Foothill Farming
University of California
Foothill Farming

Posts Tagged: Economics of Agricultural Production and Farm Management

Small Farm Evolution in Five Easy Steps

Like any small business, small farms undergo a series of transformations during the course of their lives - from youthful exuberance to middle-age crisis to confident maturity (hopefully).  Looking at the history of my own farming endeavors, I see that we've traversed at least four evolutionary stages – and we're hopefully headed for a fifth!

The Romance Phase

In the mid-1990s, we raised a handful of cows and feeder lambs.  I read many of the key books in the small farm movement (from authors like Joel Salatin, Elliot Coleman and Gene Logsdon).  We sold calves when we weaned them in the springtime, and we raised enough feeder lambs for friends and family that we could put a lamb (or two) in our freezer each fall at no cost to us.  I served on the board of a relatively new local food organization (PlacerGROWN), and we started raising laying hens and growing vegetables.  With a growing family and a dream of creating our own small farm, we purchased 3 acres with 2 barns and a home in Auburn.  In the autumn of 2002, I took our first crop (pumpkins and popcorn) to the Auburn Farmers' Market.  We also purchased 10 meat goats and more feeder lambs to manage the blackberries and weeds in our pasture.  We were on our way!

Looking back, I realize that I didn't know enough to realize that the books I was reading were long on production systems and short on business reality.  In many ways, I drank the cool-aid, as my friend and fellow farmer Jim Muck says.  Micro farms, like the one I'd just started, were going to save the world from industrial food production.  I had no concept about the importance of scale to the future viability of my business.

Experimentation

I'm not sure there's a clear delineation for most small farms between the romance and experimentation phases.  For Flying Mule Farm, part of the romance and excitement about starting our farm was the opportunity to experiment with new crops and new livestock.  Part of our experimentation was driven by the mistaken belief that we needed to grow everything our customers wanted to buy (and everything we wanted to eat).  Specialization and focus was the downfall of industrial agriculture, in my perspective.  Diversity was the key – every successful small farm needed multiple crops and several species of livestock.  During this phase, we grew spring, summer and fall vegetables (at the peak of our vegetable experiment, we grew on about a quarter acre at home and on another acre of rented land nearby).  We started experimenting with greater numbers of sheep, buying 12 Barbados lambs to graze on brush on a friend's timberland.  We added meat birds to our chicken flock (our oldest daughter, Lara, reminds us that we butchered chickens – with her help! – on her first day of kindergarten).  We sold most of our own brush goats but eventually bought breeding ewes.  We leased (and lost – and regained) pasture land in Grass Valley, Lincoln and Auburn during this stage.  We tried cutting firewood and milling lumber commercially.  And we experimented with the use of draft animals as an alternative to tractors.

In many ways, I loved the experimental phase of our business – especially the outdoor work and our time at the farmers' market.  Since we were only at the market seasonally, I still had some Saturdays off.  And since our oldest child wasn't yet playing sports on Saturdays, I wasn't conflicted about missing family activities - more on this later!

Wow – this is costing us a fortune! Maybe we need to treat it as a business!

As our knowledge and skill levels improved, we began to see that we needed to treat our farm as a business.  We couldn't simply keep growing and raising things without understanding what each crop or type of livestock meant to our economic and financial well-being.  The books I'd read didn't seem to emphasize this aspect of farming.  And in the back of my head, I began to realize that there were biological limits to the amount of income an acre of vegetables or 100 acres of unirrigated pasture would produce.  I started to suspect that we needed to get bigger.

During this stage in our evolution, I participated in the first Farm Business Planning Short Course offered by our local extension office (I've since helped teach this class – now in its eighth year).  While I examined all of our enterprises (looking at my economic analysis spreadsheets from that time, I see that we had vegetable, sheep, custom grazing, goats, firewood and other forest products, laying hens and meat chickens).  While I was still working part-time, I started thinking seriously about the hourly return to my labor from each of these enterprises.  I realized I didn't care for raising meat chickens in large numbers (we raised 500 birds one summer).  I also realized that a quarter acre of mixed vegetables (as many as 20 different “crops”) was a large garden rather than an economically viable farm.   And I realized that I most enjoyed working with sheep.  With this new sense of focus, I decided to quit my “day” job and try to raise sheep as a full time occupation.  In addition to leasing pasture around Auburn, we expanded our targeted grazing service (where we'd provide vegetation management services for other landowners).  At our peak, we attended 4-5 farmers markets each week – selling grassfed lamb, goat and beef, as well as wool products and firewood on occasion.

As my daughters grew older and wanted to play sports (as I had as a kid), I found it more and more difficult to be at the farmers market on Saturday mornings.  On the other hand, we often worked together as a family, which brought tremendous nonfinancial rewards.  And we ate well – we traded meat for fruits and vegetables at farmers markets, produced eggs from our own laying hens, raised our own meat birds.  But the economics were challenging to say the least.

Why am I still farming? Can I continue?

For me, these questions define the evolutionary stage in which I find Flying Mule Farm today.  Several years ago, we came to the conclusion that the farm was taking full-time work on my part, but was paying less than a part-time wage.  We exhausted our ability to expand (which had mostly to do with lack of capital and lack of land).  I went back to work, and we downsized our sheep operation to fit the time I had available.  We started selling whole and half lambs rather than individual cuts – and eventually phased out of the farmers market altogether.  I gradually noticed that my motivation for farming was derived not from a desire to feed my community but from my love for working outdoors with livestock.  My skills and knowledge base improved to the point where I was confident I could manage the 600-800 ewes necessary to make the ranch a full-time job at full-time pay – but my bank account didn't keep pace.  And so today I find myself at a critical juncture – can (and should) I continue farming?  I'm struggling with how to answer this question.

