I was speaking at the Nova Scotia Federation of Agriculture annual meeting and after my presentation, a young man wanted to know what advice I would have for him in starting to farm.
He told me what he was doing already and there wasn’t much I could suggest. It seemed to me he was already on the right track. In fact, he seemed to have a better grasp than most people of how agriculture has changed, and what a person must do to succeed in it.
The young man does custom haying, and grows blueberries and apples, and all he owns is a tractor. He rents the blueberry and apple land, and when he puts up hay for other folks, he pulls their haying equipment behind his tractor.
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I told him he has the secret to success in agriculture figured out – use other people’s assets to avoid debt and generate cash flow. It’s what the evil capitalists have been doing for decades.
The need to own everything
We talk about the price of inputs being so high nobody can make money in agriculture any more. While it’s true margins are smaller than they used to be, fixed costs are also a killer and debt makes up the biggest portion of fixed costs on most farms.
Margins have been getting thinner in every industry and as international competition increased during the 1980s and 1990s, the corporate world’s response to thinner margins was to cut fixed costs, which in the corporate world means cutting jobs, as well as selling off under-used assets.
We don’t employ a lot of people in agriculture, so the first way to cut fixed costs is to reduce debt, which means selling, or not buying, land and machinery. And talk about under-used assets. Every farm and ranch is loaded with equipment that is used a only few days every year.
The idea is to manage productive capacity without owning it. It’s helped other industries compete with cheap foreign goods, so why not agriculture?
I realize this concept jabs at the very heart of what we hold dear. Isn’t it every would-be farmer’s dream to own his or her farm? Of course it is. I am simply talking about the best way to go about owning it and getting a grip on how much land and equipment you actually need to own in the long run.
Manage productive capacity
Gordon Hazard is famous in American beef cattle circles for his penny-pinching ways. He has never lost a dime in stocker cattle in 50 years, and he has never had a dollar of debt as he built up his 1,800 head ranch from retained stocker profits.
He said he won’t own anything that rusts, rots or depreciates. That is a bit of an exaggeration, because he does own a 1985 half-ton truck and some hand tools, (he says he has two hammers – one to hand to any friend that might drop by), but in general he does not own a lot of stuff and he has made millions in the stocker business.
The retiring farmer bonanza
Young folks starting in agriculture these days may be looking at a big opportunity. In Canada, the average farming couple is in their late 50s, and the next 20 years will see many of them wanting to retire. Some will die as well, because up to 20 percent of men older than 50 won’t see their 70 birthday.
Most of these couples do not have children who want to take over the farm, but the couples don’t want to sell either so they will be looking for renters. Some of these folks will be willing to give eager young farmers a pretty good rate on renting land and may even be willing to lease their equipment at a favourable rate, knowing they won’t get much for it at auction.
All it takes on the beginning farmer’s part is serious research to find just the right situation.
Robert Kyosaki, author of Rich Dad, Poor Dad, which I think everybody should read, but especially young folks just starting out, points out that poor people work for money, rich people make money work for them and it’s often other people’s money that does the work. It will work in any industry, including agriculture.
Edmonton-based Noel McNaughton is a former broadcaster and rancher who lectures on farm lifestyle issues at agriculture conventions and for corporations. He can
be reached at 780-432-5492, e-mail:
noel@midlife-men.com, or visit www.midlife-men.com.
