficial to one another, the cow and the pig did not have to communicate or coordinate their actions or even fully understand one another. What a lowering in management and input costs if a business could be structured in the same way! Koestler hypothesized that it was this factor of self-management of the smallest parts of the whole that gave nature its stability and resilience.

He called these small independent business pieces of the bigger puzzle holons and a holonic organization a holoarchy.

The primary business he called the “centerpiece.”

He described the centerpiece in Star Wars terms as “The Mother Ship.”

Unlike an enterprise, a holon’s primary role is to reinforce and strengthen the centerpiece rather than to be a freestanding enterprise.

He said what makes a good holon is something that re-uses a pre-existing knowledge and capability and requires little no additional overhead. In fact, its primary job is to spread pre-existing overhead over new dollars.

The “profit” a holon makes is often called “contribution to overhead”in accounting terms.

Follwing Koestler’s ideas, for the last dozen years or so we have structured our multiple income source publishing company as a holoarchy and it has proven to be a workable if somewhat hard to explain business structure. It is hard to mesh with modern accounting because holons seemingly have no overhead costs and so can appear vastly more profitable than the centerpiece enterprise.

However, this high profitability is largely an accounting illusion.

To put this in our manure-eating pig context, the pig appears to be pure profit because the manure has never been seen as - or accounted for - as a feed resource with value.

However if the manure begins to be charged to the pigs as feed, the profitability of the cow herd will go up with no extra effort or expense.

If effect, the pigs create value from nothing. This is the way holons “pay” their way.

They increase the profitability of the centerpiece by utilizing wasted resources and by amortising overhead costs including marketing costs over more dollars.

Those of you who are direct-marketing know that it costs very little more in extra marketing costs to sell several items at a farmers’ market as opposed to just one.

Similar cost savings can be obtained in labor as well.

Joel Salatin said he is able to sell his grassfed beef for the lowest price in Virginia because he can spread his fixed labor costs over 13 enterprises.

“The problem with single enterprise farms is that they typically have to pay for more labor than they actually need,” he said.

“For example, no grassfed beef operation requires an eight hour day but it is hard to hire someone for less than a full day’s work. Our unfair advantage is that we can lower our fixed labor costs (four full time workers) by fully utilizing it. This allows us to sell our beef at a lower price than someone who only produces beef.” Since holons are normally structured to only account for their direct costs, it is easy to lose sight of the fact that it is the Mother Ship (centerpiece) absorbing the overhead costs that makes the holon even possible.

Holons are an excellent way to bring a child or other family member on board your operation. They can start part-time and have their own business to manage and grow

By tying effort to financial result, they can “make” their own money without having to communicate or coordinate closely with you.

If you reallocate your costs, you will find that each holon that is added increases the profit of the centerpiece with no extra effort on your part. You want a higher income but more leisure time? Holons are a way to do it.

Koestler recommends that starting a new holon should start with finding someone to be responsible for it. If not, it should require next to no additional time on your part.

The point he makes is that a holon that takes management time away from the centerpiece can cost more than it earns.

The best way to keep the labor costs low is to make the companion species few in numbers and essentially free-ranging. This can be done by keeping one-wire fences high enough to allow companion species to cattle to go underneath.

With goats you can build narrow goat steps over the fence that only they can use. Pigs will shift with the cattle as they prefer fresh manure.

SUMMARY

In summary, the best judge of whether you have a holon or an enterprise is whether or not you are having to buy feed for it.

If you are buying in feed, you have an enterprise. If the animal is living on a feed resource that is unused by the centerpiece species -and therefore free - you have a holon.

No matter where you account for it, free feed is a great way to increase your operation’s bottom line.

© by The Stockman Grass Farmer


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