Monday, May 21, 2012

Making Money Mondays - Making Your Small Farm Profitable




Ron Macher's book, Making Your Small Farm Profitable, is a great book for anyone wanting to turn their farm/homestead into a sustainable and profitable one.  Check out this shorter rehash of his book.

Making Your Small Farm Profitable
A Rehash of
A Book by Ron Macher

Agripreneurship~ The concept of turning farms into businesses. It brings together the philosophy, lifestyle and business of farming, with sustainability as an undercurrent.
“This book takes a how-to approach – it does not specifically detail how to raise, say, cattle or pumpkins, but rather how to farm successfully and profitably. It is a whole-farm approach that ties together outside and on-farm resources with your personal, family and farm goals” (Macher, Preface).

I. Getting Started

1. Deciding to Farm
With less that 12 percent of farmers making a living wage, or a sufficient wage for workers and their families to subsist comfortably, from farming it is surprising that someone would want to venture into the sector today. In a 1950s University of Missouri study, lifestyle (working outdoors, a good place to raise children and food to eat) was the reason so many farmers had chosen the profession; income was one of the least important factors. A similar study completed by the Doanes Agricultural Service in 1996 found that lifestyle was still the most important factor, but income had become more important to the farmers polled.

There are many definitions of what defines a small farm with regards to size and profitability. The author defines a small farm as any farm that comprises 179 acres or less and has less that $50,000 in gross income, while the National Small Farm Commission says that a small farm is one in which their gross is less that $250,000. The USDA provides no official definition of a small farm, but their definition of a farm is currently any land in which $1,000 of agricultural products are sold. While the IRS considers you a farmer if at least 2/3 of your gross income comes from farming.

To be sustainable, you must be profitable,” is a motto that Macher encourages the reader to memorize. Your farm is your businesses, your home, your lifestyle, your company. Your farm should pay for itself as an entity. Farming is not only physical in nature but also mental; the more time you spend thinking about your operation and the goals of your farm and your family, the more successful the farm will be.

2. Starting a Farm
Planning a farm operation involves assessing personal finances and goals, resource availability on and off farm, and market availability. Evaluating your skills and capabilities based on the resources you have available can provide a roadmap for your operation. Addressing resources such as: capital (money), skills, labor available (time, people), land, soils, water, location/access, climate, equipment, and marketing needs of the area are important. Each category is specifically addressed and discussed in detail in the literature. For example, for a farmer that would like to grow a vegetable crop, their desired set of skills could be knowledge on soils, crops, field preparation, the different types of growing, harvesting, weather/seasons, season extenders, pest control and fertilization, seed saving/preparations, irrigation and marketing, just to name a few. Knowing what to grow and where to grow it, based on a number of factors, involves careful planning and knowledge of each one of the factors listed above. Talking to other farmers, visiting the library and your local extension office and speaking to the experts are good places to start.

II. Farming

3. Some Principles of Good Farming
There are 17 principles of farming that every farmer should live by. Learning and applying these basic principles will make your farm lucrative; the latter principles are the most important to profitability.
    1. To be sustainable, a farm must be environmentally sound and socially acceptable. Confined animal feeding operations in some cases may not be sustainable because of water quality impacts or a lack of social acceptance.
    2. Avoid debt. Growing into your farm enterprise is a better approach than borrowing into it.
    3. Keep costs down. Starting small and growing while learning can save money.
    4. Try for low inputs. Spending less gives you more money to work with.
    5. Do things on time. Seasonal and cyclical work like farming requires timeliness.
    6. Plan your farm to minimize your work load. Layout of buildings, travel lanes and shape and size of farm fields can impact your work load.
    7. Develop a system of production that balances farm resources and available labor. Small compact operations decrease travel and task completion time.
    8. Keep good records. Knowing the cost of production for each of the operations/animal units on your farm will help you calculate the selling price of each unit, so that a profit per unit is insured.
    9. Learn basic veterinarian skills and tasks. It pays to learn basic livestock skills such as delivery and castration.
    10. Learn carpentry, electrical, and machinery skills. Learning the basic skills cut costs.
    11. Learn stockman skills, and keep gentle livestock. Nervous livestock are more difficult to herd and reproduce and grow at a slower rate than gentle livestock that are treated as pets.
    12. Take good care of your buildings, machinery, and livestock. When things are better taken care of and inspected frequently maintenance and replacement costs decrease.
    13. Have a good water system, and save every drop of water that falls on your farm. It is easier to send livestock to water than to haul water to them.
    14. Maintain or improve the soil fertility. There are several processes to increase fertility such as composting, green manure and animal manure spreading or grazing, one of which may be an easy addition to your operation.
    15. Let the animals do as much feed harvesting on their own as possible. Winter forage requires time, money and equipment; any savings are money in your pocket.
    16. Use crop rotations. Rotations can increase soil fertility and help control weeds, diseases, and erosion.
    17. Have 2 years worth of hay and grain in storage. Weather is as unpredictable as the price of feed, cover yourself by maintaining proper amounts stored.

