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What Can I Do With My Small Farm |
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Selecting an Enterprise for Small Acreages Often, when people buy a small farm they simply want someone to tell them what they can "do" with it. As strange as it might seem, this isn't an easy question to answer. When landowners begin to make important decisions related to the use of their property, they might not recognize the complicated web of details involved. Before making decisions, you should consider these major factors that interact with and influence each other:
For instance, the type of soil on a farm influences what crops can and cannot be grown, which in turn influences the level of gross farm income. Also, the farm owner's skills for (and enjoyment of) working directly with consumers might influence the farm's marketing technique (direct marketing versus wholesale). Small farms are like any small business. They often require long hours, long-term commitment, and stamina. And like many highly successful small businesses, they require a risk taking, entrepreneurial spirit. The major
components involved in a farm enterprise decision
and how they interact with each other
The owners of small farms vary in both resources and goals. Some people are interested in having a few animals, growing some fruits and vegetables, and providing a rural lifestyle for their families. Others seek to manage a small farm intensively to produce supplemental or total family income. The goals you set for your small farm must realistically consider the expectations of family members, your financial situation, the farm or business-related talents family members have, and more. Consider these questions:
Farms can be attractive places for families to live. A great deal of satisfaction can come from experiencing farm life without the pressure to make a profit. In this situation, money from off-the-farm supports the farm's activities. In addition, many small-farm families wish to replace some of their purchased food with home-raised foods. This can be extremely satisfying and surprisingly easy. Two acres will produce a year's supply of vegetables, ample fruits and berries, some meat, and possible opportunities for small cash sales. Another 2 acres of well-managed woodlot can heat a well-constructed house indefinitely. This path is different from a commercially focused farm, but is very appropriate for many families. Supplemental or family income from the farm Farming in order to produce a supplemental or family income is serious business. It should be approached with thorough planning and realistic expectations. Consider these questions:
On most small parcels, land prices are disconnected from the value of the land for use as a farm. Most small parcels sell for their real estate market value rather than for what a conventional farmer would consider a "fair farm" price. Compare the rental value with the actual cost of buying land. It typically is challenging to expect such a parcel to pay for itself, much less the cost of the house or other non-farm improvements. However, with experience, intelligence and persistence, it is possible to make money from a small farm. Exciting small farms in the region are producing excellent crops and are marketing in creative ways. The potential definitely exists. (Please note: for those choosing the text version of this web page the table below will not readily convert to text only. The columns will display below each other instead of reading from left to right. There are 4 columns and the column headings are 1 - no heading, 2 - Establishment Costs, 3 - Annual Costs, 4 - Gross Returns per Year. Below this is another row starting with the * items.)
Let's look at some of the options. Clearly, there are a lot of options to generate $100/acre. As your expectations go up, the crop choices that will meet those expectations diminish, and the investment and skills needed increase. If you want to generate gross sales of $1,000/acre, beef, hay, or grains are not viable options. Assume the direct operating expenses on most crops are 50-60 percent of gross sales. For example, how much will it take to raise an acre of nursery stock? You must include capital investment in facilities (such as greenhouses and winter houses) as well as all operating expenses (fertilizer, labor, crop protection products, and marketing costs). This is cash up front, and $5,000 to $9,000 is a bare minimum! The profitability of any farming enterprise, large or small, is very difficult to predict. You must identify what you mean by profitability. Does it mean just staying in the black for a specific crop? Does it mean providing a small supplemental income? Does it mean providing a full family income? Small farms can provide all of the above, given good resources and skills. The physical resources of the farm Not all farms are created equal. They vary widely in the types of crops they can grow. A farm's capability to grow various crops is related to its physical resources: soils, access to irrigation water, and climate. These physical resources might seriously restrict the types of crops that can be grown or might provide nearly unlimited options. Successful farming includes the ability to match crop options to your farm's capability. Land--Types of soils Soils are complex mixtures of sand, silt, and clay. The relative abundance of these soil components determines which soil type you have. The types of soils on your farm are directly related to crop options. The better your soil, the more options you have. Poor soils can be improved by enhancing drainage and soil tilth but never will be as versatile as good soils. Soil maps are available that allow you to identify the exact soil types on any parcel. These maps are published in soil surveys for each county. Soil surveys include descriptions of each soil type that give some indication of the soil's strengths and weaknesses for agriculture and forestry. Contact your USDA Natural Resources Conservation Service office for the soil survey for your area. You can find their phone number under Department of Agriculture in the federal government section of the phone book. You may be better off with 5 acres of great soil than 50 acres of mediocre soils. However, you might need a certain critical acreage to produce some crops economically. For example, growing grain on less than 200 acres