How to Get into Farming with No Money (1980) | Hacker News Reader

How to Get into Farming with No Money (1980)

smallfarmersjournal.com

123 pointsdocbrown42 comments

> An important item here, as well as in the future, is to deal on a CASH basis. You MUST NOT borrow to pay later. I don’t want to give all the reasons for everything I’m recommending — you will have to trust them. Pay as you go, EXCEPT for a SINGLE exception (later stated) is the best.

A farm is a business. Starting a business on a cash-only basis is possible and arguably safer than borrowing, but it's very slow going.

The way most farmers get started is they take out a great stonkin' loan from the bank ($10mil+) and buy land, stock, machinery etc. They then run their newly established farm and try to turn enough of a profit to pay the interest plus a bit of capital.

That's why farmers tend to be "asset rich and cash poor" for the first 20-30 years and then (if they're both diligent and lucky) are suddenly super wealthy once they've paid their loans off.

(Source: dairy-farming relatives)

Small bit of pedantry: the nature of paying off a large loan over 30 years is that you gradually become wealthier at an accelerating rate. The sudden change after the mortgage is paid off is to cash flow, not wealth.

True, I should have said "suddenly have loads of cash once they've paid their loans off."

Worth pointing out that at the time the article was written in 1980, it was the 100-year high in interest rates, possibly north of 20% in many countries.

While this is true, most of the aforementioned relatives in farming have had their farms going since before mid-2000s. So not the heady days of 16% and above, but still high single digits.

Used to be the federal government offered sweetheart deals on loans to people who wanted to be farmers. I'm talking $300k+ in the 70s.

This was written in 1980, with crazy (~17%) interest rates and commensurate glamorization of taking out debt.

I think it is much easier to get out of farming with no money, than to get into it. In the US, policy has punished rural communities and farmers for a long time:

https://www.amazon.com/Harvest-Rage-Oklahoma-City-Beginning/...

Mind giving some highlights because all I hear are about farm subsidies and never about any policies that hurt farming.

1. Anything that drives consolidation of land towards a few large landlords hurts farming. This is a story as old as time, as wealthy land-owners end up buying out small farmers (Or, in older days, driving them off at sword-point and gunpoint.) In today's day and age, fiscal policy is often a culprit for this.

2. Enforcing compliance with basic laws hurts farmers. It's not clear to me that it's currently possible to operate an American farm both legally, and profitably. Laws that farmers are likely breaking have to do with employment, immigration, animal cruelty, and pollution. Compliance with all of this will drive your expenses up, and you out of business. This is a classic case of a prisoner's dillema - your competitors, who break the law, will undercut you, if you comply with it.

3. Larger farms with better access to capital are often better suited to take advantage of government subsidies.

4. Farming is incredibly risky. Your margins are razor-thin, and your yields and revenues are entirely at the mercy of the weather, and the capriciousness of your incredibly expensive equipment. Large, well-capitalized mega-farms are better suited to weather runs of bad luck, then smaller, family-ran ones.[1]

[1] Not to mention that many family farms rely on family members to operate. And if uncle Bill ruins his back on the job, in June, he's not going to be in shape to work at harvest time...

In my country (Oz) it's the same story. Families who've owned properties for generations can't keep up with the mega-corp style of farming, particularly when drought, or other semi regular calamity hits. A mega Corp can go into 'the negative' during these times, but only really experience a 'blip' on the balance sheets. A family farmer will have a 2nd/ 3rd mortgage rejected, when only a generation or two previously they had no debt whatsoever.

Governmental help comes in the form of lacklustre subsidies, or too small and too delayed financial aid, while at the same time providing massive grants to companies that are in the agri business system.

One example is the legislation of allocating "water rights" to the main river systems here, all of which has caused farms to go bankrupt, the middle men to get rich and we now have increased rice (!! Rice in Australia) production.

> Families who've owned properties for generations can't keep up with the mega-corp style of farming

You'll notice that families who've been cobblers for generations can't compete with Nike on price, either. Economies of scale and international wage arbitrage really matter.

On a grand scale, it's the same with car companies. People have started car companies (Tucker, Bricklin, DeLorean, Tesla), but they usually underestimate by a factor of 3 or more how much money it really takes to do it.

Sounds like it's still a problem with farm subsidies, just that they're not going to ALL farms?

Here's a primer on the 1980s farm crisis under Reagan, which Nixon teed up in the early 70s.

http://www.iptv.org/mtom/classroom/module/13999/farm-crisis

Perhaps the present day answer to "How to Get into Farming with No Money" is "bring a little money, and before you can even get started, you have no money after complying with US policies". Does this mean present day US farming is a venture optimally structured for very large, very highly-capitalized, very politically well-connected corporate behemoths?

Economies of scale destroyed small farms.

As with most small businesses ; larger competitors have both economies of scale in business dealings — and, more importantly — economies of scale in compliance with government requirements.

For example, the accounting and bookkeeping manpower and expense consumes many full percentage points of a small businesses’ gross revenue, while virtually none of a large businesses’ revenue (fractions of a percent).

Of course, large enterprises can - and have - lobbied the government to pass “think of the children” laws against all manner of evil, which they themselves can trivially absorb with their full time legal and accounting staff. The slobs on the family farm - not so much.

Until government compliance is priced at a percentage of gross revenue, nothing will change, and small competitors will be extinguished - to the delight of the conglomerates.

Economies of scale destroyed small buisness owners in general. It's probably a bad thing, competition wise. We're at the point that having two companies in a sector (AMD + intel) is a surprising and lauded achievement in keeping a the marketplace competetive.

At least these days. I sadly don’t think much of this advice is usable in terms of finding someone to take you in, give you feed and room and board and money.

