A Feasibility Study for the Development of a Small Farm in Maine (1992)

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A Feasibility Study for The Development

of a Small Farm in Maine

Angela DelVecchioSenior ProjectCollege of the AtlanticSpring 1992



CONTENTS

Feasibility Study for theDevelopment of a Small

Farm in Maine 1

Motivations of Owners 6

Financing Development 10

Operational Requirements 14

References 20



Feasibility Study for the Development of a Small Farm in Maine

This paper examines the factors necessary to determine the

feasibility of developing and operating a small farm in Maine.

The conclusion is, that by customary business measures, the

development and operation of a small, family-based farm in Maine

is not feasible.

The factors involved in feasibility are the motivations of

the owners, financing land and equipment costs, as well as the

operational requirements. The studies used in the analysis, and

the motivations and costs examined, are based on the Maine

environment and economy. However, similar considerations would

apply to small farm development anywhere in the United States.

For purposes of this study, the terms "small farm" and

"family farm" are equivalent. The working definition used is from

the USDA Farmer's Home Administration (FmHA) which states: "

^Family farm' is defined as one that a family can operate and

manage itself, with a reasonable amount of hired labor."

( "Farm Operating Loans", FmHA Program Aid No. 1002).

The sources used in formulating this paper include visits to

working small farms in Maine (Beckley and Thayer), information

from state and federal agencies involved in small farm

assistance, as well as a review of the literature and studies in

the field.



The development and operation of a small farm in Maine is

not feasible by standard small business financing measures ( for

example the SBA loan guarantee requirements) . The cost of

financing land acquisition, equipment and working capital exceed

potential return from sales of produce and cannot be underwritten

under any available commercial terms, including the FmHA "Limited

Resource" program below-market interest rate direct loans to

beginning and family farmers. Even where land purchase and

development costs are self-financed by the farm development

family, the ratio of operating expenses to expected sales income

is marginal. Where farm labor is required beyond that of the

owner-operator, the costs and the availability of necessary low-

wage labor support the realization that these small farms are

unfeasible, in most cases.

Much of the interest in the development of small farms

arises from the motivations of the new farmers, who are seeking

to apply new values to their lives. These values envision the

creation of a family and community culture, in which small

organic farms are an integral part of local economies. The case

studies of small farmers in Maine suggest that this vision will

not be sustained. The labor demands on the family-farm are high

and the return on their effort is low. There is little potential

for farm land values to increase, and bio-regional farms serving

local markets are rarely competitive with commercial farm

producers. When the motivation ends, the farm will fail.



If small farm enterprises in Maine are to be feasible, each

of the limiting factors must be overcome. The available

literature and experience point to possible avenues to solve the

obstacles to sustainable small farms with a bio-regional economic

base. Because the continuing motivation of the family unit which

owns and operates the farm cannot be relied on for long-term

sustainability, the most promising avenue is institutional

ownership and management (Coleman, p. 216, 1989).

Because the repayment of land purchase costs cannot be met

by farm proceeds, the land must be donated, self-financed, or

made available at little or no cost from institutions or special-

purpose organizations. Because vegetable farming alone is

uneconomic, value-added products must be developed or procured to

supplement receipts (Heyerdahl, p. 44, 1988). The least

manageable element and the most difficult to solve, is likely to

be labor availability and cost. None of the studies or

experiences suggest a reliable method where by an adequate labor

supply can be assured. Family members become ill or families

break up. Children grow up and move away while partnerships

dissolve. Seasonal apprentices leave and paid workers quit.

Inspite of the above cautions, development of small farms in

Maine is potentially feasible under certain special, non-market

based situations. The highest potential involves a highly

motivated person with experience in the farming lifestyle, who

has personal or family resources to finance farm land, and



adequate family resources to sustain the enterprise despite

market fluctuations.

Because of the problems of feasibility and sustainability

it is not likely that many small bio-regional farms in Maine will

be developed. Although many people might find the idea of farming

attractive, few will have the resources or the motivation to

carry out this lifestyle. For those who need to raise the capital

required, lender approval will be unlikely (including low-

interest direct FmHA loans) , because expenses are likely to

absorb income, with insufficient net to repay loan principal and

interest, and the long-term value of farm land cannot be

adequately assured to justify a loan.

