How does this business make any sense?
Our market garden has received so much support from our community this year that it has kind of blown us away. Folks have chosen to invest in this project by purchasing CSA shares or bouquets at the farmers market, and without these folks what we’re doing simply would not be possible. People are very enthusiastic about it! But we get a lot of (very polite) questions that I would basically boil down to “How the f*ck are you making a living doing this?”. Fair question in a world where virtually everything in our economy is subject to the absolutely ruthless gravity of economies of scale!
Part of the answer is boils down to personal finance and lifestyle choices we made in order to (happily) subsist on a relatively small income, but that’s a post for another day. The other part of the answer has to do with several inherent advantages small scale vegetable growing has over large operations. I’ve thought about this question for 12 hours a day for almost a year now and I wanted to write down some thoughts about the economics of (very) small scale farming. We’re still pretty early in our market gardening journey, but we are turning a profit and the path towards making a true living from this is much clearer than it was a year ago. There’s a lot more to know and think about, but here’s what I’ve learned so far.
Direct sales = maximum income
This is point one for a reason, if you don’t read the other points then at least read this one because it lies at the core of everything. By selling direct to consumers, the market gardener can keep 100% of the sale price! Consider the $0.75/lbs conventional green cabbage available today at HEB or Wal Mart. The farmer grew it (or paid people to grow it) and sold it at a wholesale market or produce terminal. Checking published wholesale market rates this morning, green cabbage is going for about $0.50/lbs. OK, what does that mean for farmers? Of the roughly $3 you’re paying for a cabbage at the grocery store, only 2 of those dollars are making their way back to the farmer. And out of that $2, most farmers who sell wholesale have a lot of employees, equipment and other overhead to pay for. The grocery store’s dollar is used to pay for the refrigeration truck, warehouse, store, employees, CEO’s salary, dying parking lot trees, etc. There’s a pretty hefty price to be paid for the convenience of supermarket shopping, and farmers are the ones paying for it. When we do our CSA days or attend a farmer’s market, we have extremely minimal expenses to pay for and we keep that whole $3.
Minimal capital expenditures
When starting out it can be tempting to buy all the toys. Nifty seeders ($). Plant propagation contraptions($$). Oh and you’ll need plenty of high tunnels too($$$$). And my hatchback is pretty lame, better buy a big truck. Lumber for the raised beds, the list goes on. We bought literally none of those things and I’m glad we didn’t because it means we were able to start this enterprise debt free. All you need is compost, seeds, seed trays/potting soil and an irrigation system. For the more expensive things, do a full year and then you’ll have a better idea of what you need and don’t need. Though I still don’t think you’ll ever need the big truck! For the conventional large scale farm or agri business, capital expenditures are considerable. Machines, tractors, tilling equipment, large irrigation systems, wells, multiple vehicles, on site storage facilities and barns. Just typing that list made me nervous, I think I just described about $1 million in starting costs (or more!), for which the farmer or agribusiness has to go deeply into debt to pay for. Once you’re in debt it can become a desperate struggle to meet your obligations. You have to cut costs somewhere and you can’t change what you already spent on equipment, so you pay your workers as little as possible and use the cheapest possible seeds and other inputs, with nothing leftover for taking care of the land. No wonder the Farm Bill is such a big deal to these types of farmers, without those subsidies and safety net such a risky capital intensive business model would never work.
Maximum quality
This is really the key advantage the small scale grower has over the large. Since we sell direct and don’t have to worry about what storage or transportation will do to our crop, we’re free to focus on quality, to the tremendous benefit of the consumer. A fresh Sungold tomato is a work of art, and it just isn’t physically possible to insert it into the grocery store supply chain. They’d turn to mush long before they hit the produce section. I wouldn’t say we’re masters of our art yet, but already virtually everything we produce is superior quality to what’s available in stores. And that’s not even really a brag, I’d say the same about the work of other professional market gardeners or even many home gardeners for that matter. I’ve said it before and I’ll say it again, supermarkets remain the worst way possible to get fresh produce to the masses. This fact alone justifies the continued existence of the market gardener in my view.