Economic Viability = Sustainability

A sustainable farm must be environmentally, socially and economically sustainable.  As Flying Mule Farm has evolved, I've begun to think that economic sustainability is the key to the other two elements – a farm that can't stay in business can't provide environmental or social benefits.  Based on my experience over the last 20 years, I think that economic viability depends on focused production, appropriate scale, and efficient marketing.  I'm still working to get there – on a part-time basis at the moment.

Our farm has been in the midst of its mid-life crisis for several years.  I still appreciate the numerous non-monetary rewards of farming – from the gift of new life during lambing season to the opportunity to work side-by-side with my wife and girls.  I love the work like nothing else I've ever done.  As we enter this new phase in the evolution of Flying Mule Farm, I'll be aiming towards greater profitability.  While profit is not the purpose of our farm, it is, after all, necessary for its continued existence.  Stay tuned….

 

Note: Paul Mueller one of the founders and owners of Full Belly Farm, will be joining us for our Farmer-to-Farmer Breakfast on December 3!  He'll be talking about how Full Belly Farm has evolved - I can't wait to hear what he has to say!  Click here for more information!

Posted on Monday, November 10, 2014 at 4:27 PM

The Biology of Farm Size – Or How I Learned to Doubt my Spreadsheets

I'm a spreadsheet guy – I love plugging numbers and formulas into Excel and getting answers!  I use spreadsheets to analyze the economics of my business, to predict the amount of pasture grass available for my sheep, and to keep track of orders for my lamb.  As a planning tool, spreadsheets can be enormously helpful – but they can also be dangerously seductive.  For example, by simply tweaking a single number (like expected lambing percentage), I can turn a projected unprofitable year into a profitable one!

As I continue to think about the question of scale in sustainable farming and ranching, however, I've begun to see the danger in relying on spreadsheets alone.  Spreadsheets can tempt us to omit biology from the equation.  Let me explain:

There is an upper limit to what an acre of even the most fertile farmland will produce.  Based on the yield estimates supplied by Johnny's Seeds, an acre of sweet corn will produce 14,400 ears of corn.  Even charging $1/ear, an acre of sweet corn, obviously, won't support a full-time income for the farmer (which is why most local farmers grow more profitable crops).  So let's look at a “sexier” (at least according to food writers) crop like kale!  An acre of kale will produce 16,275 pounds of harvested product – that's a lot of kale smoothies!  My colleague Jim Muck reports that he charges $2 for a half-pound bundle of kale.  At that price, an acre field of kale would generate $65,100 in gross revenue – not bad, right?!  But wait – aren't there costs associated with growing that acre of kale?  Certainly the farmer must put in considerable labor – which has a cost to it.  Then there's water, fertilizer, seed, supplies, fuel, marketing costs, storage costs, insurance, land rent (or a mortgage) – that $65,100 in revenue might be offset by as much as $50,000 to 60,000 in direct and overhead costs.  In my world, $5,000 to $15,000 isn't enough income to support my family for a year.  In other words, the biological limits of my acre of farmland suggest that I need to operate at a larger scale if I want to make a living.

Perhaps livestock operations are different – let's take a look!  In our part of the Sierra foothills, an acre of unirrigated rangeland pasture will, on average, grow enough grass to support five mature ewes for one month (these five ewes will need 12 acres of rangeland to get through the whole year).  One acre of irrigated pasture will support my five ewes for six months.  If I do everything right in caring for my ewes, these five sheep will give birth to 8-10 lambs.  If I finish these lambs and sell them as meat at the farmers market, I'll gross $2,400 to $3,000 – all from my acre of land!  Just like my friend the vegetable farmer, however, I'll have expenses – things like processing charges, transportation, insurance, land rent, water, veterinary costs, and supplemental feed costs.  My net income – which pays my “salary” – is $300-500 from these 8-10 lambs.  Once again, biology suggests that I need to operate at a larger scale.

Spreadsheets make it dangerously easy to manipulate these numbers and projections.  If I can boost my projected yield of kale by just five percent, it makes my bottom line look much more attractive!  Unfortunately, these biological limits don't allow us to fudge our numbers that much.  Size, as it turns out, does matter (at least economically). 

Don't get me wrong – I'm not advocating for huge monoculture farms.  I do think, however, that the romantic notion of micro-farming (less than 2 acres) – the darling of our local food movement – is not the answer, either.  If Auburn (for example) needs 25 pounds of kale per person to satisfy local demand for kale, the community would need to grow just over 22 acres of kale.  Would 22 1-acre kale farms (none of which would be paying its owner a living wage) be more sustainable, or would it be better to have one or two kale farms that paid the farmer a reasonable annual salary?  In other words, do we want a local food system that requires farmers to subsidize their farms with outside income and/or unpaid labor, or do we want a system that is economically viable for consumer and farmer alike?  I worry that we may be creating a farming system that requires its farmers to have another source of income (like an off farm job or a retirement fund) in order to keep farming – such a system means we won't likely see young families able to start farms that will be viable over the long term.

I still use spreadsheets in my ongoing attempts to look at the economics of my business, but I've realized that the allure of adjusting the numbers until the farm looks profitable is dangerous (at least for me).  My future spreadsheets will begin with the parameters set by the productivity of my land – there is an upper limit to what my soil can produce.  My projections must be anchored in reality – and informed by my experience and the experiences of my fellow farmers and ranchers.  My spreadsheets must take biology into account!

Posted on Tuesday, September 30, 2014 at 11:14 AM

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