Defining Economic Viability

Many discussions of sustainable agriculture don’t seriously address the economic viability of commercial agriculture. Without a prevailing definition of economic viability as it relates to agriculture, I offer the following.

Economic viability means that the real returns from farming operations, relative to the farm’s asset value and labor inputs, are competitive with other small business, career, or investment alternatives.

If you are willing to take this statement at face value, you need read no further. For those who do not, let’s the critical points of this statement .

By “Economic returns from farming operations”, I mean actual earnings after expenses, taxes, and debt service, not simply gross revenue. Income should be derived from the actual farming activities and crop production. While non-crop income in the form of agritourism, workshops, books, carbon credits or government subsidies may provide welcome assistance with incremental income, they cannot sustain a healthy agricultural industry by themselves. Farming is the defining characteristic of a farm; it must succeed on that basis in order to be viable. You can get money for recycling wine bottles, but that is not why reasonable people buy wine.

The farm’s asset value is an important consideration. If farming is not the highest and best use for the land, there will always be pressure for its conversion to other purposes. The proper yardstick of a farm’s economic viability is the return relative to its current value, not what it may have been purchased for a generation ago. If presented with the check for value of an acre of Ventura County farmland, would the rational person want to invest it in agriculture?

Why must agriculture be “competitive with other small business, career, or investment alternatives”? There is no need to keep individual farmers, or even individual families in agriculture. For a healthy agricultural economy, people must be free to opt out, and others must be willing and able to buy in. Agriculture must offer a reward to business people, workers considering their career options, or investors looking to place capital. If it does not, the system will not be healthy and sustainable for the long-term. All people make choices about where they will commit their time and money.  Since slavery is illegal, and farmers are mortal, new people must be willing to participate. Not everybody needs to become a farmer; but agriculture must be a reasonable choice for at least a portion of the population.

Is agriculture economically viable in Ventura County today, based on this yard stick? I don’t think so. To be sure, there are farmers making money in the county. But often they are helped by the low cost basis of land bought long ago. Others may accept minimal returns from farming as the price of living in our beautiful agricultural areas. Or they may even be willing to accept losses from farming in anticipation of the eventual conversion of their property to a more valuable use. None of these scenarios would support agriculture in perpetuity.

Can Ventura agriculture again be viable? I believe it can, but that is by no means certain. What does seem certain is that costs will continue to pressure farmers. To succeed, farmers must be able to outpace any rise in costs. Changing crop mixes, consumer preferences, distrust of foreign food products, and a favorable exchange rate are among the indicators that suggest that this is possible. With Ventura County’s soil, climate and history of innovation, there are few places with better potential for economically viable agriculture.

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3 thoughts on “Defining Economic Viability

  1. Pingback: Who’s Talking About Economic Viability? « SaticoyRoots Weblog

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