The best prospect for feasibility is institutional

development. The Mountain School is a demonstration of

institutional stability. This non-profit school employs its

property as a small scale farm integral to its educational

program. Staff and students are management and labor, growing and

consuming the farm products. Stability and continuation are

ensured by the parent school- Milton Academy, from which the

Mountain School grew.

I examined three major determinants in this study:

motivations of owners, financing development, operational

requirements. Owners of small family farms in Maine are motivated

by their own unique circumstances. Financing development involves

the cost of the land, equipment purchase requirements, and the

need for working capital and labor. Even with available FmHA



below-market rate interest direct loans for land, equipment and

operating expenses, farm proceeds cannot meet amortization costs,

much less generate a profit. Operational requirements involve the

basic planning necessary to prepare a business plan for farm

development: the products, the scale of the enterprise and

related site and location requirements. Preparation of a business

plan taking into account all development and operating costs will

show that unless the cost of land acquisition are self-financed

and the owners assets are adequate to meet start-up costs and

operating deficits, then the small business "break-even" point

will never be attained and the venture will be unfeasible. Even

where acquisition and start-up costs are provided for, the likely

returns will sustain only a subsistence level lifestyle for the

owner-operator of a small farm.



Motivations of Owners

The motivations for many of the small farmers in Maine are

subsistence or a quest for values. Neither is able to sustain

farming at the scale of the family farm.

Subsistence farming is a disappearing method of operation.

It is too demanding and economically unrewarding. The

homesteading movement attempted to make a virtue out of the

necessity of reducing costs so that subsistence living is

possible (Seymour, 1977 and Nearing, 1971) . Few farmers are able

or willing to continue at the subsistence level small farms

operate at. Even if the adults have no other choice, children of

subsistence farmers often leave. The Maine Organic Farmers

Association acknowledges that farm children cannot be relied on

to remain in the farm unit and in turn have developed an

apprentice program to fulfill the roll farm children used to play

(Conway, 1991)

The hope for a small-farm movement is that newly motivated

persons will adopt farm values and lifestyle: "The new pioneers

are those who restore native land and soil." (Hawkin,

Introduction in Coleman, 1989) . However, the small farm movement

will fail unless the new pioneers remain with the land: "Small-

scale organic farming in Maine as a whole is not a sustainable

system unless there are people who will farm this preserved land

in the future." (Conway, 1991). Conway, in her study of five

small Maine farms, and their eight owner-operators, found that



none of the farms were "family farms... with its social structure

being primarily composed of related family members." (p. 21). Her

conclusion was that the generational transfer of small farm

operation is questionable (p. 28).

Jeff Beckley is an example of what it takes to be a new farm

pioneer. Jeff works as a clammer, lobster fisherman and carpenter

to pay back a debt of $19,000 used to purchase fifty acres in

Unionville/Cherryfield. He uses recycled materials when possible

in the construction of the community building he is completing on

his property. His plan depends on assembling like-minded people

who will share the cost and use of expensive farm facilities and

equipment.

Older farm pioneers are Bill and Cynthia Thayer, owners of

Darthia Farm in Gouldsboro, Maine. The Thayers rejected urban

values, sold their businesses and bought land and horses in

Maine. They developed their hobbies into farm enterprises.

However, as Conway notes, the Thayers report that there is

insufficient income from farming to support a growing family

(p. 26). They rely on constantly rotating apprentices to keep the

farm operable- an uncertain and unreliable solution.

The Thayers, along with the proprietors of the other four

farms studied by Conway expressed similar values and lifestyle

interests. With one exception, they had all rejected their urban

lifestyles and moved to rural Maine. These farmers shared three

common elements: escape from a way of life over which they felt

they had little control or connection with; a desire for



community- involvement plus independence; and a desire to

participate in a culture which was better suited to their

ecological beliefs (Conway, 1991)

Although, as Conway's study reports, each of these farmers

acted on personal motivations, the stresses of farm life make it

unlikely that these farms will be sustained.

Coleman is skeptical whether motivations based on romantic

impulses will be adequate to sustain a small farm operation. His

advice is to test these motivations by undertaking a farm

experience prior to making an irrevocable commitment, as well as

approaching farming analytically: "The requirements for success

in farming are like those for any small business- organizational

aptitude, diligence, financial planning, the ability to work long

hours, and the desire to succeed."

