Farmer’s Progress Chapter 6: Farming as a Business

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.

FarmersProgress

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.

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12 thoughts on “Farmer’s Progress Chapter 6: Farming as a Business

  1. “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,…….”

    The sad fact is, if not for inflation (increase in the money supply through fractional reserves and central banking), we actually could do just that.

    Also the Malthusian idea that people have to “produce more….or people starve” assumes that people can not produce more then they consume. Which of course is delusional. Production drives consumption. Not the other way around.

    But when you throw currency manipulation into the mix it sends false market signals to producers. It distorts the price mechanism and thus profit and loss. So, the idea that producers should just produce for the sake of production is what causes mal-investment and boom/bust cycles. Whether it’s agricultural or tech (and everything in between).

    What cracks me up with people like Malthus or Keynes is the idea of the “general glut” and then they’ll turn around and argue about “scarcity” in the same breath. You can’t have it both ways.

    • It is kind of frightening to read accounts of the “problem” of overproduction or Roosevelt killing pigs to drive prices up while people went hungry. Overproduction tends to solve itself…as is the case with my current egg supply.

      And you are right. There is no stability. What is a dollar in relation to the things we buy? Did fuel go up today or did the dollar go down? If the dollar went down, why didn’t somebody tell milk?

      All because we live in a world that confuses spending and production and thinks savings are evil. It would be hilarious if it wasn’t so destructive. Italy is now counting illegal drug sales and prostitution in their GDP calculation so maybe I’m the idiot. By boosting their numbers they can get the green light to borrow more money. Why don’t they just make up the numbers they use? Oh.

  2. I borrowed Farmers Progress from the Aussie Online library but hardly cracked it before it expired. Having recently finished reading the Farming Ladder though I had a similar take home msg on farming being a Business.

    As a bean counter by day, I went back to the meat of it in the Accounts chapter he states output of £50 an acre in 1939, and £90 an acre in 1942. Ran thru an inflation calculator and converted to USD at recent exchange rates x 85 acres that is an annual output in USD of $408,555 to $530,101 on the 85 acres. Are you still with me or do you need a few minutes to recuperate? I know I did! 😉

    Breaking that down further that is $34,046 to $44,175 a mth of output – still seems like a big number. I mulled on that one for a while… In my province (Cdn equivalent to a State) there is one serious Salatin Style small farmer that lives in the boonies that has been at it for about 5-7 yrs? They gave up wasting time at the sml seasonal Farmer’s Market yrs ago and switched to a mthly email newsletter, webpage with ordering and once a mth Delivery to the 2 cities – one about 1 ½ away and the other about 3 hrs away from their farm. They have an arrangement with a church to use their parking lot on Saturday afternoons for pickups. She recently had a baby so someone else did her delivery run and she sent out a bulk email to all customers in my city’s stop telling them how much everyone owed rather than individual emails. I tallied it up and it was $34,921 for the one run and we are the smaller city ~ 200 customers, very few restaurants just people wanting good food. I was a bit surprised but very pleased to see them doing so well. I tallied their next mnths sales and it was similar so they have a fairly consistent market and it is doable. I imagine with seemingly 6 mths of winter here that sales drop a bit in the winter though. They built their own processing facility and last yr imported a butcher from Europe as it grew too big for them to handle. They were prepared to do it all – to meet the requirements of today’s small farming Business.

    In George’s day what happened? He and is brother, wife and 4 pupils concentrated on farming with consecutive “product” then what? ? His brother took it to market – end of story? I have not read anything yet that says he butchered and direct marketed but could be a shortfall in my reading. I don’t think he did though so as you mention we are looking at a dif beast – now you need to spend 90% of your time marketing, plus deal with processing. Our local example above would actually fall short of George’s quota though as they have all the addtntl costs of marketing and butchering included in their sales…

    Good on you for posting this blog that points out this is a Business and there is much more to it than moving a chicken tractor everyday and milking a few cows. People need to consider if that is all they want to do for their own family/friends use with a lifestyle on a small farm – or go big and make it a business realizing that avenue, like any other business takes capital and time – to grow your knowledge, experience, livestock and market – a self taught PhD in Small Farming indeed!

