Assessing the Economics of Crop Choices on a Start-up Market Farm
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Eric & Joanna Reuter
Chert Hollow Farm, LLC
Assessing the Economics of Crop Choices on a Start-up Market Farm
January 16, 2012
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Brief farm overview
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#$
Chert Hollow Farm, LLC
Columbia Farmers Market
Customer counts up to ~4,000 (Saturday morning)
80+ vendorsFarm also sells to
restaurantsIn 2012 farm converts
to CSA
Farm founded in 2007Certified-organic produce
since 2009
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Diversification/on-farm fertility
Intensive vegetable production in permanent, no-till beds, >1 crop/year
Two vegetable growing areas, ~1.5 acres total, space limited
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Geologists/natural scientists by trainingThink on long time scalesData orientedFocus on soil health & ecologyRespect for the complexity of the ecosystem
processes that provide the context of our farming
Eric: Full-time farmer since 2007
Joanna: Full-time farmer since 2009Employees: part time, paid in product
Our background & perspective
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Crop profitability assessmentAcknowledgment of Wiswall’s approach
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An excellent resource with methods to assess crop profitability (& much more):
• Crop enterprise budgets account for cost of:• Labor• Machinery• Input/products• Overhead• & more
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An excellent resource with methods to assess crop profitability (& much more):
• However:• Assumes extensive
& detailed records that a new farm may not yet have
• Even an established farm may not have full detail of records desired, especially for time budgets
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Crop income comparison modelOur approach
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Simplified version of reality
Captures key features, leaves out some details
Useful in planning
What is a model?
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Goal: To analyze and explore the economics of crop choices in a relative context
for use as an aid in crop planning
What it will look like: A spreadsheet listing crops with data and calculations that capture the
essence of crop income considerations for a farm
To derive calculations, start simple and add improvements: Estimate gross income potential Account for the fact that not all of the harvested crop is likely to sell Account for expenses of producing specific crops, ignoring overhead Account for growing time (quick vs. long-season crops)
Data sources: For best results, use on-farm data for yield, price, and other factors For new crops, or if records are incomplete, use published data and/or
estimates
Crop income comparison model
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Simple crop income assessment:
Yield data sourcesKnott’s Handbook for Vegetable Growers (Maynard & Hochmuth, 2007, 5th ed.)
Commercial production data for diverse vegetables
Johnny’s Selected Seeds catalog Commercial/market data for veggies
How to Grow More Vegetables (Jeavons, 2007, 7th ed.)
High-end yields assuming intensive production, lots of compost
Midwest Vegetable Production Guide for Commercial Growers, http://www.btny.purdue.edu/Pubs/ID/ID-56/
Small set of regionally appropriate yields; cringe-inducingly non-organic
Online searches
[units] are in brackets
gross income potential [$] area [area]
marketable yield [weight] area [area]
= price [$]__ yield [weight]
*
Use published data to assess potential new crops
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Price data sourcesOther vendors at market Don’t forget that these may
include sales taxGrocery store prices Available any time
USDA Agricultural Marketing Service: http://www.marketnews.usda.gov/portal/fv
Wholesale prices, tend to be very low; available past & present
Use published data to assess potential new crops
[units] are in brackets
Simple crop income assessment:
gross income potential [$] area [area]
marketable yield [weight] area [area]
= price [$]__ yield [weight]
*
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Crop type Yield, in pounds per 100 ft2 (Knott’s average)
Price, in $ per pound (~market rate)
Gross income potential, in $ per 100 ft2
Summer squash 37 $2.25 $83Tomato 66 $2.75 $182Sweet corn 25 $0.85 $21Radish 21 $5.50 $116Pea 9 $7.50 $68
Crop comparison examplegross income potential [$] area [area]
marketable yield [weight] area [area]
= price [$]__ yield [weight]
*
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Account for the fact that not all of the harvested crop is likely to sellOf the marketable crop that makes it as far as
the packing shed, how much is actually sold? Define the sales factor as the percentage of
marketable crop that is sold
sales factor (%)
marketable yield [wt] area [area]
= price [$]_ yield [wt]
*expected gross income [$] area [area]
*
gross income potential [$] area [area]
marketable yield [weight] area [area]
= price [$]__ yield [weight]
*
Started with:
Incorporate sales factor:
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This number may be hard to pin down for many crops, as it may vary considerably over time, but its presence is a reminder that income projections should not be based on total harvestable yield.
