The Economics of Farming

April 18, 2016

By Rachel Raymond

The business of farming has always been synonymous with significant risk. Farmers’ basic business model involves a significant upfront investment in land and machinery. On top of that, on an annual basis, farmers purchase many of their inputs at the beginning of the season, and then must make management decisions throughout the growing cycle to try to minimize the downside created by unpredictable weather patterns. The demand that farmers meet with their production is a function of the ever increasing world population - we all depend on them to produce our food. We at Indigo are passionate about our mission to support farmers in this important undertaking.

The reality is – we expect farmers to produce an increasing amount of food despite a difficult financial environment. Not only are commodity prices down from a recent high in 2008-11, but operating costs are up, driven in part by global row crop surpluses. Farmers’ margins are getting squeezed on both sides while they assume the majority of the financial risk.

Crop yields are based on a multitude of factors, many of which are outside the farmer’s control. In any given growing season farms are subject to weather variability, drought, insects and disease, among other key stresses that can contribute to reduced yield. Farmers adjust for these as best they can, but not everything can be planned. Once the crop is harvested, farmers are tasked with making decisions about when to market the crop to get the best price.

High sensitivity to external variables increases the risk farmers face as they make investment decisions. Poor crop performance and a down year in the market can be disastrous for a farm. It’s up to the farmer to play the market in their best interest - looking at supply and demand, determining whether it’s best to sell right away or hold on to their crops until demand is up.

Despite the risks and challenges, many people continue to operate farms. For that, we should all be thankful. Without a stable and predictable income motivating the farmer, you might wonder what the motivation is to operate a farm. In my experience, farmers are motivated by a few different elements. First, every farmer is an entrepreneur. They’re the CEO of their own small business. They make all the decisions and take all the risks, but they also reap all the rewards. Farming is also historically a family-centric occupation. There is a motivation to start or be a part of the family business, to help it grow; to build something and pass it on. Finally, there is a certain level of fulfillment inherent in the profession. 

Farmers are stewards of the land; caring for and nurturing the earth to fill an imperative need to feed the planet - a problem that will only intensify as the human population spikes, and one that Indigo plans to help solve.

Indigo’s mission is to harness nature to help farmers sustainably feed the planet. We are grateful they take on this massive task, and we want to not only help them increase their yields, but also to help them reduce variability. By focusing on drought tolerance as one of the first product targets, we’ll help offer solutions to the downside risk farmers face when drought conditions are present. 

If we can help the farmer increase yields, we can help improve grower profitability and improve our capacity to feed a growing population, all in a more sustainable way. That’s good for the farmer, and 
that’s good for the world.

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