A recent Ranching For Profit School graduate sent me a link to MSN Careers. It had a list of the top 10 “dead-end jobs.” Number one on the list was Farmers and Ranchers. The author concluded that large farms would get bigger and that smaller, independent family farms, that didn’t rely on off-farm income, might soon be a thing of the past.
Why can the big guys make farming and ranching work, whereas the little guys seem to have problems? When you think about it, the little guy, who seems to be willing to subsidize the farm with off-farm income, should have an advantage over the corporation, whose motive is profit. For the corporation, the farm must cash flow and yield an annual profit. The little guy tends to be satisfied if the dollars in equal the dollars out. So if the little guy is willing to break even and the big guy is demanding a profit, why isn’t the little guy winning?
One obvious reason is scale. The big guys have economies of scale. Their equipment and labor costs are spread over more units. They are also able to buy in bulk to secure discounts and sell truckloads at a time to ensure top dollar. The big guys get a disproportionate share of farm program subsidies. The little guy is willing to subsidize himself with cheap labor and off-farm income. But none of these differences are THE reason the big guys are more profitable. The biggest reason they make more profit is that they demand a profit.
The little guy tends to run the farm or ranch as efficiently as he can, pinching pennies and hoping there will be something left at the end of the year. The big guy starts with the end in mind, establishing a target for profit, then determines the enterprises required and the strategies needed to achieve the target.
The big guys own a business. The little guy owns a job. A little guy willing to build his ranch into a business can make a good profit and he doesn’t always have to be big to do it. The little guy unwilling to make this transition, well, that just might be a dead-end job.
I had an enlightening discussion with an intern during the summer about 3-4 years ago. I asked her what her earnings goal was when she graduated and started her career in agriculture. Her response was $300K per year. She was an intern and had apparently not connected the apprenticeship with USDA and with her expectations.
Everyone has to make their own decisions but ranching and farming is too hard to treat as charity for me.
I would also suggest that the niche ranch and farm can be very profitable. Less iron and more working with creation.
Labor is built in as a cost item, so at least you budget to pay yourself. So is expected/desired return on investment, is a cost.
This was pointed out at tour of meat plant I Greeley that was for sale many years ago. Corporate managers pegged return on investment at 20% and the plant only could achieve an 18% return, the corporate verdict, this investment was losing us 2% and should be sold.
Wow what if producers all did this?