Heyerdahl is an example of an individual holding these

motivational values, plus an interest in research, who observed

Coleman's advice and prepared A Business Plan for Beech Hill

Farm , (Senior Project, COA, 1988). Her study demonstrates that

without self-financing of land acquisition, self-financing of

half the cost of equipment and working capital, coupled with

family financing of the other half, the farm would not have been

feasible. In addition, the venture is not intended as an end in

itself, but as an intermediate step in a research commitment.

Small family farms at the subsistence level exist in Maine,

but there are few things to hold the children to the farms.

Consequently, these farms will continue to disappear. Although

8



farm values will motivate new farmers, their children will leave

for the same reasons. Therefore, the future of family farming in

Maine will be based on a small handful of new pioneers who, with

their own or family financing, can afford to escape urban

lifestyles for one-generation experiments in farm living.



Financing Development

The table below illustrates the feasibility of developing

and operating a small farm in Maine. The illustration assumes on

buyer equity and 100% financing of land equipment, working

capital and a contingency reserve at an interest cost of 9%, 30

year repayment period for land cost and a five year repayment

period for other loan costs. Under these assumptions, the annual

net loss per acre would be about $1,000. The illustration also

assumes that the owner draws no salary from the operation. If,

instead of loans at 9% interest, all loans were made under FmHAs

limited resource farm loan program at a 0% interest rate, the

income and expenses would net to zero. The farmer then would be a

subsistence farmer.

AmortizationExpenses;Principle &

ExpensesAnnual

pe:r acre

$ 607

616

360

134

Interest

land acquisition loan

equipment purchase loanworking capital loan

contingency reserve loanSubtotal loan repayments $ 1717 (a)

OperatingExpenses $ 4241 (b)

Total expenses $ 5958

Sales Income $ 4925 (c)

Net AnnualProfit (Loss) ($1033) (d)

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(a) Data and income projections are derived from B. Heyerdahl,

1988. 35 acres purchased for $220 , 000=$6286 an acre;

amortized in illustration 30 years at 9% interest. Other

loans shown amortize over five years at 9% interest for

purpose of illustration. Equipment calculated at cost of

$16690 to farm eight acres; working capital at $17000 for 12

acres; contingency at $6310for 12 acres.

(b) Estimated Heyerdahl operating expenses for twelve acres

were $50,891, providing no salary for the owner, who wouldwork approximately 1130 hours of unreimbursed labor, as well

as modest salaries for two partners for a total of 2250

working hours plus 1080 hours of part-time labor at minimumwage.

(c) Heyerdahl estimated annual sales for 12 acres: $59,100.

(d) Illustration shows that annual cash expenses exceed annual

cash income by approximately $1000 per acre.

In the actual Beech Hill Farm case, the purchase of a 35

acre site was self-financed by the owner. Investment of $40,000

for equipment, tools, working capital and reserves were 50% self-

financed and 50% financed by the owners family as a low interest

loan. For purposes of the study, these costs are treated as 100%

financing by borrowing, with no developer/owner equity on working

capital contributions. All of the data has been broken down in

order to display values on a per-acre basis.

In the actual Beech Hill Farm business plan, twelve acres

were devoted to active farm use: 4 acres of well established

apple trees and 8 acres reserved for cultivation. The owner and

two partners planned to devote a total of 3 380 hours of labor

annually, while hiring minimum wage, part-time labor for 1080

hours.

Coleman, in The New Organic Grower (1989) ,presents costs

and income projections for a model five acre farm which could be

11



operated by a two-person family. Coleman does not take land costs

into account in his estimates.

The major differences between Heyerdahl and Coleman is

estimated farm income. Heyerdahls estimated sales income is an

average of $5000 per acre, while Coleman states that "an

efficient vegetable operation should realize. .. $8000-plus per

acre income. " (p. 25)

If Heyerdahl ' s start-up prototype is used for income

estimates, the net annual profit/ (loss) is about $1000 per acre.

