Wednesday, December 5, 2007

Balancing Act

photo by jasonawhite

A little while ago, I posted a bit about trying to figure out whether a farm purchase was sustainable in Money Matters. I promised to continue writing about money needed to run a farm and how it's related to sustainability. So here is the another installment on this topic.

The basic idea behind sustainability is to do things so that you do not have to go outside of the farm to support the farm. For example, you don't have to buy extra feed for the animals because you have a enough forage for them. You don't use chemicals because that would be an outside product coming into your system.

Finances need to be sustainable, too. This concept of financial sustainability is especially crucial for small farms. Let's say you have 3 acres in which to grow corn. You grow your corn conventionally which is to say, you pay for hybridized seed, to up your production, you apply your pre-emergent herbicides, your fertilizer and spray pesticide on your crops according to the prescribed schedule. You harvest your crop at the appointed time in the normal way with a small tractor and harvester. You sell your corn to a warehouse because you do not have enough to sell direct to the manufacturer that uses it. You have sunk money into equipment, seed, fertilizer, pesticides and herbicides, plus gas.

You have beginner's luck and nothing goes wrong. The crop produced is the best you can expect for the year. Let's assume also there is high demand for your corn. Not only do you sell the ears, but you are able to sell the entire plant and the entire amount at a really good price. So let's do a balance sheet on this endeavor using average or standard prices from this past year.

You can expect that your planting efforts yielded about $64 per acre net profit after counting the seed and chemicals. You have 3 acres of corn, so 3x64=$192 for three acres of corn. Since your price per bushel fell under the USDA price floor for corn, you receive an additional payment of $150 when you file the appropriate paperwork. Now you have purchased a small tractor with the necessary attachments totaling $20,000 at the beginning of the year. You have exactly $342 to apply to your tractor payment FOR THE YEAR which actually costs you $735 per month to operate.

Who would do business like this? You're always in the hole. This is not sustainable.

A small farmer would certainly want to do better than that and the prices are better if you sell stuff directly to the person who plans to use it - the consumer. So instead of selling wholesale, you plan to sell retail at the local farmer's market. That's what I will talk about next time.
Feel free to comment by clicking on the comment link above. I want to see what you have to say.