I don’t know how many of you are reading through Farmer’s Progress with me. The book is out of print and a little hard to find but I think it’s worth the effort. Today Mr. Henderson reminds us that a farm is not just a dream or a tax shelter, it is a business. I am not trying to distill each chapter down to a few bullet points. I am also not trying to republish his work. I am giving you a glimpse into Mr. Henderson’s wonderful book, encouraging you to find a copy and sharing a few anecdotes and thoughts of my own along the way.
On this topic, Ethan Book released a podcast last week about financing a farm. Each episode of the podcast features a hard lesson learned (or not yet learned) segment. This week’s Ethan suggested that he bought his farm to satisfy a dream rather than to fulfill a business goal. At one point he asks how ridiculous would it be for him to buy a restaurant with zero experience in the restaurant business. That’s exactly the point Mr. Henderson is making as he corrects me once again. We arrived with business in mind but zero experience. We quickly overcame the early (and low) hurdles of efficient livestock production but, as Bruce King pointed out, how do you sell that 300 pigs once you raise them? We were ready to raise chickens. We were somewhat ready to kill chickens. But we were not ready for a freezer full of chickens. I guess we thought it would be Field of Dreams…if we grow it, they will come. They didn’t come. They won’t come. Our farm “business” has to be about 10% production time and 90% marketing time. I don’t know if Mr. Henderson would approve but that’s what it takes to move a chicken.
In earlier chapters he wants the reader to define a clear vision, gain experience, work and save your nickels, understand the world around you and your place in it, and make a study of the efficient application of labor. In chapter 6 we are faced with the grim reality of the market. Scarcity will place farms in the hands of those who can produce most efficiently and strip it from those who just tread water.
To farm a farm as it has been farmed before is to obtain nothing more than a bare living from it, for the great weakness in British agriculture lies in seeking a stable rather than a progressive industry, and a farm should always be planned on the assumption of steadily rising costs which will have to be met by greater efficiency and a higher output.
The early part of the chapter is given to a reminder that farming is a business. A business! Henderson says we are going to stack multiple enterprises on the same bit of land. He talks about having a poultry farm, a cattle farm and a pig farm all on the same land, each enhancing the other, each carrying the other through price downturns and building the farm up over time. But it isn’t as simple as buying a variety of livestock (and planting a variety of grain). He wants you to turn your money frequently. You down? Economists talk about the “Velocity” of money. There could be $1,000,000 of currency in the economy doing $1,000,000,000 worth of work. It just has to move quickly. Think of it this way, if you can make 10% on every transaction you won’t earn a 10% annual return. You’ll compound your return every time. So Mr. Henderson wants us to buy some ram lambs, some pigs and some pullets. By the time the pullets are ready to lay the ram lambs will be ready for market. We can take the proceeds from the ram lamb sale and put it toward the next set of lambs AND some chicken feed. When the pigs ship we buy replacement stock, spread the manure on the fields (to increase the carrying capacity of our pastures or grow more grain for chicken feed) and buy the feed required for the next batch of pigs. You get the idea. Our money is always invested where it is growing and in a variety of places. The faster we can release that capital, reinvest and realize profits, the faster we can move the farm forward.
That’s why Julie and I never have two nickels to rub together. It all goes back into the farm (and then some!). Well, that and we aren’t very good at turning our inventory. Look at the annual statement of any publicly traded company. Any of them. Compare the two major retailers if you want. You need to see two figures. You just need to divide the cost of goods sold by the average inventory for the period. No big whoop. That will indicate to you which competitors are using resources more efficiently. If Business A turns inventory every 3 days and Business B turns inventory every 5 days and Business C is turning inventory every 20 days…well, you can probably make a few assumptions about the management of Business C.
Let’s do it this way. How many people in your community buy milk? Does the grocer keep that much milk in stock at all times? You’ll find out next time there’s an ice storm. The grocer needs to maximize the utility of his refrigerator case, maximize the return on his inventory purchases and still meet your needs. If he is efficient about it, he is buying and selling milk frequently.
All of that to say, how efficient are you about turning your farm inventory? I bring a calf into the world, put labor, grass, nutrients, and improvements into the calf and, over the span of 6-8 months create a finished product…a weaned calf. I get one crop of calves each year. It takes me a long time to turn my money over with cattle. But I could manage my operation differently. I could lamb 3 times in two years. I could pig (verb) two or three times each year. I could do a Bud Williams Sell/Buy operation where I’m always looking out for the relatively undervalued class of stock immediately after selling the relatively overvalued class of stock. I could turn my money over monthly. Calves this month, open cull cows next month, sheep the month after that…always looking to keep my money in motion…to increase the velocity. To make my percentage over and over and over quickly. Eggs bring in cash every day but after 5-6 months of raising the birds to point of lay you have to pay off their housing, fencing and feed with egg sales. Broilers give a return in about 2 months(if you have done your marketing). Feeder pigs give a return in 4-5 months (again, marketing). Corn needs a summer season before you see your investment again (and corn in the bin is money in the bank). You need 4 calves to break even on the development of a heifer. It’s only the cows that wean a calf every year for 5 or more years that make you any money. That’s slow turning, though fairly reliable.
We’re talking about rapid ROI here and it’s a difficult and sobering conversation. Land costs money…a frightening amount of money. You can lower the land resource cost of each operation by adding additional profitable enterprises. Remember, Mr. Henderson wants a balanced mix of arable land and livestock. The livestock pay the fertilizer bill, the arable land pays the feed bill and everything grown is of the highest quality from the registered stock to the seed corn he harvests. To balance production requires investment in buildings. Where most farmers of the time valued a farm primarily on the amount of arable land, Henderson considered the improvements.