Dependent on: Storage characteristics of item
Okra = highly perishable, sell ASAP or lose Garlic = highly storable, sell over period of months
Supply; the quantity ... ...that we offer (more or less predictable/controllable) ...that competitors offer (more of a wildcard) ...that the food system offers (example: hardneck garlic)
How item is displayed/offered for sale Bundles vs. bulk Often hard to sell out 100% because of small-stand syndrome
Demand Customer preferences/whims; food fads Edamame...chef told us he was “moving beyond the Japanese food craze”
Sales factor: % of crop sold
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Crop comparison examplesales factor (%)
marketable yield [wt] area [area]
= price [$]_ yield [wt]
*expected gross income [$] area [area]
*
Crop type Yield, in pounds per 100 ft2 (Knott’s average)
Price, in $ per pound (~market rate)
Gross income potential, in $ per 100 ft2
Sales factor(estimate)
Expected gross income, in $ per 100 ft2
Summer squash
37 $2.25 $83 75% $62
Tomato 66 $2.75 $182 75% $136Sweet corn 25 $0.85 $21 95% $20Radish 21 $5.50 $116 80% $92Pea 9 $7.50 $68 95% $64
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This is just gross.
What about net?
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To make crop choices, do not necessarily need to know true net
Ignore overhead expensesIgnore “base” crop expenses—expenses that are
more or less similar for every crop and thus cancel out when considering relative crop profitability
net income gross income
expenses= -
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Farm expenses
Overhead
expenses
Expenses that are necessary to the overall operation of the farm,
but cannot be allocated to a specific crop
Market fees & expenses
Management/accounting
Utilities
Advertising/website
Base crop
expenses
Expenses that benefit several consecutive
crops or are necessary for the farm function as
a whole
Fertility amendments
Weeding
Expenses that are similar for all crops (& thus cancel out when
considering relative crop profitability)
Bed preparation
Irrigation infrastructure
Crop-specific expense
s
Expenses that are incurred in association with one specific crop
Transplants (greenhouse
expenses, etc.)Trellising (twine,
labor)
Row cover
Harvest, washing, & packing
Classifying expenses Examples
Only need crop-specific expenses for relative crop income assessment
Classification of crop expenses may vary among farms
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Classification of crop-specific expenses may vary among farms Is the cost different enough between different
crops to be worth accounting for in detail?Subdivide labor expenses from other
expenses (products/inputs)Estimate as needed for time budgets
Our independent estimates were very close to each other for the five example crops
Classifying expenses
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net income
expected gross income [$] area [area]
sales factor (%)
marketable yield [wt] area [area]
=
price [$]_ yield [wt]
* * -
relative crop income [$] area [area]
crop-specific expenses [$] area [area]
=relative crop income [$] area [area]
- crop-specific expenses [$] area [area]
An important equation, but not the subject of this presentation:
Instead, use this:
Substitute previously derived equation for expected gross income/area:
Normalize by area:
gross income
expenses= -
relative crop income
gross income
crop-specific expenses= -
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Crop comparison example
sales factor (%)
marketable yield [wt] area [area]
=
price [$]_ yield [wt]
* * -
relative crop income [$] area [area]
crop-specific expenses [$] area [area]
REINSERT TABLE HERECrop type
Yield, in pounds per 100 ft2 (Knott’s average)
Price, in $ per pound (~market rate)
Gross income potential, in $ per 100 ft2
Sales factor
Expected gross income, in $ per 100 ft2
Crop-specific expenses, in $ per 100 ft2
Relative crop income, in $ per 100 ft2
Summer squash
37 $2.25 $83 75% $62 $91 ($29)
Tomato 66 $2.75 $182 75% $136 $91 $45Sweet corn
25 $0.85 $21 95% $20 $18 $2
Radish 21 $5.50 $116 80% $92 $45 $47Pea 9 $7.50 $68 95% $64 $46 $18
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Account for growing timeNumber of days in ground (or allocated to the crop)To estimate, use “days to maturity” data from seed
catalogs (plus a buffer, esp. for crops with long harvest period)
time in ground [time]
sales factor (%)
marketable yield [wt] area [area]
=
price [$]_yield [wt]
* * -
relative crop income [$]_ area [area] * time [time] crop-specific
expenses [$] area [area]
( )
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Crop comparison example
time in ground [time]
sales factor (%)
marketable yield [wt] area [area]
=
price [$]_yield [wt]
* * -
relative crop income [$]_ area [area] * time [time] crop-specific
expenses [$] area [area]
( )Crop type
Yield, in pounds per 100 ft2 (Knott’s average)
Price, in $ per pound
Gross income potential, in $ per 100 ft2
Sales factor
Expected gross income, in $ per 100 ft2
Crop-specific expenses, in $ per 100 ft2
Relative crop income, in $ per 100 ft2
Time in ground, in days
Relative crop income, in $ per 100 ft2 per day
Summer squash
37 $2.25
$83 75%
$62 $91 ($29) 90 ($0.32)
Tomato
66 $2.75
$182 75%
$136 $91 $45 100 $0.45
Sweet corn
25 $0.85
$21 95%
$20 $18 $2 80 $0.02
Radish 21 $5.50
$116 80%
$92 $45 $47 40 $1.19
Pea 9 $7.50
$68 95%
$64 $46 $18 70 $0.26
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Other factors that are not quantified by this model: On the spectrum of heavy feeder to nitrogen fixer, where does
crop fall? Do leftovers have value even if they don’t sell?
