Farming for Profit and Quality of Life

 

John Ikerd

 

Paper presented at the National Small Farm Today Conference and Trade Show, Columbia, MO, Sponsored by Small Farm Today Magazine, Clark, MO, November 3, 2001.

 

 

One outcome of the current morass is social inventiveness.  Small farm units will not challenge the big on the latter’s terms.  They will instead extend the niche or fringe principle more widely than has been dreamed to date.  An ally may rise in the form of consumers’ search for stability in their food supply.  As novice consumer groups link with inventive farm producers, sustainable agriculture will really come into its own.

 Harold Breimyer, (Small Farm Today 10/2000)

 

For decades, American farmers have been told to either get bigger or get out of farming.  Yet, most farmers have done neither.  Most farmers have not gotten significantly bigger nor have they gotten out of farming.  Certainly, the number of very large corporate farms in America is growing and the number of mid-sized, full-time family farms is shrinking, but the vast majority of America’s farms are still small.

 

Somehow, hundreds of thousands of small farmers have successfully defied the advice of the experts.  They didn’t get big but they didn’t go broke and they didn’t get out of farming.  Instead, they have found ways to survive and succeed.  For years, we have been told that small family farms were “a thing of the past.”  Today, they seem to be the only type of farm that has much of a future.

 

The Census of Agriculture indicates that more than 80 percent of all U.S. farms generate gross sales of less than $100,000 per year – small farms, by most definitions.  Admittedly, some of those U.S. Census entities counted as farms are hobby farmers and rural residences.  But, many are not.  The Census asks farmers to list their “primary occupation” – the occupation at which they spend more than half of their working hours.   Recent USDA surveys also distinguish between active farmers and retired farmers.  Small farmers are more likely than large farmers to have some occupation other than farming and are more likely to be retired.  But even when considering only those whose primary occupation is farming, and who are not retired, more than half of all farmers would easily be classified as small farmers.  Well over half of these “primary occupation” farmers have less than $100,000 in annual gross sales.  Nearly half have gross sales of less than $50,000 per year – classified by USDA as non-commercial farms.  So most small farms are not hobby farms or rural residences; they are serious farming operations.  And, most farms in the U.S. are small.

 

The farmers that followed the experts’ advice to get bigger, the full-time family farms, were the ones who have been forced out of farming. The first to fail during the farm financial crisis of the1980s were farmers who had borrowed a lot of money – to reduce costs through large-scale, specialized production – during the 1970s.  Those farmers who resisted the urge to expand – diversifying to cut input costs and improve profit margins and relying on off-farm income to supplement rising costs of living – weathered the crisis far better. These smaller farms became part-time family farms, became a different type of farm, and survived.

 

Today, big farmers who survived the crisis of the 1980s are being told that they will have to become contract producers for some agribusiness corporation or get out.  They are told they will have to become part of a corporate “food chain” in order to have access to the technology, the capital, and the markets that they will need to survive.  Getting bigger is no longer enough – it never was.

 

The future of conventional farming in the U.S. is in peril. Until a decade or so ago, few questioned the ability of American farmers to compete with farmers anywhere in the world, even if it did mean ever-lower prices and ever-tighter profit margins.  We were the global leaders in agriculture.  We had the most highly educated and efficient farmers in the world using the latest production technologies to cultivate the best agricultural land in the world.   In recent years, however, the U.S. share of global agricultural exports has plummeted, destroying farm profitability, and shaking confidence in the American farmer’s ability to compete.

 

The U.S. share of global exports of soybean and soybean product, for example, shrank from 80 percent during the 1960s to just 35 percent in 1998-2000.  Over that same period, the combined share for Argentina and Brazil grew from less than 10 to nearly 50 percent.  Abundant land and favorable climates, coupled with low-cost labor and a favorable exchange rate, have given Argentina and Brazil a clear competitive advantage.  Harvested acres of wheat in the U.S., a traditional high-export crop, are down more than one-third from the peak in 1981, as U.S. farmers have abandoned wheat for other more profitable crops.  Corn acreage has remained relatively steady over the years, but only because of a strong domestic demand for sweeteners.

