How Small is Big Enough
How Small is Big Enough

How Small is Big Enough?

by Dan Macon of Flying Mule Farm, Auburn, CA

Small is beautiful, E.F. Schumacher tells us, and Schumacher’s vision of economics at a more human scale certainly resonates with me as a small-scale farmer. From a local food perspective, small farms are held up as a more compassionate, sustainable and responsible alternative to corporate-managed industrialized agriculture. Small, family-owned farms, the theory goes, are more ecologically sensitive than their “industrial” counterparts. As a practitioner of “small” farming, I am philosophically and economically inclined towards this perspective. As someone striving to make my living from small farming, however, I often struggle with the question of scale. Balancing the idealistic goal of staying small with the realistic need to be big enough to earn a living wage is, I think, one of the most critical questions for small farmers.

From a practical standpoint, there are advantages to staying small. On a small farm, the farmer can pay close attention to details that might be lost on a larger operation – details like soil protection and pest detection. Wendell Berry writes that a farm is sized correctly if it can be cared for by the farm family and perhaps by a few seasonal employees. Obviously, this definition means that a right-sized farm will vary depending on the crops produced. For example, our family can properly care for 400 ewes with a minimum of outside help. On the other hand, five or ten acres of vegetables might be the correct size for another operation.

Perhaps by necessity, smaller-scaled farms also have more direct contact with their customers. With fewer units to sell, small farms are driven to maximize their profits per unit, which often means direct marketing. This direct connection means less time between harvest and consumption, which allows small farms to market fresher, better tasting, and more nutritious fruits and vegetables. As a small farmer, I focus more on feeding my neighbors and my community than on the oft-repeated focus on “feeding the world” espoused by the proponents of industrial-scale agriculture.

The romantic notion of making a living from 100 ewes or an acre of mixed vegetables, however, quickly runs up against the realities of scale. Small producers typically have higher unit costs for purchasing supplies, obtaining processing services, transporting products, and other inputs. In some cases, these higher unit costs on the expense side of the ledger partially or totally offset the higher per unit revenues that result from direct marketing. In other words, I receive more per lamb marketed than my large-scale counter parts, but my expenses per lamb are greater as well. Size is related directly to costs. For example, the harvest cost for a lot of 19 lambs is $25 per animal. For 20 lambs, I only pay $20 per animal. A semi load of lambs (400 or so), would cost even less to process. Similarly, a bale of alfalfa costs $14 at our local feed store. If I buy a ton of alfalfa, I save 10 percent. If I purchase a truck and trailer load, the hay costs just $8.50 per bale, and it’s delivered to our place.

In addition to advantageous economies of scale, large, industrial-sized farms make efficient use of capital, mostly in the form of equipment. Large farms substitute cheap fossil fuel and machinery for labor. Jobs that a small farmer might do by hand (like weeding the string beans) can be accomplished by a $40,000 tractor and cultivator.

Finally, scale matters to customers, too. Buyers like restaurants and retail grocers would generally rather purchase food from a handful of sources rather than from a greater number of small farms. The Farmers Diner, a small New England chain of restaurants committed to buying from local, smallscale producers, can’t afford to pay $7.50 per pound for bacon from a farmer just down the road (the price the farm received for bacon at the farmers’ market). Says Bill McKibben in Eaarth, what Farmers Diner owner Tod Murphy “really requires is not huge commodity producers or small, incredibly wonderful gourmet farms.” Murphy tells McKibben, “What I need are 1950s-size farms” – the mid-sized farms that have disappeared in the last 30 years.

Economically, a farm is “profitable” if its revenue per unit sold is greater than the direct costs of producing each unit. For me, I earn a profit if I can sell my lamb for more than the cost of feed, veterinary care, shearing and processing. Once a farm can sell each unit at a profit, the farm family must determine its total income needs (for things like living expenses, overhead costs, health care, retirement, etc). Is the farm a part-time occupation? Does the family need to derive one or more full-time salaries from the operation? In other words, the farm must operate at a scale that covers its production expenses and its overhead, and that produces a profit for the farm family. While this scale varies by the type of operation and by the farm family’s needs and expectations, it is a question that must be answered correctly for the farm to stay in business.

In our case, farming represents about 80 percent of my working hours. Logically, the farm should generate 80 percent of my income. At our current size, it does not – the majority of my income comes from consulting contracts. What, then, are my options for making my farm pay me a full-time wage?

Our primary activity is the production of grass-fed lamb. We started our business with 27 ewes in 2005. Today (2011) we have approximately 100 ewes. Experience suggests that I could manage 3-4 times as many sheep without a significant increase in labor or land expenses. Economics analysis suggests that 400 ewes would produce enough lambs to generate both a salary for me and a profit for the business. My conclusion is that we are not yet operating at the proper scale, given our goals and financial needs.

While small farms may represent a way to invest labor (instead of or in addition to capital), capital costs take center stage when considering any expansion. The typical return-on-investment analysis (especially when considering the purchase of land) is not a sufficient gauge of success on its own. As a small farmer, I don’t have much capital to invest in my operation. I do have my time, knowledge and skills, however. Consequently, I’m far more concerned with how much a specific enterprise or activity will return per hour of my labor. That being said, once I’ve learned the skills necessary for an enterprise, it may make sense to invest enough money to increase the scale of our operation. For our business, this means purchasing breeding animals rather than land.

Once the economics of a particular farm or enterprise are considered, a thorough financial analysis becomes necessary. Where will the money for a specific investment come from? What kind of cash flow will the enterprise generate? In our case, increasing the size of our operation appears to generate sufficient income to cover our costs, pay us a salary and provide a profit. However, now I must consider where I’ll find the money to invest? Since farming is based on biology, and since these biological processes take time, how will I generate cash flow while I’m waiting for these new ewes to have lambs (and for their lambs to mature)?

Much of the solution lies in making our national food system more equitable to those who produce our food. “We need to be willing to pay our neighbors enough to grow our food that they can make a decent living,” says Bill McKibben (Eaarth, p 178). To be sustainable, agriculture must address three key elements: resource conservation and enhancement, social equity, and economic viability. To ignore any of these three issues is short sited; to ignore economic viability is lethal. A farm that fails economically will ultimately fail to conserve resources and social equity. Ultimately, economic viability requires farms to operate at a scale that provides for profitability.