(Modified from Sam Bingham, Holistic Resource Management Workbook. Covelo, CA: Island Press, 1990, p. 8.)
Items that are normally considered variable may become fixed if purchased ahead of time in bulk. If a local feed dealer is going out of business and you borrow money from the bank to purchase his remaining minerals at a deep discount, the cost is now fixed; regardless of what type of livestock you choose to raise, the cost for the minerals has already been incurred.
The division between fixed and variable costs also depends on your individual values. Some people may consider expenses such as health insurance fixed costs — something they must have, and that must be paid for from their operations. Others may consider these types of family living expenses variable — something they’ll pay out of their farm-generated income if there is enough left over; otherwise they’ll pay from non-farm-generated income.
Finally, if you are considering a new enterprise that would require a large capital investment, the cost is variable until that money is actually spent. After the commitment has been made, it’s a fixed cost. If you are considering building a hoop house in which to raise laying hens year-round, the cost is variable for planning purposes. Once you spend the money to build the hoop house, though, the cost is fixed.
Profit
Profit is what’s left over (if anything) when you subtract expenses from income. You can increase profit by increasing income while holding expenses steady, holding income steady and decreasing expenses, or, best of all, by increasing income and decreasing expenses — this is when you really see your profits rise.
Plan for and work toward profit in a systematic fashion. Think about it in planning, before the year begins and before the expenses are budgeted.
Developing Your Own Plan
You now have enough background to begin the process of developing your own plan. This will take time and is best done in a series of sessions. Since this planning process isn’t directly related to taxes (though by budgeting and monitoring, tax time may become less stressful), you can begin at any time of the year. The point is to begin taking a stab at it — don’t put it off until the first of the year. Use worksheets similar to those in Tables 13.2 through 13.8 to develop your financial plan.
Define appropriate line items in which to break down income and expense. Go into as much detail as you possibly can. Categorize line items for each enterprise, or possible enterprise.
1. Develop your own list of fixed costs that must be paid out of your farming operation (Table 13.3). As you develop the list, think about ways to reduce some of these costs.
— Do you have more tractors than you need? Sell some and use the money to pay off loans.
— Are you holding onto other depreciables that have little or no purpose? Sell them, too. “Heavy metal” (such as tractors, farm equipment, vehicles) must be kept to a minimum on a small farm. Try to avoid these things by renting them when you need them, or paying a contractor, or working with a neighbor.
— Are you paying off debts on high-interest credit cards? Consolidate them with a lower-interest loan from the bank, and then tear up the cards.
— Can you reduce mortgage payments by refinancing, or lower insurance expenses by shopping around? If so, do it.
— Brainstorm ways to cut all fixed costs!
2. Estimate income for the next year on current enterprises (Table 13.4). Plan for your profit right now, by cutting your estimated income in half. One half is now allotted for profit, the other for expenses. If you have fixed costs in excess of the one-half mark, then initially you’ll have to allot less for profit — say, one-quarter — but establish right now an amount for profit. A long-term financial objective should be to see your profit return a reasonable amount on your investment.
3. Begin budgeting for your expenses (Table 13.5). When you develop a budget for expenses, your objective is not to let your total costs (both fixed and variable) exceed the expense allotment you established in step 2. Using the zero-based approach, work out an estimate of expenses by month for the coming year. Again, brainstorm ways to cut all expenses. Study your variable expenses. Calculate what it costs you to use equipment, and then ask yourself if you can cut usage. When trying to allocate expense money, use the marginal-reaction test to evaluate where your money should be put for the best use.
4. Develop an account for family salaries. If early on you can’t pay yourself as much as you budget, you should still strive for a system that pays you for your labor, plus a return on your investment.
5. Develop an account for depreciation. This is money you are setting aside to be able to replace or repair equipment and buildings when the time comes. Although in the early years, you may not be able to do so, it’s a good idea to open an interest-bearing account into which you pay your depreciation expense at the end of each year. That way, in a year when you need to replace or repair a major capital item, you have money set aside for that purpose.
6. Budget for items used in bulk on an inventory worksheet. If there are items you purchase in bulk and use throughout the year, then budget for the use of these with an inventory worksheet.
7. Transfer information from worksheets to the main budget worksheet. Once you have developed worksheets for income and expenses, transfer these to the main budget worksheet. This is also the sheet you’ll use to monitor finances.
8. Evaluate existing enterprises. As time permits, evaluate existing enterprises — or ideas for new ones — using the gross profit test. Those enterprises that score highest on gross profit and meet the other tests (holistic guidelines) in moving you toward your goal are the ones you should put the greatest emphasis on. But remember — make changes somewhat slowly and don’t diversify too quickly. Jumping in and out of too many things too often is a sure way to drive yourself, and everyone around you, crazy.
Table 13.3
FIXED-COST WORKSHEET FOR THE MILLERS
Table 13.4
INCOME WORKSHEET FOR THE MILLERS
Table 13.5
VARIABLE EXPENSE WORKSHEET FOR THE MILLERS
Monitoring Money
After you establish a financial plan, you must begin monitoring. Financial monitoring assures that you are following the plan; when things go wrong, it lets you make corrections early on so you can minimize the impact of problems.
