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September 2014

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Sustainable Agriculture Part 2: The Costs of Supply

Written by , Posted in Food, Leadership, Sustainability, Sustainable Agriculture, The Farm

Last week I indicated that when it comes to the financial viability of a sustainable agricultural system, there are two primary sides to look at: supply and demand. HERE, we delved into some of the issues affecting the demand side, acknowledging that there are some choices that we as consumers can make to establish a robust system.

Today I would like to address the supply side. Please remember that I am not looking at all the elements of sustainability, only the financial viability, my argument being that if a producer cannot continue to farm economically then she won’t be around tomorrow to have a discussion of environmental practices. Though there are many, here are three of the most expensive elements affecting the supply of food.

CAPITAL COSTS

In the 1960’s producers used to pay as little as $5000 for a TRACTOR. Today, the tractor is designed to be more efficient for the work, better for the environment and work with economies of scale(bigger). Why? Because the price producers receive today is only slightly higher than it was forty years ago. A producer has to produce more because an equivalent tractor today would cost over $50,000. You would have to sell significantly more pigs or cows today to pay for the machine. Notice the problem with the math?

In fact, let’s highlight a few COSTS.

As you can see, the average cost of land in Canada has gone up almost threefold from 1981 to 2009, not to mention the last five years. In Ontario, the average cost of an acre was over $4000. That’s the average which means some land is being sold for much more. In fact, I’ve heard anecdotal evidence of land prices today going for over $20,000 per acre. That’s significant when you start talking about farms with 50 or 100 acres.

It isn’t just specific agricultural inputs that are up though. You know well the cost of your own hydro, telephone, fuel, and the dreaded cost of money itself; interest rates. Imagine them on a larger scale.

As you can see, the general costs for farming have increased significantly. If the producer isn’t producing more then they won’t be able to continue. Look at your financing costs, something producers never had to worry about in an agrarian society when we worked on a barter system. You think it costs a lot for a car worth $30,000 and a $300,000 home? Try having payments on one or two $million. A million dollar mortgage with a 4% interest rate would have a first year’s interest amount of $40,000. Granted the income is generally larger, but that’s only because of the volume produced.

Ultimately, the cost of producing is significantly higher than it was thirty or fifty years ago. Even if you’re blessed with parents who paid off their debt so you can start with none, one combine can cost almost half a million dollars and a barn expansion can run you twice that. Yes, we can blame the equipment companies and the barn builders, but then again we can play the blame game all the way to the bank. Everything seems to be more expensive than it used to be, except food.

So the question everyone is asking is is bigger better? For the most part the answer is yes
… To a point.

The concept of economies of scale states that as your operation grows, your costs of production reduce due to spreading those capital costs over more units of output. It is a concept that industrialized corporations have been employing for decades.

There are two things to watch out for however. The first is growing so big as to be unable to do the work in an efficient or timely manner. Storm coming? Oh well, you have a couple hundred acres extra cut and you can’t do it. It’s happened. You have to have an economic scale that fits your human capital potential, otherwise you may be just a little too greedy.

Additionally, producers need to ask whether they are buying for more productivity or because they want a shiny new tractor. I would argue that often, many, if not most producers who go bankrupt on the big Ag treadmill as they call it, didn’t pencil the numbers.

There are far too many dairy barns built before the producer could purchase milk quota.
QUOTA for those unfamiliar with the concept is designed to control the supply chain. You purchase Quota from the system and then you have the right to ship milk to the market.

I’m not looking to debate the benefits of the quota system and whether you agree with the system or not, it’s here so we have to follow it. As a consequence, building a $2million barn just so it can sit empty when you don’t have the quota to produce milk, or chickens for that matter, isn’t sustainable.

There is no question that producers have to pencil their numbers. Sometime they have to buy a new piece of equipment for safety reasons. Sometimes the old stuff is just tired and repair costs exceed the cost of new equipment. But change for change’s sake is not efficient. Equipment is costly and trying to keep up with the Jones will lead to bankruptcy.

