Is it possible the have a sustainable business plan and still make money? Do you want to know how to put a plan into action? Are you worried about having to sacrifice your morals just to bang out a buck? Read on.
The following is an excerpt from The Organic Farmer’s Business Handbook: A Complete Guide to Managing Finances, Crops, and Staff—and Making a Profit by Richard Wiswall. It has been adapted for the web.
A few years ago at a New England Vegetable and Fruit Conference, I presented a talk on farm profitability with a fellow farmer. He opened the talk by saying, “Sometimes I think I should have listened to my parents and become a doctor or a lawyer—but you know, I don’t think I could take the pay cut.” Wow.
Here was a vegetable grower standing up in front of a room full of farmers and telling them he makes more money than doctors or lawyers. He was serious. Jolted as the audience was by that seismic statement, I knew I had a tough act to follow.
Farming conferences are terrific sources of information—seasoned farmers share their experience and knowledge, and agricultural professionals update attendees with the latest research and news. But the overwhelming majority of information at a conference focuses on aspects of production—how to grow crops, which seed varieties are hot, which tractors and tools increase efficiency, and pests and diseases to watch for. Very few presentations address the business side of farming.
Similarly, farming books almost all focus on production. Yet good production techniques alone will not make an organic farm sustainable. Most people go into organic farming with a love for the land and for growing food, and that love is essential to staying committed through the years of hard work. Too many farmers, however, never consider a farm’s profit potential, or the various costs of production that ensure its financial health and longevity—and all too often they burn out because of it.
Organic farms comprise many different enterprises that get averaged out financially in a year-end profit or loss. A diversified organic vegetable farm may grow forty or more different crops, such as kale, broccoli, and sweet corn. Even a dairy farm with one product, milk, has different enterprises: milk cows, heifers, calves, silage, hay, and grain. Thank goodness for the IRS. Annual tax filing is often the only reason farmers look at their bottom line; without a Schedule F, the farm’s current checkbook balance would be the only indicator of financial health.
Production techniques rarely limit a farm’s success; rather it is the lack of dependable profitable returns. Farmers enjoy their work for lots of reasons: sowing seeds, working the soil, marveling at the plants that grow. Fundamental satisfaction comes from producing food, working outdoors, being your own boss, and working intimately with nature. No one’s motivation to farm came from the desire to be better versed in IRS employee tax codes and workers’ compensation laws, or to learn about pro forma balance sheets. Yet the farming and business worlds inevitably collide, and farmers are often uninformed about the business concepts and tools crucial to navigating forward effectively and profitably.
The information that follows draws on decades of personal farming experience and my thirst for smart and appropriate business tactics. I know firsthand the joys, frustrations, stresses, and challenges of starting and operating an organic farm. Contrary to what most people believe, a good living can be made on an organic farm, and what’s required is farming smarter, not harder.
My goal is to highlight the necessary tools for successful and profitable farming for new and seasoned farmers alike. This first chapter starts with some “soft” business concepts, to lay the foundation for the practical step-by-step road to profitability.
The Mile-High Fence
Imagine a mile-high fence surrounding your farm or property. The fence is continuous along the outside perimeter of your land; it is open at the top so that sun and rain may enter, and it is porous for wind, birds, and insects to pass through. The air is naturally full of nitrogen, oxygen, and carbon dioxide, and the land is a living soil full of minerals, microbes, and organic matter. There are no breaks in the fence, except for one small gate. Your job as farmer is to monitor what goes in and out of that gate.
Most farms bring in lots of material like fuel, fertilizer, seed, and packaging; mix them up and change them a bit; then send them back out the gate. When you think about it, this business model isn’t much different from that of a plastics factory. And yet our farms should not be places where petroleum-based inputs are turned into food. Our ultimate job as organic farmers is to use what is freely available to us in nature to generate true wealth. In this light, I see farming as one of the noblest endeavors: a real generator of healthy products using natural cycles.
The Mile-High Fence analogy is a novel way of looking at farming, placing the responsibilityfor monitoring farm inputs and outputs on the farmer. As an organic farmer, what are some things that come in and go out of your farm gate?