4. A Living, Healthy Soil
A profitable farm enterprise starts with soil, your most important production tool. If your soil is not fertile there are a number of things that can be done to improve it (refer to Principle 13). Knowing the physical nature of soil, the way to handle soil, root systems, rotation options, and the benefits of cover crops and rotational grazing are all important to maintaining or creating a living, healthy soil.

5. Weatherproofing Your Farm.
Matching the climate and weather of a region (which determines what plants and animals can grow and thrive there) with the crops you plan to produce is imperative to success. The effects of climate, water fall and temperature can be altered by a few simple on-farm additions. Providing shelter for livestock, conserving water, and creating windbreaks can lengthen your growing season and increase yields, while reducing erosion and the water and nutrients needed. Benefits and by-products, such as firewood and fence posts can also be created in the process. By studying the complexity and interconnectedness of natural and artificial process that happen on farms one can assemble a number of practices to make the farm profitable.

III. Planning and Marketing

6. Your Goals and Farm Planning
Planning for your personal and family goals while balancing your farm and business goals requires careful attention to detail and flexibility. Goals can be short-term, intermediate or long-term and they may overlap one another or may be incompatible; knowing this before you start a farm enterprise is essential. Developing a farm plan is similar to developing a business plan. Paying close attention to weather, weeds/diseases/insect problems, management, government regulations, value adding, and marketing are important to address in a farm plan (all while keeping your goals in mind). Revisiting your goals and farm plan frequently will only increase your chances for success, by making decisions easier and less risky.

7. Marketing
Marketing can be the hardest part of a farm operation but there are somethings that you can do to increase your profits by fine-tuning your marketing strategy. Two types of agriculture, traditional and alternative, use different methods of marketing. Traditional agriculture involves crops or livestock grown for a defined market and involves a “wholesale” or commodity price. While alternative agriculture finds a market, grows into it and adds value to products by retailing directly to customers/retailers. There are eight steps to identifying a market. They are: 1. mapping your region, 2. placing your farm on that map and identifying the distance people would have to travel using a circular diagram (within a 25, 50 and 100 mile radius from your farm), 3. summing the number of cities and towns in each of the circles, along with the number of people in each, 4. calculate the number of competitors in the region, 5. check out and map the competition and the grocery stores in the region, 6. determine what is missing from those sources and might have potential, 7. identify your customers preferences, tastes and expectations, and 8. start marketing your farm.

Niche Marketing
Niche markets are designed for different types of traditional agricultural products such as organic crops or livestock or cut-flowers and ornamentals. Alternative marketing methods such as U-pick strawberries or by value-added practices are common in niche markets. They tend to be smaller in size, add value to the product, lack mechanization, have a limited interest (especially in mainstream corporate America), control for volume, have a lower capital risk, are diversified and have a direct line of contact with their consumers. Some additional considerations in niche marketing include the products ease of storage, convenience and longevity. Planning for year round sales is an integral part of participating in niche markets.