Minimal land expense
The average size of a farm in the US today is over 450 acres. A plot that size in the city limits of San Antonio where we farm would probably cost in the neighborhood of $40 million, if it could exist at all. In the corn belt of Iowa that farm would still cost north of $5 million, and even more in the (irrigated) vegetable growing regions of California. So that means as a farmer you immediately have a huge loan to pay off on day one whatever your business model is, and only practical way to do that is to go further into debt to buy equipment to work a piece of land that size (see point 2). Is it any wonder that the family farm is a thing of the past in much of the country? Only a corporation with access to international financial markets or an exceptionally lucky individual could make money on a deal like that.
Our products aren’t commodities
Unlike the Agribusiness, the small scale vegetable farmer doesn’t grow a commodity (commodities being items where one unit is as good as another, like coal or iron etc). So while market gardeners are obviously part of the market and charge prices that reflect the inputs and local demand, they aren’t a part of the international commodities market in the way large scale farmers are. The soybean harvest in Brazil has no bearing on what I’m charging for a pound of real tomatoes. Lettuce and other greens can’t practically be stored for long periods of time or shipped overseas. Broccoli futures aren’t traded on Wall Street (I think??). Because sales are direct to consumer at a local level, producers aren’t subject to a single national (or international) market price for their product. They can engage in product differentiation and charge a premium for taste and freshness. If you’re growing corn for industrial products, one ear is as good as another.
Low or nonexistent transportation costs
This is maybe the least important of these points but it’s still worth highlighting. The transportation costs for our product are so low as to be essentially nonexistent. The “efficient” California lettuce farm still has to pay to ship that lettuce 1,000+ miles to markets across the continent. Per unit it’s a relatively low cost due to their economies of scale. But not as low as our costs when we just have to drive 3 miles up the road to market (or better yet, 0 miles when folks pick up their CSA from the garden directly).
Less reliant on the labor market
This is a tricky topic because many market gardeners or other small scale farmers do indeed hire out labor. But others don’t, so I do want to briefly touch on this. Currently we run our garden as a 1.5 person operation, with all 1.5 of us being married to each other. So while of course we do need to pay ourselves in order to continue to live, we’re essentially independent of the labor market. By putting our own sweat equity into this thing, we’re avoiding thousands of dollars of labor cost we’d need to pay out of our pocket or finance as a start up cost before a single leaf of lettuce is sold. Meanwhile, the commercial farm in Florida or California is entirely dependent on an exploitative system of dirt cheap labor. Owing to a convenient loophole in minimum wage laws, harvesting on these farms, which for many items is the bulk of labor costs, is often paid on a piecework basis (by the pound etc). As long as we keep our garden at a scale that is manageable by 1-2 people we will never have to pay for anyone’s labor. And just ask any restaurant or other small business owner how they feel about labor costs! It’s very expensive to pay anyone to do anything.
Diversity
Historically, crop diversity was the farmer’s best hedge against uncertainty. This is no longer true for the large scale farmer, who thanks to Federal crop subsidies and insurances and the irresistible tide of the global marketplace, will now typically often only grow one or two crops in an entire year. For example, an Iowa corn farmer often grows his main cash crop of corn followed by soybeans, and then potentially a winter cover crop if they’re smart. But that’s it. If the weather is bad for those crops, or a pest is particularly bad, that could be game over for your harvest. Meanwhile at Armadillo Gardens, over the course of a season we typically grow between 40 and 50 types of produce on our quarter acre. Partially that’s just a natural result of my ADHD gardening style, but there’s some method to the madness. Late frost make it a bad year for tomatoes? Then it was probably a really great year for spinach. Early summer heat nuke the lettuce? Then your sweet potatoes and melons are probably going nuts. Etc etc. And apart from using diversity to hedge our bets, it’s what our customer demand. And since we do everything through direct sales, we’re very sensitive to demand (See point 1).