Wheat production the old way, subsistance farming, the one without tractors as discussed in previous posts, was able to support as many people as were available to do the work. In fact, the limits to production were always - always - a lack of manpower. The history of Castilla, the reconquest, feudalism, the development of property rights, the beginnings of women's rights, and especially the industrial revolution, was always about obtaining enough manpower to cultivate the land.
Mechanization was the important break-through. It allowed for greater productivity, but that didn't happen in Castilla until my lifetime. And not only is it more productive in terms of man-hours per unit of production. The precision with which these machines work raises the productivity of the land itself.
I have no idea what yields were without tractors. Today, on average, Spanish wheat yields 2840 kilos/hectare (42.25 bu/ac). That's a number I looked up. All of the published numbers I find is within those parameters. It's in line with Kansas non-irrigated yields of 30-50 bu/ac and reports that I've seen of this year's crop (2011) at 37.4 bu/ac. I've also seen US averages published as 2990 kilos/hectare. A hectare is 10,000 sq. meters or 2.47 acres.
Rainfall in Valladold, the heart of Spanish wheat production, averages 374mm/year (15in). That's about equal to eastern Colorado or western Kansas. Eastern Kansas is more humid. Likewise Burgos is more humid and receives an average 570mm/year (22in).
Costs - I've been over and over these numbers and this is the best I can do. I welcome your help in refining them, but as a starting point I will suggest:
Variable costs:
Planting: 250€/ha
Harvesting: 50€/ha
Land rent: 0€/ha
I'm not so confident of the planting cost though I believe that would also be typical in the US. It would include all inputs, seed, fertilizer, chemicals, fuel, equipment maintenance and repairs (tires, oil, etc), financing costs and hired labor. I believe the harvesting figure to be reasonably accurate. As a cross-check, a custom harvester would typically work for 1/3 of the crop (or of course for cash). 1/3 of $6.00/bu wheat (more "traditional" than today's prices) would yield 47€ to a harvester working average Spanish yields of 2.84 tonnes/ha.
Break-even on variable costs is then 106€/tonne ($4.43/bu at .65€/$). But that assumes you farm land you inherited and you have no cost of land or rent and no lord over you - which is not exactly accurate. A lot of land here is rented just like in the US. If land were rented at 40€/ha, a plausible figure, break-even becomes 120€/tonne ($5.00/bu at .65€/$).
Fine you say, but here's the sticky part.
Fixed costs:
Tractor 200hp .............. 90,000€
Plows. ............................. 2,000€
Cultivator ........................ 2,000€
Seeder ........................... 15,000€
Sprayer ...…..…............... 2,000€
Combine ..................... 180,000€
2 Wagons ..................... 10,000€
Shop Equip ................... 10,000€
Total 5 yr equip. .........311,000€
.................Total 5 yr depreciation ..... 37,320€
Barn ......................... 139,000€
.................Total 20 yr depreciation ..... 6,950€
Total investment .......450,000€
Total annual depreciation* .................44,270€
* assumes straight line depreciation and 40% equip. salvage value after 5 yrs. Buildings fully depreciated after 20 yrs.
Those are (educated) guesses. Remember, the barn has to be big enough to store a combine and it has to have elect. to run a welder and cranes (shop equip.). You can't even change a tire without a crane.
Here's the question. If wheat is at $7.00/bu, (as I write this it's quoted at $6.92 on CME and people here are telling me they are being paid 180€/tonne which comes to just a little more) how many hectares do you have to farm to break even? I've done that for you. Ignoring subsidies, but assuming both the variable and fixed costs above then, 253 ha.
So you ask, how much money can you make if you plant say 500 ha? Yes, 43,262.20€. Return on capital is then 9.61%
Not terrible maybe if you don't have to work for it, but you're breaking your back and taking a chance. Most important, the averages may be misleading. Some years are wetter than others. Some years' yields are better than others. In 1995 Spanish yields were reported as 1496 kg/ha. In 2000 they were reported as 3078 kg/ha. France and Germany both average just over 7000 kg/ha. There is enormous variation even from field to field. It would be prudent to know the distribution of yields and rainfall too. In a bad year you have to make the bank payments anyway. I haven't said anything about cash flow.