Monitoring of finances requires that each month, as early in the month as possible, you put together the records of how much money came in the previous month, how much money went out, and what inventory items were used (Tables 13.6, 13.7). These figures should now be recorded on the main budget worksheet (Table 13.8).
Variations from the budget, either income shortages or expense excesses, require that some action be taken. For example, if the $30-per-pig income you budgeted for from the sale of weaner pigs suddenly falls to $20, you need to begin looking for areas within the expense list that you can cut back. Or from our personal experience: When the price of corn began skyrocketing, we should have sold our pigs immediately.
Troubleshooting
How do you know what to do in these dire situations? Begin by working through both the gross profit and marginal-reaction exercises. Take a best-, expected-, and worst-case set of numbers to run through the gross profit test. If the worse case loses money, it’s probably a good time to get out; if the expected and best cases are going to lose money, it’s definitely time to bail out of the enterprise! And when things are looking bad, or your plans aren’t working out quite as you thought they would, go back to brainstorming with everyone. Sometimes a unique solution will present itself.
FARMER PROFILE
Bob Bowen and Anne Bossi
“I went bankrupt in 1989, on my first farm,” Bob Bowen begins by telling me. “It was 100 acres, and I raised pigs commercially, and marketed them as a commodity.
“We [Bob and his first wife] bought the land when land values were really high. Then when the bottom fell out of land values around us, and the bank called the note, there was no wa
y to pay it. I showed up at the bank one day with a truckload of hogs. I just wanted to give them back.” He chuckles as he tells the story. “Of course, I’d called the local papers and the television station to tell them I was going to do it, so I had great coverage.”
Unfortunately — or maybe fortunately, depending on how you view things — it didn’t stop the bank from taking back the land. “After that first experience, I decided I was still going to farm, but I was going to do things real differently. For one thing, I decided I would avoid the government as much as possible — no loans, no subsidies. I also decided to look at what people like to eat and try to sell them that, instead of what I wanted to grow! And I decided that I was going to set my prices — not ‘the market’s.’ My price would be based on how much money I needed to get out of a product to cover all my costs — even all the incidentals and fixed costs — plus pay a little profit. If I couldn’t sell for that price, I’d find something else that I could. I charge what I have to, to make a profit, and I don’t care what they charge at the grocery store down the road. If no one wants to buy at that price, I won’t raise that item.” For example, Bob and Anne charge $2 per dozen for eggs, and they sell lots of them.
Anne and Bob knew each other before he lost the farm, and his marriage, so shortly afterward, he moved onto her place. “Me and some of my pigs that were still left,” he laughs. Over the ensuing years, the two have created a phenomenally successful farming venture with only 23 acres of land and a strong family partnership.
The first year out of his troubles, Bob raised chickens, but he had to get his customers to reserve (and pay for) them in spring because he couldn’t afford to buy the chicks and feed otherwise. When I comment that this was almost an early variation on a CSA, he agrees, but says he’s glad that they don’t have to operate that way anymore. Still, the experience taught Bob and Anne that they can work with their customers when they need to raise capital.
When Bob and Anne wanted to raise additional capital to build a new barn, they sold “Barn-Bucks” to many of their regular customers. Each Barn-Buck had a $10 face value, and customers purchased them at face value. The customer was then entitled to redeem their Barn-Bucks, plus 10 percent value interest, on farm products 3 months later. “If someone purchased $100 worth of Barn-Bucks, 3 months later they could use them to receive $110 worth of chickens, eggs, or pork.”
From Bob’s first humble steps “out of the dark times,” the business has “grown exponentially.” Today, Bob and Anne market the pigs from 25 sows, 10,000 broilers, eggs (which are now done in a novel partnership with another farmer) from 1,200 layers, 750 turkeys, 400 ducks, and milk and cheese from goats. Anne runs a spring bedding plant business, but with plants from all over the world. And as well as marketing their own items, they also market beef, lamb, and rabbit from other area farmers. “These fellows grow a great product but aren’t much into marketing,” Bob quips.
Bob hits five farmers’ markets per week during the good-weather months, and two indoor, year-round markets during the winter. He also has store and restaurant customers. “When I pull up, I can supply just about anything someone wants.”
When I asked Bob if he and Anne — who also works as the Northeast field representative for Heifer Project International — ever feel the need to de-diversify, he tells me they already have. “We used to do the layers ourselves, and the rabbits ourselves. Now we’ve set other farmers up with those projects, but we still work on the marketing.”
And Bob is one hell of a marketer. Before going into his first full-time farming operation, he sold used cars and insurance to farmers. “Selling insurance to farmers was sort of like an alcoholic selling beer. Each farm I went to, I fell in love with. I wanted to milk the farmer’s cows instead of sell him insurance.”