…the value of a farm is not the market price or the rent you are asked for it, but what you intend to do with it. … After all, piped water, a good cowshed, dairy, piggery, and Dutch barn make all the difference between being compelled to depend on arable farming and having a fully balanced system building up stock and fertility.
Mine was a mixed farm from its inception. The yellow house, at the center of a 60, has two barns, a hog floor, a grain bin, a machine shed, a pond, a pig nursery and a corral. There is a road that makes it easy to move equipment to each of the buildings. Water lines are buried everywhere (and are in need of replacement), power runs overhead and underground, the head stalls for the milk cows are still functional. The farm is set up for livestock. Even with termite damage in the barn and roofing blowing off and trees growing up besides buildings and walls pushed out by livestock and leaky water lines that we have shut off until we can replace them…even with all the repairs we need to do the farm layout makes working here more pleasant and saves me from having to figure out how to lay out a farm on my own. This must have made a real difference to my ancestors when they farmed with horses…moving wagons by team. That planning continues to make a positive impact today but I have to amplify it. Remember the first quote I used about always assuming we have to meet steadily rising costs with increased productivity?
…it is no use producing more unless you produce it cheaper; it is of no value to produce cheaper unless the labour you save is devoted to further production. The people of this world have either to reduce population, to increase production, or starve. Let us take the middle course – it is by far the most comfortable and interesting!
He goes further than that. It is not only important that we lay out the farm in an efficient manner and work in an efficient way, not so we can goof off more, but so we can produce more, it is important that we design to be inclusive.
The saving of human effort is also important, for we are not all built for heavy work, and nowadays, when some of the best and most conscientious workers are women, it is a pity to have to retain anyone whose only qualification is brute strength.
I need to design with Julie in mind. Why is she carrying that bucket? Can I put a spigot there? What will cost more: the spigot or back surgery? This also counts for the kids. What can I do to make things easier on the kiddos so they can handle a greater portion of the now easier workload?
From here Mr. Henderson goes into the need for proper bookkeeping. Peppered into each chapter are lengthy sections describing methods of making work more efficient and he does not disappoint here. While describing his bookkeeping method he also teaches about pulping roots for fodder then he transitions to the need for business-mindedness and delivers this gem:
Many farmers, still dreaming of the golden age of the 1870’s when their grandfathers lived like gentlemen, and hoping those days will come again, despise the tradesman; but there is a great deal they could learn from him. The ex-shopkeeper often does well in farming simply because he is used to thinking in terms of pennies as the profit on an article, and he will be quite happy to sell even a bale of straw retail if the opportunity occurs.
He then goes into the reluctance many farmers feel not just about selling retail but about selling at all. If you need a bale of straw he’ll extract a favor rather than money. If you need to borrow some of his workers, just pay their wages…never demanding a little bit for organizing and training the crew or to compensate you for the work they won’t get done while they are on his place.
This, I suppose, originated in the hoary old tradition that farmers never make a profit anyway!
I was thinking about my great-grandpa Charlie yesterday. He was born 101 years before me. He built the big white barn 100 years ago this year – when he was just about my age – at a time of great agricultural prosperity. I don’t know how he lived. I don’t know if he ever laughed. I see the old family picture of stern looking people and know the stories of how they suffered and worked and look at the house I live in, the barn we use, the ruined old yellow house…My goodness! I really do appreciate what they did for my generation. I believe they lived well for their time. But I wouldn’t trade places with any of them for a second. It would be cool to see 14 Jersey and Guernsey cows lined up in the head stalls and to hear the pail sing with each squirt of milk from my great-grandpa’s, my grandpa’s and my great-aunt’s effort. What did they do with the milk? How did they account for the costs? Was it a business? Was it a lifestyle? I know they were a prosperous people…but did they know it?
As grandpa lay in his hospital bed in the room where I am typing, he expressed concern for grandma’s future without him. He owed a little money on 80 acres down the road. He feared debt. I have no idea what my great-grandpa Charlie was like but I remember my grandpa Tom well and my great-aunt is very similar. Grandpa was always on the lookout for a deal. Not so he could profit from another’s error but so he could facilitate one guy in moving something and another in buying it. He would always take odd routes, often stopping to chat about a baler or a bull or …who knows what else. Dad says grandpa would bring a baler home and just when they got it timed and working well grandpa would sell it. Make a little profit. Turn that money. A bull, a cow, a pig. Improve the breeding stock. Improve the land and water systems. Make the workload more efficient. Profit by making other farmers more efficient. Profit by making sure everybody came out a winner.
I would like to say that’s where Henderson ends the chapter, teaching us to go ahead and reap where we have sown, to take a little reward for risks taken. But he closes out the chapter railing against the injustices of the British tax officials of the time. Not that it appears Henderson is against paying taxes but, instead, he is against the injustice of the system that makes no concession for error and the extreme difficulty of obtaining a refund for overpayment.
It is even said that as much revenue is obtained from payments in error as is lost by evasion of payment. What a comment on the ethics of the Civil Service! In the great majority of cases a farmer must employ someone whose business it is to see that he does not pay too much.
I made the mistake of moving here thinking I could raise a few birds, milk a few cows and fatten a few pigs and everything would just turn out peachy keen. Fattening stock is easy. Ridiculously easy. The hard part is marketing our goods, calculating profit percentages, growing our money and reinvesting in infrastructure. We came here to raise animals and succeeded. I was utterly unprepared to be in business. Mr. Henderson drove that home in this chapter.