As Red Greene might say, "Here near Valladolid everybody is above average". This land is productive. Average yield may approach 5000 kg/ha. That's what I'm being told. Those are different numbers. Using the same costs a farm that breaks even at 2.84 tonnes/ha makes 91,434€. A 500 ha. farm would earn 223,920€. And this is a better than average year. These farmers are making it.
However, you can't plant fence to fence every year. There's a rotation. Some land is fallow. So, to be able to plant 500 ha you have to control a lot more which would make a difference if renting.
Well, how about 1000ha? ¿130,794€ on average?
¡Au Contraire, mon amie!
No way, José
You have to buy more machinery. I may have already been too generous to assume trade in values of 40%. There is no way you can run machinery harder and assume the same.
There is other pressure too. You've got, at most, 60 days to get that crop in. A combine can work about 30 ha/day. It could do more if the fields were especially large. But it can't work every day. Some days it rains even in places that only get 374 mm/yr. So assuming you can work 40 days - the rest of the year the combine stays in the barn - you can harvest a maximum of 1200 ha. But only if you have a way to keep the grain off the combine - 2840 tonnes! Think of it as 110 tractor trailer loads. At these levels you need both more tractors and more tractor drivers.
Almost nobody in Spain farms that much land anyway. If they do they have lots and lots of equipment and the people (usually relatives) to run it. I have no idea how to lay out a capital budget for a farm that size. I wonder if these farmers are able to do it themselves. Most farms here are probably in the 200-400 ha. range. Remember, 253 is break-even and if they are larger they rent land. More cost, more equipment, lower margins, an even larger break-even threshold - very, very capital intensive.
There are other questions. How exposed are European farmers to changes in the dollar exchange rate that don't mirror wheat prices? I don't know. But they are completely exposed to changes in market prices. None of them are hedged in any way. None. Some things are still very primitive here. Their customers? The wholesalers, co-ops and brokers? Probably hedged, but I don't know.
You can toy with these numbers. Most importantly, what happens if you have a dry year and miss the average of 2.84 tonnes/hectare? Likely you go broke!
These people are in a "FARMS RACE" to get bigger and bigger and buy bigger and bigger equipment and at each step it takes more and more capital to compete. I think these numbers are close enough to show that earnings alone are not sufficient on average to provide the capital to keep these farms competitive - even if all earnings were retained. Which is to say that unlike the days before tractors when the farms could support everybody who worked them, average farms support nobody.
The only way an average farm can manage is with the complicity of the EU "Common Agricultural Policy" (CAP) which is uniform throughout the EU. Unlike the US the subsidy goes directly to the farmer based on the number of hectres he farms. Not on production. (Though it is adjusted to be higher on more productive land.) Tobacco subsidies once worked like that in the US. CAP insures that those who have already gone "all-in" have continued access to capital and that others are kept out of the business. One consequence is that land which becomes idle, for whatever reason, say a farmer retires, becomes worthless; 40€/yr. if you are lucky enough to rent it. Though average land probably wouldn't bring that much. And the really big farms, being more capital intensive still, may be closer to the edge and even more reliant on the CAP.
Centrally planned agriculture and its mis-allocated capital, touches everything and the payments are huge. As much as 400€/ha annually and there additional programs for building barns and buying equipment.
Perhaps worst of all young people are having nothing to do with it. Even in the most productive areas the people who are farming today are those who have always done so. The ones who were here before tractors. These farmers have done their best to change with the times. They have gone "all in"; expanded, rented land, bought equipment. It might appear they control a lot of capital, but this too is ephemeral. Machinery becomes obsolete quickly. The only thing they will be able to leave their children will be their "Rights" (that's what they call what may be better called an allotment) to the CAP. They own those rights, but they are something their children who won't be farming will be compelled to sell on.
To be sure, health care is better. Doctors are better trained and farmers have better access to them. Caloric intake has improved and there is no comparison to harvesting a field by hand and driving an air-conditioned combine. But they have given up everything they had in exchange. These farmers have become slaves to the CAP.
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