 

U.S. livestock producers face strong competition from Canada and Mexico in domestic livestock and meat markets, causing some livestock producers to question the wisdom of the NAFTA, which opened our markets to competition from the North and South.  Threats by agribusiness to move their large-scale confinement animal feeding operations to Mexico or elsewhere, to avoid growing environmental and animal welfare concerns, also cast a shadow on the future of U.S. meat production.  Large-scale animal feeding operations have been the primary source of the U.S. competitive advantage in production of grain-fed meat and poultry.   South America and Australia are lower cost producers of range cattle, and countries such as Mexico and China could gain competitive advantages in restructured global pork and poultry industries.

 

Declining exports have led American farmers into their fourth straight year of economic “emergency” – resulting in $5-$9 billion per year in “emergency” government payments, in addition to already generous farm program benefits.  American farmers today are among the most heavily subsidized in the world, and Congress shows little inclination toward risking a return to free markets in the new farm bill.  Without generous subsidies from taxpayers, American farm exports would be far less, and we would be in the midst of an American “farm financial crisis” at least as severe as that of the 1980s.   Without continued large subsidies, American farmers quite likely will not be able to compete in a free market global economy, regardless of what the free market promoters may say.

 

America’s lack of competitiveness in farming is not just a short run phenomenon resulting from unfavorable exchange rates or a depressed global economy.  As Steven Blank points out in his recent book, “The End of Agriculture in the American Portfolio”1 rising costs of land and labor are destroying the traditional competitive advantage of American farmers in world markets.  Growing demand for land in rural areas for residential purposes, as America’s affluent urbanites acquire more living space, will make even good farmland too costly to farm.   Employment opportunities arising from the “new economy” will make the economic sacrifice of an occupation in farming too high.  Cornfields can’t compete with condominiums for land and the Missouri Valley can’t compete with the Silicone Valley for labor.

 

According to Blank, Americans will choose their best economic alternatives and will leaving the farming to other countries.  Americans will continue to be well fed, he says, we will simply import our food from other countries where it can be produced at a lower cost.  It all makes “economic sense.”  And, although Blank didn’t make an issue of it, if the multinational national corporations succeed in gaining control of global agriculture, this whole scenario is even more plausible, if not inevitable.  These multinational corporations have no sentimental ties to family, community, or even to any given country, because they are not real people.  They will simply move their agricultural operations, including contractual operations, to wherever on the globe they can make the most money, and increasingly, that will be somewhere other than in America.

 

In the face of this global challenge to the profitability of America’s largest, most efficient farming operations, how can America’s small farms possibly expect to make the profits needed to survive?  The best answers to this question can be found by looking at small farms that are making profits, surviving, and even prospering today – in the face of the current American farm financial crisis.   Many small farmers are finding ways to succeed, and most are succeeding with little if any help in the form of direct government payments.  They may claim the label of organic, low-input, alternative, biodynamic, holistic, permaculture, practical farmers, or just plain farmer.  But they are all pursuing the same basic purpose by the same set of principles.  They are trying to build farming systems that are ecologically sound, economically viable, and socially responsible.  They are building systems of farming that will be sustainable over the long run.  They are the New American Farmers2.

 

Certainly, not all New American Farms are small, but many of the most successful are small farms. But, the even large “sustainable” farms tend to be smaller and more diverse than are their “conventional” counterparts that produce the same commodities. A “sustainable” cattle ranch, for example, is likely to be far larger than a “conventional” berry farm.  But a “sustainable” cattle ranch is likely to be smaller than one that is managed strictly for the bottom line.

 

Large commercial farms make more money by managing more land, investing more money, and hiring more laborers.  Even if their profit margins are small, they generate larger total profits by increasing the size of their operations.  A smaller farm, on the other hand, must be managed more “intensively.”   A smaller farm has fewer resources and produces less than does a larger farm.  Thus, a small farm must make a higher return per acre of land or per dollar invested to be economically competitive with a larger farm.  But, by managing fewer resources more intensively, the small farmer is able to make more profit per unit of output, and thus, may make more total profits – even though total production or output is less than on a larger farm.  By giving more time and attention to each acre of land and each dollar invested, the small farmer is able to generate a larger return from a smaller farm, and thus, to make the smaller farm more profitable.