This would total an annual average operating loss of $12000 for

the 12 acres of productive land. The model based on Heyerdahl '

cost and income estimates is more representative of a small-farm

start-up in Maine. It concentrates on cost analysis, unlike

Coleman's work, which focuses on farm biology and operational

requirements

FmHA loans available for beginning farmers, owners of family

farms, or tenants of family farms at significantly reduced

interest rates could bring loan repayment costs down by several

hundred dollars annually, so that the beginning farmer start-up

operation financed this way could show a break even projection.

However, using the costs from Heyerdahl, the owner takes no

salary, there is at least a two year period of negative cash flow

until a break even point is reached, and with very little reserve

for unforseen catastrophes. Consequently, even under the best of

circumstances, the beginning farmer would do well to break even

and operate only on a personal subsistence level.

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The best loan terms for the beginning farmer are the FmHA

"limited resource farm loans", which are direct Federal loans at

below market interest rates tailored by FmHA to the financial

status of the borrower. The maximum loan amount is $200,000 and

repayments could be spread out over a period as long as forty

years (FmHA Program Aid No. 1398)

Other FmHA loans are direct Federal, below market "farm

operating loans" to family farmers and ranchers for a wide range

of operational expenses (FmHA Program Aid No. 1002) ; FmHA "farm

ownership loans" -direct loans for farm purchase, construction of

farm structures, and income producing non-farm enterprises (FmHA

Program Aid No. 62) . The FmHA loan guarantee program guarantees

private lenders for up to 90% of loss of principle and interest

on farm ownership, operating or soil and water loans (FmHA

Program Aid No. 14 00)

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Operational Requirements

If the problem of reliable owner motivation and adequate

financing can be solved, the third problem of viability for the

development of a small-bioregional farm is operational

feasibility. Three major factors are involved: product market

ability, scale, and the adequacy of the site.

Product viability depends on what can be produced and

whether there is a market for it. Scale is a measure of whether

the farm can be managed by the owners. Site adequacy is based on

the potential the farm has for efficient production.

Two basic approaches to planning a farm are either to

analyze markets and produce and locate a suitable site close to

the demand, or to utilize a site which one owns or controls, and

plan its use depending on how best it can fit available demand.

Product Marketability

Coleman believes that fifty percent of success in a small

farm is marketing skill (Coleman, 1989) . He points out that there

are no prototypes of the economically viable five acre vegetable

farm. The European model is workable because there is a market

demand for quality and regional and varietal differences. In the

United States, most of the demand is for standardized products.

The location of the farm in relation to consumers who will

purchase the products the farm can produce is the major factor in

the farms viability.

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The Farmers Home Administration recognizes that a farm's

produce may not generate sufficient income to be viable, and will

make loans available for activities such as roadside markets,

crafts, small grocery stores, service station facilities, picnic

grounds and camping, in addition to farm ownership and operating

loans. FmHA provides technical assistance to farm borrowers in

working out "farm business plans" (Farm Ownership Loans, FmHA

Program No. 62)

Heyerdahl ' s Business Plan for Beech Hill Farm is a useful

prototype for a market and product analysis. Heyerdahl utilized

the apple orchard on the property for products in addition to

produce, and prepared specialty offerings to be sold at her

roadside stand.

Scale

Coleman's advice for a small farm is "the five acre answer",

because in his experience, five acres can be managed by a couple

or a small family.

"From my experience, one-half to five acresis a highly productive scale of vegetablegrowing. The management skills needed for anoperation this size are enjoyable rather thanonerous. It is a comprehensible size for

commercial food production- large enough tomake a living yet small enough to retain theemphasis on quality; diverse enough so that thework is never dull yet compact enough so it

is never out of control ." (p. 7)

Coleman states that two and one half acres is sufficient to

grow a years worth of vegetables for one hundred people, and that

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at five acres, capital requirements are reasonable since no heavy

equipment must be purchased. The B. Heyerdahl business plan

approximates these ratios. Her plan involves eight acres in

cultivation and a four acre apple orchard, farmed by three people

plus part time labor.

In order to achieve the ratio of approximately 2 1/2 acres

of land for cultivation per farmer, the site involved may well be

larger. Heyerdahl purchased 35 acres, of which 12 is used in her

farm business. Coleman has used portions of institutional land.

