Urban Buds
Urban Buds
How to keep your farm going for the long haul is the theme of this final chapter. There are challenges to operating any small business, and farms are no exception. Some might say that farm businesses are even more challenging, given the number of variables that you have to deal with in producing, marketing, and selling your product. Many of the challenges related to maintaining a farm business are reflected in the following learning outcomes.
These outcomes are addressed in six major sections: Entrepreneurship, Business Structures, Family Business Dynamics, Licenses and Regulations, Risk Management, and Reality Check. Before proceeding, however, take a moment to review some of the major highlights from previous chapters:
In “Keep It,” we integrate these diverse elements with an emphasis on achieving long-term success for your farm business.
It is an exciting time to be starting a small farm business. Small farms are an important sector of the farm economy. According to the National Institute for Food and Agriculture, small farms and ranches are vital to “the competitiveness and sustainability of U.S. rural and farm economies.” Small farms are also a major force in recent trends toward locally produced food. High-value products are being developed and marketed through community-based approaches, where farmers are working with other farmers, retailers, chefs, and their customers.
Creating and managing a successful farm business requires an entrepreneurial mind-set. In the simplest terms, this means being nimble and recognizing and acting on new opportunities (even in uncertain conditions) and consistently questioning every aspect of your business’s operations. Some people have a natural ability for this kind of thinking, but it is also a skill you can develop with practice. Two important concepts that can help you develop an entrepreneurial mind-set are cognitive adaptability and decision frameworks.
Cognitive adaptability is the ability to sense and process changes in the environment, then be flexible in responding to those changes. To increase cognitive adaptability requires that you think about the way you think. Research has shown that entrepreneurs with higher cognitive adaptability are better able to adapt to new situations, be creative, and communicate their reasoning behind a particular response. In terms of your farm business, this means learning to read and evaluate the market, interpret that information in light of your knowledge and experience, and develop a plan of action to take advantage of new opportunities.
Decision frameworks are the mental constructs and strategies that help us organize prior knowledge and experience to make sense of what is happening and make an informed decision. A decision framework can be as simple as drawing up a list of pros and cons. Or it may be a more involved process, like the SWOT analysis you worked on in chapter 1, “Dream It”. Some approaches to farm or ranch management might also be thought of as decision frameworks. Clearly, whole farm management is a decision-making framework.
How do you identify and evaluate a new farm business opportunity? Good business opportunities do not usually drop ready-made into your lap. In most cases, you have to create them. That means being alert to all the possibilities and having a system or method to evaluate whether an opportunity is going to work for you.
Ideas and inspiration for the farm business often come from people you interact with regularly: other farmers, customers, family or friends, retailers, wholesalers, or processors. People often say, “If only there was a product that would . . .” Listening for these kinds of statements can spark your thinking about new business opportunities.
Once you have identified an opportunity — a new product or value-added component, new ways of distributing and creating convenience, or new markets — then you need to critically evaluate it. There are various methods for evaluating potential business opportunities, but the basic process should address the following key questions:
After you have identified an opportunity that you want to pursue, the next step is to assess whether or not to act on the opportunity. Below is a summary of the four segments of an assessment.
Product description and context. Describe your product/service idea, analyze the competition, and determine the uniqueness of your idea in terms of selling it. Is there both market need and demand? Will people desire your product/service over what is already on the market?
Market. Consider the market characteristics, trends, and growth. What is the need for your product in the market or the problem it will solve? Who are the potential customers? Why will they want your product? What can you reasonably charge?
Your business team. Describe your farm team in terms of skills, experience, and expertise related to the product/service. Does the product/service excite you and your team? Does it fit with your prior experience? What additional skills are needed to make the product/service successful?
Timeline. Indicate the steps you need to take to successfully bring your idea to reality. Put the steps in sequential order. What time and money are needed for each step and what is the total time and money needed?
What resources will you need to develop your business idea and bring it to fruition? Is capital the most important resource? Or is it labor? How can you systematically determine the areas where you are currently prepared and those areas that need more attention? The process of developing a business plan is the best way to find the answers to these questions.
Even without a formal business plan, you can begin the process of determining what resources are needed for developing a business opportunity by evaluating the following:
You have done some of this type of evaluation already in the farm plan worksheets you worked on in chapter 1, “Dream It” and in chapter 2, “Do It.” In particular, note the following components of your farm plan:
Once you have a clear picture of your existing resources, then you are ready to develop a list of additional resources needed to fully implement your business idea. That list can also include tangible resources, intangible resources, and capabilities. This process is closely related to developing a budget, which you learned about in chapter 4, “Manage It.” Again, take care to not underestimate the amount and variety of resources needed, including the amount of labor. In addition, any resources that are vital should be differentiated from those that are just helpful. Also assess the risks that are associated with inappropriate or insufficient resources.
It is important at this stage to think about how you will acquire new resources you need to fully develop your business idea. Acquiring tangible resources such as land, capital, or equipment may involve some type of financing. Refer to chapter 4, “Manage It,” for a more complete discussion of financing your business. Developing intangible resources might involve networking with other farmers or building social capital (covered in chapter 1, “Dream It”). To increase your farm team’s capabilities, some workers may need to go back to school or receive other types of training and professional education.