 

There is no single blueprint or template for “The New American Farm” but some general characteristics are beginning to emerge.

 

First, these new farms tend to be more diversified than are conventional farms.  These farmers are committed to caring for the land and protecting the natural environment.  They work with nature rather than try to control or conquer nature, and nature is inherently diverse.  They fit the farm to their land and climate rather than try to bend nature to fit the way they might prefer to farm.  In most regions, this requires a variety of crop and animal enterprises.  In some regions, however, diversity is achieved through crop rotations and cover crops – without livestock.   In other regions, diversity means managing livestock grazing to achieve diverse plant species or with multiple species of grazing animals.  Through diversification, these new farmers substitute management of on-farm resources for the off-farm inputs that squeeze farm profits and threaten the environment.  Their farms are more economically viable, as well as more ecologically sound, because they farm in harmony with nature.

 

Next, the new farmers tend to have more direct contact with their customers than do conventional farmers.   Most either market their products direct to customers or market through agents who represent them with their customers.  They realize that each of us value things differently, as consumers, because we have different needs and different tastes and preferences.  They produce the things that their customers value most, rather than try to convince their customers to buy whatever they might prefer to produce.  They market to people who care where their food comes from and how it is produced – locally grown, organic, natural, humanely raised, hormone and antibiotic free, etc. – and, they receive premium prices by producing what their customers value.  Their farming operations are more economically viable, as well as ecologically sound and socially responsible.

 

In addition, these new farmers think for themselves and make their own decisions.  Their farming operations reflect the things they like to do, the things they believe in, and the things they have a passion for, as well as the things that might make money.  Their products are better and their costs are less because by following their passion they end up doing what they do best.  These new farmers are able to earn a decent income, but more important, they have a higher quality of life because they are living a life that they love.

 

Finally, these new farmers build relationships, among each other and with their customers, as well as with their land.  These relationships are interdependent, relationships of choice, rather than relationships of dependency or necessity. The new farmers freely share information.  Some form partnerships and cooperatives to buy equipment, to process and market their products, to do together the things that they can’t do as well alone.  They are not trying to drive each other out of business; they are trying to help each other succeed.  They are not trying to take advantage of their customers to make quick profits; they are trying to create lifelong social and economic relationships. They buy locally and market locally, bringing people together around food and farming. They refuse to either exploit each other – or to exploit the land.

 

The economics of this new type of farming is fundamentally different from the economics of large-scale production of bulk agricultural commodities – which characterizes “conventional American farming.”  A conventional farmer’s net incomes generally run about fifteen to twenty percent of gross sales.  Thus, a farm with $50,000 in gross sales would net only about $7,000 to $10,000 – certainly not enough to support a family.  Thus, the USDA categorizes such farms as “non-commercial” farms.  The only hope for those farms grossing even up to $100,000 per year, and netting $15,000 to $20,000, would seem to be to rely on non-farm sources for most of their income.

 

However, by managing more “intensively” the new farmers are able to net far more profit from each dollar of sales.  They reduce their costs of purchased inputs through diversification, increase the value of their products through niche markets, focus on the things that they do best, and work together to do the things that they can’t do as well alone.  As a result, their net return per dollar of sales may be 40 to 50 percent rather than the 15 to 20 percent for a conventional farm.  Thus, the net returns on a farm with $100,000 in annual sales may be $40,000 to $50,000 and even a farm with $50,000 in annual sales may net $20,000 to $25,000 to support the small farm family.  The bottom line is that 10 acres, intensively managed to produce high valued products, may generate more profits than 1,000 acres used to produce bulk agricultural commodities – corn, cattle, wheat, cotton, etc.   Many small farms make some fairly big profits.

 

But, what about small farms that do not make profits?  How do they survive and why would such farmers want to keep farming?  The fact is, most small farms don’t make profits – at least they don’t report any net farm income at tax time.  According to the latest USDA statistics, only 37 percent of small, “limited resource” farms and 30 percent of small, “lifestyle” farms reported positive net-cash incomes in 1995.  For “primary occupation” small farmers (with less than $100,000 annual sales) only 55 percent reported positive net-cash incomes.  For these three USDA small farm groups combined, only 45 percent made any profit from farming.  So, most small farms lose money.

