Volume 11, Number 5 December 17, 2007
Making Useless Land Useful
by Dr. Ridgely Abdul Muímin Muhammad
In previous articles we have discussed how the economic system can make useful land useless and how land can be a liability instead of an asset. However, with a change in the economic environment that same piece of land can be made useful. The question is whether the market is willing to pay a price that the farmer can make a profit by using the land to grow a crop.
At one time (1910) black farmers owned over 16 million acres of land. That number has been reduced to less than 3 million acres and yet much of that acreage is not being used to grow crops or raise livestock. Much of this land is actually owned by people who live in the cities but have inherited the land from deceased relatives. Many of these city dwellers are interested in moving back to the land but do not know how they can make that land economically useful.
To help us understand the dynamics of the problem and discover possible solutions, we will use Muhammad Farms as a typical farm in the Southeast, where most of our black farmers used to farm. When the Honorable Minister Louis Farrakhan redeemed 1600 acres of farmland in Terrell County Georgia in 1995, the previous owner was only farming about 82 acres of the land. About 600 acres were in timber and wetlands and the other 800 plus crop acres were sitting idle held in a government set aside program which paid the owner about $35 per acre. In other words the government was paying the owner $35 to rent his land and let it sit idle.
These 800 acres had grown over in weeds and we had to decide on whether to take the land out of the program or leave it in. Our mission of course was to use the land to grow food for our people, but we could not and can not afford to lose money in the process. One of the crops that we wanted to grow was wheat. In 1995 when we got the land, wheat sold for $3.37 per bushel. Since that time wheat has gone down as low as $2.17 in 2000 and as high as $4.42 in 1996. To make a decision on growing wheat or just renting the land out to the government we have to know how much it costs to grow the wheat. The University of Georgia estimates that it takes about $115 in variable costs to grow an acre of wheat. This $115 includes items like seed, fertilizer, fuel and labor but does not include the cost for the tractors, equipment, taxes or the cost of the land.
The average yield per acre in Southwest Georgia is about 40 bushels per acre. In 1995 wheat sold for $3.37 per bushel. If we multiply this price of wheat times 40 bushels we get a per acre revenue of $134.80. When you subtract the cost of production ($115) you are left with a net return of $19.80 per acre. On the other hand, the government is offering $35 per acre not to farm the land. If you subtract this "rent" from the returns ($19.80-$35), you would make $15.20 more by renting it out than by growing wheat. Therefore, it would make economic sense to rent the land to the government and not grow wheat in 1995.
Now when we do these same type of calculations and put them on a time chart from 1995 through 2008, we can understand why farmers in some years will grow wheat, while in other years would choose to rent their land out to the government or someone else (see chart below). This chart shows that in 1995 thru 1998 a farmer could make money on growing wheat, but only in 96 and 97 would he make more from growing the wheat than renting the land out. From 1998 thru 2002 the farmer could not even cover his variable costs (Variable Returns were negative), so definitely he would rent the land out and not grow wheat. From 2003 thru 2007 the farmer could make a little money by growing wheat, but the money he would receive from the market would be less than what he could get just by renting the land out. Therefore, it would be wiser to rent the land out, get the $35 per acre and not grow wheat.
Evidently this is what a lot of farmers did across America because world wheat reserves have dropped by 14 million metric tons, the lowest in 25 years. However, this fall futures prices for wheat to be harvested in July of 2008 have jumped up to as high as $9.61 in August of 2007. This has led farmers to increase wheat acreage from 60.4 million acres for the 2006/2007 season to an estimated 62.2 million acres for the 2007/2008 season. Thus, this anticipated high price for wheat has had the expected effect, causing farmers to plant more, but the increased acreage has now lowered the anticipated price down to $7.88. This price could even go lower depending on yields in this country and abroad.
So as the market price for wheat fluctuates, so do the economic signals that induce a farmer to grow wheat or let the land sit idle. These market conditions are out of the hands of the individual farmers unless they take another strategy which we have done at Muhammad Farms. When prices fell as low as $2.17 in 2000 we decreased our wheat acreage but decided to get into what is called value-added processing. We began to mill our wheat into flour and sell it directly to members of our buying clubs in the cities.
One bushel of wheat weighs 56 pounds. Therefore a bushel of wheat can yield about 11 five pound bags of whole wheat flour. Now if we can sell this flour for $3.00 per bag, we can get $33 per bushel of wheat instead of $2.17 in a bad year or even $9.61 in an exceptional year. By going a step closer to the consumer the farmer can pull himself out of the fluctuations of the market, which he has no control over and get a much higher value for his product.
This is a better strategy as long as he can find the buyers. However, if people are not baking bread, cakes, pies or cookies, but would rather pay $3.00 per loaf for bread, then the farmer is left with no choice but to react to the market which means not grow wheat in most years. Now if the consumer understood how much money they could save by buying one of these new bread making machines, whole wheat flour and baking bread for themselves, they just might be able to help black farmers turn useless land into something useful. They also would be eating healthier.
Dear consumer, a five pound bag of whole wheat flour from Muhammad Farms can supply you with five loaves of bread weighing one pound each. If this five pound bag of flour costs you $3.00, you could make five loaves of bread at a little over $3.50 ($0.70 per loaf) including the cost of the other ingredients. You are now paying about $15 for the five loaves of bread at the grocery store. Please do the math, make the choice and help make non-useful land useful once again. It is not "rocket science", just a matter of choice. Eat to live or die broke.