[Market-farming] Making money from farming
mhcsa at bcn.net
Wed Jan 29 08:35:58 EST 2003
The only additional points I would make are:
That in the real world the input curve is seldom smooth. i.e. that a
purchase of new equipment, for instance, puts a spike in the input
curve, and a corresponding spike in the capacity to generate volume lags
behind while the new investment is integrated and, at the outset, is
under utilized. In other words your graph has three axis, the third
This is exacerbated by convenience purchases [not on my place you say;
what about the A/C in the cab, green mower deck when the no name brand
cuts the hay just as well or solar charger because you 'like the idea'?
Everyone has them but you will need a neighbor to point them out] that
have to be paid for but produce no capacity to increase volume or
quality, or decrease costs.
That most direct market farms are not producing commodities [ or at
least not marketing them through commodity channels ]or participating in
The question of scale is not just one of profit, it is also a question
of 'quality of life as defined by myself.' We are often faced with
several scenarios that produce roughly the same 'profit' but have wholly
different outcomes in terms of quality of life. E.g. one low QoL [for
me] = spending most of my time managing employees and sitting in front
of a computer screen as opposed to a high QoL = working the fields
myself along with my children. For another person the reverse might be
true and is just as valid. The important thing is to know what your life
goals are or you will end up in a situation you never wanted that no
amount of profit will justify.
Mahaiwe Harvest C.S.A.
> 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.
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