Thursday, January 23, 2014

Chemical Agriculture 109 - Financing and Facilities

The family farm can be a great way of life. But the capital costs in agriculture can be very high. The barriers to entry can also be very high. For young people to get started can be difficult without financial help from their families. But part of the problem is the model that is used in the typical agriculture paradigm. Current agriculture spends a lot of money on large single use buildings and implements.

Large confinement buildings for chickens, pigs and cattle have but one use for those purposes. The investment is high and the returns relatively low. These large single use buildings handcuff these farm families to an agricultural model that rust, rot and depreciation will eventually destroy. This model is not sustainable.

Most of agricultural equipment is the same way. Limited use tillage, planting and harvesting equipment costs hundreds of thousands of dollars and is used for only a few months each season.

Land becomes increasingly more expensive with prime farm land pushing $12,000 per acre. Making purchase difficult for the young farmer.

So what is the bottom line? Debt, piles and piles of debt for a farm family. One bad year can end a farming career. The bigger corporate farms get bigger and the average family farm gets more difficult.

There are no easy answers. But a little common sense may help. Instead of the conventional wisdom that says use debt to rapidly expand facilities, equipment and land. A more conservative approach would be to get completely out of debt when getting started and expand with cash. As Aesop once wrote "slow and steady wins the race".

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