Growing your business brings both benefits and challenges. As the business changes, pay particular attention to the following:
Cash flow. Regularly prepare monthly (or even weekly) cash flow statements in which you compare actual and budgeted amounts. Make adjustments to your budget when necessary to more accurately reflect actual business conditions. We covered cash flow statements in chapter 4, “Manage It.”
Inventory. Managing inventory begins with careful planning before the start of the growing season. Your goal is to match production levels with potential sales. This is particularly true for perishable commodities. For other types of products that have a storage or shelf life, some amount of inventory is appropriate. Plan carefully here, since you must determine the amount of product you need and over what time frame. Too much inventory can be a drain on your cash flow since the money you invested in producing your product is in storage, waiting to be sold. Yet too little inventory leads to stock-outs and lost sales.
Fixed assets. Fixed assets can be expensive and have regular costs associated with them. Equipment will need servicing and insurance, and it will depreciate over time. As we discussed in chapter 2, “Do It,” consider renting equipment or hiring out for certain services. This approach can lower your costs and may provide a tax advantage since the expense is a tax deduction.
Costs and profits. Monitoring your costs and tracking profit margins from year to year are important tasks in managing your farm business. By keeping up with these analyses and with financial statements, you can better evaluate if new business ventures are paying off, or if you need to make adjustments. For more information on cost control and financial statements, revisit chapter 4, “Manage It.”
Taxes. Remember that as your business grows, you will have a higher tax liability and perhaps be in a higher tax bracket. You will need to withhold and pay more tax, such as federal, state, Medicare, and social security.
Human resources. As your business grows, you may need to bring on additional employees and seasonal help, which will require you to spend more time and resources on labor management. To manage this area of the business, you will have to find and hire employees; determine whether employees should be full-time, part-time, or seasonal; create and implement a fair employee evaluation process; and maintain (or strengthen) the workplace culture of your farm business (such as camaraderie among employees, positive feedback, training and education, and opportunities for sharing in the business’s success). Revisit chapter 2, “Do It,” for more information on hiring and managing workers.
Your time. Finally, as your business grows, you may feel more pressed for time. Managing your schedule and commitments will take effort and determination, but with improved time management you may enjoy increased productivity, increased job satisfaction, improved personal relationships, reduced time anxiety and tension, and better health. Improving time management often centers around the following principles:
An important aspect of securing the future of your farm business is to establish the right form of business ownership. How you structure your business could affect your taxes, your ability to make timely decisions, your liability, and your farm succession plan. When deciding how to structure your business, consider the following:
An excellent resource for exploring these issues is “Start and Grow Your Business” from the U.S. Small Business Administration’s Business Guide (see Resources).
Let’s look now at some of the most common forms of farm business ownership: sole proprietorships, general and limited partnerships, limited liability companies, and limited liability partnerships.
Most small businesses begin as sole proprietorships. They are usually owned by the individual who manages the business day to day. As a sole proprietor, you own all of the business assets as well as all of the profits created by the business. You will have great freedom of action, and your business is taxed at your individual tax rate and not a corporate tax rate.
However, you also assume complete individual responsibility for any of the business’s debts or liabilities. In the eyes of the public and the law, you and the business are one and the same entity. You may have difficulty obtaining the capital needed to manage and improve your business, and you may not have the skill set required to maximize your business’s chances of success.
Some federal tax forms needed for proprietorships include:
For more information, consult the Business Guide from the U.S. Small Business Administration (see Resources).
In a general partnership, two or more people share the ownership of a single business. As with proprietorships, the law will not distinguish between the business and you and your partners. Legally, the partners are treated as equals and are liable for the actions of other partners. To establish a partnership, you should have a legal agreement that stipulates:
Some partnerships opt for an equal partnership in which ownership is split 50-50. Yet in equal partnerships, no one has a final say and decision-making can quickly bog down, so a 51-49 split may make more sense. The Uniform Partnership Act (UPA) governs how partnerships operate in the absence of other expressed agreements. More details about the Uniform Partnership Act can be found at the Uniform Law Commission website (search for the Partnership Act of 1997).
Some federal tax forms needed for partnerships include:
In a limited partnership, one or more general partners conduct the business while one or more limited partners provide capital, have no management participation, and are not liable for the debts of general partners.
Limited liability company. Limited liability companies (LLCs) are formed to gain the tax advantages of a partnership with the limited liability of a corporation. They are now permitted in all states, with slight variations in each state. Generally, if you want to form an LLC, you will need to choose a business name, file articles of organization, and create an operating agreement. To learn more about limited liability structures, check with the office in your state that handles business registrations (usually the Secretary of State). For specific information on LLCs, visit websites of the Internal Revenue Service, Small Business Administration, and Nolo.
