Saturday, February 18, 2012

More Thoughts about Profitable Farms

Last summer, I wrote a blog entry entitled "Is Profit a Dirty Word."  This week, I was reminded of the conflict I feel about profitability and farming by a discussion during a local farm business planning class that I'm helping to teach.  The word "profit," it seems, comes with lots of baggage!

Profit is a difficult thing for many of us small farmers to get our arms around.  In some ways, we’ve chosen farming as a rejection of the “normal” American aspiration for material wealth.  Profit, as such, is part of this rejection – we farm because we value good food, good land and strong communities more than monetary gain.

Once we begin the work of farming, however, profit takes on a different meaning.  Without profit, we can’t produce food over the long term.  Without profit, we can’t keep our land in farming.  Without profit, our families cannot be contributing members of our communities.

Someone asked whether it is legitimate for a family with other sources of income to "subsidize" their love of farming with their off-farm income.  I struggle with this - certainly our family has needed off-farm income to support our farming habit from time to time.  I've come to the conclusion, however, that a profit motive is critical to our farm's place in our local agricultural community.  Here's why:

If a business makes a profit (or a loss, for that matter), we can assume that some economic analysis has occurred - we can assume that the business knows how much money it's taken in and how much money has gone out in the way of expenses.  After all, profit is the positive difference between income and expenses (both direct expenses and overhead).  As a small-scale farmer who markets most of my production directly to consumers, I base my pricing decisions on these economic factors - my prices reflect my need for my farm production to pay my family's basic needs (like groceries, health care, college savings, our mortgage, our retirement, etc.).

I bristle when I hear someone say, "I just planted these trees so that the grandkids can learn about growing fruit - I don't really need to make money from my 'farm'."  Without going through a rigorous economic analysis (and without determining what is required to make a profit), these "farmers" have a profound impact in my ability to make a living.  If farm products are priced at a level that results in a loss (or even at a break-even), I feel pressure to reduce my own prices.

Profit has both an economic and a cultural meaning (as I've written before).  The cultural definition of profit is problematic for me - I farm largely because I've rejected our culture's obsession with material wealth.  In an economic sense, however, profit is vital to my existence as a small farmer - and to the existence of my fellow farmers.


  1. Hi, Dan - As a person who is one of those "farmers" that undoubtedly makes you bristle, I'm compelled to comment. Your post made me a little defensive at first, but I hope this response doesn't come across as defensive. That said, please don't paint part-time farmers with too broad a brush. Some of us have jobs outside the farm (or have other retirement income, whatever), but we care about all who make some or all of their living farming. Business people (farmers or others) understand the necessity of some level of profit as both a measure of the value of goods/services provided and as a necessity to sustain the economic side of an enterprise. We do the planning and hard work necessary to make a profit. Conscientious business people who straddle farm and non-farm work streams bring new revenue and new perspectives to the table, without compromising product quality or pricing. We care about farmers and farming! Different people farm for different reasons - and that's OK. But let's not divide the community up - we're stronger working together than we are being suspicious or critical of one another. Dan, if I read too much into your post, I apologize in advance - thanks for opening the dialog.

    1. Calvin - thanks for your thoughtful response - not defensive in the least! My intent was not to paint all part-time farmers with the same brush, and I apologize if it came off that way. On the other hand, I have personal experience with downward pressure on my prices that result from "competition" that does not take the time to analyze the economics of their operation. The point I was trying to make (clumsily, I'll admit) was that farming is both a business and an avocation and should be treated as such - whether we're full time or part time! Again, I really appreciate the conversation - thank you!

  2. Economics is not a study of money, but a social science that studies how we allocate resources.

    Profits are the results of allocating resources to the most valuable purpose. If there are no profits we have to ask if there are more valuable ways to spend our resources. For example, a marginal farm vs returning that land to open-space/wildlife/urban uses.

    Farms without profits behave morally unacceptably, like underpaying employees, unsafe working conditions, or short cutting food asfety.

    Ultimately farms should be businesses growing what the public wants badly enough to pay for. Businesses without profits are not viable. Even if you're doing it for fun or education, profits are how you keep score.

  3. Dan, you've articulated something that I bring up in conversations with other small farmers and "hobby" farmers about undercutting the market. I have seen multiple people undercut the market for livestock by selling their animals for far less than production costs, and then complain they don't have enough money to do blood testing/worming/vaccinating/mineral supplementing/proper feeding. I try to point out that's the reason I charge what I do- I'm sure as heck not getting rich on these animals, despite the 15 hour work days seven days a week.