Farm Choice a Corny Problem an Investment

Farm Choice

A Corny Problem

An investment banker yearning for a more relaxed atmosphere than the bustling and densely populated cities of New York and Hong Kong might very well be advised to move to the country, especially with the handsome sum of $800,000 at her disposal (and $800,000 has much greater purchasing power in the American Midwest than in either of these cities, too). Whether or not it is actually advisable to spend all of that money on the purchase of eight cares of farmland in order to pursue brand new career as a corn farmer, a field (literally) in which she has no experience or education, with the idea of becoming rich from the ethanol boom, is a different question altogether. The advice of colleagues is encouraging, citing many reasons why this is an immensely profitable and otherwise enjoyable decision, yet as the following paragraphs will show this advance is bad for several reasons.

First and foremost, the embarking on any business venture without adequate knowledge and preparation is foolish, and something like a farm -- which requires a tremendous amount of expertise and pure physical labor to produce anything sellable -- is that much more demanding of budding entrepreneurs. Though the demand for corn is expected to increase with the new government-mandated increase in ethanol production and use, there is no guarantee that this new venture will even be able to bring anything to market for the first year or tow of operation, or that the market demand will actually be enough to make whatever can be produced truly worthwhile in terms of profitability. Various fixed (equipment, property taxes) and variable (labor, water) costs will be significant, and eighty acres is not an especially large farm.

This brings other issues into play, as well. The fact that the farm is small means that it will have very little market clout, and that logistics issues will be more arduous and more expensive for this small operation than for larger and more industrial-scale farms. A governmental increase in the demand for ethanol would not have been made without industry backing, means there are already major competitors poised to carry out this government mandate. These will be the companies with which the small eighty-acre independent farm must compete, unless some form of collective is formed or the crop is sold to one of the inertial-scale producers, and in either scenario the small farm would no longer be receiving market value for the corn and the profitability would decrease. Depending on how consolidated the industry is, smaller farms could also face significant problems simply finding buyers, if enough demand can be met by larger producers to make dealing with smaller producers too expensive for real value creation further down the supply chain.