 

Obviously, some of these are “hobby” farmers or are simply “rural residents,” growing and marketing a few agricultural commodities.  However, many farmers who consistently report farming losses are “primary occupation” farmers – they are not working for nothing.

 

A lot of the small farms that don’t report profits are “quality of life” farms – their primary purpose is to contribute to the quality of life of a farm family in ways other than by making money.  Typically, one or more member of the family on such farms has an off-farm job to provide the family with necessary “cash” income.  This allows their farming operation to focus on creating a highly desirable quality of life by other means.  It would cost a lot of money for people living in cities to buy the quality of life benefits that are an inherent part of a good family farm.  And, still other quality of life benefits of farming are “priceless.”

 

Ask farm families why they farm, and many will mention that they like the open spaces, fresh air, scenic landscapes, and the opportunity to live in a natural setting.  How much money does a person have to earn in a city to live in a scenic, natural environment with fresh air and open spaces?  Even small farms provide families very large “residential lots.”  How much money does a person have to earn in a city to “buy” the open space, personal freedom, and privacy of a typical small farm?

 

Ask farm families why they farm, and many will mention that a farm is a good place to raise a family.  A good farm is a place that nurtures life – plants and animals – and the lives of children can be nurtured as well by growing up on a farm.   Farm parents also can have more influence on their children, because families have opportunities to spend more quality time together – work and family life happens at the same place.  Children that grow up knowing they are valued, productive participants in the work of the family seem more likely to grow up with a healthy sense of self-worth.  How much money does a family have to earn in a city to ensure quality learning opportunities for their children, to create opportunities for the family to grow together, to give their children opportunities to build self-esteem?  How much time and money is spent by families in cities just to keep the children “occupied” by “non-destructive” activities?  The things that build strong families just come naturally in day-to-day life on a good family farm.

 

Ask farm families why they farm, and many will mention that they like being part of a farming community.  Farming communities may not be as close as they were back in the days when farmers shared work, and when the social life of farm families was pretty much limited to community activities.  However, many farming communities are still places where everyone knows just about everyone else, and everybody has an opportunity to pursue whatever community role they choose to pursue.  How much time and money does a person in a city have to spend to develop and maintain a social network of friends?  How much time and money does a person in a city have to spend to develop name recognition and credibility, if they decide to take on a leadership role in their “community?”  Farmers just naturally find a place to belong, in a community with other farming families.

 

On a family farm, the open spaces, the place to raise a family, and the community, all come as part of farming.  Farmers don’t have to pay extra for the extra space because they need the same space for the farm.   Farmers don’t have to pay extra for a place to raise a family, because the place they raise the family is the farm.  And farmers don’t have to pay extra to be a part of a farming community, because they become a part when they decide to live there and farm.  These benefits are valuable, but farmers don’t have to pay anything extra for them, they are just part of the “quality of life” that comes with farming.

 

As a bonus, the costs of many such “quality of life” benefits are considered as farming costs.   The cost of owning farmland is a farming cost, although the farm provides a place to live.  Many food costs are also farm costs, such as some of the costs of a vegetable garden and animals for meat, eggs, or milk.  Some family transportation costs are farm costs – every farm needs a pickup truck.  Many recreation costs, such as maintaining wildlife habitat for hunting and fishing, all-terrain vehicles for work and play, a stable for riding horses, pets that “work” on the farm, etc. also are farm costs.  Many things that contribute to a desirable quality of life on a farm are legitimate farm costs, to the extent that they also contribute to the farm business.

 

What difference does this make whether something is a farm cost or family cost?  If something is a business cost, it can be deducted from farm income, reducing farm income for accounting and tax purposes.  Expenses of a purely personal nature cannot be deducted from income taxes.  So, for each dollar spent for personal expense, a person has to earn anywhere from $1.35 to $2.00, depending on their federal and state income tax brackets and how much they contribute to social security.  Farmers only have to earn a dollar to spend a dollar on legitimate farm expenses, including those that create valuable personal benefits.  In addition, every dollar “lost” on the farm may save from $0.30 to $0.50 in reduced taxes on off-farm income.

