October 27, 2011
by Allan Nation
There is very little “natural” about the typical multiple enterprise farm or ranch.
In contrast to the close intermingling found in nature, most multiple enterprise farms firmly separate the species.
Pigs are in their own pens or paddocks. Chickens in theirs. Cattle in theirs. And, so on.
There is no synchrony or self-reinforcement.
Separate feeds are formulated and used.
In most cases, the feed fed to the pigs and chickens is grown somewhere else.
In all such cases, the manure eventually produces a nutrient imbalance both where it is fed and where it is grown.
Because the animals are penned in close proximity to each other, animal health problems can be severe without chemical intervention.
So, why do we do it this way?
Because it is simple. And because it is simple it requires little knowledge and training time.
We can and do teach people right off the boat how to do it faster than they can learn English.
Your CPA loves it because it is easy to allocate costs and determine economic results.
And, there are a million very helpful salesmen willing to solve any and all of your problems just a phone call away.
But, it is a long way from capturing solar energy in a crop and direct-harvesting it with animals.
Even when the chickens, pigs, sheep and cattle are fed their precision formulated feeds on pasture, it is not a “natural” system.
While farmers and ranchers have been busy imitating industry, a handful of urban economists think that nature offers an economic model to industry. This is called “Holonic Development.”
This “natural” way of business organization was first discussed by Arthur Koestler in his book called The Ghost in the Machine.
In studying living organisms, he saw that entirely self-supporting, non-interacting entities do not exist.
Every living organism is dependent upon other independent living organisms for its survival. The key word Koestler emphasizes here is independent.
He noted in nature that no one had to organize and manage what was in essence a very complex operation.
Each organism is a self-managing “whole” unto itself and yet plays an integral role in another “whole”just by doing its thing.
Koestler noted that while nature was very complex it was very stable, highly resistant to disturbances and yet adjustable to change in the environment.
In contrast, industrial systems were very brittle because there was no self-reinforcing mechanism or synchrony in its various parts. And, the more “efficient” it became the more brittle it became.
For example, today’s industries are dependent upon supply chains that stretch around the world. They are totally dependent upon low-cost, uninterrupted transportation.
If a hurricane ever hits a major container port, it will send economic shock waves around the world.
In addition to being very brittle, Koestler said that for there to be synchrony in an industrial system required a huge amount of communication and coordination between its various parts. As a result, management consumes a great deal of economic margin.
In contrast, nature hums along with no one in charge.
Koestler said this was because of the independence of the parts of the whole.
No one has to teach a pig to eat cow manure. It just “knows” to do this.
The pig is free to grow and develop fully as a pig and yet it is dependent in this situation upon there being a cow for its survival. The pig was a pig and yet a part of the cow and the cow was a cow and yet part of the pig.
While mutually beneficial to one another, the cow and the pig did not have to communicate or coordinate their actions or even fully understand one another. What a lowering in management and input costs if a business could be structured in the same way! Koestler hypothesized that it was this factor of self-management of the smallest parts of the whole that gave nature its stability and resilience.
He called these small independent business pieces of the bigger puzzle holons and a holonic organization a holoarchy.
The primary business he called the “centerpiece.”
He described the centerpiece in Star Wars terms as “The Mother Ship.”
Unlike an enterprise, a holon’s primary role is to reinforce and strengthen the centerpiece rather than to be a freestanding enterprise.
He said what makes a good holon is something that re-uses a pre-existing knowledge and capability and requires little no additional overhead. In fact, its primary job is to spread pre-existing overhead over new dollars.
The “profit” a holon makes is often called “contribution to overhead”in accounting terms. Follwing Koestler’s ideas, for the last dozen years or so we have structured our multiple income source publishing company as a holoarchy and it has proven to be a workable if somewhat hard to explain business structure.
It is hard to mesh with modern accounting because holons seemingly have no overhead costs and so can appear vastly more profitable than the centerpiece enterprise.
However, this high profitability is largely an accounting illusion.
To put this in our manure-eating pig context, the pig appears to be pure profit because the manure has never been seen as - or accounted for - as a feed resource with value.
However if the manure begins to be charged to the pigs as feed, the profitability of the cow herd will go up with no extra effort or expense.
If effect, the pigs create value from nothing. This is the way holons “pay” their way.
They increase the profitability of the centerpiece by utilizing wasted resources and by amortising overhead costs including marketing costs over more dollars. Those of you who are direct-marketing know that it costs very little more in extra marketing costs to sell several items at a farmers’ market as opposed to just one.
Similar cost savings can be obtained in labor as well.
Joel Salatin said he is able to sell his grassfed beef for the lowest price in Virginia because he can spread his fixed labor costs over 13 enterprises.
“The problem with single enterprise farms is that they typically have to pay for more labor than they actually need,” he said.
“For example, no grassfed beef operation requires an eight hour day but it is hard to hire someone for less than a full day’s work. Our unfair advantage is that we can lower our fixed labor costs (four full time workers) by fully utilizing it. This allows us to sell our beef at a lower price than someone who only produces beef.” Since holons are normally structured to only account for their direct costs, it is easy to lose sight of the fact that it is the Mother Ship (centerpiece) absorbing the overhead costs that makes the holon even possible.
Holons are an excellent way to bring a child or other family member on board your operation. They can start part-time and have their own business to manage and grow.
By tying effort to financial result, they can “make” their own money without having to communicate or coordinate closely with you.
If you reallocate your costs, you will find that each holon that is added increases the profit of the centerpiece with no extra effort on your part. You want a higher income but more leisure time? Holons are a way to do it.
Koestler recommends that starting a new holon should start with finding someone to be responsible for it. If not, it should require next to no additional time on your part.
The point he makes is that a holon that takes management time away from the centerpiece can cost more than it earns.
The best way to keep the labor costs low is to make the companion species few in numbers and essentially free-ranging. This can be done by keeping one-wire fences high enough to allow companion species to cattle to go underneath. With goats you can build narrow goat steps over the fence that only they can use. Pigs will shift with the cattle as they prefer fresh manure.
In summary, the best judge of whether you have a holon or an enterprise is whether or not you are having to buy feed for it.
If you are buying in feed, you have an enterprise. If the animal is living on a feed resource that is unused by the centerpiece species -and therefore free - you have a holon.
No matter where you account for it, free feed is a great way to increase your operation’s bottom line.
© by The Stockman Grass FarmerRead More Articles