Jeff Beckley purchased as available 50 acre site.

Site Adequacy

Heyerdahl 's approach is to acquire the best available site

and take advantage of its features. In her case she utilized an

existing apple orchard on the property, and used road frontage to

set up a farm stand.

Coleman, like Heyerdahl, would take advantage of the

availability of additional acreage. However, he places his

emphasis on biology, rather than markets, as noting for example

the opportunity sites larger than five acres would offer for crop

rotation, livestock or pasture, berry crops, etc.

Coleman's philosophy is "Agricultural Craftsmanship". For

him the farming process is biological, not industrial.

"The secret to success in agriculture is to removethe limiting factors to plant growth. These practicesdo that by efficiently and economically generatinga balanced soil fertility from within the farm ratherthan importing it from without. They power the systemthrough nurturing the natural processes of the soil

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fertility, plant growth, and pest management andenable them to work even better. . .When chosencarefully and managed perceptively so as to take fulladvantage of specific aspects of the natural world,these good farming practices are all the farmer needs.As a further bonus they eliminate such negatives assoil erosion, fertilizer run-off, and pesticidepollution at the same time." (pg 9).

Coleman identifies twelve factors which should be analyzed

and used in site selection and farm planning.

1. Soil type (best for vegetables: sandy loam)2. Soil depth a) depth to bedrock

b) depth to water tablec) depth of topsoil

3. Aspect of the land. In the northern hemisphere

(U.S.) southern aspect is best with a 5 degreeslope to the south.4. Air drainage (location dictated)5. Wind protection and sunshine (windbreaks can alter6. Water- Plan for one inch of water per week during

the growing season. Best: year round springor stream on higher land, with gravityfeed.

Second best: pond and pumpThird best: well

7. Geographic location. Main consideration isproximity to market.

8 Access9. Security- ie. from animals, the need for fencing10. Pollutants- ex. traffic, residues11. Acreage Five acres or less is sufficient.

If more that five acres is available, utilize itfor crop rotation, small livestock or pasture totake advantage of the long term soil-fertilitybenefits of leaving land in deep rooting grass andlegume pastures for a few years before rotating itback to vegetable crops. Another one or two acresmight be used for berry crops. Up to twelve acresis the outside limit: five acres farmed; five

acres in pasture; two acres berries.12. Soil tests, for nutrient levels.

Coleman omits the need for labor, because his farm model is

based on the family unit. For farms requiring part-time or

17



seasonal labor, the availability of labor will be a major issue

of feasibility.

Much of the literature on small farms includes how-to-do-it

advice, most of it directed to self-reliance and cost savings

(such as Seymour, Farming For Self-Suf ficiency , 1977). In

addition to Coleman's The New Organic Grower , as a source for

farm planning, the origins of bioregionalism may be found in

Steiner, Agriculture , 1974).

There are many source books on small farm planning and

development and related concerns- such as Ewenstein's, Thirty

Energy-Efficient Houses You Can Build , 1977, and federal, state

or university publications—such as Sub-surface Wastewater

Disposal Rules , State of Maine (soil site and use analysis for

installation of sewage systems)

To be added to the three major factors of operational

viability: product marketability, scale, site adequacy is

Coleman's advice to the prospective farmer. This is to analyze

farming as one would a small business: determine whether you have

organizational and financial planning ability, diligence, the

ability to work long hours and the desire to succeed. You must

also have the ability to work with your hands, a sensitivity to

living creatures, health and fitness, and a love of what you're

doing.

If the personal requirements listed by Coleman are essential

for the new farmer's venture to succeed, when demands are

combined with the necessity that the new farmer must largely

18



self-finance land acquisition and working capital (and thus has

other options than farming) , it seems unlikely that interested

persons who are economically able to develop and operate a small

farm will chose such a demanding way of life. What is more likely

is that the new farming pioneers will accommodate small-scale

personal growing where they can, into their personal life-styles,

and not devote themselves to farming.

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References

Berry, W. 1977 The Unsettling of America . Avon Books, NY

Coleman, E. 1989 The New Organic Grower . Chelsea Green, VT.

Conway, L. 1991 An Oral History of Eight Organic Farmers inMaine . Senior Project, College of the Atlantic, BH Maine.

