“whatever tends in any country to raise the price of manufactured produce, tends to lower that of the rude produce of the land, and thereby to discourage agriculture.” pg. 873, The Wealth of Nations, by Adam Smith.
Smith’s quotation above explains why the only time the American farmer ever made money, was from the end of the Civil War to just after WWI. When Lincoln freed the slaves, the white plantation owner had to get up out of his rocker, abandon his porch and go to work for a living, which he was not willing to do. The former slaves were then free to get paid for picking cotton and raising the rude produce of the land by themselves. After 1865, the trade balance shifted to the farmer because “The inhabitants of the town…” including the former plantation owner, had to pay the market price or grow their own.
The town of Kendleton, Texas, was named for the former plantation owner, who sold his land to the newly freed, for 50 cents an acre. The same land that my wife Shelby bought 150 years later for $5,000 an acre.
The good times lasted until the day after WWI ended, and Henry Ford started making tractors instead of tanks, with the unintended consequence of raising the price of manufactured produce, which lowered the price of the rude produce of the land, and thereby discouraged agriculture.” One farmer with tractor could replace ten farmers and their horse drawn plows.
” Whatever tends in any country…” in post WWI the advent of mechanization increased the cost of doing business, separated the farmer from his customer and steadily lowered the price of his rude $produce and thereby discouraged agriculture. The mothers and housewives, “the inhabitants of the town…” lost touch with the individual farmer, started dating the milkman and making sure their butcher’s thumb wasn’t on the scale.
Well, didn’t the farmers who could afford to buy tractors make any money? Nope! Not any real money, they mortgaged their farms to chase after the slim profit margins of commodity row crops. Smith called this “the rent value of the land.” Shelby called it the cost of capital. Our farm, rented for $750/month or $500/acre because it had a nice barn, a tested well, it was fenced and had both road and river frontage. The white farmer/ranchers from surrounding communities rented adjacent undeveloped land for only $14/acre per year. Shelby, the CPA Systems Analyst and creative financial genius, had her work cut out for her to come up with some “rude produce” that was going to pay the $9,000 rent tab for our 18-acre farm. Not my problem, I was just her architect and former new homes sales counselor husband trying to put my EMBA marketing notes to real world use.
The U.S. farmer uses machines, chemicals, and government subsidies to grow 200 bushels of corn per acre, which at today’s, also subsidized Ethanol gas prices, works out to be $800/acre or double the pre-ethanol price. The stocking rate (acreage required per 1,000-pound animal i.e. a cow) in Houston is sufficient to raise six goats per acre or in our case 100 goats.
A Saanen nanny goat can produce 225 gallons of milk in her ten-month cycle. The Lone Star Cheese Company (the food manufacturer), in Conroe, Texas, 50 miles north of Houston was paying $3.40/gal, for grade ‘B’ raw milk, pasteurizing it at their plant, and selling the finished, artificially flavored goat cheese, to Whole Foods for $0.50/ounce. Whole Foods in turn, sold it to their ‘cusinely correct’ customers for $1.00/ounce. Prairie View A & M, gladly supplied half of Lone Star’s needs, because their $million ‘creamery,’ was bought and paid for with federal government grant money, and the students did all the work. Therefore, the future commodity price of goat’s milk, in the Metro Houston area, wasn’t going to change in our favor, anytime soon.
Shelby had to decide whether $3.40/gal, would pay the $9,000 a year rent of the land. If, all fifty girls in milk gave 225 gallons each, we could sell their “rude produce” to Lone Star for $38,000. As our ‘bubba’ neighbors would say, it “penciled-out.”
However, our goal was an urban income, with a rural lifestyle, and $38, 000 fell a little short, of our $10,000/month or $120,000 a year, master plan. After all, as possible former descendants of plantation owners, requiring copious amounts of psychotherapy, we needed to get at least $12/gallon for our “rude produce” to make our emotional ends meet.
“The Great Commerce of every Civilized Society is that carried on between the Inhabitants of the Town and those of the Country.”– Adam Smith’s Wealth of Nations, 1776, (pg. 473)
Shelby’s idea was to be the manufacturer, the merchant and the farmer. She made Anala Inc. the parent company with the dba (doing business as): Anala Goat Company, as the farmer, Earth Mother Farms, as the food manufacturer and when we set-up our tent, at the farmers’ market, we were Earth Mother Farms, the merchant. We sold the milk at $15/gal, the cheese at $25/gal and the kefir at $45/gal, with a 55-30-15, ratio of milk, cheese and kefir. Since it takes a gallon of milk to make a pound of cheese, our average price for our 55-30-15 mix of rude produce dairy, was $25 a gallon. This equated to $1,300 an acre and gross revenue of $23,000 a month. The good business or added value practice of selling the milk as cheese, was later reinforced when I wanted to buy milk in, Eugene, Oregon, to make kefir. The goat dairy farmers wouldn’t sell me their $12 milk, unless I paid the $25/gal cheese price.
Our customers had to pay our price or do without because they couldn’t buy raw milk, cheese or kefir in the store. Whole Foods, a block away, was getting $1/ounce for goat cheese, made by Lone Star with pasteurized milk, while I was standing in the parking lot, of 2100 Richmond Avenue, enduring Houston’s 98% humidity controlled outdoor environment, selling grade ‘A’ raw goat cheese for $1.50 an ounce. We as Earth Mother Farms, the manufacturer, got to keep Lone Star’s 50 cents, Whole Foods’ 50 cents, as Earth Mother Farms, the merchant, and an additional 50 cents, for the drive in from the country in order to serve the inhabitants of the town.
