Friday, August 31, 2012

Triple Threats

The feedback I've had to my earlier blog post regarding my decision to seek off-farm employment (see has generated sympathetic feedback from customers and tales of similar challenges from fellow small-scale farmers.  Based on the comments of customers, however, I want to clarify the main challenges to small farms in our region (at least as I see them).

Contrary to the assumptions of some of our wonderful customers, my decision to seek off-farm employment is not the result of a lack of market for our grass-fed lamb.  On the contrary, I could sell more lamb if I could produce it!  After seven years of educating our community about the benefits (health and otherwise) of our 100 percent grass-fed lamb, we feel like we've arrived in terms of our marketing opportunities.

So why can't we seem to make a living as sheep producers?  We seem to be facing three main challenges: lack of capital, lack of contiguous land, and ever-increasing overhead expenses.

Let me tackle the last factor first.  Overhead expenses, from an economic perspective, are those costs that do not vary with the level of production.  For example, we must have liability insurance whether we have 10 sheep or 1000.  Fuel costs and equipment depreciation are also not directly related with the number of sheep we own.  We've consistently subsidized our biggest overhead expense - labor - by not taking a salary out of the business.  These overhead expenses are the primary driver in determining the appropriate scale for our operation.  Based on my economic analysis, we need to have at least 600 ewes to generate sufficient income to pay all of our expenses - including my own salary.

The other two challenges stand in the way of achieving this scale.  At current ewe prices, we'd need to invest about $80,000 just to achieve the 600 ewe target.  Unlike farming annual crops (like vegetables), livestock production requires capital investment in productive capacity (as opposed to labor-saving equipment).  We cannot substitute labor for capital equipment as we're growing - we must either invest in sheep or retain all of our female lambs to grow internally.  Philosophically, I struggle with borrowing money to achieve this scale.  At the same time, conventional sources of capital (e.g., local banks) are generally not well versed in providing loans for purchasing livestock.

The last challenge - access to enough land - is largely the result of increasing fragmentation in the foothills.  On un-irrigated pasture, we need 1.5-2 acres to support a ewe for a full year (or .75-1 acre per ewe from October through April).  Irrigated pasture is more productive - one acre will support 6-8 sheep from April to October - but it's in much shorter supply.  Doing the math, we'd need 450-600 acres of annual rangeland and about 100 acres of irrigated pasture to support 600 ewes and their lambs.  At least in Auburn, this quantity of contiguous land is not available for lease.  A fragmented operation, as ours has been, requires trucking animals from one property to another - which drives up overhead expenses.

There is a chicken-or-egg element to the land question.  Having more sheep means I could potentially lease larger pieces of land, but I need more land before expanding the size of my flock.  That being said, large parcels with 75 acres or more of irrigated pasture and 500 acres or more of annual rangeland are exceedingly rare in our community.

Our answer to these challenges, at least for now, is to regroup and to re-size our operation to fit the land base we have available to us.  We have access to about 30 acres of irrigated pasture and about 250 acres of annual rangeland in Auburn.  This land is somewhat contiguous - the individual parcels are close enough that we'll be able to walk our sheep from one pasture to another (rather than trucking them).

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