The farm setting of Animal Farm makes sense in terms of using animals as the characters because that is a place where animals of different species live together and basically get along. The animals are domesticated and largely peaceful, in contrast to a wild setting where their coexistence might not make as much sense. In chapter I, when the animals gather in the barn, George Orwell largely paints a harmonious picture, such as by having Clover, the mare, carefully watching over the ducklings.
On a farm, the animals’ labor and reproductive output contribute to the human owners’ well-being, so the parallel between the proletariat and animals is logical. This parallel is also established in chapter I, in Old Major’s speech. The elderly boar first paraphrases the English philosopher John Hobbes, who wrote of human life being “brutish,” and then uses Marxist terms and ideas.
"Now, comrades, what is the nature of this life of ours? Let us face it: our lives are miserable, laborious, and short…. No animal in England knows the meaning of happiness or leisure after he is a year old. No animal in England is free. The life of an animal is misery and slavery: that is the plain truth.”
In terms of Orwell’s intended allegory of the Soviet Union, the farm analogy is especially apt. One the Soviet farms, the collectivization of agriculture was an important development. The need to modernize technology and productive process on this “old-fashioned” farm is like that addressed by the former Russia’s new rulers, who developed several Five-Year Plans. In chapter V, Snowball spends countless hours working on plans for improvement, including the construction of a windmill. He "was full of plans for innovations and improvements. He talked learnedly about field drains, silage, and basic slag...[A] windmill...could be made to operate a dynamo and supply the farm with electrical power. This would light the stalls and warm them in winter."
Because the animals are dependent on the farm’s produce for their sustenance, the coming of winter is a significant issue, which figures into the increasingly conflicts between the leaders.