Why You Should Pick Up New Ground & Expand Your Farm Operation

May 5, 2022

Successful farmers always have an eye to the future, working to maximize their success. For many, this includes expanding your farm & picking up new ground. 

There are clear benefits to expansion. Namely, economies of scale can lower production costs and increase your margin. There’s also the opportunity to diversify your operation, which can reduce your risk exposure. 

But these benefits don’t come just from buying or leasing new land. You need to have solid farming practices in your current operation before you can take it to the next level. Otherwise, the problems you have now will only exacerbate. 

Let’s dive into the most effective way to expand your farm business, so you can maximize profitability and minimize risk. 

Why should you expand your farm business? 

For most successful farmers, expanding your operation seems like a natural step. When you expand your operation, however, many of your fixed costs—like machinery & labor costs—go down. Higher outputs with low marginal input costs leads to higher margins, which every farmer likes to see. 

Even if you don’t want to become a massive farm operation, the realities of 21st century farming means that maintaining small operations is increasingly difficult. As input costs continue increasing, expansion is one of the only ways to remain economically sustainable. 

Other reasons to expand your operation include:

  • Improve asset utilization

  • Bring on new family members

  • Help a family or friend with their farm

  • Invest retained earnings

  • Diversify the operation & try new practices (e.g. organic farming, new crop type

Whatever the specific reason, there are some significant upsides to expanding your farm operation. 

Are you ready to expand your farm? 

The decision to pick up new ground can be an exciting one. Especially for the entrepreneurial mind, risk and the potential of reward are enticing. However, if you want to realize that reward, you need to expand your operation in a smart, economically sustainable way. 

Move too fast, and you risk crashing and burning. 

Plus, it’s entirely possible that you aren’t maximizing the productivity of your existing land. There are a number of ways to add new revenue streams, beyond maximizing yields. These opportunities can include seed conditioning, hauling other peoples’ grain, custom spraying, or even agritourism. 

Before you make the decision to pick up new ground, ask yourself the following questions: 

  • Can you reduce inputs or make your operation more efficient?

  • Can you diversify your current operation to open up new revenue streams? Is there another crop that could work better in the rotation? 

  • Do you have any on-hand assets you aren’t currently using? 

  • Are your finances in good shape? Can you afford to take on a farm lease or purchase additional land? 

If you’ve answered all these questions and you’re sure that you’ve done all you can with the land you currently have, then it’s probably time to scale up your farm business with new ground. 

10 steps to effectively expand your farm operation

Expanding your operation involves more than signing a lease or purchasing a deed. There are other considerations, many of them with significant consequences. Here are the top 10 steps you should take as you pick up new ground: 

  1. Check federal, state and county laws and ordinances (including building codes, permit & license requirements)

  2. Consider the environmental impact of your expansion

  3. Keep the neighbors in the loop if the expansion will impact them at all

  4. Make accommodations for increased traffic to your land, including ADA compliance and restroom and handwashing facilities

  5. Initiate safety controls for products

  6. Evaluate additional labor costs

  7. Take steps to secure your property

  8. Obtained signed contracts and certificates of insurance for any expansion operations involving other businesses coming onto your farm

  9. Have a contingency plan in case your operation suffers a setback

  10. Review your insurance and make sure you have all the coverage you need

Should you take on investors to expand your farm operation?

There will be times when you can’t afford to take on all the costs that come with expanding your operation. In most cases, you’d just go get a bank loan to cover you until the returns come in. 

However, there’s another option available: taking on an investor. 

Investors can allocate their funds specifically to expand the farm, and in return they receive equity in the operation. This includes ownership of any assets—including owned farmland. Their investment may also come with profit sharing requirements. 

Of course, this option can cause some apprehension. True, they’ll be actively involved in the operation itself, but that’s because they genuinely care about its success. Most farm investors aren’t just looking for another line in their portfolio; they want to fund your growth. 

If you’re interested in a long-term business partner who brings an interest in the operation to the table, consider an investor. Otherwise, you probably are best going with a bank loan, or finding creative ways to cut back on upfront costs (for example, signing a crop share or fixed bushel rental agreement). 

Final thoughts

As you expand your farm operation, expect growing pains. You may find managing higher amounts of land to be more challenging than you originally realized, which may require additional education or training. 

If you’re unsure of what to do next, there are plenty of local experts available. Contact your local USDA office or local ag extension. Their staff can help field questions and point you to helpful resources.

Ultimately, remember that it’s your operation. Check in with your gut instincts, and make sure that if you expand it’s because it’s what you want to do. You need to be all-in if you’re going to be effective.