RE: Opportunity costs, profit and small farms

Harris, Craig (Craig.Harris@ssc.msu.edu)
Mon, 7 Sep 1998 17:59:53 -0400

as i recall, this thread began with a discussion of how might the
owner/operator of a small farm know if s/he were making a reasonable
monetary return (setting aside the point that some of the returns from
farming are non-monetary) . . . the discussion then got into (1) return to
what (investment, management, labor), and (2) what is reasonable . . . i
would be inclined to extend bill heffernan's comments and say that while
monetary returns to management and labor all come to the same place (the
farm account), that account can then be used for several different purposes
. . . one, a la chayanov, is to reproduce the farm . . . a second purpose is
to expand the farm, either to try to keep pace with the treadmill of the
cost-price squeeze or to be able to settle more than one child on a farm . .
. a third is to improve the farm in terms of its productivity or efficiency
. . . a fourth is to provide a lifestyle for the members of the farm family,
both in terms of immediate consumption (housing, recreation) and in terms of
long-term benefits (children's education, retirement plans) . . . it seems
to me that the point of holistic farm management is that it is useful for a
farm owner/operator/family to have a fairly clear sense of their goals in
each of these four areas (reproduction, growth, improvement, lifestyle) in
order (1) to assess the adequacy of their return, and (2) to decide to what
uses that return should be allocated
cheers,
craig

craig k harris
department of sociology
michigan state university
429b berkey hall
east lansing michigan 48824-1111
tel: 517-355-5048
fax: 517-432-2856

> ----------
> From: Mary Hendrickson[SMTP:rusomh@showme.missouri.edu]
> Sent: Monday 7 September 1998 4:59 PM
> To: SANET
> Subject: Opportunity costs, profit and small farms
> Hi all,
> The comments that Greg, Alex and John have made about lower debt loads and
> opportunity costs are right on target. While I now tend to think like a
> sociologist my early BSing was in agribusiness and before that my swine
> and sheep FFA enterprise record-keeping. A Russian economist, Chaynov,
> wrote about "peasant" economics at the turn of the century and what he
> said makes sense. For most smaller farms -- at least those using operator
> or family labor -- the GOAL of the business is to reproduce itself, i.e.
> to continue on to the next generation.. Thus, these operators do not
> separate out "profit" and wages (or opportunity costs) but rather consider
> net return after paying actual expenses. This is what keeps the farm
> going until the next generation (and keeps debt loads low etc). This is
> true for most small, family-owned and operated businesses. Thus the
> household's goal is not the
> most profit, but rather to keep farming, or stay in the resturant business
> or something else. Thus, wages and profit are considered the same thing.
> As Bill Heffernan likes to say, returns to management and labor go to the
> same place in a
> family business, while in a corporation like Tyson they are separate.
>
> Moreover, because of the differing amounts of labor available at different
> life
> cycles of the family farm, some households choose enterprises that don't
> look like
> money makers but might keep children busy, reduce household costs or
> contribute
> small amounts of income. Those enterprises then need to be discontinued
> once that
> labor is no longer available. In sum, understanding profit cannot be
> separated from
> household decision-making which cannot be separated from intergenerational
> viability.
>
> Mary
> --
> Mary Hendrickson, Ph.D.
> Department of Rural Sociology
> University of Missouri
> Columbia, MO 65211
> Tele: 573-882-7463
> Fax: 573-882-1473
>
>
>
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