For our pantry, employee pay, food bank, pig/goats/chicken, or the compost pile?
What additional expenses might be incurred as a result of growing decisions (& are these costs worth it if they might be avoided with other crop combinations?): Will extra cooler space or a new trailer be needed because of too
much bulk at a given time? Do specific crops or combination of crops increase the farm’s
resilience to extreme weather? How is work load distributed in crop production?
Heavy up front (work happens even if crop fails) Heavy at harvest (work only happens if crop is successful)
Additional considerations for crop choice
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Data sourcesOur farm’s yield data vs. generic yield dataSame prices, sales factors, and crop-specific expenses,
used in both calculationsCrop type Knott’s average yields Chert Hollow Farm, LLC
yields (2010)Yield, in pounds per 100 ft2
Relative crop income, in $ per 100 ft2
Yield, in pounds per 100 ft2
Relative crop income, in $ per 100 ft2
Summer squash
37 ($29) 65 (includes some seconds)
$18
Tomato 66 $45 45 (very approx.,
included some dud varieties)
$2
Sweet corn 25 $2 Did not grow n/aRadish 21 $47 ~21 (with
greens)$47
Pea 9 $18 21 (snow peas) $104
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Once data are in a spreadsheet, there are many opportunities for data exploration
Ask the question: What can be done to make a crop more profitable? Would we be better off raising the price & selling less?Would reducing picking frequency and accepting more
overgrowns improve profitability through lower labor requirements?
Would reducing production to ensure regular sell-outs improve profitability?
Is trellising worth the hassle? (Compare yields & time budgets for bush & pole beans or peas)
Data exploration
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Record-keeping suggestions
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Using on-farm data
Data needs:YieldArea plantedPriceSales factorTime a crop is in
groundCrop-specific expenses:
Products/inputsLabor
Why collect your own data?Results are as good as
the data you put inBetter understanding of
strengths & limitations of the numbers
Way to assess year-to-year variation
time in ground [time]
sales factor (%)
marketable yield [wt] area [area]
=
price [$]_yield [wt]
* * -
relative crop income [$]_ area [area] * time [time] crop-specific
expenses [$] area [area]
( )
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Area planted: Planting plan &/or seeding/transplant record sheets
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Yield data: Harvest record sheet
Developing an effective record sheet is an iterative process If it is not being used or if it does not have the
information needed, it is not effective; change itPitfall: inconsistent units
Try to use consistent units (weight, volume, or count) on harvest and sales records
Label containers with tare weightAlso record conversion factors between weight & volume
(for example, 1 pint edamame = 0.5 lbs) or weight & count (x peppers = y pounds) so can convert if needed
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Time in ground
End date: Look for date of last
harvest
Start date
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Price data: Market records & invoices
market prices(include sales
tax)restaurant
prices
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Sales factor: Market record sheets&/or compilation of harvest & sales records
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Compiled from various sources:Receipts, bank records (need these for the IRS
anyway)Records of materials used (twine, irrigation,
etc.)Labor expenses:
Employee time sheetsTask logs, crop journal
Crop-specific expenses
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Plan record keeping to fulfill your data needs (not just what the certifiers or bureaucrats require)
Harness the records that you haveAnalyze data even if on-farm records aren’t
perfect; fill in with estimates or use off-farm data as needed
Improve record-keeping methods each year
Record-keeping summary
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Reasons to diversifyRisk management (Grohsgal,
Growing for Market, Oct. & Nov. 2006)Work load distribution over
timeRotational considerations
(nutrient use, disease)Enjoyment of growing,
experimenting with, & eating diverse plants
Not enough market to make a full living off of very few crops
Efficiency in:PlanningRecord keepingPlantingHarvestCrop profitability
analysis Customers often can’t
absorb full diversity of complex stand in a busy market
How many types of crops?Reasons to simplify
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This method is:Flexible enough to be tailored to farm-specific methods &
conditionsUseful for assessing crops even if they have not been
grown on a farmBest with good on-farm records, but still useful even if
farm records are incomplete or imperfectUseful for considering ways to improve profitability of a
given crop
Crop income comparison model
time in ground [time]
sales factor (%)
marketable yield [wt] area [area]
=
price [$]_yield [wt]
* * -
relative crop income [$]_ area [area] * time [time] crop-specific
expenses [$] area [area]
( )