Financial Indicators of Sustainability on Michigan Farms

Final Report for LNC99-159

Project Type: Research and Education
Funds awarded in 1999: $27,900.00
Projected End Date: 12/31/2001
Matching Federal Funds: $3,100.00
Matching Non-Federal Funds: $22,600.00
Region: North Central
State: Michigan
Project Coordinator:
John Durling
Michigan Agricultural Stewardship Assn, Crop Soil Sciences Dept
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Project Information

Summary:

Financial Indicators of Sustainability on Michigan Farms brought farmers and Extension agents together to evaluate the usefulness of ratios developed to assess sustainability and progress toward sustainability of Michigan farms. (See Levins, Dick. 1996. Monitoring Sustainable Agriculture with Conventional Farm Data. Land Stewardship Project, White Bear Lake, MN.)

Methods/Approach

Farmer members of the Michigan Agricultural Stewardship Association (MASA), Michigan State University Extension agents, and others were introduced to the indicators through two workshops. Participants calculated their own ratios and compared them with historic and contemporary data. A case study involved a conventional-turned-grazing dairy which provided 20 years of ratios and hosted a tour for workshop participants. Workshops were facilitated by University of Minnesota Professor and Extension Agricultural Economist Dick Levins, developer of the ratios.

Results

The exercise of wrestling with the ratios, especially in the context of a conventional-turned-grazing dairy, was very instructive. While there was broad consensus on the desirability of some set of readily calculable ratios for distributing farm payments, and possibly for assessing individual farm progress toward sustainability, consensus was not reached on the formulation of the specific ratios. Team efforts to develop this formulation include ongoing discussions with sustainability ratio experimenters in several states.

Impacts and Potential Contributions

This project’s impact was primarily in the discussion it generated and the questions it raised about assessing farm sustainability and the collateral issue of using ratios as a basis for farm payment distribution. The conventional-turned-grazing case farm and its 20-year ratio history also evoked important discussion. Discussions from this project were important because of the topic — assessing sustainability — and because of whom were involved in the discussion — key farmer-leaders and Extension agricultural and farm management agents from throughout Michigan. Project experience with the indicators has been the subject of several stories in Michigan’s Farm and Country Journal and is available on the web at http://www.sustainable-ag.org

Project Objectives:

A. Evaluate usefulness of financial indicators of sustainability and assess their suitability for incorporation into existing farm business analysis programming.

B. Assess farm system sustainability and quantify progress toward farm system sustainability over time through calculation of financial indicators.

C. Educate farmers and Extension agents on calculation, utilization, and interpretation of financial indicators of sustainability.

D. Demonstrate to a broader audience of Michigan agriculturalists, including other farmers and farm service providers, appropriate use of financial indicators of sustainability.

E. Disseminate project results to a wider audience of Michigan farmers and Extension agents.

Cooperators

Click linked name(s) to expand
  • Larry Borton
  • John Durling
  • John Fisk
  • Dick Levins

Research

Materials and methods:

Michigan sustainable agriculture farmer leaders were invited to the Financial Indicators of Sustainability on Michigan Farms workshop in March 2000. Dick Levins assisted with the planning of this program and was the key presenter.

Workshop participants were introduced to the concept of “Monitoring Sustainable Agriculture with Conventional Financial Data� and received a copy of the Land Stewardship Project publication by the same name. They were also introduced to the Monitoring Project of which “Monitoring Sustainable Agriculture . . .� is a component.

Dick Levins demonstrated how to calculate the ratios and lead a discussion of their applications and limitations and of possible modifications. Four Michigan farm examples (developed by MSU TelFarm Director Larry Borton) were used for demonstration and calculation purposes. Schedule F or comparable income and expense information had been generated for each. Example farm types were fruit, dairy, grain, and grazing dairy.

Workshop participants were charged with (1) calculating their own ratios, (2) meeting with their Extension Agent to demonstrate and discuss the ratios, and (3) returning to a culminative Fall workshop to share experience, critique ratios, and participate in a discussion of how to make further application of the ratios on their farms.

Farmer participants were given an opportunity to receive a one-year TelFarm enrollment. (TelFarm is a Michigan State University program providing financial and business record keeping for farmers.)

The culminative workshop was held in Fall 2000, again with Dick Levins on the program planning team and as a key presenter. The workshop was attended by many of the same farmers who had attended in the spring. To this workshop they brought their Extension agents.

At the workshop farmer and Extension participants shared their experience in using the ratios with their own/their clients’ farm records. John Durling, Larry Borton, and Dick Levins developed and presented ratios from other data sets: a decade of farm records from a 1940s general farm in southern Michigan, TelFarm records from the 350 farmers enrolled in 1999, and a case study based on some 20 years of records from a conventional-turned-grazing dairy. The farmers from the conventional-turned-grazing dairy attended the workshop and hosted an on-site visit to their farm.