Limited liability partnership. A limited liability partnership is used to protect individual partners from personal liability of negligent actions by other partners or employees. Limited liability partnerships (LLPs) are not recognized in every state, and those that do sometimes limit LLPs to professional services like law or medicine. For more information on LLPs, visit the Entrepreneur and Nolo websites.
Family limited partnership. As the name implies, a family limited partnership (FLP) is where the majority of partners are related to each other as spouses, parents, grandparents, siblings, cousins, nieces, or nephews. Most family limited partnerships are family farms because of the explicit involvement of family members in the business. FLPs offer the same tax advantages as LLPs, and in some states, FLPs have additional benefits.
|
Structure |
Typical Owner |
Liability |
Taxable Profits |
Paperwork of Origin |
|
Proprietorship |
Individual |
Individual |
Individual |
None |
|
General partnership |
2 or more |
Individual |
Individual as per partnership agreement |
Partnership agreement |
|
Limited partnership |
2 or more; 1 general partner |
General partner |
Individual as per partnership agreement |
Partnership agreement |
|
Limited liability company |
2 or more |
Business entity |
Choice of individual, partnership, or corporation |
Charter; articles of incorporation |
|
Limited liability partnership |
2 or more |
Business entity |
Individual as per partnership agreement |
Varies by state |
|
Family limited partnership |
2 or more |
Business entity |
Individual as per partnership agreement |
Varies by state |
There are many different types of farm ownership arrangements. The different business structures you learned about in the previous section reflect that variety to some degree. Yet even within those legal definitions of the business, there are diverse models of ownership. Think of the different types of partnerships that you know of: between family members, between friends, partnerships based solely on business interests — or any combination of these. As we begin this section on family business dynamics, think also about your definition of family. In using the term “family” here, we acknowledge how that concept encompasses a variety of relationships and living arrangements. How do you define family? How closely is your family involved in your farm business?
Think of your spouse or partner, your children, your parents, or other relatives. Even when farms are owned and managed by an individual, or when the people in the business partnership are unrelated, other family members are usually involved in some way. Perhaps they are directly involved as co-owners and comanagers, as employees, or as seasonal help. Or maybe they helped finance the farm, or they are loving and supportive family members who work off the farm to provide added income and health benefits for the family.
Now reflect back on chapter 1, “Dream It.” Think about your vision for your farm and your quality-of-life assessment. In what ways are your feelings about family reflected in those statements? For many farmers, much of the attraction of owning an independent business is the opportunity to live every day according to your closely held values. Those values often include spending quality time with your family and being present for them.
Sometimes, because these values are so heartfelt, it can be challenging to own and manage a small family farm. Families strive for harmony and inclusion with unconditional love and support for family members. Businesses thrive on efficiency and achievement, promoting individuals based on their job performance. These can be competing interests, causing tension.
In this section, we look at best practices to keep your business and family strong and avoid potential conflicts down the road. These practices are the building blocks of good communication and sound planning that will help you realize the benefits of family farm ownership. Those benefits are well documented:
Renard and Chinette Turner, Vanguard Ranch
To become more aware of the potential challenges of running a family business, it helps to understand the different characteristics of “the nurturing family” and “the competitive business.” One way to examine these differences is to look at the three roles that family members commonly take on in a farming business.
Family role. Even if they don’t work on the farm, family members are a key part of the supporting family. Families involved in the farm can include a single generation, such as husbands and wives, or siblings. Multigenerational family farms include at least two generations working together.
Farm partner role. This is when family members are interested in supporting the farm operation as a part owner or investor. Farm partners and other family members may not necessarily work in the business.
Manager/employee role. Family member managers and employees have the day-to-day responsibilities for operations of the farm business.
Many families find that clearly defining their roles and responsibilities helps to limit the conflict and frustration in family businesses. For example, the partner (shareholder) family members may want to increase the dividends and income from the farm, while those in a managerial role may want to reinvest the earned income to upgrade farm equipment. Or maybe the farm owner/manager wants to work every Sunday, but other family members want to have more time together. Analyzing conflicts based on the family members’ roles in the business provides deeper understanding of each member’s perspective and ultimately creates the foundation for a long-lasting family businesses. To explore how these roles might overlap, work on the Family Business Roles Activity worksheet (appendix 3-1). Copy and fill out the chart for your own farm business. Have other family members involved in the business fill one out, too, and compare answers.
More and more families are using the family meeting as a forum to develop good communication, address issues within the family, ask questions about the business, and deal with conflict. Family meetings should include all of the family members and have an agenda. They work best when held at a neutral location away from the business.
To develop a healthy work-family balance, some families make it a rule not to talk about the business after a designated time in the evening. Others make sure that the business office is in a separate location, outside the home. Other families might schedule regular vacations just so the family can reconnect and have fun together. Besides giving everyone a rest, this bonding establishes good working relationships among family members who may be running the farm as partners in the future.
