Is There Room Enough For All of Us?

Is There Room Enough For All of Us? Michael Duffy January 16, 2009 Photos by USDA NRCS

Outline • Current situation • Questions to consider • Using financial information to help with the decisions • Questions and discussion

Current Situation

Where we are • Management is the key; not size • Technology has increased production but it has come with a cost • Most Iowa farms are small and do not have livestock • Land values and costs are high but they have always been high • Working with our heads and managing risks will be the keys in the future

Questions to Consider

Is There Room Enough for All of Us? • Remember there is no right way to help a young person get started farming. Wages, partnerships, sharing capital and labor, profit sharing and so forth are all examples of different approaches • Do what works best for you and your situation • Multiple family farms are more common than most people realize

Is There Enough Room For All of Us? Question has at least three parts • Is there adequate income for all the families involved? • Are there too many bosses? • Is there enough recognition and communication with the non-farm members of the family?

Is There Room Enough for All of Us? Too Many Bosses? • Who is responsible for making decisions • The severity of this problem depends a lot upon the secession route chosen • Communicate, avoid unspoken expectations • Have a plan

Is There Room Enough for All of Us? Family Members • Be sure that everyone knows the plan • Don’t assume • Communicate together; don’t just talk • Remember that equal is not always fair

Is There Room Enough for All of Us? Adequate Income • This is the most important aspect; many single family farms don’t have an income adequate for the level of family living draws and this is even more of an issue for multiple family farms • Remember most technologies are designed to substitute capital for labor, they are not necessarily designed for multiple family farms • The key is to select the most appropriate technology and enterprises for the situation • Simply increasing volume is not the answer

Strategies

Increasing Net Income • How much additional income is necessary? • Remember; family living, taxes, retirement income or full living expenses for older generation • Include off-farm or income that isn’t from the current farming operation

Using Ratios • Use ratios from current farm as a starting point; remember that as changes are made these ratios can change • Ratios vary considerably by size, profit level and type of operation

Asset Turnover Ratio Asset Turnover Ratio = Value of Farm Production/ Total Assets Used 2007 Average for farms in IFBA was 42%

Net Farm Income Ratio Net Farm Income Ratio = Net farm income/ Gross farm income 2007 average for farms in the IFBA was 35%

Net Farm Income Ratio Asset Turnover Ratio Income to Achieve Your Goals Net Farm Income Gross Income Total Assets 248,880 121,951 50,000 49% 41% $___________ = $___________ x = $___________ x $___________ = $___________ x = $___________ x $___________ = $___________ x = $___________ x 314,268 50,000 135,135 37% 43% 612,745 208,333 50,000 24% 34%

Using Your Ratios • How do you know your ratios? use your own financial documents • How can you change the ratios? Examples - Increasing management for cost control - Increasing management to increase value of output - Increasing intensity of use for existing assets (rented land) - Acquiring more assets

Increasing Income from the Existing Farm • Increase the assets used • Increase the efficiency with which the existing assets are used • Increase the amount of gross revenue converted into net income

Possibilities • Look for ways to more intensively use the current assets (additional enterprises, alternative production techniques, etc) • Look for ways to improve the net income ratio (organic production, non-commodities ie, special attributes, improved marketing and production, etc) • Look for ways to improve both ratios (new enterprises, etc)

Possibilities • Supplemental income from off-farm sources; could be another farm or farm related activities - 2004 Rural Life Poll reported 95% of farmers felt spouse would need off-farm job and 92% said beginning farmer would need off- farm job • Delay process until capital can be acquired or situations change

Is There Room Enough for All of Us? • Agriculture is a high-risk industry but it can have great rewards; there is a future for farmers, different from the past but opportunities none the less • When examining the question of adequate income, remember you can: Live with the tight margins but ensure an adequate volume for the income Look for ways to widen the margins Look for additional sources of income

Is There Room Enough for All of Us?Final thoughts • Be sure there is an adequate income • Take the necessary steps to help minimize the income instability, especially in the beginning • Develop, evaluate and revise your plan as needed • Communicate and respect differences • Remember the view should be for a farm family; not a family farm

THANK YOU

Discussion

Beginning Farmer Center www.extension.iastate.edu/bfc/ 877.BFC.1999

Is There Room Enough For All of Us?