Adam Smith didn’t think much of government subsidies or tariffs, which he called bounties. The American farmer couldn’t compete with the southern plantation owner until Lincoln freed the slaves. Farming is a labor intensive activity and slaves work cheap. After farmers started plowing their land using tractors they experienced boom and bust cycles depending on the weather. After WWI Europe had no money to buy our goods causing the first price supports to come into being. FDR ramped-up programs to pay farmers not to grow or buy the produce and store it at government expense.
Bounties upon the exportation of any home-made commodity are liable, first to that general objection which may be made to all the different expedients of the mercantile system; the objection of forcing some part of the industry of the country into a channel less advantageous than that in which it would run of its own accord: and, secondly, to the particular objection of forcing it, not only into a channel that is less advantageous, but into one that is actually disadvantageous; the trade which cannot be carried on but by means of a bounty being necessarily a losing trade. Wealth of Nations, IV.5.24
Currently, the 2015 Farm Bill is expected to cost tax payers $35,000,000,000. However, according to Adam Smith the $35 billion is just the first tax which distorts the market price of the commodity. The second tax to the consumer $155 billion for the increased commodity price, no small kernels.
Let us suppose that, taking one year with another, the bounty of five shillings upon the exportation of the quarter of wheat raises the price of that commodity in the home market only sixpence the bushel, or four shillings the quarter, higher than it otherwise would have been in the actual state of the crop. Even upon this very moderate supposition,*31 the great body of the people, over and above contributing the tax which pays the bounty of five shillings upon every quarter of wheat exported, must pay another of four shillings upon every quarter which they themselves consume. But, according to the very well informed author of the tracts upon the corn trade, the average proportion of the corn exported to that consumed at home is not more than that of one to thirty-one.*32 For every five shillings, therefore, which they contribute to the payment of the first tax, they must contribute six pounds four shillings to the payment of the second. Wealth of Nations, IV.5.8
Another example, when the ethanol subsidy went into effect in 2005, all my row crop neighbors dropped cotton, rice and soy for corn. The historic price of $2.00 per bushel went to $10.00. Wow! Those farmers must be getting rich? No, they only got to divvy up the first tax of $35 billion around $5 billion (five shillings) a year, we pay the second tax of $155 billion (six pounds four shillings) when we buy a $5 box of Kellogg’s corn flakes.
My millionaire tutee in China religiously attended Warren Buffett’s May shareholders meeting and brought back an LLP Farm proposal which illustrated the income per acre:
The Rent: Today Illinois farm land goes for $425/acre the farmer produces 180 bushels on that acre and then sells it for $6 a bushel $6 x 180 = $1,080 less $542 for all that good fertilizer, pesticides, machinery, etc. he’s at $538 minus the $425 rent leaves him at the end of the harvest with $113 per acre profit.
At $113/acre Shelby and I would need over a thousand acres just to make our yuppie lifestyle ends meet. My less than 200-acre farm friends grew grass round bales of grass hay or square bales of alfalfa because they are known as cash crops, subject to the law of supply and demand. Making alfalfa hay can gross $500/acre less the labor, machinery and land costs. Not our pint of milk at the Anala Goat Company or earth Mother Farms where our land rent was $500/acre.
Shelby bellied up to the grade ‘A’ raw dairy bar with $400,000 in earnings plus home equity and another $100,000 on credit cards to buy all the trucks, trailers, tractor, even a manure spreader and build a dairy. Oh yeah, purchase 100 goats, 3 cows, four livestock guard dogs, a trained Australian shepherd work dog, 60 laying hens and three thoroughbred horses. Horses eat you out of house and farm.
Shelby’s gutsy half-mil wager became a $4,000 a week rip-roaring success after we received our raw dairy license and began attending eight farmers’ markets a week in the metro Houston area. Thanks to Teddy Roosevelt’s pasteurization act, selling raw dairy off-the-farm is against the law. Canada goes even further, three years in jail and a $250,000 fine for either on or off raw milk sales. We at Earth Mother Farms were essentially ‘milk-shine’ bootleggers peddling feta, chevre, kefir and milk at urban outdoor speakeasies. When the long arm of the Texas Department of Health served us with a cease and desist order we sold our farm for $3,000 an acre more than we initially paid. We knew that our buyers were not going to traipse 50 miles out in the country for a glass of raw goat’s milk. The first thing Al Capone learned in gangster school, “you have to go to where the customers are.”
Government regulations are in the eyes of the politicians. Raw dairy is legal in Europe as long as it is labelled as such. GMO products are not allowed period but perfectly okay in the USA, especially without labels. Bernie and Elizabeth Warren are absolutely and positively right the system is rigged. The two million remaining farmers in America are in trouble. Sustainable family farms practicing organic soil regenerative agriculture must earn a living in order to stay down on the farm. The accompanying chart shows 75% grossing under $50,000 a year and over half less than $10,000.
Monsanto is agent-oranging our topsoil to dust. ‘Make America Great Again’ by prohibiting the use of chemicals on US farmland. Organic farming can produce as much food if not more than industrialized agriculture, while restoring the soil to its pre-WWI biological essence. More importantly, Americans once shown the money will repopulate rural areas. At less than one percent now, up is the only way forward.