Left: Beth Hoinacki and her children, Goodfoot Farm; Middle: Chris Jagger and Melanie Kuegler and their children, Blue Fox Farm; Right: Mimo Davis and Miranda Duschack’s son, Urban Buds
Family farm shareholders, or owners, usually play an important part in big-picture strategic planning for the farm business. Owners are not necessarily responsible for the day-to-day operations. An important aspect of the ownership role is supporting long-term planning and continued capitalization of the business. This can be accomplished by creating a board of directors or, for smaller farms, an advisory board. Even for a small farm, with just one or two owners, long-term planning is crucial for the success of the business.
We also recommend that owners consult regularly with informal advisors — non–family members from related industries who can advise the farm and provide input. Private family business owners who use these advising teams report that the feedback makes their business stronger and helps everyone in the family improve. Regular meetings and communication with a board or advisory team can keep you on track with your goals and objectives. In turn, the business benefits from the experience and insights of your advisory team.
When there are multiple shareholders, you should establish clear instructions for what happens to ownership shares in the face of untimely death, divorce, or disability or when a family member owner wants out of the business. Consider drawing up a buy/sell agreement — a formal contract that documents the terms and conditions for selling farm ownership. This kind of agreement can include the requirement that sellers not offer farm ownership outside of the family until the family has had the opportunity to buy the available shares. It is best to develop these agreements before any crisis occurs.
Other tasks that farm partners may be responsible for include:
Who would be your candidates for advising your family farm? Who might you ask to be on your formal team of legal and professional advisors?
As you look ahead 10 or 20 years down the road, what do you envision for your farm? As you get older and approach retirement age, how do you see yourself involved in the farm business? What can you do now to ensure that the business remains viable into the future? What will happen to the farm if you should die or become incapacitated? These are critical questions to consider, and they lead into our discussion of succession and estate planning. Succession plans and estate plans differ from one another in several ways:
A succession plan focuses on how to turn over ownership and leadership of the farm business to the next generation of entrepreneurs. Succession plans are broader than estate plans because they address the issues of retirement and management transition, as well as ownership transition, and are activated while the current owner is alive.
An estate plan on the other hand provides specific instructions on what is to happen with the farm business, and other assets you own, upon your death. Estate plans involve the execution of legal instruments such as wills, trusts, insurance policies, buy-sell agreements, and/or powers of attorneys that are needed to carry out the succession plan.
Developing a succession plan is a lengthy process. Count on it taking 10 to 15 years from the time you begin initial conversations with your family and business partners until you finalize your plan for turning over the farm to the next generation. Those initial conversations are often focused on developing a shared vision for the family business going forward. That vision becomes the basis for the plan and agreements.
In this chapter, we are simply introducing the basic concept of a succession plan. For a comprehensive succession planning tool, visit AgTransitions from the University of Minnesota (see Resources). This online service provides an outline for succession plan content and allows the plan author to share access with family members and professional advisors. Each chapter has in-depth worksheets and articles to help farm owners get started. After you enter the information in each section, you can print it out as a single document.
Although we do not cover the specific steps involved in creating a succession plan in this book, there are some key points to highlight:
As noted above, estate plans consist of the legal instruments that provide instructions on what is to happen to your assets, including farm ownership, upon your death. Ideally, estate planning and succession planning occur simultaneously: one informs the other. Your vision for how the farm should be passed along (the succession plan) will serve as a road map for the estate planning process and will direct business and tax professionals in drafting the required documents. You will select legal tools to prepare the estate plan that in the end will transfer an individual’s assets.
But even if your succession plan is not finalized or is still in process (especially since it can take such a long period to develop) make sure you have your wills and trusts in place. Because the asset structures of most family farms include high-value land-based assets and lower cash flows, a lack of estate planning can mean tremendous hardship for your survivors and potentially the loss of the farm to pay large tax bills.
Experts suggest that businesses try running a “fire drill” (a hypothetical emergency situation) so that the family can practice responding to a crisis. Particularly when multiple family members are relying on the income from the farm business, it is important to have contingency plans in place.
Imagining and responding to a crisis or sudden loss will help you identify what you need to do to be better prepared. Include even simple things like locating keys, important documents, and contact lists. By increasing your level of preparedness, everyone involved in the business will have peace of mind that they can handle any situation that might come their way.
Do you have all the necessary estate documents completed for your farm? Do your heirs know where they can find those documents and who is your executor? If not, make it a priority to address these responsibilities today.
Growing up in a family farm business creates opportunities and obligations for both parents and children. Raising kids to become happy and productive members of society is a challenge for every parent. In a farm family, there are particular issues that come into play.
From the manager’s perspective, it is important to first determine the job skills that are needed on the farm before inviting family members to join the business. Children who have grown up in family businesses feel more confident about their skills and contributions to the business if they have had the chance to work on these skills outside of the family business and establish their own record of work performance and promotion.
As an owner/shareholder of the business, developing the next generation of farm owners should be seen as a long-term commitment. It takes years to prepare for the complexities of managing a business. As children get older and reach the age where they can take on more responsibility, a formal plan can help them identify what skills are needed, assess their own strengths, and provide direction for training and education. Children from family businesses often use nonfamily mentors or business coaches to develop their full leadership capacity.