To answer that question, I’ll start with a simple and idealistic model of a dairy farm: Sun, rain, and atmospheric nitrogen, oxygen, and carbon dioxide photosynthesize in grass that is growing in the living soil. Cows feed on the grass, drink water (from the rain), and mature and rear their young. Cows are milked, the milk is exported through the farm gate, and money from the sale of this milk is brought back to the farm. Nutrients in the manure from the animals recycle within the farm system. Milk leaving through the farm gate is mostly water, and it is produced from grass grown with free sunshine, readily available elements in the environment, and soil nutrients, most of which are replenished with applications of manure. Given enough land, young stock are raised, and the process sustains itself indefinitely.
True sustainability is thus made possible by recycling what nutrients are readily available, and using rain and the energy from the sun.
So if we have all this free rain, solar energy,nitrogen, carbon dioxide, oxygen, and microbially rich soil, shouldn’t it be easy to make money farming? Sure, there are some obstacles, but a truly sustainable farm is based on these fundamental principles.
A number of years ago, the farm gate flow of my farm looked like this. Coming in the gate were:
• Borrowed money
• Organic fertilizers
• Fuel oil
• Organic pesticides
• Packaging—labels, bags, and boxes
• Greenhouse frames
• Greenhouse plastic
• Potting soil
• Plastic pots
• Telephone service
• Tractors, trucks, and other equipment
• Parts for repairs
• Money from sales of farm products
Meanwhile, exiting the farm gate were:
• Produce raised on the farm
• Laborers returning home
• Trash, and payment for the landfill
• Loan payments
• Payments for seed, fertilizer, compost, fuel oil, laborers, and all the other purchased items listed above
• Payments for taxes, insurance, memberships, and trucking
• Payments for living expenses
This is a little more complicated than the simple example of sustainability in the dairy farm portrayed above, and a little more realistic for an organic vegetable farmer living in today’s world. The job of the farmer standing by the one gate in the mile-high fence is to monitor what goes in and out. However, this is not to say that as many items as possible should be eliminated. Different farms have different inputs and outputs, and some farms have more than others. Importance needs to be placed on the relevance of each input and output to how it utilizes natural cycles.
Money is a medium of exchange. I use money to buy a chair, and I receive money when I sell a bag of carrots. I don’t need to trade my carrots directly for the chair. Money is very handy, and it comes in various forms: coins, cash, checks, and credit cards, for example. But let’s talk about the origin of money—what generated those dollars in the first place? I’m not talking about the printing press at the US Mint or thefractional reserve banking system, but rather a novel way of money classification.
A mentor of mine, Ed Martsolf of A Whole New Approach in Morrilton, Arkansas, taught concepts of Holistic Management,* which include some interesting ideas on money and on goal setting. Martsolf described money falling into three nontraditional but distinct types: mineral dollars, paper dollars, and solar dollars.
Mineral dollars are generated when products of value are mined or extracted and then sold. Gold, oil, coal, granite, and rock phosphate are some substances that generate mineral dollars. If I owned a quarry of granite, my sales would be in mineral dollars. The upside to mineral dollars is that the money from the granite is real and can provide a sizable income stream until the resource is used up. The downside is that its source is finite, and that eventual depletion of the resource will terminate the flow of mineral dollars. Mineral dollars are a one-way street.
Paper dollars are the most common of these three types of money. If I buy a tractor for $5,000 and immediately resell it for $5,500, I’ve made $500 in paper dollars. Paper dollars come from transactions. No real product is involved, just my time, and knowledge that an opportunity exists. With paper dollars, there is always a winner and a loser. One person profits at someone else’s expense. Our financial institutions all deal in paper dollars: The stock market, banks, and businesses are all involved in buying and selling. There is no overall net gain in paper dollars unless the government or banks create more money.
Solar dollars are unlike mineral and paper dollars. Solar dollars generate true wealth. They are forever sustainable and transcend the winner–loser scenario. In the Mile-High Fence example, natural cycles use freely available components and the sun’s energy to create a product of value—a product of solar dollars. The growing of plants and animals following basic natural cycles generates solar dollars. And while paper and mineral dollars may be used in conjunction with solar dollars, the focus on solar dollars is vital to any organic farm. [...]