One of the first rules of business I learned was this:  Pay yourself first.  The money you earn from running your business — your salary — is different from the money you make by virtue of being the business owner — your profits.  Which is to say, a business isn’t profitable until after it has paid your salary.

My first exposure to the business of farming was vicarious.  My girlfriend at the time was taking a course on business models for farming, and one of her assignments was to create a farm business plan.  Naturally, I asked if I could see it.

The first mistake I pointed out was that her budget didn’t include a salary; she was planning to live off whatever revenue the farm could generate.  Except, it wasn’t a mistake.  Farmers — I was informed — do things differently.  It was normal for farmers to live off whatever they could get for their crops, and the idea of being paid a regular amount as a salary simply wasn’t realistic.  It wasn’t taught as part of her course, because it wasn’t something that farmers do.  And that is how I learned that farmers don’t pay themselves salaries.1

This humble-but-realistic approach to farming income has consequences beyond saddling our farmers with poor budgetary practices.  It also paints an unrealistic picture of agriculture as an industry when viewed from the bird’s-eye view of politicians and economists.  The reason is this:  In virtually every industry that isn’t farming, “profit” means the amount of money made by a company, not the amount of money paid to the people running it.  It means the amount of money left over after everyone has been paid2.  Since most farmers don’t pay themselves, the amount left over (i.e. the “profit”) is considerably larger than it would be in a more normal industry.  And therein lies the problem.  When viewed through the lens of industry statistics and government reports, farming appears to be “profitable”, even though no other sector would be considered profitable before it paid for its primary workforce.

What’s the solution?  In an accountant’s world — that bird’s-eye view again — the solution is obvious:  Farmers need to obey that first rule of business and put themselves on salary.  This solution would be utterly sensible if it didn’t conflict so directly with the on-the-ground reality of farming.  As a small business, the idea that you pay yourself a set amount on a regular basis is a good one, but what actually happens is this:

In January, you make your budget for the year.  Since you don’t know what your revenues will be until your crop is sold, you have to make an educated guess about how much you will sell over the year, figure out what’s left after you’ve paid for seed and fertilizer etc., and then divide that by 12 to get a guess for how much you can afford to pay yourself each month.  Because you won’t see your first sales until May, you set up a line of credit — you have to live on something while you grow the food.

In February you make your crop plan for the year.  It looks like you’ll have space to squeeze in an extra crop of spinach, so that looks good.  In March, the price of seed potatoes doubles, but you figure you can still squeeze out a profit with just a small price increase.  In April, your tractor breaks down.  The repair is expensive, and it delays your planting by a week.  You’ve now maxed your line of credit, which means you can’t afford to pay yourself in April, so you write yourself an IOU.  In May, it rains.  Your first crop comes in small and late, and the distributor doesn’t pay for 60 days.  You bring in a small amount from the farmer’s market — just enough to pay the interest for the line of credit.  Another IOU for May.

June is a good month:  It’s warm, everything is growing, and a local farm-to-table restaurant falls in love with your salad mix.  You finally have some money coming in, so you pay yourself for April.  In July and August it gets really busy and you get behind in your bookkeeping.  There’s money coming in, but you don’t know exactly how much, so you take enough to keep you going and figure you’ll catch up when it cools down.  September is more manageable, but you’re out of the habit now, so you once again the books fall through the cracks.  There’s lots of money in the business account though, so you decide you can afford to pay yourself for the month (the first real salary you’ve drawn since you paid your self for April in June.

In October, you look at the stack of paperwork, and decide it would be better to let the accountant handle it. There’s enough money in the bank account now to pay off the line of credit, so you do that right away, but you’ve forgotten which salaries you’ve missed and how much you took informally over the summer when it was busy.  In November, your accountant phones you to congratulate you on a record year.  You pay yourself on time for November, May, June, and the balance of what you should have been paid for July, August and October.  In December, you are finally back on schedule, and you can look at your books confidently and know that you can afford to pay the salary you promised yourself.  You have half a month’s salary left over — your farm made a profit!

To make a long example short, the reality of farming doesn’t lend itself to regular, predictable salary payments.  There’s nothing a farmer can do about the heavy seasonality of farm revenues, and that seasonality tends to force farmers to take income when they can — they pay themselves when the money is there.  And paying yourself when the money is there is much more like how businesspeople take profits than how employees take paycheques.

So, there is some logic to why farmer income is counted as “profits”.  But we are still in a situation where a farmer’s time and labour isn’t counted as part of the cost of the food.  If we want to solve the challenges around farmer income, we need our political birds to have an accurate view.  And, while the bird’s-eye statistics that cause the problem are in the realm of accounting, I can only hope that a film like The Hands that Feed Us can be influential in making politicians more aware of what’s actually going on in those statistics.

  1. The real story is considerably more complicated than this, since about half of Canadian farmers run their businesses as corporations, and there are many ways for farmers to pay themselves from their corporations.  The available statistics on farmer corporations are quite opaque when it comes to salaries and off-farm labour.
  2. In actuality, measuring corporate profits is an incredibly complex subject containing arcane terms like “EBITDA“.  It is the domain of accountants and bankers, and I am simplifying it vastly.