Twelve Ways to Sell Your Products
Using various methods of selling directly to your consumers or by retailing your products you can successfully sell your farm to the public. Friends and neighbors are the best places to start direct marketing. At your local Farmers’ Markets you can market and sell your product directly to your consumers, but remember that there may be competition between farms. Roadside stands provide yet another way to directly market to the public in your area; they are relatively inexpensive to operate and require a small amount of advertising and high traffic volumes. Community Supported Agriculture (CSA’s) are situations in which a consumer subscribes for a fee to receive a certain amount of farm output in a season. The farmer can get the money up front and plan for the produce needed and the consumer knows how, when and where their food is produced. Catalog Sales provide an outlet for the marketing of value-added products but often require experience and careful planning. Shows and Fairs are a good way to tap into local markets and promote your farm. U-Pick farms provide a fun experience and cut down on harvesting time and expenses. Food circles are a mix of cooperative and CSA but a large number of people are required to keep it going. Selling directly to grocery, health-food stores, restaurants, cooperatives and market pools are a few more ways to sell indirectly to consumers in your area.

Pricing your Product
Always remember to price your product high enough to cover all expenses such as your land and tools, labor and management costs, and any costs incurred during value-adding and marketing. Farm records and the cost of production are very important to consider when pricing.

Your Farm as a Destination
A welcoming farm on a well traveled road can be popular with travelers and locals, alike. By providing additional activities or services on your farm you can make your farm a destination. Seasonal attractions and yearly events will keep them coming back again and again. Try pumpkin picking and hayrides in the fall and an Easter egg hunt in the spring.
8. Selecting Your Enterprise
To determine what to do and how to do it consider what your farm can support, water availability, costs and returns, permitting, liability, timing, production methods, income, labor requirements, machinery needs, industry support, marketing, advertising, experience, price, competition, etc. Twenty-eight different enterprises are discussed in the text. An interesting one is flowers, cut and dried. As one of the fastest growing markets (especially in Michigan) sales can continue year round in greenhouses, and with a careful mix of maturity times and types of flowers the possibility for value-added products increases. Make sure to perform an enterprise cost analysis to determine your best option/s. Fourty-two enterprise budgets are presented in the text with gross income/acre, total variable costs, net profits and labor hours reported for each option. A diversified and sustainable operation gives your farm the best possibility of success.

IV. Management
9. Machinery
If a tool doesn’t save time and reduce labor, it is a waste of money. Your farm operation may require you to purchase, sometimes at a large cost, machinery, processing equipment, fencing and miscellaneous office equipment such as a computer. Consider alternative methods such as borrowing, renting, hiring and timing before purchasing expensive equipment. Calculate the economics (capital, replacement and maintenance costs) of the machinery that you plan to purchase before you buy it; how much will it cost and how much time and energy will it save you? A number of estimated machinery costs are presented in the literature.

10. Farm Management
Two things are required for successful farm management; farming is reaping all the benefits from your soil so you can make a profit, but it is also putting it back in the soil so that you can maintain or increase fertility. The job of Farm Management is to balance the two. Optimize and take stock of the resources available on your farm, practice balance, obtain knowledge on management and make choices based on that knowledge. Diversifying, rotating crops, managing hired and family labor and building reserves of money, crops and livestock are all important ingredients for success.

11. Where We Are Going
As the amount of land in farms decreases and as the industrialization of agriculture increases, small farms disappear from the rural American landscape. Small farms are the key to reconnecting people to their land and food systems. Macher believes whole-heartedly that small farms are the wave of the future and urges every reader to become an advocate, learn more and make your small farm profitable using the methods discussed in the book, Making Your Small Farm Profitable.

If you'd like to read the whole book, you can get it here, Making Your Small Farm Profitable, or click on the picture below.






3 comments:

  1. Thanks for the tips to make my small shed profitable. It was a nice suggestion to use my farm shed in this way.

    ReplyDelete
  2. Exactly! by applying these suggestions we can make our farms profitable. This will lead our small investments to a huge gain.

    ReplyDelete

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