would not support the purchase of even a used combine. While garlic can be produced on small plots (3 /4 acre or less) using hand labor and a rototiller, 5 acres probably is needed to justify a fully mechanical operation. In addition, your farm's location can have a large bearing on your marketing options. Does it have good road access? It must be appealing to the public if you are planning direct sales. If the crop you grow requires a semi-truck for transportation, is your farm able to handle it? Water--potential for irrigation Water is another critical resource that determines crop options for your farm. Most, although not all, high-value crops require irrigation. Nurseries are heavy users of irrigation, as are vegetable operations. Christmas trees, wine grapes, garlic, and in certain situations, raspberries and strawberries, can be grown without irrigation. Climate and microclimate Climate and microclimate are important to farming. An area's climate refers to the generally predictable patterns of temperature and rainfall across the seasons. Your climate zone limits the crops you can grow. This limitation generally is based on the plant's ability to survive the area's temperature extremes and the potential for enough heat to mature the crop. Some crops require the accumulation of a certain number of heat units (the number of degrees over a critical minimum temperature, taken as the average high and low each day) to mature. Many crops require more heat units than are available in some locations (e.g., certain wine grape varieties cannot be grown in a cool coastal climate). For many crops, considerations such as sun exposure, rainfall amounts and pattern, air movement, and frost are critical to success. The crops already grown in an area are a reasonable indication of climatic limitations. If your proposed crop is not grown locally, there might be some very good reasons for its absence. This does not necessarily mean it cannot be grown, but there might be some significant limitations to its production that you must discover and plan for. Be alert to microclimate variations on your property. A microclimate is a particular weather pattern in a small area. Is your property warmer than surrounding farms? Or wetter with poor air flow? Microclimate is related to how air drains and collects on the land, how natural features such as small bodies of water moderate temperatures, and so on. The tendency for a farm, or an area on a farm, to have early or late frosts, or to avoid frost, is an example of a microclimate. In some instances, a microclimate can make it possible to grow a crop not normally grown in an area, or it can make it impossible to grow some crops that are grown on surrounding farms. Type of farm enterprise and crop(s) produced The crops you grow and any other services or processing offered by your farm are the products of your farm business. Choosing a production technique, specific crops to grow, and marketing channels requires some thought and planning. Production technique Currently, several farming methods are used to produce crops. The three most commonly used on small farms are:
Your choice of farming method will affect the costs associated with establishing and operating your farm, the amount of income from products grown, and how and where the products are marketed. Type of crops--traditional or specialty? The easiest crops to grow are those that have a long production history in your area. Standard or traditional crops or varieties provide some security. There are no surprises besides weather and prices. If a crop has been grown in your area for a long time, there will be equipment, custom operators, and plenty of free advice. These products include familiar options such as tomatoes, corn, sheep, and so on. Growing a diversity of crops can spread the risk of changes in the growing environment or market price in a given year. There is a risk, however, in trying to grow too many crops, particularly if they require very different skills and equipment. When you begin to look into specialty or nontraditional crops, you must spend much more time on research. These crops might be new to your area or on the cutting edge for the nation. Such crops might include medicinal herbs, exotic livestock, or varieties of traditional crops new to your area. New crops might have little production information available. There will be a lot of on-the-job learning ahead of you. The consolation is that when you have perfected the production system, assuming the product appeals to the public, you will be ahead of your competition. Some small farmers are able to grow specialty crops profitably. However, marketing is critical to their success. As with any enterprise, it is necessary to do a good job assessing wholesale and retail customer demand. You have to decide where to sell the product and how to maintain markets and customers. These crops always are difficult to identify and generally involve a higher level of risk than traditional crops that already are well known in the market. Before you invest any significant amount of money in a crop, you should know the crop's biology, production technology, and marketing options in some depth. You should be able to put together a cash flow and enterprise budget for your particular farm for each crop. In many cases, it's possible to grow the crop on a small scale to give you a feel for production issues. However, difficulties tend to compound as the size of the cultivated area increases. Sometimes you can hire yourself out to a farm producing the crop and thereby gain invaluable experience. It's important to read everything you can get your hands on and to talk to all sorts of people about the enterprise you're considering. Understand thoroughly and use the traditional production system for growing a crop before making major changes. Look for parts of the production system you can contract out while you learn the rest of the process. For example, you could learn to grow container nursery stock by buying rooted cuttings at first rather than building a greenhouse and propagating the cuttings yourself. Look for enterprises that can grow incrementally (without major new investments in land or equipment) as your skills, finances, and marketing ability increase. Examples include container stock, Christmas trees, fresh vegetables, and beehives. Crop rotation (not growing the same crop on the same land each year) can be important in some crops for disease management and weed control. Rotation requirements can quadruple your acreage needs. Small farmers generally are at a disadvantage competing against large farmers in the wholesale market. Large farms usually are able to produce greater volumes of product over a longer time period at a lower cost to the wholesale buyer. Therefore, most successful small farmers choose to market their product directly to consumers via one or more of the following methods:
