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The Three Types of Family Farms

11/11/2013

9 Comments

 
Disclaimer: I full acknowledge that categorizing farms into three bins is a gross oversimplification. Nonetheless, I think it is an interesting exercise.

With two plus year under my belt at farming, and lots of experience meeting and working with other farmers, I've started to see a pattern emerging: family farms fit into three broad economic categories. The categorization of the farm might not be obvious at first glance to the outside observer/random farmers market shopper, but it's very important to the perceived and actual success of the farm. Without further ado, the three categories:

1. Old Money: These are the farms that have been passed down through family lines through generations. They tend to be on the larger side, and often go through many conversions over time to meet market demand. In this area, most of these older farms started off as dairies. A key difference from the other farms on this list is that these farmers didn't necessarily CHOOSE to be farmers, they just grew up in farming and stayed with it. The obvious advantage of these farms is that they are completely paid for and have lots of existing infrastructure. The family is used to the hard work of farming. Some of these farms are moving into a more direct market approach, while others have been doing direct marketing a long time through agro-tourism (eg pumpkin patches/corn mazes). In general, most of these farms are not my direct competition, because they're engaged in very different markets (eg. wholesale potatoes or berries). When these farms are in competition with me, they have the advantage of lower land/barn costs but may not necessarily be able/willing to try radically new things to meet market demand.


2. New Money: These farms are the ones I most often interact with. They are usually run by middle aged folks who have made a fair bit of money in their careers and decide to quit their jobs and buy a farm. They may put up a facade of amazing success, but be losing (potentially large amounts) of money behind the scenes. Like the old money, they have the advantage of reduced operating expenses if they're able to afford the land/infrastructure outright. These farms can further diverge into the (a) huge hobby farm that runs at a loss and is supported by savings/retirement/investments/other jobs, (b) farm that barely scrapes by and ends up putting farmers into near or actual poverty, (c) successful (not sure I've seen an example of this yet), or (d) failure/bankruptcy/etc.  I don't have a problem with this type of farm for the most part, as I think it's admirable and understandable that people that have had success in other facets of life want to make their life more meaningful through farming. My only beef is when those that prop up their farm with other money end up as my competition, because that's not a level playing field and can end up driving down prices.

3. No money: These are your farms most often started by younger folks who are attracted to the idea of farming (often just like the new money farmers) but don't have the savings. They often start off by interning/apprenticing for a few years, move to leasing land, and then perhaps buy some land. Unlike the other two types of farms, land and infrastructure costs are a huge burden because they can't afford to own anything outright and have to either buy things on credit or make do with paying rent. Pretty much all of these farms take a direct marketing approach, as they can't afford enough land and equipment to make wholesaling work out. Some of the more successful no money farmers in this area started 20 or more years ago and have managed to make it work though a combination of good luck, relationships with land trusts (free land), and by building a brand and reputation over time in a market that wasn't as saturated as it is today, and of course high amounts of skill. These days, it's very rare for a true no-money farm to grow and become successful. There will almost always be another source of money behind the scenes (family, second job with high wages, etc). 


So what's the point of this kind of characterization? Well, for one, I like to think about where I fit within this and how it affects my ability to compete and grow. As a no money farmer, it seems to me to be a losing proposition to try and compete with other farms in the new and old money category, because I'm never going to be able to produce the same food at the same cost as them. Rather, I have to figure out a way to emulate the success stories of the no money farmers. In general, I think that involves finding a niche where there is no competition and growing from there. Right now, I haven't found that niche. I'm not convinced I will, either, but I'm not ready to give up yet.  
9 Comments
bruce king link
11/11/2013 03:03:16 pm

If you see examples of farms that are where you want to be, why are you resisting doing what they did to get to the goal you want?

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Jeff
11/11/2013 11:46:07 pm

I'm definitely not resisting and open to anything (as long as it fits within my values). One problem with emulating successful local farms is that you immediately become a competitor. One farm I like is Local Roots Farm in Carnation http://www.localrootsfarm.com/ . I've been following them for a while, and they seem to be doing well as they grow. They do mixed vegetables and a large CSA. I think the mixed vegetable CSA model is one that works, but I don't think it works if you muddy the waters by trying to do animals and vegetables. Skagit River Ranch is another example, although I don't know as much about their history and financials.

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bruce king link
11/12/2013 11:51:06 am

one of the three routes that you talk about in this entry (viz your "new money" category) is to make money somewhere else and then farm when you've got the capital in hand to be able to afford it.

What I'm saying here is that you seem to be working on a model that you can't find any support for -- a farm that is profitable enough that it allows the farm to expand -- and you seem to not consider the other models that are out there: A rich relative or an off-farm job combined with living way under your means to save money for a farm. Since we don't all get rich relatives, the job option seems to be the surest way to go.

How much money would you say would be enough for you to buy and own outright the farm you'd like to have? $200K? $400k? How much capital would you like to have to start a farm? Another $100k? 200k?

So lets say your farming number is $600k, 400k for the farm, 200k for working capital. If you saved $500 a month starting at age 30, at age 61 you'd have $635k * If you saved $750 a month you'd have $641k* at age 56.

$500 a month in take-home pay is a minimum wage job for 15 hours a week. $750 a month is a minimum wage job for 23 hours a week.

Not everyone will work a part time job for 25 years to achieve their goal. Not everyone will become a farmer. And the other thing is, if you had $600k, would you be a farmer or would you choose another direction? For those folks who have made money elsewhere and gotten into farming, the answer is no. They choose to farm despite having other options.

