Is There Room Enough For All of Us?

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Is There Room Enough For All of Us?

• Michael Duffy
• January 16, 2009

Photos by USDA NRCS
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Outline

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

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Current Situation
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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

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Questions to Consider
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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

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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?

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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

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Is There Room Enough for All of Us?

• Family Members
• Be sure that everyone knows the plan
• Dont assume
• Communicate together dont just talk
• Remember that equal is not always fair

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Is There Room Enough for All of Us?

• Adequate Income
• This is the most important aspect many single
  family farms dont 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

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Strategies
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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 isnt from the
  current farming operation

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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

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Asset Turnover Ratio

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

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Net Farm Income Ratio

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

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Income to Achieve Your Goals
Net Farm Income
Gross Income
Total Assets
248,880
121,951
50,000
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___________ ___________ x
___________ x ___________ ___________ x
___________ x ___________
___________ x ___________ x
314,268
135,135
50,000
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612,745
208,333
50,000
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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

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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

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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)

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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

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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

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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

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THANK YOU
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Discussion
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• Beginning Farmer Center
• www.extension.iastate.edu/bfc/
• 877.BFC.1999