There are many exciting examples of small farms that profitably produce nursery stock, high-quality small fruits, culinary and medicinal herbs, specialty livestock, tree fruits, vegetables, and numerous other crops. Often, there is a value-added component to the enterprise, such as jam production from fruit. Farms might include nontraditional services such as farm-based bed and breakfast operations. A small farm with a high-quality product mix and a good plan for getting those products into the hands of consumers has potential. When committing to a hobby or for-profit farm, a number of financial resources and skills are necessary for success. Finances Farming, like any business, involves financial risk. All crops require you to spend money in advance to establish the crop. What is returned when the crop is harvested is determined by the skills of the farmer, the weather, and what happens in the market. Some crops, such as tree fruits, might require several years before any income is realized. Knowing in advance where you stand financially and your capacity for risk taking will influence the types of choices that best fit your situation. Consider these questions:
Credit For most small farmers, financing is available only after they can show several years of successful experience. If you are a new farmer, expect to finance your enterprise from other resources for several years. If you have a good track record with one or more crops, you might be able to get a loan to try a new crop. When you do decide to seek financing, what are some of the issues you face? Many small farmers are poor record-keepers and simply cannot back their claim to creditworthiness on their production capabilities. Lenders want tangible evidence that you can produce and sell at a profit. Experience is the hardest quality to prove and the most difficult one for a lender to assess. A documented 3-year progressively successful personal track record for the crop in question is the best information you can bring to the table. Learn to keep meticulous records and analyze them from a business perspective. Small farmers represent a large part of the potential credit market in terms of numbers but not in loan volume. From a bank's perspective, the earning potential from a large loan is much greater than that from a small one. It probably takes a farm loan of at least $50,000 to be profitable for a bank if it isn't secured as a personal loan (since a farm loan requires asset appraisal and significant financial analysis). On the other hand, personal loans of any size are hard to get without a strong credit history and a stable non-farm income flow. Many small farms lack "bankable" equity. A small farm might be well capitalized with two incomes but have little hard collateral or a loan history. If the first mortgage on a property is large relative to a conservative estimate of liquidation value, it might be tough to get operating capital as well. Lenders look for a capacity to weather mistakes, market changes, etc. It is not impossible, by any means, to secure credit, but it takes a lot of planning, no fiction, and a solid record. As a practical matter, many small farms expand into new crops on personal credit cards. This method is risky and expensive, but often the only path available. When you obtain money, make it work productively for you in the business. Analyze every decision. Don't buy a tractor because you like to smell diesel. Any asset (time, money, skills, or equipment) needs to be employed for the greatest benefit of the business. Whether your enterprise fits your family's goals and abilities is a big factor in its success. For example, families often take on a farming enterprise based solely on financial factors. They might discover they really do not enjoy the crop they grow, and the work becomes drudgery. Here are some things to consider: Use your strengths
Be aware of how you and your family want to live
Some other factors to consider Farm community. An active farm community promotes group learning, innovation, and cooperation. Quality suppliers of equipment, services, and information are more available where there is a "critical mass" of farmers. Nevertheless, isolated farmers can join commodity organizations and take other steps to improve their technical and marketing skills. Isolation. If you are isolated, you must carry larger parts and supply inventories, and, most significantly, you probably cannot contract as easily for custom farm work. Thus, you must have the ability and equipment to do all of the work yourself. This requires a much higher up-front investment in capital, time, and skills. In addition, it will be more difficult to attract buyers for the crop. Labor pool. Many horticultural crops are very perishable and must be harvested and marketed in a timely fashion. Access to reliable and productive labor can mean the difference between success and failure. Are you comfortable managing labor? Are you willing/able to supervise and do the additional paperwork involved with having employees? Can you pay for labor before you are paid for your crop? Access to markets. This factor is crucial for the small farmer who must get a high percentage of the crop dollar to survive. Small-farm operators develop economic vitality by:
Small farms can be a springboard to significant business opportunities. They can be an incubator for skills and creativity. Many large enterprises started from very modest bases. However, there are significant risks associated with a commercial farm. Successful enterprises are exceedingly well managed and focused on a profitable marketing niche. Adapted from materials developed by: Chip Bubl; and Garry Stephenson; Oregon State University. Dr. Jayson Harper, Professor of Agricultural Economics, Penn State University. |
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What Can I Do With My Small Farm?
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