I've deliberately used minimum wage in this example; if you have skills or education that would allow you to earn more than minimum wage, your goal will be achieved sooner.



* http://www.bankrate.com/calculators/savings/save-million-calculator.aspx?ec_id=m1108549&ef_id=URd7awAAARxlpYBn:20131113031953:s

Jeff
11/13/2013 12:20:24 am

As you probably know, I'm already doing what you're suggesting. Jen and I both work other jobs that allow us to save money. We wouldn't have been able to buy our first house in Shoreline and our current farm without saving and good paying jobs. Nonetheless, I still charge the farm business rent every month for the right to use the land, barn, property taxes, upkeep, utilities, etc, as I feel very strongly that the actual costs of the farm business need to be captured accurately.

In terms of your other question, I wouldn't want any more capital than I've already spent on this farm operation (close to 10k, not counting the capital cost of the land and house we live in). I've already got the farm I'd like to have--everything except the part where it's profitable. If I can't make 5 acres profitable, I don't think I can be expected to take $600,000 and make 100 acres profitable.

George
11/11/2013 07:16:49 pm

Have you thought about talking to the dairy you work for about leasing some acreage off of them as well? 3 acres aint much for raising beef and pigs. You can lease it direct, exchange work for the lease, offer profit sharing etc..

I've been doing a combination of working for myself, and as an employee on another farm in order to save money for my own farm. I pay next to nothing for rent, and save more than 50% of my take home salary every week. I figure within the next 2-3 years I'll have more than enough to capitalize a down payment on land etc, and have enough left over for some basic equipment / fencing purchases.

I leased a farm prior as well, and did well my first year there, until sadly the owner was offered a good bit of moolah for the place, and sold out quickly, leaving me high and dry right at the end of our lease agreement. Anyhow, there are a lot of creative options out there to gain access to land, after all that's what the money is for right?

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Jeff
11/11/2013 11:51:53 pm

My immediate next door neighbor is more likely to lease to me than the dairy I work for. They have about 38 acres. We've chatted about it informally. I'll be getting the steer back from the butcher on Wednesday, after which I'll have a better idea how the "raise dairy steers from 5 months to 12 months" idea will work.

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George
11/12/2013 02:25:09 am

Buying in feeder cattle can work...however if you're going for an all grass fed diet you won't see the gains over 7 months. We're raising steers and heifers up to about 22 months before slaughter on 100% grass/alfalfa/clover/weeds/cowpeas/corn grasses (not the ears, but rather grazing the green matter).

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Walter Jeffries link
11/16/2013 07:30:39 am

I'll give you another category, you figure out a fancy name for it.

I didn't inherit money, land or farm.

I decided I wanted to farm when I was 15. It wasn't about a hobby or romanticism. No amazing farm magazine pictures. I just knew I liked animals and plants better than people and I liked country not city or even town life.

I recognized that there was no way to just start farming. I needed to earn enough money for land to have enough land to farm to earn money to buy land, equipment and seed stock. So I created other jobs (worked for myself) and lived frugally putting everything possible towards buying land.

Meanwhile I worked on developing the techniques and skills I would need. You don't get good at things overnight, especially cyclic things that take a year or more to complete.

In time I bought land, began farming and forestry which let me pay for land, while still running my other businesses. After more than a decade of both things my farming became my dominant occupation, paying all the bills. I purposefully, gradually reduced my other businesses as planned. Now 99% of what we do is farming (we have no off farm jobs) and it has been that way for a decade. We are farming profitably.

We have land that we bought with money we earned and money from our farming. Yes, the down payment came from my previous work but that was all planned out carefully and most of the land payment has come from the actual farming and forestry.

We have our own breeder stock that produces the grower stock for our pastured pig farm. Thus we don't buy feeder stock - a big expense.

We produce most of the feed for our livestock so we buy little feed - the second big expense people normally have on the farm. Winter hay is our biggest single expense - we're in the mountains which are not good hay land - but it is relatively cheap compared with if we had to buy grain or commercial feeds which we don't.

We are working on building our own on-farm USDA/State inspected meat processing facility (almost done!) which will solve the third leg of our production system. Processing costs us about 50% of our earnings right now. Doing it ourselves will save most of that.

We have a decade long established customer base that we deliver to on a weekly basis (stores and restaurants within about 100 miles).

Our farm pays for itself, for us and makes a profit without any outside income source propping it up.

I don't see us fitting neatly into any of your categories.
1) We aren't no-money/no-land.
2) We aren't old money - we earned the money to buy our farm.
3) We aren't new money since we don't fit the things you describe there. We're successful and not propped up by outside money. The farm actually paid for itself after the initial down payment on the land which came from my previous work.

Perhaps another category you might add would be:
Bootstrapped - That is what I did. I earned money, took out loans, paid them, bought more land, bought equipment as needed. I'm big iron adverse but buy tools when they do the job I need done. Most of all we run our farm as a business. It's not a hobby when you have 400 pigs bringing home the bacon every week. It's not a hobby when it provides almost all your income - not according to the IRS.

Good luck with your farm. It is doable. It will take a long time. I'm 50. I've been working to get to this point (and to more beyond) since I was 15. Keep at it. It is a marathon, not a sprint. Be in it for the long haul. That is a big key to lots of things.

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Jeff
11/16/2013 08:49:36 am

You're definitely one of the few, visible successes out there, Walter. You're right that you don't really fit neatly into the categories. You're perhaps closest to "new money," but you've shown how to grow a successful business out of your investment.

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