Changing consumer diets, yield-boosting technology, and a saturated urban job market are three factors pushing entrepreneurs toward the agriculture industry, leaving many of them to ask the question ‘how much does it cost to run a small farm?’
In the United States, small farms are nothing new: they make up 89% of agricultural holdings, according to the US Department of Agriculture (USDA).
Yet, despite their much larger number, they’ve struggled to compete for scraps from the table as their bigger rivals hoover up the business.
In the same USDA report, holdings classed as a ‘large farm business’ (those with a gross income of more than $1 million) account for 3% of farms but almost half of the value of production.
This leaves small farmers pondering several key doubts as they attempt to make an impact in an industry skewed toward the big players, including:
Despite these concerns, there are causes for optimism for both new and established farmers with small holdings.
Gross cash farm income (GCFI), including government direct payments and animal/crop receipts, and net farm income (NFI) have been on the rise in recent years.
The rise in cash income within the US agriculture industry
Source: USDA
Fuelled by the effect of climate change and economic uncertainty on consumer demands as people look for local and fresher produce, this trend could be set to continue for many years to come.
Rising income levels are one thing, but if you’re an entrepreneur looking to set up and run a small farming operation in 2022, you’ll need to consider a range of factors before putting your plan into action.
As you’re probably aware, running a small agricultural enterprise is a challenging yet potentially rewarding endeavor. In a world beset by climate change, more consumers than ever are turning toward sustainable businesses for their produce, a demand that small farms are perfectly placed to meet.
Small-scale operations require fewer chemicals and cause less harmful effects to the local environment, such as soil erosion. They also tend to sell produce locally, reducing shipping costs and, crucially, their carbon footprint.
Supporting the local economy in this way means that money circulates through local businesses and customers, creating a kind of immediate eco-system away from the reaches of large corporations. This allows small enterprises to ‘cut out the middle person’ and offer lower prices to customers, while also making more money themselves.
Crop diversity is also a key benefit. In contrast to large farms that tend to grow a single crop across a huge expanse of land to increase efficiency (and profit), smaller firms are less wedded to this monoculture business model. Instead, they can choose to grow herbs, wheats, vegetables and many other kinds of produce within their holdings, attracting beneficial insects and wildlife.
From a business perspective, this also makes it easier for them to find a niche in a busy farm products industry.
To balance out these benefits, there are some downsides to starting up a small farm.
For one, it’s hard work and expensive: farming equipment is too much money for most minor farming budgets and, even if it were affordable, it’s still difficult to learn or train people to maneuver harvesters and large tractors around a compact holding. If you’re not used to getting your hands dirty, then this type of venture will quickly change that.
Getting the farm up and running can also be difficult, with a lack of capital often making it difficult to meet starting costs, like buying property and machinery, not to mention the considerable land costs that such a project might entail.
Like with any business, knowing which costs you need to get your enterprise going is one of the first big steps.
In the next section, we’re going to take a deep dive into what you may have to account for as you bid to become a small farm owner.
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If you don’t already own a piece of land, then acquiring space to build your holding is going to be one of the most significant startup costs.
In the US, the average value for an acre of agricultural land varies wildly, from $1,050 in Montana to almost $14,000 in California, according to the USDA, making location an important factor.
The average buying cost per cropland acre in the USA ($)
Source: USDA
Naturally, the cost will fluctuate according to how many acres you need. While a couple of acres is enough to get started, you may want space to expand into should you turn out to have a successful farm.
To get round the high cost of land in some states, new farmers often make use of creative solutions. In Pennsylvania, where the average cost of an acre is $7,600, the Pittsburgh Adopt-a-lot Program allows urban farmers to grow produce on vacant lots, including a license to sell it afterward, which can supplement their small holding.
The type of equipment and machinery you need will vary according to what type of farm you have.
The smaller the holding, the more hand-power you’re likely to need, so equipment tends to include shovels, forks, rakes, and wheelbarrows as you tend to it on foot. Smaller items like this should cost anything between $500 to a few thousand dollars.
As your farm moves up the size scale, the more likely your dependence on machinery. A walk-behind rototiller which loosens soil for planting can make a big difference and typically costs from $300 to $900. A compact tractor, meanwhile, starts to push five figures, with the best models costing over $10,000.