Ewensein,W. 1977 Thirty Energy Efficient Houses You Can Build .

Rodale Press, PA.

Farmers Home Administration (FmHA) Program Aids:FmHA Loan Guarantees (No. 1400)FmHA Ownership Loans (No. 62)

FmHA Operating Loans (No. 1002)Limited Resource Farm Loans (No. 1398)

Heyedahl, A. 1987 A Business Plan for Apple Woodworks , SeniorProject, College of the Atlantic, BH. ME.

King, FH. 1927 Farmers for Forty Centuries

Nearing, H.,S. 1971 Living the Good Life , Schocken Books, NY.

Plant, J.,C. 1990 Turtle Talk: Voices for a Sustainable Future .

New Society Publishers, PA.

Seymour, J.,S. 1977 Farming for Self-Suf ficiency , Schocken Books,NY.

State of Maine, Subsurface Wastewater Disposal Rules . Augusta,ME.

Steiner, R. 1974 Agriculture . Wilding and Sons, Ltd., G.B.

Strange, M. 1988 Family Farming . U. of Nebraska Press, NE.

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REFERENCES

Architecture and Landscaping

The CoHousing Company48 Shattuck SquareSuite 15, Berkeley

CA. 94704Salvage Yards

Contractors Salvage Taunton MA 02780good salvage yard to find recycably materials fromplumbing fixtures, doors, hardware ect.

Webber Wilson Chambersburg PA 17201good salvage yard

Institutions

The Shelter Institute72 Front Street Bath, ME 04530207-442-7938

Offers information, courses, material and plans forthose interested in building their own efficient home

Woodstoves

The Black Stove Shop- 92 So. Main St. Brewer, ME 04412207-989-7880/ 1-800-640-7880

one of the four shops in Maine deals with Vermont

Castings, Jutol,

Ashley, Findlay Oval, Avalon, TarmJenson, Stanley and Regency

Hometown Glass & Improvement Inc. -Monarch Range Parts1403 N. Spring St. PO Box 739 Beaver Dam, WI 53916

sells only parts- Monarch stoves are no longermanufactured due to a fire which burned down the co.

Agriculture and Gardening

Farmers

Arnold, Jill & PatrickGreat Pond Plantation207-584-2196

Beckley, JeffRRl Box 163

Cherryfield/UnionvilleME 04622

Fulford, MarkRobbins Rd.

Monroe ME 04850



207-525-7761

Middlehauser Glen & Dobby207-963-4130

Organizations

Small Woodlot Owners Ass. of Maine (SWOAM)PO BOX 926Augusta, ME 043 32

207-626-0005

has monthly newsletter and some fifty or more educationaltours held throughout Maine

Maine Forest Products Council (MFPC)

146 State St.

Augusta, ME 043 3

207-622-9288

has info, on the Tree Farm Program, forest legislation,

timber harvesting and manufacturing. They promote ProjectLandshare.

Maine Forest Service's FIRS(Forest Information & Referral Service)1-800-367-0223

Government Agencys

StateDept. of Human Services-Div. of

Health and EngineeringState House Station Number 10 Augusta, ME 04333

Agricultural Food and Rural Resource Dept.Soil and Water Conservation CommisionAugusta, ME 04333

Dept. of Agriculture- Farmers Home AdministrationMuskie Federal Building, Room 412a Augusta, ME 04330

Maine Rural Water Association 14 Maine St. Suite 407Brunswick, ME 04011

Soil Conservation Service- USDA Service Center970 Illinois Ave. Suite #2 Bangor, ME 04401

Ron OlsonSoil Conservation Service- Ellsworth Falls ExtentionEllsworth, ME 04605207-667-8663

National

U.S. Dept. of Agriculture-Agri. Stabilization & Conservation Service



PO Box 2415, Washington DC 20013

Farmers Home AdministrationRoom 5406-S Washington, DC 20250

Homesteadinq

Appropriate Technology, Volunteers in AsiaPO Box 4543

StafordCA. 94305

The Vermont Country StorePO Box 3 000

Manchester CenterVT, 05255

A Feasibility Study for the Development of a Small Farm in Maine (1992)

Documents

Transcript of A Feasibility Study for the Development of a Small Farm in Maine (1992)