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Factors of Production: Organic Farming

Jan 6, 2013 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Environment, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically, Uncategorized • 105 Views    No Comments

Yesterday morning, my 4 mile walk seemed faster than usual because I listened to Lisa Turner talk about Laughing Stock, her organic farm. Interestingly, her conclusion focused on profit.

Here are some of the stories from the econtalk podcast.

She started by explaining that through a CSA (Community Supported Agriculture) program, customers “buy a share.” That just means they pay ahead of time for a weekly bag of unknown lettuces, vegetables and fruit. Why are they willing to buy food that they might not even like? She continued, “… some people really want to have that longer term connection, …you are getting more in your share than what I charge at the farm stand… [and]…it’s nice for me because my business is a startup business every single year. That’s how a vegetable farm works. So, then I have capital, money in the beginning that people pay in.”

Describing her factors of production–her land, labor and capital–she perfectly told the organic farming story. Laughing Stock Farm started on 1/4 acre. Now, 16 years later, she has 10 acres for vegetables, another 5 for rotating crops and one for peonies that they sell as cut flowers. Her labor includes herself and her husband who do everything from field work to filling out organic certification forms for the USDA. Their capital is everything from a tractor, to 6 greenhouses to low cost employee housing, fertilizer and crop spray. As she describes, “Absolutely I fertilize. You’d better hope I fertilize because the crops aren’t going to continue to come year after year if I am not adding some kind of nutrition into the soil… We do spray. We do get pests, and we spray for them.”

As an ethical, motivated organic farmer, Lisa has experienced a negative impact from government. For example, using energy wisely, she and her husband figured out how free used cooking oil from local restaurants could heat their greenhouses. All went ideally until the government established an incentive program for renewable energy. Transforming the market, government changed the value of the used oil. Now, because restaurants can charge $1.50 a gallon for it, heating their greenhouses has become more expensive.

Our bottom line:

  1. We should look at profit favorably. Profit is an incentive that fueled Laughing Stock’s business investment, innovation and growth.
  2. Government regulation can have unintended consequences.

 

Sources and Resources: The transcript and link for the podcast download are here. Also, you might enjoy these econlife posts on locavore dilemmas, here and here.

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