There are two ways to make more money: increase your acreage; or grow from within by increasing your productivity and efficiency.
As you might imagine… I would highly recommend the latter. The cycle of increasing crop acreage in order to compensate for insufficient profit is all too familiar to me and is a great way to jeopardize the lifestyle we are seeking to create on our farm. This is not so say that there is not a time and place for scaling-up but rather that this needs to be a conscious business decision, not a reaction to insufficient profits at your current scale.
A key element of growing from within is to shift more and more the mix of crops we are growing, towards the higher profitability crops while at the same time increasing our own productivity in terms of the income we generate each hour we work.
There’s no question about it: the best way to go about it is to have super accurate data on every aspect of our crop production and as a result, be able to create precise and accurate crop production budgets for each crop…. this is all well and good, but back here in in the real world, this is not always a feasible option nor is it necessarily a wise use of our time and energy.
So how do we go about determining which crops are the most financially beneficial for us in the absence of detailed crop by crop production budgets; and we have no way of knowing how much net income each crop actually is generating?
There are two key indicator parameters: Gross income per surface area and Gross income per hour worked.
Gross Revenue per Area
What actually counts is net income, AKA money in your pocket. However, in the absence of detailed crop budgets, what I have observed on my farm (and have confirmed with other farmers!) is that for small and medium scale farmers, there is a direct relationship between how much gross income it generates per area and how profitable that crop is. There are a couple of exceptions to this, but what we are looking at here is an indicator parameter, not a hard a fast rule.
- First off, decide on a standard unit of area. For a bio-intensive farm, it might be a standard 100 ft bed. For a larger farm, it might be per standard 300 ft bed, per acre, or per linear bed foot. Whatever unit you choose, pick a unit that you can stick too and that is easy to visualize (this is why it is more useful to talk in terms of per bed, or per bed foot rather than per acre or hectare).
*For the sake of simplicity, for the rest of this blog post, I will be assuming that our standard unit of area is 1 bed.
- Next, determine the yield either based on your own harvest records or based on a reference chart if you don’t have accurate yield data.
- Not all crops take the same amount of time. Some crops (like tomatoes) take the whole season, while others take less time and open up the possibility for double cropping (or more!) We thus need to factor this in when we are calculating this indicator parameter. If the crop is harvested fast enough to get a second crop in, multiply by two. If you can get 3 crops per year, multiply by 3 etc.
- To calculate this indicator parameter multiply the yield per bed x the average sales price x the number of crops possible per year. Here is a sample spreadsheet to calculate this. Make sure to adapt the numbers to fit your growing conditions and market realities.
Now that you know how much potential revenue each crop can generate per bed, we can use this parameter to make decisions. I’m not saying you have to overnight drop all the crops at the lower end of this scale. What I am suggesting is to take a look at these numbers and be sure you are making the decisions that are in line with your goals. I invite you to aim for grossing at least 40k$/ac in an extensive system and 100k$/ac in a bio-intensive system.
- What are your overall gross revenue goals for the farm? Given this, what is the baseline gross revenue per bed? Which crops make the cut and which crops don’t? What would become possible if you didn’t grow those crops take fall below this threshold? (or at least minimize them)
- One useful thing to look at is to compare the potential gross revenue per bed for each crop vs. the actual total gross revenue of that same crop on your farm. Are these two parameters pretty much proportional… or are you growing disproportionately large amounts of low revenue crops?
- What could be changed to increase the gross revenue per bed of a certain crop so as to get it up above your farm’s baseline value? Can you increase the price and/or the yield? Can you find a way to reduce turn-over time so as to get a second or even a third crop planted in that same area?
Gross Revenue per hour worked
Once again, it is impractical for most of us to gather sufficiently accurate data in order to precisely know how much time we are spending on each crop. Again, we are looking for an indicator parameter that is easy to measure and practical to use in the decision-making process.
When we look at the production cycle, we see that harvesting is the step that takes the most time and is usually the bottleneck in terms of labor. Depending on the crop and the production system, harvest accounts for 20-33% of the total crop labor.
This is a great place to look for the key indicator of Gross Revenue of the crop harvested per hour.
Amount of a given crop can be harvested per person per hour X Sales price = $/hr harvest rate.
- Make a chart and compare $/hr harvest rate to total gross revenue for each crop.
- How can you tweak the equation to increase this parameter? Increase in speed? Increase the price?
- What is the minimum threshold for you? (if you want to earn 20K$ net per year in 20000 hrs worked per year and you’re net is 30% of your gross, you need to generate 33$ gross per hour worked. If the harvest is 25% of your total work, then you need to be harvesting 133$ worth of produce per hour worked.)
- Are some of the crops you grow below the minimum threshold? What would become possible if you didn’t grow those crops? (or at least minimize them).
All right folks! That’s it. I know it’s been a math-y post. The key here is to remember that the farm is a tool to create a lifestyle we love to live…. And part of that is generating a sustainable net income with a sustainable workload. If this isn’t currently your experience: do you want to grow bigger or grow better… work harder or work smarter? The choice is yours 😉
Question: What would become possible if you cut the number of acres you crop by 25-50% while maintaining the same gross income?