[Market-farming] Making money from farming

Rick Hopkins rdhopkins at americanpasturage.com
Tue Jan 28 21:58:34 EST 2003


David,

There is a production curve that shows input costs and gross income.  It
represents economy of scale using dollars on the Y axis and volume on the X
axis.  When applied to most agricultural operations, there is a point where
the two lines are the farthest apart.  This represents maximum profit.

The input cost curve may actually exceed the gross income on the low end of
the input scale.  As maximum production is achieved the profit margin does
diminish.  And as the volume increases, the costs begin to increase
proportionally so that little additional profit is realized.  The lines
become almost parallel from this point on up.

How this affects production agriculture in many countries is that this curve
does not take into account subsidies.  Were it not for subsidies, each farm
would operate at or near the maximum profit for the commodity produced
assuming that the farmer was capable of managing accordingly.

Your description of a profitable farm is supportive of this production
curve.  To answer your question, you must find the point on the graph where
the lines are the furthest apart and the input cost is lower than the gross
income.  This is a difficult task for diversified operations as the book
keeping to determine these values becomes a full time project.

A simple approach is to list all of the associated costs and track the
income.  Begin to whittle on the cost side for anything that doesn't
increase the value of your land or your bank account.  Also allow for some
time to enjoy yourself.  :-)

Rick H.

-----Original Message-----
From: market-farming-admin at lists.ibiblio.org
[mailto:market-farming-admin at lists.ibiblio.org]On Behalf Of David Inglis
Sent: Tuesday, January 28, 2003 8:26 PM
To: market-farming at lists.ibiblio.org
Subject: RE: [Market-farming] Making money from farming


> Full Circle Farm wrote>
> This is an interesting question to me.  It is not totally
> clear to me that
> the people who are operating at a larger scale with more paid
> help are
> actually taking any more home at the end of the day than
> those of us who
> operate at a smaller scale.  More money going in, but more
> money going out
> as well.

This is an interesting question for me too.
My experience is that the first $20K net is the easiest to make. After
that the gross has to go up far faster than the net. In other words, the
ratio between gross and net gets larger the more your target income is.
For each additional $5K net, you need to do proportionally more
business. If this is not the case for any given enterprise then I
believe you would be right that a larger operation would be worse off
than a smaller one at least in terms of income per hour input [ return
on management ] and possibly in absolute terms.
On the other hand I see many operations operating below a minimum scale
threshold, afraid to grow when it would actually make their lives
easier.
I have said before in this forum that I believe that profitable
operations operate at 60-80% of the capacity of their invested resources
[equipment package, hired labor and land ]. More than this range does
not allow for flexibility and will also lead to break downs, of
equipment people and land. Less than this range and the operation will
get buried in overhead.

People have mixed motives when it comes to most things but definitely in
growing food.To say farming should be about profit, or stewardship,
healing, lifestyle or whatever is unnecessarily limiting.  I don't care
much what anyone's reasons for farming are  but I do think they should
be able to say what they are and how their operation is meeting their
objectives. This is why I find H.R.M. [ Holistic Resource Management ]
so useful. If you don't know where you are going, don't be surprised if
you don't get there?
To me the whole thing comes down to this:
What is the right scale for my operation?

David Inglis
Mahaiwe Harvest C.S.A.


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