May
12
if farming land is so expensive how is there a profit?
David S asked:
I learned that the value of land is so great that it would take decades of farming to pay off. How do farmers, even large farm owners make it worth it?
I learned that the value of land is so great that it would take decades of farming to pay off. How do farmers, even large farm owners make it worth it?
9 Comments
business, luck, demand for the product, patience and hard work…
Agricultural subsidies-our tax dollars at work
And states like the Dakotas where land is cheaper, crops more profitable
What are you going to do? Stop eating?
inter sting question indeed — Basically all land were property of king/power full man,then it shifted to government,to govern state they need money hence they used to collect nominal tax on produce of that land but still land was of government.
Whenever govt wanted to collect big money they use to sale right of particular area( for a certain period called LEASE) who can pay them lumsum amount at a time that peace of land goes to him.
Since population increase s hence land price bound to increase this is what we see today any one who pay premium price normally calculate there pay back period normally they grow cash crops,govt use to give subsidy as well.
The truth is that starting out farming from scratch, buying the land, then the equipment to work the land is almost impossible these days. The farmers that are making a go of it are the ones whose families who have been farming for years and own their own farms and equipment. I’m not trying to discourage any one from trying to start a farm but it is really hard. Your question really hits the problem on the head. If you put it down with pencil and paper, the interest rates on buying the land and equipment, and the profit that you can make on the land farming it, it just won’t add up.
i concur with John H
government subsidies
If there is five cents profit on a bushel of wheat then if you raise 50,000 bushels you make $2500 for a crop that took 8-9 months to grow. If you raise 500,000 your profit goes to $25000 for the same time and not a lot more effort.
Larger equipment costs more but gets more done in a given amount of time and allows the farmer to do it himself instead of hiring helpers.
But for the larger equipment to be profitable he needs more land to farm.
It’s a mean cycle.
I grew up on a wheat farm in North Texas. When I was 12 I started driving a tractor pulling a 15′ plow. By the time I was in high school the plows were 20′ to 30′ wide. When I was in college I came home in the summer and and pulled 40′ to 60′ wide plows.
We got up to 3000 acres we were leasing (owner got 1/3 of the crop, paid 1/3 of the fertilizer and bug spraying) before the price of wheat dropped to about one cent per bushel at which point dad retired and sold out.
I observe that in my own area we have farm land that is priced based on expectation of selling it for urban development.
There is no way, ever this land would pay off for food production. Food production barely covers the taxes on the land. People are just speculating that the city will grow and buy up this land. Well, 30 years ago the city was 16 km away and today we can see it, 3 km away. So speculatively this is worth while.
Out 20 km further, this speculation is starting, so the price of land is above what farmers will pay for it to produce food. Already city dwellers are buying up those farms and commuting to the city. They farm small scale and that is paying the taxes too.
Real commercial farming starts about 50 km from the city, the distance people do not want to commute is also the distance where land price drops until it farmers will buy it to grow crops with no large expectation of rising prices.
We do not have any significant subsidies, but we have some marketing boards and many of those small farms make a decent living by selling milk in a market protected environment. But they will never pay for the land that way. The land is a speculation this close to the city.
In general we do not expect that farming should pay for the land if the land is rising in value. Farmers expect to get perhaps 4% more than bank interest from operations and see land prices rising about the same amount. With a starting investment of 30% of land price that can give a net long term gain above 20% per year on investment.
But many have bought just before a price correction and gone bankrupt, not because of operations so much as because their debt/equity ratio exceeded 5 and the banks called the loan in.
Yes and no. It depends, really.
In order to make profits out of agricultural land that is expensive, farmers should increase the intensity of land use. Perhaps, they could cultivate more crops on a smaller part of the land, and put in more input in terms of manual labour or capital per unit of land. The high output generated enable the farmer to commercialize his subsistence farming, and export can allow more profits than just for own consumption.
The implementation of modern techniques and machinery can also enable better output for greater profits as using machinery for farming is more efficient and less time-consuming (combining processes or doing them simultaneously e.g. combined harvester). Also, irrigation schemes eradicate the dependence on natural weather and multiple cropping can be carried out. Education of farmers can enable greater revenue earned because the farmer can then manipulate his production according to the demand of the agricultural market.
Agricultural subsidies are helpful too and governments of some countries implement those in order for the poor framers to earn profits.