During a recent webinar, a participant asked an interesting question. “How do you see the future of the family farm with $250,000 or less in revenue? Will this size farm survive? Will they need to go big or go home?”
The agricultural and rural landscape is in a period of rapid consolidation. This has affected many farms and ranches, but also machinery dealerships and agribusiness firms that serve rural communities. Bio, engineering, and information technology are rapidly transforming the size and sophistication of businesses. More zeros and commas on the financial statements is a fact of life in 21st century agriculture. With that being said, let's examine the smaller operations at the other end of the spectrum.
First and foremost, one size does not fit all in agriculture. The smaller operations described in the participant’s question can be sustainable given the goals and objectives of the producer. Many smaller operations are aligning with local and regional niche markets. The ability to be innovative, flexible, agile, and to pivot given the demands of the marketplace is critical to their success. Small businesses need to be two or three products and services ahead of the curve as bigger businesses will attempt to commercialize or commoditize their innovations.
Another attribute of smaller operations is that they will generally have some off-farm income. This could be W-2 wages or side gig businesses that complement the skills and resources of the individuals or farm business. Off-farm employment in fields such as welding, crop scouting, or a crop or livestock consultant can benefit one as they observe many operations and management types. These individuals can apply these techniques and skills to their unique situations. Some small operations will share resources to reduce the fixed cost per unit. Modest family living expenses are imperative to success for small operations. Too many individuals taking withdrawals is a killer of small businesses.
Other small operations will be in a business, particularly niche businesses, with high profit margins. In all of my years dealing with the agriculture industry, I have observed some businesses with $200,000 in revenue have net income surpassing operations with $1 or $2 million in revenue. It is all about net income, not gross revenue.
Finally, many young farmers and ranchers have less than $250,000 of total revenue. Sometimes small ideas can lead to a bigger business over time. Good and bad decisions compound and accumulate over time. Starting out small by making good decisions with the right attitude can lead to something big in the future.
Dr. Earl Butz, a former Sector Secretary of Agriculture and professor at Purdue University in the 1970s, indicated that producers need to “get big or get out!” Here we are five decades later discussing that same topic!