Participants were queried during the workshop and in follow-up contacts by MASA office staff as to:
1. Were the indicators useful?
2. How might they be modified to make them more useful?
3. What on-farm changes have or might you make to increase the sustainabiliy of your operation?

Methods/Approach information is also available on the web at http://www.sustainable-ag.org.

Research results and discussion:
Results – by Objective

A. Financial Indicators of Sustainability on Michigan Farms participants generally agreed (in opinions expressed at the workshops, subsequent telephone interviews, and written responses) that:
1. The indicators concept is or could be useful. The indicators do have a place in the farm’s analytical toolkit.
2. These indicators do measure, although at a low degree of resolution, important components of sustainability.
3. These indicators should not be considered a replacement for conventional farm business analyses.
4. The indicators need more refinement before they are further interpreted or more widely applied. Dick Levins captured this sentiment when he said that they performed well enough “to make us encouraged, but not well enough to recommend them.�
5. The greatest potential use for these indicators may be as a basis for determining eligibility for and amount of agricultural subsidies.

B. As applied in workshops and on participating Michigan farms, the financial indicators showed:
1. A trend toward greater reliance on government subsidies and on energy and machinery inputs and decreased contribution to local families between the 1940s and today.
2. Discrimination among types of farms (e.g., beef, crop, dairy, fruit, hog, vegetable).
3. Increased contribution to local families during the case farm’s conversion from a conventional to a grazing dairy.
4. Some sensitivity to individual farm movement toward greater sustainability.

C. While calculating the ratios was not difficult (three of four ratios are calculable from Schedule F and all are readily calculable from farm records), interpreting them proved more problematic.

Some workshop participants challenged the premises which linked the ratios to sustainability, e.g., that decreased reliance upon government payments or the creation of local jobs makes a farm more sustainable. Others were concerned that these ratios might supplant conventional farm business analysis. Others rejected the indicators for just being too simplistic.

However, many still found the ratios useful for analyzing their own farm’s progress toward sustainability. Other farmers and agency personnel thought the ratios would have great potential application for distribution of government payments. There was consensus that if the ratios did work for assessing sustainabiliy, they would be much less expensive to use than other alternatives.

Interest in the conventional-turned-grazing dairy farm case study farm was very high. Several workshop participants have made further inquiry about and/or contact with them.

D. Eighteen farmers and 18 Extension and other agency personnel participated in the workshops. Many of these agency personnel have discussed the indicators with their farmer clients.

E. Results of the workshop have been widely disseminated through several articles in Michigan’s Farm and Country Journal (see appendices). Indicator discussions have been generated among MASA directors at several of their meetings. MSU TelFarm will soon be running ratios based on 2000 farm records.

“Monitoring Sustainable Agriculture with Conventional Farm Data� has been posted to the Land Stewardship Project’s website along with an on-line indicators calculator, both with support from this project. These are linked to the MASA website at http://www.sustainable-ag.org. Ongoing project efforts are also being posted there.

Encouraged by the Michigan project, colleagues in Kansas and Minnesota have been strengthened in their resolve to refine and apply the indicators. Their paper, “Beyond profitability: using financial indicators to measure sustainability,� has been accepted by the American Journal of Alternative Agriculture.

Research conclusions:

The ultimate tool for assessing farm sustainability was neither created nor validated by this project. However, the project did result in a great deal of interest in the indicators and some degree of optimism that they might be used as part of a larger toolkit for assessing farm sustainability.

Emerging from the discussion, especially at the Fall 2000 workshop, was the question of whether some set of indicators might become the basis for agricultural subsidies. Given that certain types of farms are better for the environment and for rural communities, discussion centered around if and how financial ratios might be used to measure this “good.� If suitable indicators are developed and accepted, they could become the basis for determining eligibility and individual farmer allocation of the $20-30 billion in subsidy payments distributed each year to US agriculture.

Farmer Adoption

About 18 farmers were part of this project’s core group. All wrestled with the application and analysis of these ratios on their own farms. Much interest was generated in the seasonal, rotational gazing dairy visited during the workshop. Several workshop participants have made follow-up contacts. A farm progress writer wrote an article (enclosed) about this farm in the January 2001 issue of Michigan Farmer.

Involvement of Other Audiences

Farmer and Extension agents participated as described earlier. Agencies including NRCS were also represented. The workshops were held at Farm Credit Services’ state office with the hope that some of their personnel would participate. However, only several of Farm Credit Services (FCS) personnel attended, and only for part of the program. Further efforts are anticipated to bring FCS into sustainable agriculture discussions with MASA.

Participation Summary

Educational & Outreach Activities

Participation Summary:

Education/outreach description:

The primary ongoing outreach of Financial Indicators of Sustainability on Michigan Farms is through the aforementioned http://www.sustainable-ag.org.

Project Outcomes

Recommendations:

Areas needing additional study

* Which ratios to use,
* for what purposes, and
* what they mean
are certainly areas needing further study.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.