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Making a Living on a Small Farm

Article by John Ikerd

In times past, forty acres, a mule, and a lot of hard work were all that it took to make a living on a farm. But those times are gone. A family could live well on a lot less money in those times, but hard work also was worth a lot more back then – regardless of whether it was done by a mule or by a man. The conventional wisdom was that anyone who was willing to work hard enough could make it on the farm. During the financial crisis of the 1980s, many farmers virtually “worked themselves to death” trying to save their farm. If they could just work hard enough, they could make it. But, they couldn’t  – they went broke.

Work simply isn’t worth as much as it once was – at least not on the farm.  Tractors took the place of horses and mules.  Other machinery and equipment took most of the work out of most jobs around the farm.   Physical labor isn’t worth any more than the cost of using a machine to do the same job – maybe even less because machines are less bothersome to fix or replace and far easier to manage than are humans.

Mechanization made farming easier.  Farmers became machine operators rather than laborers.  But a mechanized farmer could farm a lot more land or raise a lot more livestock than could a farmer doing everything by hand.  And farmers still had to expect to put in full-time on the job if they expected to make a full-time living.  So a full-time mechanized farmer had to have a lot more land and a lot more capital tied up in machinery and equipment just to make a living.  With mechanization, farms became larger and it became more difficult to make a living on a small farm.

Agricultural chemicals also made farming easier, taking some additional labor out of farming, but mostly, making a farm far easier to manage.  A farmer didn’t need to know nearly as much about maintaining the natural fertility of the soil  – they could take a soil test and apply the right fertilizers.  They could specialize in crops or livestock – they didn’t need manure to go back onto the fields to maintain fertility.  Farmers didn’t need to know how to till the fields to control weeds – they could spray with herbicides.  They didn’t need to understand how to use crop rotations to control weeds, insects and other pest – they could use commercial pesticides.  Livestock farmers didn’t need to know how to keep their animals healthy and growing, they had antibiotics and hormones to fill in the gaps in their knowledge.  Farmers now could farm by recipe.  As farms became easier to manage, each farmer was able to farm more land or raise more livestock.  However, a farmer still had to expect to put in full time on the job to earn a full time living.  So with increasing use of agricultural chemicals, farms grew still larger, and it became still more difficult to make a living on a small farm.

In economic terms, there are only four basic factors of production, or four basic ingredients in any production process – land, labor, capital, and management.  Over time, machines, agri-chemicals, and other technologies have resulted in substitution of capital and land for labor and management.  Consequently, a typical full-time farm today requires far more land and capital today than fifty years ago.  It takes far more money to buy and operate a farm today because of high land and equipment costs and expenses for fertilizers, pesticides and other commercial inputs.  But, in a typical farm today, labor and management are far less important than fifty years ago.  If a farmer has enough land and enough money to buy the latest equipment and technology, they don’t have to work much or even think much – except about how to manage their money.

In economic terms, each of the four factors earns something in return for its contribution to productivity.  Land earns rent, labor earns wages, capital earns interest, and management earns a salary.  Profit or loss is the reward or penalty for taking the risk associated with investing land, labor, capital, and management in an enterprise without knowing whether the net results will be positive or negative.  Profit is the reward for taking the risk of farming rather than renting the land, putting the money in an insured CD, and working for someone else. In general, each factor of production earns a return in relation to its contribution to the production process.

As the nature of farming has changed, the returns to land and capital have grown and the returns to labor and management have declined.  It isn’t necessary to quote statistics; it’s just plain common sense.   Returns to labor and management are returns to the farmer – to the human investment in a farming operation.  The land and capital can be owned by anyone – increasingly by someone other than the farmer.  Actual farming is about working and thinking – labor and management.  And in general, the return to farming can be no more than proportional to the working and thinking done by the farmer.  If there isn’t much working and thinking going into producing a crop or a batch of livestock, there isn’t going to be much in it for the farmer – and it will be tough to make a living without a lot more land and capital. Farmers who don’t do much working or thinking simply can’t expect to make a living on a small farm.

The ultimate low-return agriculture is contract production.   Farmers are being told that the only way they can remain competitive in agriculture is by signing a comprehensive production contract with one of the giant agribusiness corporations.  But, farmers need to stop and think – who can logically expect to benefit from contract production?  Under most contracts, the corporation arranges for capital – mostly loans to be repaid by the grower. The corporation provides all of the technology – genetics, equipment, feed, health care, etc.  And the corporation provides virtually all of the management – the grower’s mainly do what they are told to do.  The grower provides the labor, but the highly mechanized operations require little labor.  Contract livestock or poultry operations require little land, although the grower is expected to find some place to dispose of manure.  In summary, the grower provides a small amount of equity capital, a small amount of land, and some low-skilled labor.  The corporation provides everything else. The grower gets a fixed amount per animal produced, regardless of costs or price, so the contractor even takes most of the risk.  So who is going to benefit from a corporate contract operation?  Certainly not the grower – the grower doesn’t do anything that would justify making a living in such an operation.

So what does all this say about making a living on a small farms?  It says small farmers have to put a lot more of themselves into their operations – a lot more management and labor – than do most farmers today.  It says a farmer can’t expect to make a decent living if someone else makes all of the important decisions and they only contribute some low-skilled labor.   It says that farmers must rely on management and labor far more and rely on land and capital far less if they expect to make a living on a small farm.  It says that the way to turn a small farm into a full-time farming operation is to find ways to substitute management and labor for land and capital.

