The recent Midwest Organic and Sustainable Education Service (MOSES) conference featured a host of workshops, including some specifically intended for young farmers. The Young Organic Stewards program, for example, included presentations on topics ranging from marketing and business to the use of social media to promote a business. Those addressing the financial side of farming were particularly useful; I’ve summarized some of the highlights here.
In his presentation “Show Me the Money,” Paul Dietmann, co-author of Fearless Farm Finances, discussed some of the key economic aspects of starting and maintaining a farm. Dietmann said that managing risk is critical in farm ownership, and that understanding and using good financial information is important for helping farmers succeed. In order to start their own farm, young farmers need cash, some form of financing, and a good business plan to get the financing when they don’t have the cash. According to Dietmann, “the most common starting points for beginning farmers are to rent a farm, to buy livestock and a minimal line of machinery, and to custom hire as much as possible.”
Dietmann also discussed the difference between cash flow and profitability. “Cash flow” is the movement of money in and out of a business, while “profitability” is the difference between income and expenses. Cash flow is important in the short run, but both are vital in the long run for attaining sustainability. Farmers need to know their beginning cash on hand, their non-farm income, family living costs, any planned capital investments or new borrowing of money, and payments on existing debt in order to create useful financial projections.
Young farmers often face the problems of insufficient start-up cash, communication breakdowns, unexpectedly low sales prices, and poor record-keeping, said Dietmann. Some things that can help farms succeed include having family near-by, having good communication skills, paying down principal as quickly as possible, and owning excess breeding stock to sell.
Another Young Organic Stewards presentation, “How Much for Just One Egg?” also offered perspectives on the finances of farming. The speaker for this talk was Dr. Craig Chase, program specialist at Iowa State University. Chase began by mentioning that farmers can improve profitability by increasing either the price of the product or the volume of sales. He also talked about enterprise budgets, which are an estimate of costs and returns to produce a profit. For most businesses, 80 percent of their profits (not revenue) are provided by 20 percent of their products.
Chase also discussed partial budgets, which allow analysis of a portion of a farm to determine if minor adjustments will be made. Partial budgets allow you to compare two alternatives side-by-side and determine which makes more sense. This involves adding up both the positive and negative economic effects, and then taking the difference of the two. The partial budget with the more positive difference is the better option.
Chase said that, in order to set prices, farmers need to know their costs so they can be sure to compensate for them. They should add a desired profit margin to the total cost of producing and marketing their products, and compare that to the customers’ willingness and to competition to calculate a price. Chase’s rule of thumb in pricing is the three-quarters rule: The costs should come to about three-quarters of the final set price.
Social media figured prominently in another Young Organic Stewards workshop, “Generate Your Organic Community, Share Your Farm Story.” Tim and Emily Zweber of Zweber Farms discussed blogs as a way for farmers to tell their story and create value for viewers. They offered several tips to increase readership; for example, bloggers should be consistent in how often they post, so that viewers will maintain interest in reading what they have to say. They also recommended using other social media tools to drive traffic to the blog, by providing links to blog posts on other social media sites like Facebook and Twitter. Engaging on other blogs is also a way to help spread the word about your farm.
The MOSES annual conference provided a wealth of information and networking possibilities for young organic farmers. Look into the possibility of attending next year–you’ll find it a tremendously helpful experience.