Friday, November 25, 2011

Opportunity: costs and benefits

I've been neglecting this blog of late, and for that I am truly sorry. Between ranching, newspapering, and now writing and maintaining two blogs, I've struggled to keep my plates spinning, if you'll pardon the trite metaphor. That's just an excuse however. And fortunately, I think I'm starting to find a way to get it all done (the secret is to waste less time. I am a champion time waster).

 On to opportunity costs and benefits.

Most ag producers reading this post will be well acquainted with the concept of opportunity cost. Those readers who aren’t familiar with the term will almost certainly recognize the concept of judging opportunity cost, because it is something we all do, to a greater or lesser extent, when we consider selling or purchasing something.

By definition, opportunity cost is the value of the best but foregone alternative. In a bit plainer language, it’s the value of the best thing you could have bought, but now can’t buy because you’ve already spent that money. Alternatively, when it comes to selling, opportunity cost is the best money you could have pocketed if you had taken a different marketing approach.

On the EJE Ranch we look hard at opportunity costs. By weaning time, we have essentially harvested our annual calf crop, and like the corn or wheat farmer, we have to decide how to sell our crop in a way that maximizes our profit.

If we sell all the calves at the sale barn, we have to be aware of the opportunity cost (which we cannot now realize) potential in backgrounding or stockering the calves until spring. The potential profit in selling larger calves in a higher market always looks good, but is balanced by increased risk. Losing a few calves over the winter can wipe out profit, as can a change in market prices.

The utility of understanding opportunity costs is in fact the utility of rating the costs and benefits of all options. There’s never been, nor will there ever be, a single, fool-proof, highest profit option. But the ability to honestly assess risks and rewards allows the thoughtful producer to eke out enough profit to continue.

Time has an opportunity cost component as well. Few if any of us ever get caught up with all the tasks on our various lists. We have to manage our time so that the “must do's” get done. Only when the must dos are done can we afford to expend time on the like-to-do's.

Over the weekend I had a number of like-to-do's tentatively scheduled, including cleaning corrals, fixing a barn door, assembling a dog kennel, and nailing up a few sagging wires here and there.

I had an unexpected call for a ranch tour, though. The few dollars I would collect for driving someone around the ranch and explaining what we do wouldn’t even come close to the value of catching up on tasks that have been waiting too long already. But as is the case for many of us in ag production, money isn’t the only consideration. In the case of giving ranch tours, I enjoy meeting new people, and I enjoy showing them what we do. I also get to expose non-ag folks to a real, working ranch, and in doing so, give them a tiny slice of reality to compare against what they read, hear and see on television regarding agriculture when they return home. In theory, this kind of interaction can pay off by slowly increasing the agricultural literacy – one or a few people at a time – of our largely urban-suburban population.

There’s another incentive to give the tour, another non-monetary benefit. Just as I give my guest a glimpse of life on a ranch, my guest usually gives me a glimpse of their world. It’s important for me as a food producer to understand what consumers think about their food, to listen to their questions and concerns about food, where it comes from, and whether it’s really safe or not. Each of us also get to compare and contrast lifestyles, and the differences provide for some interesting and memorable conversations.

I’ll call my Saturday tour guest Marvin, because he asked me not to use his name or picture.

Marvin was born and raised behind the Iron Curtain of eastern Europe and came to the U.S. in the mid-80’s. He’s retired now and was returning home to an eastern city on the final leg of a vacation when he stopped for gas in Kimball and heard about the ranch tours I offer.

Marvin was astonished at the sheer size of the ranch. He had assumed, he told me, that most non-cultivated land was public land, owned by the government. He wondered how it was possible to earn a living from what looked to him (and frankly, looks to everyone in mid-October) like utterly unproductive land.

As I explained the cow/calf operation and how we are designed to be in tune with nature, how the cows and calves “harvest” the grass for us and convert it into beef and new calves, how we depend on each season to naturally grow and maintain the shortgrass prairie ecosystem, Marvin became more animated. “Ah,” he said in his thick Slavic accent, “this is real green! “Not electric car. Not windmill. This keep healthy planet, this real green!”

Marvin’s excitement and enthusiasm were delightful. We talked for hours, and he told me a bit about growing up behind the iron curtain. I told him about growing up here, my career in the navy, returning home to ranch. We talked about many things, including some of the problems facing the world today. We didn’t solve anything, but each of us had a good time and enjoyed meeting the other.

As Marvin drove off toward the interstate late in the day, I thought about the chores I hadn’t accomplished, and I thought about opportunity costs. The opportunity cost of doing those chores was the cost of not meeting Marvin, not sharing with him the ranching lifestyle, and not showing off the real, boots on the ground reality of modern agriculture.

Our story is worth telling, our farms and ranches worth showing off. I can’t calculate a dollar figure for the value of sharing the ranch with Marvin, but I think it was time well spent for both of us.

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