Farming comes in many shapes and sizes, each with unique advantages and mirrored challenges. Some farms, like the one I grew up on, rely on economies of scale, and expensive machinery and sell into global supply chains. Others, smaller in size, grow a more diverse array of food and sell all of what they grow directly to their local community.
Knowing the different farming models will broaden one's appreciation for the wide variety of operations required to feed the world. It can also help one identify new opportunities on one's farm.
Each farm business is unique, from the markets, geography, weather, financials, size, crops, labor, and opportunities for growth. Each factor can influence the farm’s profitability and the farmer’s livelihood. Seeing what is possible across agriculture allows us to take the best from each approach and minimize the downsides.
Broad acres of farmland grow crops that fit under the category of commodities. A crop is considered a commodity when it’s bound to sell on the commodity markets, such as the Chicago Mercantile Exchange (CME). These crops include corn, soybeans, wheat, cotton, rice, meat, and milk.
The high global demand for these crops ensures an ongoing market, so farmers don’t have any problem finding buyers at harvest. However, they often have difficulty finding buyers at the prices they need to stay profitable. The financial markets are volatile, so the estimated revenues of commodity farmers can be challenging to predict.
Volatility causes many commodity farmers to work with commodity brokers to “hedge” at a desired price, finding buyers on a futures exchange like the Chicago Mercantile Exchange (CME) early in the season before they harvest their crop to ensure they can lock in break-even prices that can vary wildly through the year.
Government programs, such as subsidies, aim to stabilize these economic factors so farmers aren’t derailed by global turmoil that causes prices to plummet. Events in other parts of the world can often influence the prices of these commodities due to the volume of the markets and the global demand for them.
Most commodity farms are multi-generational or corporate due to their high initial capital demands and the scale needed to generate sufficient profits. The economy of scale allows for lower production costs per unit but also creates environmental and sustainability concerns due to the number of acres required to make a living farming commodities.
Farming-as-a-Service, most commonly known as custom farming, is just what it sounds like. If a farmer has existing equipment or skills, they can contract their services out to other farmers or landowners who don’t have the time or equipment to do it themselves.
These services include planting, harvesting, spraying, fertilizing, managing crops or livestock, etc. Any farm process can be outsourced to another farmer or landowner. Often, this is done by a farmer who has a specific piece of equipment that someone else doesn’t have, or if a landowner wants someone else to manage their land, this will usually get contracted out.
Custom farming is an excellent way for beginning farmers who don’t own extensive farmland but have the expertise or specialized equipment to provide steady income during the season. It also reduces equipment idle time, allowing them to pay the equipment cost quicker than if they only used it for themselves.
There are ways to custom farm with relatively low capital investment, such as custom grazing a landowner's pasture land with another rancher’s stocker cattle. But planting, harvesting, and spraying require expensive equipment that may or may not be profitable solely as a service business if they aren’t farming themselves.
Custom farming allows them to build relationships and networks within their local agricultural community. However, it also creates dependence on securing and maintaining client contracts that require liability and insurance considerations for operating on others' properties.
Crops not sold on the commodity market are often sold wholesale to distributors or retailers. These crops include vegetables, fruits, flowers, and nuts, to name a few. The market demand for these products is high, so large, stable buyers usually prefer longer-term contracts so the farmer can ensure a consistent income.
These markets can vary and fluctuate due to global conditions, just like in the commodity markets, so profitable pricing is only sometimes guaranteed, but buyers are always present.
Because of the volume sold, direct marketing and sales efforts are reduced compared to solely selling directly to consumers. This results in lower profit margins and less control over the final product presentation and overall end-customer experience.
However, there are ways to gain more control over the marketing component and differentiate themselves in the wholesale marketplace. At Local Line, we are working on developing just that: a place where farmers can connect with local buyers, such as restaurants, schools, hospitals, and businesses looking to buy wholesale from local farms in their area. Leveraging these online marketplaces allows producers, grower, farmers, and ranchers to tell their stories, differentiate themselves from other producers, and have more control over their prices.
Farms that cultivate relationships directly with customers come in various shapes and sizes. These farms and ranches have taken it upon themselves to build a customer base and service those customers directly with what they produce: meat, fruits, vegetables, flowers, etc.
There are various models for selling direct-to-consumer (D2C). Some common ones include farmer’s markets, CSA (Community Supported Agriculture) programs, online sales, and on-farm storefronts, but most likely a combination of all the above.
One of the most significant factors in the success of D2C farms is their proximity to markets that can provide enough customers to match production and pay the price needed to turn a profit. Farms that sell online and can ship their products, such as meat, can avoid these constraints, but finding customers online has its challenges to match the opportunities.
Local Line’s farm e-commerce platform makes it easy to sell whatever they grow online efficiently and handles all of the challenges that come with it, including content creation, website hosting, and marketing strategies.
