Lack of Economies of Scale

Back in August, we shared a post about why small farms often struggle to succeed. I spent some time reviewing various articles I had collected, alongside resources from state agriculture sites and the USDA, to gather these insights. Although these reasons aren’t in any particular order, each one plays a significant role in affecting small farms.

Lack of Economies of Scale

One primary challenge for small farms is their inability to compete with the production costs of larger farms. We experienced this firsthand as we visited restaurants and grocery stores, hoping to establish sales relationships. We quickly found it impossible to match the prices offered by larger producers. Compounding this challenge were certain government policies that further tilted the playing field.

For example, one day Beth approached a Mediterranean restaurant, offering samples of our lamb to the chef. After discussing our products, he was upfront: “We’d love to buy your lamb, especially since you’re local, but we just can’t meet your price point. We’re able to source lamb from Chicago that’s shipped from Australia at around $1.90 to $2.20 per pound.”

Beth and I were both taken aback by this. It became clear that, at that price point, there was no feasible way for us to sell to restaurants or grocery stores without taking a significant loss. To put this into perspective, this situation occurred around 2013–2014, but the overall pricing and market dynamics haven’t changed much since. The cost of raising lamb on a small farm in the U.S. is simply higher than in countries like Australia or New Zealand, largely due to subsidies and finely tuned management systems abroad, allowing them to maintain low costs.

When dealing with grocery stores, we were asked to meet a price of about $3.80 per pound. But for us, our breakeven point was around $4 per pound, with wholesale prices closer to $5.00–$5.50. So why consider a loss? In the beginning, you often accept lower profits to establish your brand. However, given the vast difference in price, we opted to explore other options.

Pivoting Our Market Strategy

Realizing that competing with lower-cost lamb was unsustainable, we made a decision: we would target a different market altogether. Our goal was to reach upscale customers who valued quality over price. Many small farmers make the mistake of focusing solely on fairness and equity, but these ideals don’t always translate into profit.

We marketed our lamb as “natural” rather than pursuing USDA Organic certification, which we found to be compromised. By emphasizing our lamb’s natural quality, we created a product that could appeal to discerning buyers who sought premium, locally sourced meat.

This strategy required time and effort. We carefully priced our cuts to ensure profitability and turned to media outlets and local channels for marketing. We targeted areas with potential, such as Columbus—about an hour and a half away—and the nearby university, gradually building a loyal customer base.

As our customer base grew, we developed ways to keep buyers engaged. For instance, we offered family packs and half-lambs at slightly lower prices, which benefited both our customers and us by reducing inventory fluctuations and increasing profit stability.

Lessons Learned for Small-Scale Farmers

The journey of a small farm is undoubtedly challenging. For those starting out in selling meat or produce, my strongest recommendation is to identify and pursue an upscale clientele. Competing with grocery chains and big-box stores, along with low-cost imports, is a race to the bottom that most small farms can’t win. Instead, focus on building a niche market and loyal customer base willing to pay for quality.

A well-known figure in the sustainable agriculture world serves as an example of this approach. His success, contrary to popular belief, wasn’t just due to his marketing prowess. Much of it stemmed from selling to upscale clientele in the affluent D.C. area—a market that sought healthy, clean food and could afford premium prices. His story shows that targeting the right customer base is crucial to long-term success.

At the end of the day, it’s vital for small farmers to approach their business with a realistic outlook. Relying on ideals of fairness and equity, while admirable, may not ensure profitability. Instead, by strategically positioning your farm and product, you can create a more sustainable path to success.