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:
- Debt financing is not generally accessible to small farmers.
- 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?
- 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.
Introduction
Assumptions
Career Cost of Horses versus Tractor
Farm Size
Practicalities
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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