CLIMATE

There is no question that the world’s climate is changing. The average global temperature is rising. Consequently, the summers are becoming more variable. This year’s growing season started late in Eastern Ontario and only this week ended as the temperature dipped below freezing; two weeks before many producers needed.

There was a time when a producer knew the day he needed to plant and then harvest. They knew what to plant by how the spring played out, early or late. These days, however, are too variable. Seasons can start extremely early or late. There are storms that rage through the country destroying crops as if they never existed. And like this year, you cannot guarantee a late fall.

The costs associated with this climate change can be drastic, especially if the producer doesn’t carry crop insurance. For those who have insurance, there is a chance to survive a climate disaster. The crop write off this year can be absorbed, though they won’t be getting ahead. For those who don’t carry crop insurance, this year could be their last. Imagine an entire year that you could have a gross income of $200,000 or more, gone over night.

PESTS

Whether they are little aphids or large wolves, pests are growing in strength and numbers.
When it comes to the smaller pests, conventional agricultural has chosen a path of genetic breeding and chemical sprays. The chemical sprays that have become the stigma of agriculture must be updated and evolved as the pests they are designed to combat evolve. More sprays are needed as new pests appear. And appear they do as the temperature rises, the pests that would normally be killed off over the winter come back all the stronger the following year. New pests mean new sprays and more cost.

For those who suggest we produce everything organically. For non-vegetable crops I respectfully request long term comparisons data on a large scale. What I’ve seen so far is skewed towards conventional cropping. When it comes to vegetables, the primary pests that can afflict a field CAN be dealt with by labour, by physically picking the beetles or the bugs from the crop, however this WILL add more cost to the product.

As for larger pests, wolves are becoming more brazen venturing into cities and stealing family pets. When it comes to livestock, more often producers will need rifles or a Marmara dog for protection because as cities expand, wild habitats shrink. Herds and flocks are at risk from larger animals. We’ve had an entire flock of turkeys destroyed by a creature that snuck into the building during the night. I wouldn’t visit that devastation the beast left on anyone.

Rooftop gardens are noble and any time we can build one we should so we can relieve the pressure on standard agriculture, but that won’t feed everyone. I’m talking about global sustainability with seven billion people today and as many as 11 billion by 2050. And unless we want the entire rainforest cut down for space, we’re going to be talking about efficiencies and yield, not where else we can find acreage.

We need to change the conversation to a what if instead of a what not. If you can’t produce your own food, it might mean the choice of whether you go to the movie tonight or eating chicken Kiev. Let’s work like a team so when our children are our age, they have something to look forward to instead of living on a space station because we bled the world of all its resources.

Producers must adopt sustainable practices as new technologies arrive, but the goal of sustainability includes the ability to continue growing this year and next. Without social change for different products or pressure on technology to change for the better then it won’t matter. A thousand people picketing against Monsanto because roundup is evil won’t accomplish anything if all we’re hoping for is to stop production. We need to put our money where our mouths are. For those who cannot produce, you will either start paying more for your food or demand technology that will allow for today’s volumes more economically and without chemical intrusion. We need to create a braintrust to find a natural solution.

Your land stewards work with what they have. Arm them with new technology and you will see change.

producers have to be able to afford the process. Now that’s not to say it should come in the form of handouts. Subsidies don’t work long term. they must be short lived and designed for a bridge to the sustainable project. We want producers that choose the sustainable path because they want to or they recognize the need. We don’t want producers milking a system of handouts, nor can we have producers who aren’t aware of their own financial viability. When it comes to the food system, producers wouldn’t exist without consumers and consumers can’t all feed themselves.

Do you have a solution? Have your say. We have a vast resource in the agricultural framework already established. We need to make wise adjustments to make the system more sustainable because our current path isn’t. My next post will explore some concepts and projects that producers can use to affect the sustainability of their operations. Some of these prospects are easy to implement and others require capital. Are you willing to help?