Most Common Questions Asked by Agricultural Producers
Farm Business Management Update, April 2000
By David M. Kohl
I am going to play the role of Extension agent and answer some of the most common questions that I am asked in my travels. Some of the responses may not be politically correct or what producers want to hear. But I want to challenge some of the old paradigms of agriculture.
Future of Government Programs in the United States
The most frequently asked question internationally is whether the United States farm supports will continue. Supports are very dependent upon the strength of the general economy. Farm supports and subsidies represent less than 0.5 percent of the national budget. A strong general economy with surplus in the budget suggests that in the short run they will continue. However, in the long run with the first sign of economic slow down, budget pressure will result in close scrutiny. Because of low dependence upon farm supports, Virginia producers' competitive position without supports is favorable.
Try this simple test. Analyze your farm income statements over the past five years. Divide farm program payments by net farm income. A figure greater than 50 percent is a danger sign. If it is under 20 percent, it is a sign of low dependence on government supports. Nationally, producers find the average for 1999 is 39 percent and a five-year average is 20 percent.
Future for the Young Farmers and Agriculturists
At a recent National FFA Convention, a member asked one of the presidential candidates whether young people should study agriculture. The response was that another field probably should be studied. The United States will be importing most of its food from third world countries according to this candidate. This comment was later retracted on the Data Transmission Network (DTN).
However, look at that statement. Food, like oil, represents national security interest. While one could argue that pure economics suggest that third world countries might have a comparative advantage, a balance in this approach is really what is needed for our national security.
Agriculture is still a very dynamic field. Young people pursuing the field need a good balance of the science and business courses. To differentiate a young person's skill base, every attempt should be made to develop application skills through internships, cooperative studies in business and industry, or government appointments.
Trade and technical schools are an excellent choice for those who want focus in the educational experience. Too often four-year students drift because they are unfocused. The result is a loss of self-esteem and lost wages. Parents lose too since they frequently are the ones that have paid the tuition costs.
Can a young person get started in agriculture? In Virginia the most effective method for small-scale farmers is to attempt to balance employment with agriculture. Candidly, many young people enter farming through family or relatives. The weakest link in this method of entry is that they become close-minded and do not work outside the family business. They fail to see or experience the opportunities outside of the region, area, or family.
A group of agricultural entrepreneurs involved in value added enterprises are emerging to take advantage of market niches. Their entry method is to control assets through leasing, renting, and strategic alliances rather than ownership. They work well through people and are superior networkers. The Commonwealth of Virginia with its diverse enterprises and population base will be the breeding ground for these agri-entrepreneurs.
Is Land a Good Investment?
Land is a good investment if a person holds it for at least 20 years. Successful purchases of real estate usually require liquidity or working capital as a backup, particularly in down cycles. If someone can survive these downturns, according to a University of Illinois study, return on investment in capital appreciation in land has been second behind small company stocks. Not to have some land as a part of a portfolio is foolish.
I see two rules in purchasing land. At least 20 percent of a person's business expenses should be kept in working capital or six months of net income in cash reserve. Failing to meet that standard, then each acre purchased and financed, the person should have paid for seven acres.
In the next newsletter, I will discuss other questions such as business peoples' biggest train wrecks, thoughts on GMOs, corporate agriculture, and other timely issues.
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