Over the past few decades, running a sustainable and profitable farm has become increasingly difficult. Among the challenges farmers face are the effects of climate change, demands for higher quality food, undercapitalization, developments in technology, changes in consumer expectations and taste, soil erosion, loss of biodiversity, crop failures, pest problems, equipment and machinery maintenance and global economic factors.
Although farming can be tough, it is possible to make a farm profitable with lots of hard work, the right planning and smart decision-making. For new farmers just starting out or those more experienced farmers looking to improve the profitability of their farm, here are eight useful tips and pieces of advice.
1. Calculate your potential production.
Making early estimations of a farm’s crop yield or herd productivity helps farmers to plan well in advance, so they can make the most of opportunities, manage risks and reduce wastage. When it comes to crops such as corn and wheat, there are commonly used yield estimation methods, although some farmers get assistance from an easy to use corn yield calculator to save time. Estimating crop yields is an essential task for farmers to undertake as they are required for crop insurance applications, estimating deliveries to buyers, planning harvest times, organizing the correct storage and budgeting for cash flow fluctuations.
If you run a cattle farm, then your calculations will focus on the number of cattle you can fit in your pastures and their productivity. Typically, a one-acre paddock with a healthy amount of grass can support two cows, however, farmers should also rotate their herds frequently to avoid the land becoming depleted.
2. Write and follow a business plan.
Almost every successful business starts with some careful business planning, and farms are no different. Writing a business plan helps farmers to develop a road map for their business, which should generally include the following parts:
- mission statement including the core principles and values of the farm, its purpose, and future
- specific, measurable, attainable, realistic, and time-bound (SMART) short and long term goals
- background information including where the farm is located, its total acreage, your farming experience, current operations and practices, animals and crops
- strengths, weaknesses, opportunities and threats (SWOT) analysis to identify strengths, weaknesses, opportunities, and threats can help in making more informed decisions
- market research that highlights buyers, competitors, and trends
- 5-year strategy based on your mission statement, SWOT analysis, and market research
- marketing plan for how you will market and sell your produce
- financial reports and projections detailing current and expected income, operating expenses, and capital required
3. Select the right crops or animals.
Before choosing which crops to grow, there are several factors a farmer should consider, such as the biological characteristics of different plants, a plant’s environmental needs and preferred climate, the amount of shade or sunlight required, a crop’s level of disease and parasite resistance, maintenance and the size of individual plants.
The kind of crops a farmer selects to grow is determined by the conditions on the farm both in terms of climate, drainage, and soil quality. For instance, the alluvial soils in the plains of New Zealand are perfect for growing cereal such as barley grass, oats, and wheat.
For cattle farms, the breeds a farmer selects should also be guided by the animals’ ability to thrive in the environmental conditions on their farm. Farmers are also advised to research equipment costs such as fences and feeding troughs involved in farming different types of cattle.
4. Diversify revenue streams.
To reduce risk, many farmers opt to diversify their production by growing a variety of crops or raising different breeds of cattle. This helps to mitigate losses if one crop fails or one breed matures too slowly.
In addition to insuring against catastrophes, diversification can also help farms to continue innovating and finding new ways to become more profitable.
5. Maintain and develop your knowledge.
Experts and successful business people in every industry have a few things in common, one of them is a commitment and desire to improve their knowledge of the field they work in. The most experienced and prosperous farmers also take the time to better their understanding of farming by reading books, magazines, and blogs, and attending trade events and farm shows. Constantly studying and learning new techniques will help a farmer to make better decisions about how to improve productivity and profitability.
6. Recycle and reuse resources.
One way to reduce the costs of running a farm is to reuse and recycle items and resources that are already lying around or usually get thrown away. There are several ways farms can reuse and save resources.
Use manure as fertilizer, build compost bins and fences with old wood pallets and weigh down feed store covers with old tractor tires. You can also collect rainwater and reuse water from flushing out milking parlors to clean away manure in barns.
7. Run a farm shop.
For farms in an area with enough passing traffic it may be worthwhile setting up a farm shop where you can sell your products directly to the consumer without having to go through a distributor first, this means you can set your own price and make better margins. Some established farm shops also have other facilities on-site such as a café or restaurant, a petting zoo, or a farm tour.
When considering whether a farm shop or café is a good idea for your farm, you should check if local planning permission is needed and what the effect will be on your tax liabilities.
8. Work to improve your soil.
Good quality soil full of moisture and nutrients is vital to a farm’s survival and long-term success, as low-grade soil will lead to smaller crop yields and less grass for cattle to graze on. For this reason, most farmers work constantly to keep their soil healthy.
Some of the techniques farmers use include crop rotation and covering a field with a specific crop to prevent soil erosion, develop the soil’s structure, add nutrients and promote biodiversity. Experienced farmers also allow buffer zones of grass or trees to grow between fields and add more or less fertilizer accordingly.
The life of a farmer involves working through various difficulties, long hours, and any kind of weather to make sure it functions not only as a place of food production but also as a business. Operating a profitable farm that will survive and thrive for years to come takes a lot of dedication and planning, however, following advice and tips like those in this article can help you to increase your profit margins.