Monday, November 22, 2010

Economics of Small Beef Farms is Better

humane-treatment-cattle Bottom line of some serious number-crunching and pencil-pushing shows that small beef cattle farms are more economically and environmentally sustainable than any corporate setup.

Environmentally, this is essentially provable by food-miles – the amount of miles food has to travel to get to where its consumed. But that is really only viable for smaller towns near to farms. And I never said that big cities were ever a sustainable model to begin with.

All of this points to a decentralized model (including Washington DC) where government coordinates on larger issues, but otherwise simply leaves people alone. Same with the mega-corporations. Huge cities and feedlots aren’t efficient, despite their “economies of scale.”

And what’s in that South American beef you buy?  Gawd-only-knows (and S/He might have a tough time with some of this stuff.)

But that is all a bit wide of the mark. We want to talk cattle here. And grass-fed, high-quality, heart-healthy, environmentally-responsible protein production.

The most profitable crop to grow (outside of niche and boutique products) is beef cattle. Mainly because there are no inputs to speak of, once you have their pastures set up with good fences and adequate water.

If you buy the beef and then resell it, you have to either scrape the bottom of the auction bucket to get your beef, or make a deal with the farmer which isn’t sustainable for them. For everyone to have profits right across the board, you need to have the farm itself sell the beef directly to clients.

Now the funny thing is, in order to do this efficiently, the best model looks to be an LLC or other corporation which owns the cattle and then pays the farmer directly for their services in raising the beef. The current USDA regulations actually encourage corporations to own the beef for custom-exempt processing – so the resultant beef cuts can be shared with any of the corporate members.

The line-up is that the LLC is controlled by the farm, directly or indirectly, and so you take all sorts of middlemen out of the picture, in addition to unnecessary taxes and government interference as regards inspections, etc. This also puts a layer of protection between the farm and the client. The organization is to somehow set up a club operated by that LLC which offers annual memberships. Members of that club will then be partial owners in all the livestock and their “dividends” would be allotted in a barter-economy of beef cuts.

And of course, this hasn’t been run by any lawyers (your mileage may vary, caution: contents may be hot…) so we are talking theoretically here.

But this then allows the farm to directly market its beef and get maximal profits from grass-fed beef cattle, which require few inputs and is basically about 95% or better profit over expenses.

That is key, as the price per pound at auction runs about $4.00 per pound just to break even. We’ve worked this out to be a necessary $5.00 per pound just to make it worth anyone’s while, which is only about $400.00 profit per sale.

Your next break is to have it processed by state-inspected or USDA-inspected processor so that it can be sold by cut – which brings the profit upwards of $1800.00 per carcass. But you are going to be spending some hours at Farmer’s Markets, as well as online marketing, speaking at events, etc. – which raises your costs of inputs and eats into your time.

And for us, the closest processing plants like this cost a lot more (about 1/3rd) than a custom-exempt plant. So if you want the big profits, you are going to have to invest time and money into going this route.

The upside is that this is a great way to involve the kids in running the farm. The whole farm becomes sustainable if you market all the produce from it directly and skip all the commodity markets.

Now, if you take what I’m saying here seriously, you’ll find all sorts of holes in this argument above. Mostly, because I’ve left out certain parts of this business plan which make it work. (And so no one will really take me seriously, especially government types – as it won’t work the way I laid it out.) But if you do want to make this work, a little research will fill in the gaps and allow it to really take off.

Of course, that’s up to you.

Good luck.