It is important to recognize that in some family situations, parents may have doubts about their child’s ability to take on the farm business. Or if there are siblings, parents may feel that one child should get a larger (fair) share in the farm business either because that child has already shown greater commitment and given more time to the business or because the child has shown a greater aptitude for, and interest in, the work. In that case, should the parents feel compelled to pass on “equal shares” in the business, or is it better to convey “fair shares”?
Answer that question for yourself, discuss it with your partner, then view the video Fair vs. Equal Treatment of Farm Family Heirs from the University of Vermont (see Resources), which describes the risks of giving children equal shares of the farm when fair shares might ensure a stronger future for the farm business.
What if there are no children to take over the farm? What are your options then? As part of your estate planning process, you may want to consult with one of the organizations that link up older farmers with younger farmers who are looking for land. The Farmland Information Center maintains a national list of Farm Link Programs (see Resources).
As noted previously, a major goal of the family is to provide a supportive and respectful environment where children understand the values that drive the farm business and the legacy that the founders want to leave. Creating that kind of environment requires good communication and the ability to be open and honest about each family member’s desires and concerns. Parents in family farm businesses must also pay close attention to the relationship between siblings. Sibling trust is a critical factor in developing the close working relationships that are necessary for a successful business — as partner owners, as employees, or as family members.
Another important aspect of maintaining a farm business is making sure you comply with the regulations that pertain to the production and sale of your products. Some regulations may require you to obtain a permit or license for certain activities. This section provides an overview of some of the most common regulations and licenses that apply to farm businesses. Be aware that regulations (and the kind of agency in charge) can vary from state to state. We focus on Oregon here to give you an idea of the types of issues and requirements that you may need to address in your own farm business. We also point to resources that provide additional information that will help you decide what steps you need to take. First, let’s review some of the assumptions and principles for this section:
The production, processing, and sale of most farm-direct products are regulated by state governments, often with reference to federal requirements. State agencies implement and enforce laws, issue licenses and permits, conduct inspections, and handle violations. Examples include state departments of agriculture, environmental or natural resource agencies, and other agencies regulating food safety and public health. In Oregon for example, the Oregon Department of Agriculture (ODA) and Department of Environmental Quality (DEQ) are the two main agencies involved in regulating food production activities. You may also need to work with county-level agencies. For example, in many states county health inspectors have jurisdiction over restaurants and food service. For some foods, federal agencies are more directly involved — for example, the U.S. Food and Drug Administration is responsible for food-safety regulations, while the U.S. Department of Agriculture oversees and inspects most meat and poultry processing. In this section, we focus on regulatory issues for three different parts of your farming and food business: production, processing, and selling.
As a farmer or rancher, one of your primary responsibilities is to be a good steward of the land and other natural resources. Most state departments of agriculture manage a number of regulatory programs that focus on this stewardship role and your specific production practices. We highlight the general regulatory concerns related to environmental quality, food safety, and several other key production factors.
Protecting water quality is a major priority for environmental regulations governing agriculture. All farmers are expected to protect water quality, and various federal and state regulations cover both point- and nonpoint-source activities. Most states have agricultural water-quality management programs that address the specific needs for various subregions within the state.
The following three practices, which can have significant negative effects on water quality if not properly managed, are typically overseen by state agencies and may require permits. In all cases, consult your state’s relevant agency for specific rules and permit requirements:
Because all farms are different, and conditions vary across each state, it may not always be clear which water-quality regulations will affect you. But remember, even when a permit is not required, the law is that farmers may not pollute ground or surface water.
New federal food-safety regulations for farmers, packers, processors, and handlers — mandated by the Food Safety Modernization Act (FSMA) — are now in place and being implemented by the federal Food and Drug Administration in partnership with state agencies. These regulations are designed to prevent foodborne illness related to fresh produce. Most small farms will be at least partially exempt, but they must still meet some of the requirements, including keeping certain records, and they can lose those exemptions if linked to a food-safety problem. For more on the Food Safety Modernization Act visit the U.S. Food and Drug Administration’s official Food Safey Modernization Act website (see Resources).
In addition to environmental quality and food-safety regulations, farmers and ranchers may need to address a variety of other regulations, depending on what they produce and the type of business. Examples include:
Pesticide use. In most states, farmers need to obtain a pesticide applicator’s license to use certain pesticides on the land they manage. Usually this only pertains to restricted-use pesticides, but check with your county Cooperative Extension Office or state department of agriculture to make sure.
Air quality. Farmers may be affected by air-quality regulations that govern activities such as agricultural burning, emissions from livestock operations, or dust levels.
Land use laws. County-level zoning and state land use laws may affect whether you can farm and what farming activities can take place on your farm. Counties also vary in their approach to permitting agritourism. Check with your county or state land use department for more details.
Agricultural labor. Farmers must comply with regulations concerning worker health, well-being, and safety. The Occupational Health and Safety Administration (OSHA) has issued a number of regulations that pertain to agricultural operations. The U.S. Department of Labor has specific regulations for seasonal and migrant labor that address pay, workers’ rights, and housing.
