Michigan State University's Economic analysis of Sustainable Agriculture

Economic viability is a necessary condition for sustainable agricultural and food systems. Profitability is a good place to begin. Evaluating the likely profitability of potentially more sustainable practices can start with budgeting.

But economic viability is about more than profitability. Economics is the study of how people attempt to meet unlimited wants with limited means. Among the things that people care about are many that cannot be bought and sold in markets. Not least of these are health and environmental quality that we value for ourselves and our communities. Within limiting assumptions, economics offers ways to measure these more hard-to-quantify values.

The basic areas covered are:
• Profitability Using Budgets
• Environmental Indicators
• Environmental Values
• Marketing
• Environment-Profit Trade-Offs
• Business Planning

Profitability Using Budgets

Budgets are the first step in any profitability analysis. The basic idea is easy: Revenue minus Cost. The devil is in the details: predicting prices received, quantities produced, and full costs. Three broad types of budgets each answer different questions:

1. Enterprise budgets answer, "What be my net earnings from this activity?"
2. Partial budgets answer, "How would my net earnings change if I substitute a different enterprise or way of doing things?"
3. Break-even budgets answer, "What would be the lowest price or yield I must receive in order to break even?"

Enterprise budgets and single-enterprise break-even budgets show profitability when they indicate a positive net income. But sometimes a manager is already earning a positive return from an enterprise that would be replaced by the one under examination. For that case, partial budgets and comparative breakeven analysis for changing enterprises are more informative.

Environment-Profitability Trade-offs

Trade-offs between environmental and profitability effects offer a helpful way to think about environmental values without relying on direct monetary measures. Environmental-profitability trade-off analysis involves two measures: an environmental one and a profitability one. Usually the environmental measure is in physical units (e.g., mass or density units), while the profitability one is in monetary units (e.g., revenues, costs, or net returns).

Environmental Indicators

Environmental indicators offer a simple measure of the status of an environmental attribute. Examples include indicators of potential damage, such as toxic emissions, as well as indicators of potential benefits, such as biodiversity. Environmental indicators can be used in trade-off analysis.

Environmental Values

Most people care about the natural environment. They care either because it affects their health or because they just like it. There are two ways to build environmental caring into economic analysis. One way is to assign monetary values to environmental attributes and include them in monetary analyses. The other way is to examine tradeoffs between environmental attributes and money-based ones, such as profitability. This page covers the environmental valuation approach.

Marketing

The purpose of marketing is to connect buyers with sellers. Many online resources are available. Here we refer readers to three areas. General marketing covers agricultural marketing broadly. Direct marketing focuses on direct sales from the farm. Market price information offers links to price data.

General Marketing:

Agriculture Marketing Resource Center (AgMRC)
This USDA-supported site guides users to top quality online marketing resources in these major areas:

1. Commodities & Products: Assess value-added market opportunities, processing options, and production issues.
2. Markets & Industries: Analyze markets and industries for value added products.
3. Business Development: Create, develop and operate a value-added agricultural business.
4. Renewable Energy: Analyze energy markets and related climate change policy.

National Sustainable Agriculture Information Service

Understanding markets is the leading feature of this site’s report on Sustainable Agriculture: An Introduction. Among many related reports is a helpful guide to assessing marketing options, Evaluating a Rural Enterprise Marketing & Business Guide.

Direct Marketing:

Farmer Direct Marketing

USDA’s Agricultural Marketing Service offers a comprehensive web site with advice and links to direct marketing web sites around the United States.

Market Price Information:

AMS Market News

USDA Agricultural Marketing Service provides current market prices from major markets around the United States for Fruits and Vegetables; Milk and Dairy Products; Livestock, Meats, Grain and Hay; Poultry and Eggs; Tobacco; Cotton; and Transportation.

Business Planning
Building a Sustainable Business: A Guide to Developing a Business Plan for Farms and Rural Businesses

This is a good general introduction to business planning from the Minnesota Institute for Sustainable Agriculture (MISA). Chapters in the 244-page guide cover identifying business values, assessing strengths, visioning, planning, implementing a business plan, and monitoring performance. Includes farm case study.

Introduction to Whole Farm Planning: Combining Family, Profit and Environment

This guide introduces the principles of whole farm business planning. It offers links to other useful resources. Updated in 2011.

Starting a Value-Added Business

Planning innovative, consumer-responsive is the focus of the Product Center for Agriculture and Natural Resources at Michigan State University. The site provides links to a national network of agricultural and natural resource product innovation counselors and centers.

Source: http://sustainecon.msu.edu/