Farms in northern states may want to think about building a greenhouse to protect seeds through winter and fall, as well as to provide you a head start when the growing season arrives. Forbes has the average greenhouse cost down as about $15,000, with $25,000 and $2,000 being the upper and lower limits.
On the flip side, holdings in warmer states will probably need to look at efficient refrigeration to keep perishable produce like dairy, eggs and meat safe.
We all know the cost of a household fridge, but a walk-in cooler, or even a refrigeration van, might be better in some cases, the likes of which could cost between $10,000 and $50,000.
The literal lifeblood of any small-scale farm, livestock and crops, don’t just grow on trees.
Well, maybe some do.
But still, getting started with animals and seeds comes with its own cost, which is sometimes hard to predict. While baby goats, chicken or pigs may cost a few hundred dollars each, there’s still potential to make money back from selling their offspring, as well as the dairy produce that they generate.
Seeds will, of course, depend on the season, but these should be the cheapest of start-up expenses.
Running, or operating, expenses form a large chunk of your budget once your own farm is up and running.
One of the top items on the list is water or, more specifically, how you use it.
Many small farms find that having an advanced irrigation system a must-have, whether bought new or home-made, however, it might make more sense (but also more work) to hand-water your crops.
An automated system is, of course, much more expensive with some models costing around $1,000 an acre to install.
Next up, the feeding and protecting those seeds and creatures is a regular expense. Feed, straw and shelter for the animals plus fertilizers and incesticide for the plants all feature on this list.
Then, to finish up, there are those maintenance costs in keeping vehicles and farming buildings useful. Here’s a checklist:
It’s worth noting that any operating expense can vary according to inflation and seasonality, and can exacerbate or even bring about feast and famine cycles that affect many small businesses.
Seeds and fuel cost more when there’s a shortage and energy bills are adjusted at the whim of large corporations, so any sensible financial planning will factor these potential variations in.
Though it’s easy to overlook, choosing the right products and who to market them to matters a lot to local farmers. If demand for your produce doesn’t exist, then your business is in trouble before it’s even started.
Market research involves gaining information about the structure and needs of your market, then matching them with your products.
Despite much of this data being available online for free, there are still costs to factor in, albeit of a minor nature compared to the expenditure outlined above.
Obtaining a copy of your local census is useful for knowing what type of catchment area you’re targeting. From there you can hone in on what percentage of those are likely to consume your produce, how much of it they typically buy at once, and where they’re buying it from.
You can do this by canvassing your target area, meeting people face-to-face and getting to know them. While this may cost a certain amount of money and time, it gives your small farm a human touch to it, in contrast to the cold impersonality of large corporations.
It will also put you in the best position to serve your local market and build a positive reputation.
How to finance a small farm (without a perfect credit history)
If, as a small farm entrepreneur, you find the list of expenses daunting, then you may be encouraged to hear that the lending landscape has shifted over the last few years.
The digitization of finance has brought a raft of alternative options into existence that don’t depend on a perfect credit history or an immaculate business plan, though these may still help.
Non-banking forms of finance can provide relief to small businesses who have had funding denied in the past.
Alternative lenders, free from the bureaucracy and stringent lending conditions that come with banks, offer a variety of funding options that are quicker and simpler to access.
Merchant invoicing, for example, is a kind of cash advance that you repay with a certain percentage of your future revenue or sales, plus a fixed commission.
Because it’s based on your future performance, your credit history doesn’t come into the equation, so if you have a large produce order coming in, you stand a good chance of approval. Borrowers, though, need to be careful not to fall into a debt cycle should they not have more orders lined up.
Invoice financing works on a similar concept, except the lender buys unpaid invoices from you, often at a discount, then receives the full amount when your customer pays up.
Another option is Peer-to-Peer (P2P) lending, a flexible type of lending, often functioning as a type of small loan with no guarantee, that uses an online platform to bring individual lenders and borrowers together.
These platforms use their own assessment models, which tend to be less reliant on credit history and more weighted toward the future potential of your business. Some even have integrated artificial intelligence (AI) tools that speed up and accurize the process.
With the digital era breaking down more barriers than ever, there’s no reason why small farms should fall into the trap of bad loan deals any more. Using digital lending, farming entrepreneurs can, at least, avoid adding high interest payments and loan fees to the cost of running their farm.
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