Farm Profitability

While I have only a little experience in this area (and admittedly not as a full-time job) it’s something I’m extremely passionate about and a topic I love to talk about.

I grew up learning about general business from my dad, and how it relates to farming is a subject I’ve been learning about seriously since 2018.

There’s so much that can be said about this subject, but I’ll try to give a bird’s eye overview today so that you are at least able to understand the important stuff and apply it!

What is Profit, and Why?

Profit is simply a measure of a business’s health; the money you make after all of the expenses are taken out and paid off.

Think of it like paying your bills. If you pay your bills and have money left over, then you have profit. If you have no money or can’t pay them, then you aren’t profitable.

Profit is important for any business, but that’s not to say that it should ever be the most important thing in life or that you are worth less if you aren’t profitable. It’s just a way to figure out how a business is doing!

Note that you will likely never become rich by farming. That’s not unique to agriculture, it’s just rare in general to get wildly rich in most industries, that’s just how it is.

If you’re ok with just making a living, that’s definitely doable!

Without being profitable, you would soon be losing money on the farm which is the unfortunate truth of most HIA (Highly industrialized agriculture) and wouldn’t be able to continue.

If your farm isn’t profitable, don’t worry! After this article you should have a good idea of how to make it earn some leftover income.

Also, if it makes you feel better most businesses take at least 5 years to be profitable, and farms take longer typically. There is also nothing wrong with farming part-time, or as a non-profit. I’ve met non-profit farmers, intensive market farmers, and part-time farmers and guess what? They’re all equally as cool and good at their craft.

Calculating Profit

To calculate profit, we need to establish a baseline amount of money flowing into the business and then calculate the expenses.

There are many ways to do this, but my favorite is to calculate based on the amount of profit per square foot and acre. I’m more of a visual guy so this is helpful to me. I’ve gone through a specific example in my previous article if you’re interested.

For the sake of ease, remember that if you’re averaging $2.50/sqft that’s already $100k/acre in revenue (not profit) and might be an indicator that you should run more exact numbers because it might be promising!

You can still use this calculation with livestock as well, but I’d recommend doing profit per animal rather than per square foot of pasture (acres might make sense in certain contexts though).

The other factors to consider are up front investments (if you bought a tractor how long would that take to pay off for example), ongoing expenses (seeds, disposable materials, energy cost, water etc), and setting some aside for a savings buffer on bad harvest years (which will happen).

Most importantly you have to know you can actually sell your produce or there’s no point in growing it!

The growing part is actually the easiest part of farming in my opinion, it’s the marketing that is the challenge.

Finding a Niche

As I mentioned above, marketing is the most challenging part of farming (at least to me, maybe some of you are marketing experts and are awesome at it!)

The most common-sense approach is perhaps one of the least obvious: sell the produce before you grow it.

Ideally, you’d have a base of people who already want to buy your produce before you even produce it. Not always possible, but great when it is!

The next advice was advice I was given by the legend Joel Salatin himself: “Sell what people are buying”. Maybe you can grow a rare heirloom genetically diverse herb, but if no one’s ever heard of it they aren’t likely to buy it.

Joel suggested to me that I look at the most popular produce in my area (things that are familiar) and just do something slightly different to set them apart from the competition. It doesn’t mean that you can’t grow the obscure native fruit you like, but in order to get to profit and get some cash-flow going, start with the basics.

I’ve talked before about finding a niche here, and to reiterate I think the Rule of Thirds is a great way to figure out how to make money.

The Rule of Thirds in farm business essentially says to have three complimentary enterprises since it has the maximum diversity with the lowest inputs.

For example, if you are a vegetable farm, you might also choose to have sell seed as an enterprise, and you might raise meat poultry. The chickens provide compost to the vegetable operation, the seeds fuel the vegetable operation and provide an outlet for bolted vegetables, and the chickens prep areas for the next growing cycle.

Efficiency Over Scaling

Joel Salatin also talks often about how large-scale HIA only has the advantage of scale. It’s very hard to be agile and adapt to the market or form relationships with customers if you’re Tyson, whereas a local farmer serving customers within a 1-hour radius can not only shift his entire operation quickly if necessary, he can also form a base of loyal customers that will defend his product with their lives!

When it comes to being efficient in small-scale farming, my favorite philosophy is that of “Lean”.

Lean is something I was taught by my dad when I was a kid. The philosophy hinges on two main ideas: eliminating waste, and continuous improvement.

The book The Lean Farm and The Lean Micro Farm both by Ben Hartman are the perfect examples of how to apply this philosophy to agriculture, I can’t recommend them enough if this is a subject that excites you!

Cutting down on inputs can dramatically increase your profitability. Ben Hartman is so good at this that he manages to make a full living on less than an acre (I want to say it’s ¼ acre now?) on top of paying for an employee to do administrative work!

Analyze your farm to cut down on these types of wastes (also called “Mudas”):

• Time

• Inventory

• Motion

• Waiting

• Over-processing

• Overproduction

• Defects

Is walking from one side of the farm to the workshop taking you too long? Do you find yourself throwing away way too much defected produce? Are you growing too much of something?

Sometimes the answer is to find another use for the waste rather than to “eliminate” it directly. For example, can you value-add produce that would otherwise get thrown away? Can you find another task that can be done in the time you’d normally be waiting on something else?

Risk Management

There’s two main ways I like to handle risk with a farm: Diversification, and Mitigation.

Diversification is the idea that you have multiple options in case something goes wrong. For example, you might grow 3 different varieties of tomatoes in case one doesn’t perform well, you might have 5 different herbs you sell instead of 3 acres of basil etc.

Mitigation would be anything that you do to directly keep a specific problem from occurring. Examples include putting insect netting over your cabbages, using a disease resistant variety of tomato, or ensuring your property doesn’t flood.

With all of these things in mind, you will be able to make massive strides towards having a profitable operation! It doesn’t happen overnight, but it can be viable if you’re creative, know your market, and be smart with your calculations.

For more on this subject, I recommend the following resources:

• The Lean Farm and The Lean Micro Farm by Ben Hartman

• Restoration Agriculture by Mark Shepard

• The Permaculture Market Garden by Zach Loeks

• The Thriving Farmer Podcast by Michael Kilpatrick

• The Goldshaw Farm YouTube channel by Morgan Gold

• My Digital Farmer Podcast by Carina Bench (Mostly about farm marketing)

  (I don’t earn anything from plugging these, I just like them)

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