 

So, many small farms that report “negative” net incomes still may be providing very valuable economic benefits to farm families.   In fact, it’s conceivable that the costs of providing the same quality of life benefits that occur on many small family farms might require a $30,000 to $50,000 in off-farm income, or even more.   Cost of such things as an acreage in an upscale gated community, enhanced private educational and recreational experiences for children, involvement in civic affairs, maintaining social relationships, membership in sport’s club, etc. don’t come cheap.   So, a farm that just “breaks even” might be contributing as much to the quality of life of the family as a job that pays $30,000 to $50,000 in town.

 

Many people who have $30,000 to $50,000 jobs in town are able to do little more than pay the “cost of living” of the family – the cost of their quality of life.  And, many city families need more than one income, and sometimes more than one job per person, just to make ends meet.  A farm that just breaks even is still making ends meet.  Off-farm employment may be necessary only because some things that contribute to a desirable quality of life can’t be produced on the farm, and thus, require a cash income.

 

Some other aspects of life on a farm are simply “priceless.”  Our quality of life cannot be measured in terms of income or wealth – although economic rewards are a part of it.   Our quality of life also depends on the quality of our relationships with other people.   And, our quality of life depends on whether we find purpose and meaning in the things that we do – whether we are living and working according to our moral and ethical principles.  We can’t buy a life of quality; we must live it.  The most important dimensions of our quality of life are truly “priceless.”

 

For many farm families, farming is the means by which they build positive relationships within their families and communities and by which they contribute to helping build a better society.  For many farm families, being good stewards of the land, caring for the land for the benefit of current and future generations, gives purpose and meaning to their lives.   Our quality of life is interdependent with our natural and social environment.  This is an inherent aspect of being human.  “In accordance with universal and inviolate laws of Nature and humanity, the quality and sustainability of life on Earth depends on harmonious relationships among all peoples and all nations, and between humans and our natural environment, both now and into the distant future.”3 The benefits of living a life of interdependence, on a “quality of life” farm, can be truly “priceless.”

 

What about the benefits of small farms to society; should it matter to the rest of us, we who are not small farmers, whether or not small farmers survive and succeed?  You bet it does.  The security of our nation is dependent upon the strength of our agriculture, and the best hope for survival of American agriculture is the survival of America’s small farms.

 

Conventional commercial farming represents an industrial approach to agriculture that quite simply is not sustainable over the long run.  Industrialization relies on specialization, but nature is inherently diverse.  Industrialization relies on standardization, but nature is inherently site specific and individualistic.  Industrialization relies on centralization of control, but nature is inherently decentralized and uncontrollable.  Industrialization is driven by short run economic self-interest, it is exploitative of nature and it is not sustainable.

 

Successful small farming depends upon the principles of diversity, individuality, and decentralization – upon working in harmony with nature and with human society rather than exploiting either nature or people.  Sustainability requires that our farms be ecologically sound, economically viable, and socially responsible – the same characteristics required for successful small farms.  The quest for sustainability is driven by a more enlightened self-interest that recognizes the value of relationships and ethics, as well as economics, in our quality of life.  The sustainability of American agriculture may well depend on the survival and success of its small family farms.

 

Small farms also matter to the rest of us because the sustainable small farm provides a metaphor for sustainable living.  Our personal quality of life is not just about economics  – it is about relationships and ethics as well.  The personal, interpersonal, and spiritual dimensions of our lives are analogous to the economic, social, and ecological dimensions of sustainable farming.  Like sustainable farmers, we need to find harmony and balance among the various dimensions of our lives.  In farming, we can see more clearly our connectedness to the earth – the inherent dependence of all living things upon the health of the natural environment.  Through the reconnecting of small farmers with their customers, through local markets, we can see more clearly the value of our interdependence with each other throughout all aspects of human society.  Through our concern for each other and for stewardship of the earth, we can reconnect with the essential spiritual dimensions of our lives.   Our concerns for the sustainable agriculture provide a metaphor for concerns for the sustainability of human society.

