Farm Profit: Making a Life and a Living from Your Farm
July 4, 2011/
By Erica Frenay
My husband and I started Shelterbelt Farm in Caroline, NY last year, joining the ranks of new farmers across the country capitalizing on direct marketing opportunities and the demand for local food.
Like most beginning farmers, I’m coming into a farming career from outside the production agriculture sector. I have been working on food and farming education for 14 years, but my experience running a farm business was nearly non-existent. So I had a lot of the same questions as the new farmers who contact me in my role as coordinator of the Northeast Beginning Farmer Project. One of the first questions these new farmers typically ask is “How much profit can I expect my farm to generate?” What they’re really asking is “Will I be able to support myself and my family from my farm income? Would I be able to quit my office job if I chose to?”
I’ve learned from dozens of conversations with farmers that the short answer is maybe. No one will be able to give you a magic formula with a list of crops to grow for the best bottom line. It depends on your scale, location, soil, skills, efficiency, and markets. Ten different farms all growing a similar mix of crops will likely have vastly differing levels of profitability. This was well illustrated in the Grower to Grower: Creating a Livelihood on a Fresh Market Vegetable Farm study published by the University of Wisconsin in 2006, which followed 19 diversified vegetable farmers over the course of two years, and documented profitability in the form of hourly wages paid to the farm owners. The wages of the farmers studied ranged from $2.26/hr to $14.90/hr for their work. You can find this study online at: http://www.cias.wisc.edu/crops-and-livestock/report-helps-fresh-market-vegetable-growers-understand-and-share-finances/
Your profit potential also depends on what you mean by “profit”, and on your goals.
Three Takes on Profit
For such a simple concept, profit is a surprisingly slippery term.
Most people know that Income – Expenses = Profit. The problem lies in how people use the term. Let’s consider three examples that are laid out as black-and-white; in real life there are more nuances and combinations
Farmer A doesn’t include his own labor as an expense, and may also not include overhead costs, so when he subtracts his expenses from his income, the results for his chicken and strawberry enterprises each look pretty fantastic. He uses these figures to calculate his price, which is significantly lower than his full-time farming neighbors charge for a similar product. He has an off-farm income source with no aspirations to terminate this arrangement. He refers to his farm as being profitable, but his operation wouldn’t stand on its own financially without significant price increases.
Farmer B also doesn’t include her labor as an expense, but she keeps track of her hours invested in each enterprise. Then, when she subtracts expenses from her income, she takes the “profit” that’s left and divides it by the number of hours she put into that enterprise, coming out with an hourly wage for herself. She bases her product prices on the hourly wage she wants to have, and divides her overhead expenses among her mix of enterprises. She culls enterprises that don’t pay her well enough for her time, and is able to support herself full-time on her farm.
Farmer C tracks all his labor and includes a $13/hr wage for himself as part of his expenses ($10/hr + taxes and social security). When planning for profit for any one of his crops, he subtracts all expenses (including his labor and a portion of the farm overhead), and still expects there to be money remaining as profit, which he can use for retirement savings, kids’ college, reinvestment into the farm, or any other purpose. This method of calculating profit reduces the farmer’s risk by ensuring that he could pay someone to take his place should he break a leg or get sick.
None of the examples above is “right” or “wrong”; they can each work for different people. And in fact there is a lot of gray area here: examples B and C overlap in real life. The point is to make sure you understand which type of profit a farmer means when they say “The profit margin on culinary herbs is fantastic” or “We were profitable in our first year.” Most farmers will tell you that it takes 5-9 years to achieve true profitability, though it is possible sooner if you have very low overhead and advanced production skills. And make sure you understand which method of calculating profitability best fits with your farming aspirations.
Profit doesn’t just happen; you need to plan for it and make it happen. Most farms in the US, regardless of size, have some source of off-farm income, whether by choice or necessity. How your farm fits into your lifestyle and your livelihood—and how much profit it generates to support your family–is up to you.
Like many small farmers, my husband and I started out homesteading, with a desire to produce as much of our family’s food as possible. Now that we are growing into a commercial operation, feeding our family is still a high priority. We know that our farm will need to be profitable—using the Farmer B meaning here—but profit is secondary to our quality of life, like having free time in the winter, eating really good food, working outdoors, and being our own bosses. We will probably always have an off-farm income source, by choice, as my husband loves his carpentry work, so there are some things (like health insurance and retirement savings) that we don’t necessarily expect the farm to provide.
Other farmers meticulously plan their operations to generate the greatest possible profit. Richard Wiswall points out in The Organic Farmer’s Business Handbook that it is entirely possible to make a living on a small farm that is competitive with doctors’ or lawyers’ salaries. You can earn enough to fund your retirement and to put your kids through college. You can do this and also still have some of the quality of life benefits mentioned above. But you must be devoted to the focus on profit; persistently culling crops or animals that don’t meet your profit goals, gaining efficiencies and cutting costs that aren’t essential. If you are not willing to put in that kind of intensive management work and focus on return-on-investment, you can still make a living on your farm, but you’ll likely still need some off-farm income.
Despite popular thinking, farming can be enormously profitable. Why shouldn’t it be? Producing food for people is a critical community service that requires no less skill than doctors or computer programmers possess.
Still, an important role for an ag service provider is to ensure that first-generation beginning farmers don’t enter this profession too starry-eyed. It’s especially important for a new farmer to understand that just because she saw local organic chicken fetching $6/lb or meslun mix at $18/lb at the farmers market doesn’t mean that those farmers are getting rich. More likely it means that they have done a full accounting of their farming costs and have set prices that will cover these costs and also pay themselves a “livable” wage (which may still be quite low).
Be clear on your goals, have a good understanding of your costs, and set your prices accordingly. With a bit of skill and luck, you’ll be able to achieve your farm profit goals and make a good life on the farm for you and your family.
Erica Frenay is co-coordinator of the Northeast Beginning Farmer Project, www.nebeginningfarmers.org, housed at the Cornell Small Farms Program. She is also co-owner and operator of Shelterbelt Farm in Caroline, NY, www.shelterbeltfarm.com. She can be reached at email@example.com or 607-255-9911.