> Bob,
> I have one problem with all this talk about not including opportunity
> costs and farm labor. And I do have a degree in Agriculture Economics/Farm
> Management. (Thats not worth the piece of paper on the wall, but that is a
> whole different story.)
Sorry to hear that. Atleast, combined with your practical knowledge of farming,
you aren't as easily sucked in to agro-economic double talk.
> I agree with the idea that production costs need to include opportunity
> costs and farm labor long term, BUT I do believe we need to differentiate
> between opportunity costs and non paid farm labor from expenses that require
> writing checks. Isn't cash flow still a major problem on US farms? A farm
> that has it's ground paid for and no off farm labor can have a significantly
> better cash flow with identical costs of production. Operations with no
> debt or off farm employment are very low risk operations. There isn't any
> reason that getting out of debt shouldn't be one of the goal choices for
> American farms. I get kind of tired of hearing that people aren't low cost
> producers because they have paid for their land and they don't hire off farm
> employees. How do you think they paid for their land?!? These are the
> farms around us that have century farm signs in the yard.
We seem to have forgotten good old fashioned business sense. A company in debt
will go under at the first down turn in the economy. I saw it happening all
around me in the "recession" of the 70's. My father had paid off all debt
(incurred only when the loan could be paid off with profits from signed
contracts) and was completely solvent. Similar businesses folded like the
economic card houses that they were- too much debt. We continued to operate and
bought first class machinery at bargain prices when no one else was. Farming is
a smaller return on investment than other businesses. It requires more sound
economics with lower debt.
> Our farm would be a good example. We have had all the chances to stick up
> confinement hog barns. We never did and paid for our land. (We are still
> low cost producers including opportunity costs and labor.) We've got to be
> one of the lowest cost hog producers in the country when you look at cash
> flow. That is a great advantage when hogs are $26/cwt like they are now!
> Opportunity costs are great from budgeting, but our checkbook and banker
> like to look at cashflow!
>
> I think a lot of people get in trouble sticking a value on their own labor
> to justify additional equipment to lower their labor needs. When I was in
> college they showed us figures justifying larger equipment because of
> decreased labor needs. THE big problem with this is labor costs of the farm
> owner goes in your pocket as wage or salary. Labor savings go in the pocket
> of the John Deere dealer. Of course if you are hiring labor this would
> change that situation. But I know personally if I spent money on equipment
> to lower my "labor" cost not only would my wages ("labor cost") go down but
> my expenses would go up because of the payment on the new equipment. Isn't
> reality the exact opposite of what I was taught at college?
Small farms are typically family or one person operations. Farm Labor Cost = Net
Farm Profit. There's an equation that means we get paid what our profit is.
(Minus any reinvestment). I come out to zero each year. So, I guess that means
my farm doesn't make any money according to most accounting.
> Like I said before, I have a degree in Farm Management, but I still can't
> get this through my head that we don't need low risk operations that cash
> flow well in the lowest of prices. Can somebody "straighten" me out? Or am
> I too far gone?
You're too far gone for economists and current thought on running farms like
manufacturing businesses. But you're way ahead on being able to support yourself
with a farm. What makes sense to you and me is laughed at by most.
> Best wishes,
> Greg Gunthorp
> Pasture hog farmer
> "Still cash flowing $26/cwt hogs--I think that might be the economic portion
> of sustainable agriculture?"
> -----Original Message-----
> From: Bob MacGregor <RDMACGREGOR@gov.pe.ca>
> To: waldenfarm@sprintmail.com <waldenfarm@sprintmail.com>;
> csas005@unlvm.unl.edu <csas005@unlvm.unl.edu>
> Cc: sanet-mg@shasta.ces.ncsu.edu <sanet-mg@shasta.ces.ncsu.edu>
> Date: Thursday, September 03, 1998 9:54 AM
> Subject: Re: How to get rich selling watermelons -Reply
>
> >Maybe part of the problem in how much profit a farm makes is definition.
> >I know a lot of small farmers, particularly those who have little or no
> debt,
> >tend to overlook many cost items such as opportunity cost of farm
> >capital, and their own family labour.
> >I suspect that labour is a greater component of total farm costs on small
> >farms -- perhaps particularly on organic farms -- so including return to
> >operator labour in with operation profit could distort these proportions a
> >lot.
> >For what it is worth....
> >BOB
> >
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> >
>
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