John Mattingly: Socratic Rancher 4-29-13
April 29, 2013
When a farmer tells a new acquaintance that he or she farms for a living, most people want to know how many acres you farm. An answer less than a hundred usually suggests a hobby operation, while an answer in the low-to-medium hundreds indicates the cherished “small farmer,” the Jeffersonian ideal of the incorruptible peasant.
Finally, saying you farm in the thousands of acres usually brands you as an agri-business mogul, flooding supermarkets with a lot of empty calories and getting big payoffs from the government.
None of these perceptions relative to size are completely reliable for a number of reasons:
■ Consider a 10 acre organic strawberry operation that employs 20 people year around and books annual net income of $3 million, compared to a 40,000 acre ranch in Nevada that employs two people part time and loses $10,000 a year. If the determination of “size” includes revenues in addition to acres, the picture of what is big and what small changes.
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■ Many of the farming operations that cover several thousand acres are family corporations, not the burn and pillage corporations that some people imagine. Farm family corporations are, in fact, the majority of ag corporations in the U.S., and these family corporations serve as a useful tool for farm families to expand their operation to include the new generations through land purchases, or vertical integration.
In a case where an aging farmer has several children, some of whom want to continue farming, and some of whom do not, the farm family corporation is a way to pass the farm on to the kids who want to farm through shares of stock, which the kids who want to leave sell to those who want to stay. This way, all the kids get some inherited benefit from the farm.
Because farm family corporations are such a good estate planning tool for farmers, it would be unfortunate if the raucous and negative political rhetoric toward “big ag corporations” resulted in limiting the options and opportunities for farmers to pass their farms along to their kids.
■ Then there is economy of scale. There is no absolute right answer to this question. In the San Luis Valley, it is often said that a single farmer with help from a son, daughter, or spouse, needs to farm four circles, or about 500 acres to reach economy of scale.
The optimal size of a farming operation depends a lot on the individual farmer, and how much the farmer can effectively manage. Some farmers do not like to hire help, which limits how big they can get. Farmers who can hire good help, can expand to a point, but the success of an expansion will always depend on the farmer’s management skill at each new level.
I have seen farmers who were top drawer operators when they farmed, say, 400 acres, but when they expanded to 1,000 acres, it did not work out so well. In farming, it isn’t always possible to make a simple, linear multiplication of profits from a simple, linear increase in acres. Many small things change when an operation increases in size, and the small things can add up to large obstacles in the absence of adaptive management.
■ Finally, it is a mistake to automatically assume that big is bad and small is beautiful. Larger operations produce the majority of our food, and do so in a way that keeps food reasonably priced. ❖