Bob observes, “Most farmers are just consumers. They sell commodities, like wheat, but then buy their bread. They sell at wholesale and buy at retail. It doesn’t work. If you want to make money, start selling something directly, or work with someone who will.
“I do these marketing workshops around the country now. I tell people, selling is hard work, and the only way to really learn it is to do it. You have to stand out in the pouring rain. You have to try with every customer. You won’t sell to all of them, but give it the old try. If a vegetarian tells me ‘I only eat vegetables,’ I tell ’em, ‘Hey, that’s all my chickens eat, too!’ Sometimes they come back to eating meat when they learn how my animals are raised.”
Note: Heifer Project International (Little Rock, Arkansas) works to fight world hunger, not by giving food but by giving the means of production. The group donates to those in need around the world, both livestock and training in practices that will sustain the animals and the people. In return, each recipient agrees to “pass on the gift” by returning a female offspring or by sharing knowledge in training others. The project was started by a midwestern farmer in the 1930s. During the Spanish Civil War, Dan West went to Spain as part of a missionary group. As he handed out cups of milk to war-ravaged children, he realized that what these people needed was not a cup of milk but a cow. He began by asking farmers back home to donate a heifer. Today, HPI operates in more than 100 countries around the world.
Table 13.6
MAIN MONITORING WORKSHEET FOR THE MILLERS
Table 13.7
FARM MONITORING WORKSHEET FOR THE MILLERS
Table 13.8
ANNUAL BUDGET MONITORING
CHAPTER 14
Biological Planning
The untapped potential of maps in community discussions first came home to me as a teacher on the Navajo Indian Reservation. Once I put up both an aerial photo montage and a wall full of topographic maps to illustrate some tiresome point in a math book. Within a very short time finger smudges revealed a whole host of local issues I had not uncovered in years of daily contact with people. At first, people who knew nothing of contour lines, scale, symbols or English labels regarded my displays as incomprehensible bits of abstract art — but the minute they saw the connection to the land, they learned very fast. Soon grandparents who spoke only Navajo and had never darkened the door of a school pored over them, detailing range disputes, dried-up springs, forgotten cornfields, ancient ruins, the habitat of medicinal plants, and myriad other matters that without the graphic aid of a map they could not begin to communicate to a stranger.
— Sam Bingham, Holistic Resource Management Workbook
ASK ANY PEOPLE — urban or rural, rich or poor, from almost anywhere in the world — to tell you about their most desirable landscapes, and they’ll describe lush grasslands, healthy waterways, and robust forests. They’ll likely mention beautiful flowering plants and pastures of green, an abundance of wildlife (birds, fish, and mammals), and skies of clear blue dotted by cotton-candy clouds. With the use of biological planning, it’s possible to systematically work toward that ideal landscape.
Biological planning helps you plan both your grazing and the landscape you want to see in the future. It can’t be rushed. It may take you months to develop a complete plan, because throughout the process you’ll be taking breaks to think about alternatives and scenarios. A good biological plan is like a good bottle of wine — it gets better with age.
The development and implementation of the plan can take years. The best approach is to do your development as both time and money permit; when done this way, development will usually pay its own way. You can begin implementing the grazing plan almost immediately, with the landscape plan following over time.
The Grazing Plan
A grazing plan helps you use the tools of rest, grazing, and animal impact to grow healthy land and healthy animals. Effective grazing plans balance forage with animals, which in turn improves the ecosystem processes and moves you toward your goal. And best of all, profits improve.
The grazing plan provides a method for forage budgeting and for timing moves of livestock through paddocks (either permanent or temporary). The grazing plan allows you
to eliminate both overgrazing and overresting of the plants in your pastures by helping you answer the following questions:
1. How much forage do we have?
2. How much do our animals need to eat?
3. And how much are they actually eating?
Forage Quality versus Quantity
Before you can actually begin to answer these questions, you need to think about quality and quantity of forage, and how the two affect your animals. Both quality and quantity of forage change throughout the year as well as from year to year, but with good management, quality and quantity can be maintained at consistently high levels. The key is to have a diverse group of cool-season grasses, warm-season grasses, and legumes.
During the first flush of spring grass (which may come in February in areas of the Deep South and California, or mid-May in the far North), the grass puts out both its maximum quality and quantity for the entire year. As the growing year progresses, both quality and quantity decrease, though they may show a second spurt of growth sometime in fall.
Hay Equivalent. The quantity of forage can be measured as a hay equivalent. The hay equivalent (HE) can be used in two ways: first, to estimate the amount of hay, in pounds (kilograms), required to meet the dry-matter intake of animals; and second, to estimate the amount of forage production if a hay crop were being removed from a field. Even though the animals are on pasture and eating the forage directly, the hay equivalent is still convenient for calculation purposes. Average hay equivalent yields for pasture and hay ground can run from lows of less than 0.25 ton per acre (560 kg per ha) on rangeland or 1 ton per acre (2,242 kg per ha) on a poor pasture to a high of 10 tons per acre on very high-quality, well-managed, irrigated hay field.
Small-Scale Livestock Farming Page 27