    • Kari,
      I haven’t seen you for a while and hoped you were busy rather than just tired of me…lol.

      I think George did a great job of marketing his farm…which is what Salatin does, really. I don’t think George sold parts, he sold animals on the hoof and, apparently, maintained a reputation for quality and health. But George also sought maximum utility from each thing on the farm. From tractors to hog manure, everything was used efficiently. I think this fits very nicely with Gordon Hazard’s notion that he only needs a few rolls of wire, some posts, a hammer and a pickup truck…maybe a spare hammer just in case. Minimize what you need, use what you’ve got and be in the business of making something other than payments.

      I know how much money I need to make each year. We break that down by day. Every day I have to make $X. If Polyface is reckoning $3m in annual gross revenue…good golly! I haven’t made $9,000 today. Have you?

    • I’m curious about the butcher. In today’s market how does one go about processing the meat (chicken, pork beef) to legally sell it? I tried to find a butcher for resale and eventually butchered it myself and kept the meat. I know the information is somewhere, so I’ll keep l;ooking.

  3. Still here and still enjoying your telling of this book. You get to the heart of our issue. Currently that is why we are shooting for sustenance farming and hope to more on to selling. I just retired officially from the teaching gig. Now the rubber meets the road as far as producing food for our family, then friends, then hopefully the friends like the food so that they will buy. How long will that take, I don’t know.

    • This really varies by state. We have considered getting a type 2 Illinois meat processing license so we can process chickens for others…but those chickens can’t be resold. We could go type 1 but we would probably be better just going for the USDA inspected plant instead.

      We pretty much know our options for custom meat packing in state because we asked our meat inspector what the other options were. It may be as simple as making a phone call.

      I believe that if we want to sell meat that was harvested off-farm we would have to give up our on-farm poultry processing exemption, have our birds custom-processed and get a meat broker’s license. That doesn’t make a lot of sense at our scale and it appears better for us to sell beef by the quarter, not by the steak.

    • Retired? Like retired retired? Like hung up your whistle and clipboard in favor of workboots and bibs and a purple shirt? Surely you are still coaching at some level.

      Make quality your primary concern. Don’t compete on the commodity market. Give them a little something extra. Everybody has strawberries right now. What can you do with your strawberries to make your money tomorrow? Julie makes a killer peach BBQ sauce and some great peach salsa. We don’t sell those currently but the cost of a kitchen would be quickly offset by the increased harvest value.

      • Yes, hung up the teaching. Not sure about the coaching. I’m afraid I’d get in the middle of a project in the garden and have to stop and go to practice or a game. We have time to make the decision.

        Maureen makes a plum BBQ sauce. Those are the things we may get into. Now they are gifts to family and friends, but could be more. We are working on adding value and diversity to our little adventure.

        • The most recent issue of Acres has an article by Kelly Klober discussing the value of diversity in starting out. It’s hard to begin a single enterprise that brings in tens of thousands of dollars, but it’s not too difficult to begin ten enterprises that bring in a few thousand dollars each. That article dovetails nicely with Henderson’s advice.

          • Great post, and great comment section as usual! But–Sorry- sorry- that advice of Klobers is maddening to me. Diversity will eat up your hours in a day, and you will have no clue what’s making money if at all. I know because we just finally exited that way of thinking last year. My husband wanted to try everything and he sure did, but he should have kept a job and done that as a hobby for a while. You can do it while you are in the practice phase, but too much diversity is not a sustainable (for the farmer’s sanity) business model, at least not with just one or two running the show.

          • I agree. But too much focus is not sustainable either. Maybe I should have said complimentary enterprises…things you can add that don’t leave you feeling crushed. Klober is a pig guy. He could finish pigs, sell feeder pigs, sell show stock, sell breeding stock…who knows what else. At least 4 enterprises in one.

            I have a small cow/calf operation. What if I added feeder calves? Same land base, same infrastructure needs, same herd of cattle (after a quarantine period) but a radically different business.

            The post was about Henderson. Henderson worked 18 hour days for 40+ years alongside his brother, their employees and their interns. But they spread the butter pretty thin for a lot of years before they could afford said employees. They started younger than me too.

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