Farmers can also form cooperatives to pool resources, share risks, and market their products collectively. This approach can be highly effective and mitigate the risks of marketing everything they grow. Some of the most successful cooperatives are well-known for their customer-facing brands, including - Land O’Lakes, Sunkist, Tillamook, Blue Diamond Growers, and Ocean Spray Cranberries.
When farmers join forces, various benefits arise. Sharing resources and knowledge amongst the cooperative increases the likelihood of individual success and reduces individual costs. It also enhances the bargaining power in the market and opens up access to buyers of larger volume while allowing the potential for value-adding and branding their products to further differentiate what they are growing and raising.
Communication and interpersonal skills are crucial to the success of the collective. As more members join and the cooperative grows, the collective decision-making process becomes more complex, and the stakes increase. As the cooperative grows, the need for more internal management also increases, creating a more corporate structure.
Farmers benefit from being part of the cooperative, sharing resources, and ensuring fair-value markets for their produce. However, they also outsource some of their autonomy in the overall decision-making process to the broader collective.
There is a market and demand for niche, high-value crops like herbs, spices, medicinal plants, and exotic fruits. Farmers specializing in these crops benefit from high margins, but success demands deep knowledge of those crops and markets. Compared to other farming approaches, growing specialty crops is less crowded, which equals less competition. However, these markets are usually smaller and can be unfavorably volatile, exposing the farmer if prices plummet.
Focusing on crops other farmers don’t grow gives them a marketing advantage and helps them differentiate themselves. There is an incredible opportunity to build a reputable brand identity and gain customer loyalty while reaping higher margins due to specialization.
Farmers specializing in certain crops may only sell wholesale to select buyers or distributors, sell directly to consumers, or a mixture of both. The costs associated with initially finding buyers and marketing themselves can be high in terms of capital and time invested. Once established, their reputation as their niche's best specialty crop grower will pay dividends for future seasons.
Once the crop is grown, farmers can sell it as is or process it to add value. If a farmer decides to “value-add” to their crop, they can charge a higher price and generate more profits. Some examples include making jams from fruits, cheese from milk, and salsa from tomatoes.
Depending on the size and scale of a farm, this can be extremely expensive and labor-intensive. Initially, it will require substantial investment in specialized equipment, access to a commercial kitchen, research and development, and packing inventory. Often, this value-adding process is done separately by a completely different entity, and the farmer can simply provide that company with ingredients that go into the end product.
Farms that take on the responsibility of value-adding products are considered vertically integrated, as they control the entire production process from growing the ingredients to processing, packaging, and selling it.
To successfully value-add products from the farm, farmers must meet regulatory requirements and food safety standards before selling a single product. It varies depending on the state and country of the farm’s location.
Once the initial hurdles are solved, the value-added products are typically more shelf stable than their raw ingredient counterparts, which gives the farm more time and flexibility to market and find customers. Value-adding also opens up the opportunity for stronger brand identity and customer loyalty through unique product offerings and storytelling.
These value-added products can be sold directly to consumers online or at the farmer’s market, to retail distributors so they eventually end up on grocery shelves, wholesale to food service channels such as schools, hospitals, or prisons, or just sold at their farm store for local visitors.
With the rise of tourism and remote work, many farms have successfully diversified their operations into offering “agritourism” experiences. It can include farm tours, bed and breakfast stays, farm-to-table dining, or mid-term rentals where they can rest and relax.
These additional revenue streams can easily outpace profits from the production side of the farm, but they can work in tandem to provide a more robust and resilient farm operation. Successful agritourism models require initial infrastructure investment in facilities, additional housing units, bathrooms, commercial kitchens, etc. These investments will vary depending on local, state, and national regulatory requirements.
Another variable for predicting the success of an agritourism model is their geographic location. Suppose their farm is close to national parks, points of interest, professional sports teams, or anything that drives tourism. In that case, they will be more likely to succeed early on.
If their farm is secluded, rural, and removed from existing attractions, they must put more effort into marketing and advertising their offerings. It isn’t impossible to invite people to locations with fewer surrounding attractions, but there are clear hurdles they must overcome.
Agritourism also allows them to build a brand reputation with the public and increases the visibility of their farm’s products. They can use the tourism channel to drive direct-to-consumer sales and build brand loyalty more intimately than relying on digital or traditional marketing.
Hospitality is only for some and provides additional challenges that accommodating tourists creates. It can also be a lifesaver for some farms experiencing the rise of property values in highly desirable locations, as these locations typically correlate with tourism.
Farming successfully is hard no matter what is grown and raised. Farmers should explore any opportunities to build profitability into their business, but only with an understanding of the benefits and the downsides. They know their farm better than anyone else, so they know if their approach is working economically and if it is necessary to expand, pivot, or adjust it.
We can all agree that farming will continue to change and adapt to the trends of the modern world, including social media, digital marketing, e-commerce capabilities, tourism, and consumers' demand for more transparency in the food system. These trends allow farms to regain profitability and build economic resilience, regardless of their starting point.