In most cases, if farmers process what they grow into a salable product, they will need a license from their state department of food safety to do that. Food-safety programs are often found within the department of agriculture or department of health. For instance, in Oregon, licenses are issued by the Oregon Department of Agriculture which defines “processing” broadly: cooking, baking, heating, drying, freezing, canning, pickling, mixing, grinding, churning, separating, cutting, and extracting.
For some foods, processing and selling may require two separate licenses. In raising meat or poultry for market, this is most often the case. For example, for farmers who want to raise pigs and sell pork at a farmers’ market, the processor will need to be state licensed (and USDA inspected, unless your state has an “equal to federal” inspection program) and the farmers will need their own meat seller’s license. For other foods, you may only need one license to process and sell the food. Examples are cheese, baked goods, eggs, and apple cider. A note on “cottage food” regulations: Many states have so-called “cottage food” laws that allow farmers and home cooks to make certain low-risk foods in their homes for direct sale to consumers, up to some revenue limit per year. The laws and licensing requirements vary state by state — see the report Cottage Food Laws in the United States from the Harvard Law School Food Law and Policy Clinic in the Resources section.
Meat and poultry are a bit more complicated than other foods. In this section, we highlight the basic rules. You can learn more on the Niche Meat Processor Assistance Network (NMPAN) website (see Resources).
Most red meat (beef, pork, lamb, goat, domestic elk, ostrich/emu). If you want to sell meat, the livestock must be slaughtered and processed at a facility that is USDA inspected. This means that inspectors from the U.S. Department of Agriculture’s Food Safety and Inspection Service are in the plant every day and examine every animal before and after slaughter. In the 27 states with inspection programs “equal to” USDA inspection, farmers can sell meats processed under state inspection. For a list of those states, see the USDA State Inspections and Cooperative Agreements (see Resources).
A “custom exempt” plant can only slaughter and process livestock for the exclusive use of the owners. But this exemption can be legally used to sell a live animal or shares in it (typically quarters or halves) before slaughter directly to household consumers. It can then be slaughtered and processed by a custom-exempt, state-licensed processor. This is because those new consumers are legally the new owners of the animal before slaughter; they are not buying meat by the cut.
The “retail exemption” allows butcher shops and other retail meat sellers to do some in-house processing (cutting up larger pieces and making some value-added products like sausage and jerky) and sell the meat. They can only do this with meats slaughtered and processed under federal or state inspection. More information about these exemptions is in the FSIS Guideline for Determining Whether a Livestock Slaughter or Processing Firm is Exempt from the Inspection Requirements of the Federal Meat Inspection Act (see Resources).
Ashanti Samuels of Rainshadow Organics manages the livestock enterprise for the farm.
Poultry (chickens, turkeys, ducks, geese, or guinea fowl). As with red meat, the USDA has primary jurisdiction and inspection authority over poultry processing. To be sold as human food, poultry must be slaughtered and processed in a USDA-inspected (or “equal to” state-inspected) facility.
However, federal law allows for some exemptions to this requirement, which most (but not all) states recognize to some degree. For example, in Oregon, poultry processors can slaughter and process up to 20,000 birds each year in a state-licensed facility that is not federally inspected. Exempt processors still have to follow sanitation, record-keeping, and other rules.
Most fruit and vegetable processors have to be licensed and comply with extensive food-safety regulations. Farmers who want to sell value-added foods made of fruits and vegetables to stores, restaurants, or institutions must be a licensed food processor or co-pack with a licensed processor.
As noted above, Oregon and some other states allow another option to farmers who only want to sell these kinds of products direct (and who can keep it under $20,000 in annual sales): they may make and sell certain “value-added, shelf-stable products” for direct sale to consumers without being licensed as food processors. The list includes syrups, jams, preserves, jellies, canned fruit, pickles, chutneys, relishes, sauerkraut, and some salsas. As an example, details of this exemption in Oregon, including the definition of “acidic” and labeling rules, are explained in Farm Direct Marketing, Producer-Processed Products from the Oregon Department of Agriculture (see Resources).
Thirty-one states allow the intrastate (not over state lines) sale of raw milk under certain conditions. The comprehensive State Milk Laws, published by the National Conference of State Legislatures (see Resources) contains information about the relevant federal regulations.
For instance, in Oregon, producers may have no more than two producing dairy cows (and no more than three cows total), nine producing sheep, or nine producing goats on the premises where the milk is produced. A license is not required. The farmer may advertise the product, but sales can only occur at the farm. Each state regulates the sale of raw milk in different ways, so do not sell raw milk before checking the rules in your state.
Note: The fact that some states allow residents to sell certain volumes of raw milk does not eliminate their liability if someone gets sick from drinking that milk. Study the Risk Management section of this chapter and know the potential implications of your decisions before you implement them.
. . .
You grew it and processed it. What about selling it? Can there possibly be any more licenses to get or rules to follow?