Most farmers where I grew up—even smaller farms hired temporary workers and gave them bunkhouses. At the end of the season they went off and brought the money back to their families—money not worth much here but worth a lot back home.

The advice about seeing value in redefining objects for their other potentials is great though. One I grew up with. Maybe something quite valuable to the high (read: even higher) consuming culture of the present.

Interesting read.

Can you clarify that bunkhouse point? Isn't getting a bunkhouse and pay similar enough to what the author had suggested? Or do you mean that you'd not be competitive with salary demands if you were to stay on-site year round and deal with local costs?

The author is talking about farms where there exists an original farm house that has since been super seceded by a nicer house. Thus there is in effect room for a while second household. A bunkhouse will have little more than a bed.

In effect the author is talking about a by gone era when a single family would do or could do all the work on a farm. Since then average farm sizes have gone up. Wages have gone down, and work is done by either by machines, chemicals, or low skilled hired hands.

Also new in the past five years has been extreme appreciation on the value of farm land. Farm land is now getting treated like forest land was a decade or so ago where a bunch of university funds and PE speculated. Now is not a good time to try low scale farming.

Right. I'd figured that a single person could deal with a bunkhouse and basic food while they were starting out, but that wouldn't always give you room to stockpile stock over the years.

Yeah what I meant by bunkhouse is more or less a converted trailer with a row of bunks like a low-rent dorm but cheaper and all of the workers share the same room (or were split between trailers) with shared facilities. These could take forms other than trailers but often they were built cheap and only suitable for growing and harvest season habitation.

The impression I got from the author was more of a single family dwelling.

sadly here in NZ, prime ag and farm land is now getting sold for housing as thats a great way to cash up and get out

There's another way that I've seen people do it and that's farming as a service. You get people to give you cash upfront for a subscription that guarantees them a certain amount of fruit or vegetables. You rent all your equipment by the hour to plow and plant the field. Because your subscribers pay you upfront you have no need to borrow money.

The problem with subscription farming? You have to grow what your customers want to buy not what you want to plant. If you have a natural disaster you may need to refund some of your customers money. You also have to learn to sell which to some people is anathema.

But I've seen people successfully do it. There are even people doing it in the inner city of Detroit. In Detroit with the city selling lots for $100 it may pay to buy your land upfront. You also can use city water for irrigation.

I grew up in farm country. Notably, it was mostly small family farms or co-operative farms that I lived around[0]

The observation I made about farming that always made it difficult (financially) was that all the wealth was tied up in things. Your acres, your livestock/crops, your home(s) and other property. High value equipment as well (tractors aren't cheap, neither are their accessories).

The issue was always turning these things into cash. So mortgages were one way (though if I'm being honest any one who has run a large scale farming operation probably doesn't lean on the mortgage. You can get agribusiness loans with much better terms and crop/livestock insurance[1]).

Contrary to popular belief though, the land that is actually farmed is mostly leased/rented, but its typically a long term deal, so you don't have to borrow millions of dollars just to increase acreage [2]

This was something that large corporations don't have such trouble with (not to mention, most large agriculture companies have a portfolio of assets that they make money from, not just their production). I also noted that those in good co-operatives didn't have as much of an issue with this either (co-ops are good market makers and can help small farmers with buying power if they need to change crops quickly in response to market demand.

See all the bankruptcies and delinquencies hitting wheat farmers right now [3] some of which is in part to the trade issues we're having with China. They're a huge net importer of certain cash crops. Most of these guys were all in on their cash crop, without a good way to get ahead of market demand to re-calibrate their crops. Livestock is much harder in this sense, but its still doable)

This is the common reason why older farmers tend to sell (beyond simply crushing debt. It does happen for a lot of reasons. I'm not trying to under sell this. its just hard to write up a lengthy post here without it becoming an article). So they can actually cash out

[0]https://www.ufcmn.com/About-Us [1]https://www.farmermac.com/ [2]https://www.ers.usda.gov/topics/farm-economy/land-use-land-v... [3]https://www.wsj.com/articles/this-one-here-is-gonna-kick-my-...

EDIT: if the people of HN will it, I could do a long write about about Agriculture economics. I've got a strong background here.

please do write about Agriculture economics. It is a fascinating topic.

Please do write the article!

The modern American way is to announce it on a website, promise to make a movie, and do everything with crowd-founding and hire a bunch of college kids for nothing, plus two Mexicans. Actual knowledge of the business not required. See the current movie "The biggest little farm". https://www.sundance.org/projects/the-biggest-little-farm

The previous famous way was "Farmer John" near Chicago, which was similar, but more of a collective.

The 8 forms of capital

http://www.appleseedpermaculture.com/8-forms-of-capital/

Followup article: "How to stay in farming and make no money"

“How to make a small fortune in farming”.

Start out with a large fortune.

I was about to share the same joke, which I was recently told by a worker at a California vineyard. In the major wine-growing valleys of California, land now sells for millions of dollars an acre, hence the large fortune necessary for entry.

Obligatory Mitchell and Webb: https://www.youtube.com/watch?v=_pDTiFkXgEE

i just came across this article in google and tried to submitted on HN. what a coincidence, u did tat just 2 hours back.

Their karma is much higher. It's a vetting process here. https://news.ycombinator.com/newsfaq.html Read the FAQ / Rules.

It doesn't matter, GP would just have been redirected here in this case, since the recent submission already existed.

What does that have to do with having submitted earlier?

lol lot of downvotes. hard to understand. i was just searching about farming. want to point out randomness. wat astonished me, even this is not hot topic, somebody submitted same link to HN just few hours ago. didnt get why too many downvotes to point it out for fun.

In the last month downvotes seem to have made a break with reality. I used to argue vehemently that one could learn from them; now I'm not so sure...

This seems really useful, especially in an age where there's food insecurity.

Reply on news.ycombinator.com