There is a limit to how hard anyone can work or, more important, would want to work on a farm.  Working harder is still not the secret to making a living on the farm – even though most of us would be better off if we did a bit more physical labor and a bit less sitting.  However, thinking is potentially far more productive and is far less limiting than is working. So the key to making a living on a small farm is more intensive management mixed with an appropriate amount of skilled labor.  A small farmer has less land and capital so they have to do more thinking and decision making per acre or dollar invested – and they have to be willing to work when working is the logical thing to do.  They have to put more of themselves into it if they expect to get more for themselves out of it.  The successful farmer of the future might quite accurately be labeled a thinking worker or a working thinker – the key is to do both together, simultaneously, in harmony.

It takes more thinking to work with nature to reduce costs of inputs and increase profits while taking care of the land  – more eyes per acre as Wes Jackson says.  It takes more thinking to find and keep customers who want, and are willing to pay for, the things a small farmer can produce in harmony with nature – relationship marketing as Joel Salatin calls it.  It takes more thinking to fit your unique talents and skills as a farmer to the needs of your land, to your particular customers and your community – linking people, purpose, and place.  Literally thousands of these thinking workers are on small farms today all across the land – putting more of themselves into their operations and are getting more for themselves in return.  Each is doing something different, but one by one they are finding ways to make a good living on a small farm.

Link Photo by Robert Moore

 

Take a peek at some of the Farm Masters content with this awesome video with Fred Mertz about a new way of farming.

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Buying a Small Farm: Starting Out

Article by Charlie Roberts

“What can I do with my small farm?” is a question I’m regularly asked. My response is usually: Well, what would you like to do and what will your farm  allow you to do? If you are thinking of buying a small farm, you should always have a vision of how you would like your prospective farm to look.

You should also have an understanding of the livestock or enterprises that you would like or are capable of running. Purchasing a small farm and realising later that it won’t suit your needs due to its location, resources or climate can be a costly and disheartening mistake.


Things to consider before buying a small farm

Before you purchase a farm – but also if you already own one – it’s worthwhile to consider the following:

  • Goals for the farm (hobby or lifestyle, supplementary or sole income)
  • Farm resources (water, soil, climate, vegetation)
  • Farming skills and knowledge you and your family have (business, marketing, tolerance to risk)

Clearly assessing the farm’s physical resources as well as your skills and knowledge is important when deciding if this mix is capable of achieving your desired goals.

If the farm’s resources (water supply, soil type and location) are limiting and you haven’t purchased yet, keep looking. If you already own a farm, work  towards an upgrade and don’t make the same mistake twice – make sure you get exactly the farm you want the second time around, particularly if you are  looking for a reliable small farm income stream. It is important to be realistic. Farming is a tough game and being unrealistic about your level of farming  skills or your farm’s resources will only make it harder and less likely that you will achieve your desired goals.


Farming as a hobby or lifestyle

Small farms provide a great place for families to live and relocate to.
A small farm purchased as a lifestyle provides a family with a great
farm experience without the farming pressures associated with relying
on making a living from the land (e.g. fluctuating commodity prices,
increasing inputs costs and extreme weather).

Many lifestyle farmers successfully achieve a self-sufficient lifestyle by producing their own food, energy and fuel.

Similar to buying a small farm for a change of lifestyle, farming as a hobby is a recreational pursuit with no intention of making money. There is often an  overlap between lifestyle and hobby farmers. In both cases, income is derived from off-farm sources with no pressure to make money from the farm itself.  Both farming as a hobby and as a lifestyle can be easily achieved from a farm as small as 1 hectare (2.45 acres). A farm of this size can produce  vegetables, fruit, berries, nuts, and some meat along with the potential to sell excess produce.


Small farm income: Supplementary or sole income source

If the reason you decide to start farming is to provide supplementary or a full family income, then this is serious business. Setting up or running a small  farm should be approached like any other business: It requires thorough preparation and planning and you must be able to dedicate sufficient time and  money to the farm with the intention of making a profit. It is important to be realistic; in farming, there are more aspects than in most other businesses that  are out of your control – such as weather, markets and input costs – and that can adversely impact future earnings.

Land prices of small and lifestyle farms are often disconnected from larger farming land. With farm returns averaging 1.5-2% per annum (excluding capital  gains) it is unrealistic (although not impossible) to expect your farm to generate enough money to pay for the land, let alone the house and other farm  improvements. The area of land needed to make an acceptable living from your small farm income will depend on the farm’s resources (irrigation, soils,  infrastructure), climate and enterprise type. For extensive grazing and grain production, a minimum area of 408 hectares (1000 acres) would be required  plus some supplementary income. In contrast, running an intensive farming enterprise that value adds and sells its product direct to consumers – such as  flowers, chickens and fruit – can be viable on a land area less than 10 hectares (25 acres).


Where to from here?

If you are looking at buying a small farm and are unsure about whether it suits your needs, we recommend you get one of our experienced farm consultants  to conduct a pre-purchase inspection.

Alternately, Farming in a Small Way is a popular farming book for anyone starting out. The book contains the latest information on finding the farm you  want, choosing the right enterprise, and avoiding the perils and pitfalls of making a new life in the bush.

Article courtesy of FarmStyle
Link photo courtesy of lisbokt, Creative Commons Copyright 2.0