Farm businesses are subject to the same laws and regulations for intra- and interstate commerce that apply to all businesses. Beyond those basic rules, farmers do not typically need a license to sell fresh, unprocessed fruits and vegetables. If you are processing, most processing licenses also allow farmers to sell the finished product. For example, if you have a cottage food processing license to make pickles or jam, the license also allows you to sell those products.
Meat and poultry have more stringent regulations. To sell meat and poultry, farmers may need a meat seller’s license. Specific rules and exemptions vary from state to state, so check with the agency in charge. For example, Oregon requires such a license to sell meat and poultry, except for “on the hoof” or “locker meat” sales. And if you are already a licensed processor, you do not need an additional meat seller’s license to sell meat.
Other products may require specific licenses. For example, if you are selling plants or flowers, you most likely need a nursery license. Again, requirements and regulations vary by state. In Oregon, you need a nursery license from the ODA Plant Program if you sell more than $250 worth of plants per year; you do not need a license to sell cut flowers.
For produce and other bulk products, if you want to price and sell your product by weight (for example, $5 per pound for tomatoes) you will need a licensed scale. In most states, scales are licensed through the department of weights and measures, or some equivalent. If you price your product by volume or container size (for example, $5 per pint of blueberries), a licensed scale is not required. However, most diversified farms that sell direct are going to have at least a few products they sell by weight, so plan on getting a good scale and the license to go with it.
In wrapping up this discussion of licenses and regulations, let’s revisit a few important concepts:
Risk management is an important aspect of keeping your farm business successful over the long term. Managing risk involves identifying, evaluating, and prioritizing risks, then taking actions to reduce those risks or to address your liability. Some of the different risks that farmers may need to address include:
These are just examples of the types of risks you assume when starting a farm business. You can be held liable and, if taken to court, could be required to pay damages for some risks, like someone being injured on the farm or someone getting sick from eating your product. This discussion will help you begin thinking about the best ways to minimize your risk and liability so you can farm successfully.
The process of protecting your farm and assets includes several key steps:
Perhaps the most important piece of advice when thinking about the safety of your farm is to look at your property with new eyes. As the owner/operator, you may take a lot for granted — that people will know not to climb the ladder that is leaning against the barn or not to pet livestock unless they ask first, or that they know they should wash fruits and vegetables before eating them. But you cannot assume that others will recognize such risks. In fact, there are probably risks that you yourself are not aware of since you live and work on the farm every day. If part of your business includes having the public visit your farm, you might want to complete a walk-through with a risk management professional to identify potential hazards on your farm. The goal is to establish an environment that is welcoming and safe.
What are some commonsense actions or strategies you can take to reduce risks on your farm? Do any of the following actions (see box below) apply to you?
Any actions you can take to minimize risk and prevent accidents from happening in the first place are going to be helpful. It is also important to educate customers and alert them to possible risks. Here are a few simple ideas:
Many farmers find that adults are more difficult to manage than children during farm activities. It may seem counterintuitive, but children are used to following directions at school and other activities and are likely to respect the person giving them information. Adults, in contrast, may take more risks since they feel they have the right to make their own decisions.
Nobody looks forward to paying insurance premiums. However, if you would like to transfer some of the risk, an insurance policy is an effective way to do it.
Usually when farmers think of protecting their farms, they are thinking about the possibility of buildings burning in fire, loss from theft, or crop failure, and of course there are insurance policies available for these. The USDA’s Risk Management Agency offers crop and livestock insurance, for example. General farm and ranch liability umbrella policies covering a certain amount of liability and various activities are also readily available.
As you look for this type of policy, be completely honest and let your insurance agent know exactly what activities or products you plan to offer to customers to be sure they are covered by the policy. Likewise, if you add new activities to your business, such as wagon or pony rides, you should notify your agent to determine if that activity is covered or if your policy needs to be updated. Even when holding a one-time event, it may be important to call your insurance agent beforehand to ask whether or not your policy covers the activities that will take place. In some cases, you can add those activities for a small fee to cover just that event. Your goal is to avoid a scenario where someone is injured and you later find out that your policy does not cover that situation. Such a discrepancy could be devastating to the financial well-being of your farm business.
It can be difficult finding an insurance company or agent who understands farm businesses and whom you trust and feel comfortable with. A first step may include locating other farms in your area that do similar activities as you and asking them who they are insured with. Also check with your state consumer affairs division or insurance commissioner, who may be able to give you tips about how to find an agent and other consumer information.
Part of your risk management plan should also identify whom you will seek legal counsel from, if needed. Some insurance policies cover legal defense if a situation escalates to that, but having an established attorney with whom you work makes good business sense, as he or she would be available to review liability waivers, insurance policies, and other key documents.
Is farming a business or a way of life? If it’s a mix of the two, how do you balance those elements? As a business owner and manager, you must be multitalented, with a wide set of skills. As Wendell Berry wrote, “The good farmer . . . must be master of many possible solutions, one of which he must choose under pressure and apply with skill in the right place at the right time.” As a small-scale farmer, you must be a problem solver and master of many trades.
