Monday, November 30, 2009

Why cooperatives and networks work

As I read this transcript about the evolution of news gathering and how the future involves cooperation, I was reminded of a conversation I had with my dad on Thanksgiving day. As we sat eating some late afternoon dessert, he casually mentioned how farms around theirs were quickly swapping hands. Be it auctions with others purchasing the land or simply a change in renters of the farms it got my mind running. I quickly did the math (as my dad has done numerous times) and realized the potential yearly income they were sitting on. Then, as we talked more, I realized what is happening around them.

It all clicked for me today after I read that link above. My dad had explained that the ever-escalating rent prices - as high as $310/acre - were possibly because a group of farmers spanning a distance of well over 20 miles had teamed up. The moderately-sized operators partnered with a grain elevator, a chemical/fertilizer supplier, an equipment dealer and a seed company and, with the backing of what I assume are wholesale prices for their supplies and a bank eager to toss out truckloads of cash, had quickly amassed over 20,000 acres of land with a goal of acquiring 30,000 acres.

To put this in perspective, the average size of a "family" farm in my parent's area ranges from 1,000-2,000 acres. Some is owned, some is rented. They typically own their machinery and operate on somewhat slim margins. My parents were paying $120/acre rent which, after 23 years of renting one farm, had finally put them in the black financially.

That kind of business (at that size it's far, far beyond the scope of a farm) would be impossible to run with just one family and a few employees. Even if the partnership were just the farmer pooling their collective resources it would still be impossible. Without an epic amount of planning it's a logistical nightmare full of potential problems. But when you factor in the logistical resources and technological knowhow of those ag-related businesses it becomes manageable. Every aspect of the operation, when the businesses are factored in, is instantly manageable because those businesses already have people on staff or know of people who have the skills necessary to keep the wheels of such a mammoth operation moving with nary a hiccup.

While a mega-farm like the one we discussed over pumpkin pie is most certainly the end for small farmers like my parents, it actually makes sense when looked at from a business perspective. It's typical of what's happening in every facet of business. Lean times mean slim margins. But those slim margins are margins of scale and if you can multiply them enough times - barring any sort of natural disaster - you have some rather impressive profits. That's exactly what these farmers - farmers who have fought the same yearly battles my parents have - have realized. With wise decisions and smart partnerships - those who don't take huge chunks of the profits - every business can survive.

But don't expect my parents to take up an offer for that sky-high rent when they retire. They would b surrounded by furious neighbors who would likely run them out of town. Sure, business is business but those friendships with those neighbors run generations deep. Eventually someone's feelings will get hurt but in any case it's just business.

If you want something less mundane, check out the photos at MinnPics. They are there to captivate you.

1 comment:

Conner said...

Had a similiar conversation with a friend yesterday, in the midst of a discussion about food culture. Not quite this detailed, but regarding farm sizes and the ability to survive.