Economics of Farming with Horses—
Debt Financing
by Chet Kendell

I have resisted the temptation to conduct this analysis in the conventional terms of debt financing and the time value of money for a number of reasons:
  1. Debt financing is not generally accessible to small farmers.
  2. Debt financing is poor medicine for the small farmer. It may keep the farm alive for a year, but in 10 years it may kill the farm and any chance of intergenerational residency and sustainability. As farmers we can be more innovative. If we don't, who will?
  3. Using the time value of money would create an even greater disparity between the two options. The tractor as a cost function would be paying interest, and the horses as a revenue function would be earning interest. Using a cash basis for this analysis is more conservative.
Considering the time value of money as part of the analysis would alter the results. Assuming:
  • No inflation or deflation.
  • Debt financing is used only on expenses over $1,000, at a rate of 6% per year for a period of 10 years.
  • Any net revenue is invested once each year, earning interest at a rate of 3% until age 65.
  • Investment tax credits will not apply.
The horse powered farm with farmer at age 65 would have net revenues of $42,984. The same farm, if tractor powered, would have net costs of $91,150. The difference between the two options is $134,134 in favor of using horses for farm traction and tillage.

Career Cost of Horses versus Tractor
Farm Size
Operational Cost for Horses

Chet Kendell is on the Economics faculty at Brigham Young University - Idaho in Rexburg and a PhD candidate on the Viability of the Sustainable Agricultural Enterprise with emphasis on animal traction tillage from Michigan State University. This article appeared in the Spring 2005 issue of Rural Heritage.

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26 April 2012 last revision