Friday, July 13, 2007

The Risks of Farming

The Life of a Farm blog is interesting. I found this bit particularly so:

The excavation [for foundation for possible poultry house] continues here on the farm. We are rapidly approaching a time when we will have to make a definite decision about the poultry houses. I’m still on the fence about this venture. My hunch is it would be profitable. It is a huge risk though. I finally got a copy of the contract we would be signing and I can tell you it’s certainly not a great contract. Cobb is paying for a lot of things that other companies aren’t, but it’s still a huge risk. The pay can be adjusted at any time and they can cancel your contract for a number of reasons. I guess the biggest reason I am having trouble making a definitive decision has to do with what is right for the land. I have such a bond with the land here. It’s beautiful land that could be used for so many other things it just seems a waste to put a commercial chicken house on it.
In the 1950's, poultry started becoming vertically integrated. Big companies would contract with growers to raise poultry. That had the effect of stabilizing prices for eggs and chicken, because the companies could implicitly coordinate to keep prices steady. (Same reason car prices don't vary by 50 to 100 percent from year to year.) The growers had the reassurance of operating in a more stable environment with much less risk day to day. The tradeoff was the loss of independence and control. (And, of course, the small growers, like my parents, went out of business.)

Contract farming is coming--it started with hybrid seed growing, then poultry, now hogs. It rationalizes and stablizes the market and spreads the risk.

The excerpt from Joel points out that the risk moves to the upfront decision--to sign the contract (and take out the loan to build the house and equip it). He also points to the "love of the land" which is real. You invest your time in anything, you're apt to come to love it.

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