 

Small farms matter to the rest of us, because there may come a time when the only farmers left in America are small, family farmers.  At some time in the future, much of the large-scale production of agricultural commodities may be moved to other countries by the multinational corporations.   Perhaps we won’t allow the multinational corporations to abandon agriculture in America completely.  But Americans could someday become as dependent on rest of the world for food as we are today for oil.  Perhaps we could keep the food imports flowing, as we maintain the inflow of oil today.  But, how large a military force would it take?  What new “Organization of Food Exporting Countries” might be formed to control the market?  How many “small wars” would we have to fight to keep a “renegade country” from restricting our supply of food?  How many terrorist attacks will we suffer at the hands of people who feel oppressed by future corporate American food policies?

 

In fact, the food security of the nation may well rest in the hands of small-scale family farmers who have broken away from the global industrial food system.  During times of future global crises, we may well need to rely on local farmers for our very survival.  If so, we will need more farmers who know how to produce more on less land  -- who have reduced their reliance on purchased inputs through more intensive management of their land and labor and less reliance on commercial technologies.  If so, we will need more farmers who have developed direct relationships with their customers – who have created value, as well as reduced costs by marketing more directly to local customers.  As they have found ways to eliminate the 80 percent of food costs that currently occur in the industrial marketing system, they will have reconnected American consumers with their basic food supply.  The food security of America, one day, could depend on survival and success of our smaller, family farms.

 

Can America depend of its small family farmers?  We can if we make it possible for them to remain true family farmers – quality of life farmers, sustainable farmers, instead of forcing them to farm for the bottom line.   If the family and the farm remain inseparable, as they are on true family farms, the family will take care of the land – they will do whatever it takes to keep the land healthy and productive.  “Quality of life” farmers will take care of the natural environment, because a healthy environment is important to their quality of life.  Quality of life farmers will be good neighbors, because being a part of the community is important to their quality of life.  “Quality of life” farmers will be sustainable farmers, because the same things that contribute to rural quality of life contribute to the long run sustainability of agriculture.

 

But even more important, small family farmers are real people.  Unlike corporations, farm families have hearts, they have souls, they have communities, and they have nationalities.  They are not going to quit farming and move away from their family and friends, just because they could make a few more dollars in profits somewhere else.  As long as they can farm, they will, and as long as they can farm near their family and friends, they will.  They are rooted in the place where they grew up and would like their children to “take roots” there as well.

 

Our small family farms are not some organizational mechanism designed to accumulate capital and generate profit and wealth.  Family farmers are real people and they are Americans. They love this country.  They don’t want to live anywhere else. They are not going to renounce their citizenship and leave this country just because they could make a few more dollars in profit by farming somewhere else.

 

America can depend on its small farmers because a successful small farm is about much more than profits.  Quoting from the Declaration of Interdependence,4 “We hold these truths to be self-evident – that all things are interconnected, that all things of creation have inherent worth apart from their current or anticipated market value, and that the worth of all things is enhanced and enriched through the abundance of love, community, and trust that arises from honoring our interdependence.”  America can depend on its small farms, because small farms epitomize this commitment to interdependence.

 

America “must” depend on its small farms because small farms are our best hope for sustaining humanity.  Sustainable agriculture is about sustaining people through agriculture, not just about sustaining agriculture.  Small farms are about sustaining a desirable quality of life for people, not just about production and profits.  Again, in the words of Harold Breimyer: “Human beings are instinctively concerned about continuity into the longer culture.  For if agriculture is not sustainable, neither is the society that rests upon it.”  Human societies must defend and support their small farmers, because the future sustainability of humanity ultimately rests upon the sustainability of its small farms.



1 Blank, Stephen C. The End of Agriculture in the American Portfolio, Quorum Books, Westport, Connecticut, 1999.

2 For 50 real life examples, see “The New American Farmer – Profiles in Agricultural Innovation,” the SARE Program, USDA, Washington DC. ($10 US – call: 802-656-0484 or e-mail: sanpubs@uvm.edu , also available free on line at http://www.sare.org/newfarmer )

3 Patrick Madden and others, “A Declaration of Interdependence” from the Looking Glass Inn Workshop, Kooskie, ID, June 27-29, 1998

4 Patrick Madden and others, “A Declaration of Interdependence” from the Looking Glass Inn Workshop, Kooskie, ID, June 27-29, 1998