In this book, you have explored many of the decisions and details that are involved in pursuing your small farm dreams. But those dreams must be based in reality. To plan and run a small farm business, you must take a close look at some of the personal situations that make it challenging to run a small farm. These include health insurance, retirement, cash flow, and off-farm income. You must also look at the business-related challenges, which often arise as you try to manage your growing business. These include farm size, profitability, and burnout.
Health insurance for yourself and your family is extremely important. In addition to regular health issues that arise as part of life and aging, farmers are at higher risk for accident and injury than the general population. Some key points to consider:
At different points in this book, you have had the opportunity to think about your vision, mission, and goals.
Talk to a financial planner now about your retirement goals and develop a plan to reach those goals.
Cash flow is often the most difficult aspect of farming. Cash flow fluctuates widely — from positive to negative — depending on the time of year. It is important to develop a strategy at the beginning for managing cash flow. You will need to revisit that strategy each year and make changes as necessary. We covered cash flow in more detail in chapter 4, “Manage It.” You can revisit that chapter and review the three strategies for managing cash flow outlined there:
Most families rely on two incomes to make ends meet. According to the U.S. Bureau of Labor, the number of dual-income families in the United States increased by 31 percent between 1996 and 2006, from 25.5 to 33.4 million families. That number has continued to rise. In spite of this reality, farms are often not recognized as a “real farm” if off-farm income is part of the picture. Somehow the measure of success is that you must make it solely based on income from the farm. It is not clear how this perspective has taken hold, but this kind of pressure is not a reality in other lines of work. If someone owns a restaurant business or small bookstore, are they considered less successful because their spouse works another job as well? Definitely not.
You can still be a sustainable, profitable business if one partner works off the farm. As noted elsewhere in this book, cash flow problems are common when running a farm business, so maintaining other sources of income to support your family and desired lifestyle can be important. However, it is critical that you keep your home and business finances separate and that you make a plan for how you will keep track of on-farm and off-farm income, such as with separate accounts. Off-farm income should not be used to subsidize a failing business; the business needs to pay its own way. On the other hand, if the farm is operating at a net profit and the off-farm income is already covering personal bills, such as health insurance and mortgage, then that is icing on the cake.
When you’re trying to determine the right scale for your farm business, you might find yourself in the challenging situation of constantly trying to adjust your size based on the needs and pressures you experience in the business. Some forces may have you thinking you need to expand the business. For instance, economies of scale and efficiency, the need for larger volume of product to sell in a particular market outlet, the need for more income, or the desire to add a new enterprise may have you thinking about growth. Other concerns such as your quality of life, complications of hiring and managing labor, or cash flow problems may be leading you to scale down your operation.
Consider the following scenario: Your business has expanded and you have grown too big to do all the work yourself, so you hire people to help, but then more of your cash flow is going toward paying employees instead of going into your bank account. To correct that situation, you scale down to improve your cash flow, but then you may decrease your quality of life again because you are working too much. What has been your experience with this dilemma?
The reality is that as you get started, you will have good years, and you will have bad years when it feels like you are struggling to keep the business going. How do you handle those fluctuations? Many farmers say their vision, mission, and goals help them maintain their perspective through good times and bad. It is also important to recognize how family needs change over time as children grow up and as we age.
As you move along in your farming career, you will weather challenges with more experience. You will be able to home in on the system that works for you and leads to the sort of profitability (and consistency) that you aim for. The following concepts have been highlighted throughout this book, but they are worth repeating. To be successful and profitable, farmers must:
It will get easier with experience!
In his book Wisdom of the Last Farmer, David Mas Masumoto writes, “I often whisper to myself, ‘This farm is going to kill me.’ ” Farming is hard work, and burnout is common. A farm will let you work as hard and as long as you like. It will always have something for you to do. It doesn’t care if you work all night. It doesn’t care if you work 100 hours a week. It doesn’t care if you never take vacations. It doesn’t care if you get divorced. It doesn’t care if you have any friends. It is up to the farmer to set boundaries.
How do you avoid burnout? First, plan carefully and have realistic expectations. Josh Volk of Slow Hand Farm in Portland, Oregon, planned his urban-scale farm to fit his life and his values. He specifically designed the size and scale of the farm business to avoid burnout and allow him to pursue other activities like writing and consulting. His farm business design allows him to do his farm chores, including CSA deliveries, two days a week. Does this model stimulate some ideas for how you might design your own farm business?
Second, maintain your passion for the business. As you learned in chapter 1, “Dream It,” passion won’t solve all the problems, but it will give you the energy to work through hard times.
Third, as described in chapter 5, “Grow It,” it is important to create a farm environment where the natural cycles, and your crops and livestock, do as much of the work as possible. Working against nature will ultimately result in more work for you as the manager.
Fourth, cultivate strong and supportive relationships with your family and others involved in the farm business. Whether you are a partnership or a family, this will make the work easier and seem less stressful.
Finally, learn to take things slowly and don’t get in over your head. Take the time to develop a complete set of farming and business management skills. In the long run, this will pay off both in terms of business success and reduced stress.