Does It Make Financial Sense?
Now that the list has been narrowed down, it is time to see if the enterprises that have been chosen meet the financial goals you have in mind. It’s also important to realize that how you farm is as relevant to profitability as what you grow. Even farmers who all grow the same thing will experience a wide range in profitability depending on their efficiency, markets, scale, and expenses. A report called Grower to Grower: Creating a Livelihood on a Fresh-Market Vegetable Farm from the Univ. of Wisconsin illustrates this idea.
Perhaps the most difficult part of getting started in farming is putting together a realistic budget for your new enterprise(s). There are hundreds available online, but often they are out-of-date; not relevant to your scale, growing methods, or market; or focus only on a single vegetable (which isn’t all that helpful if you’re planning a CSA with 150 vegetable varieties).
So what to do?
- First, you need to know what your farm’s fixed costs are: mortgage, taxes, insurance, and depreciation on buildings. If you’re intending to make a living from your farm, the sum of all your enterprise revenues need to generate a profit above and beyond their variable costs (labor, fertilizer, seeds, marketing costs, electricity, etc) and the farm’s total fixed costs. (Scroll down to find sources for enterprise budgets and some tips for figuring out what these costs might be if you haven’t yet started farming)
- Track yields and revenue carefully. One option is to start growing your product on a small scale and use a simple spreadsheet to keep really good records. If it’s not feasible to assemble an enterprise budget as you go, seek out farmers growing similar crops for similar markets to yours, and learn what you can from their finances.
- Invest minimally in infrastructure for the first year or two. This way, you can develop very accurate cost and profitability records for an enterprise. Caution: As you scale up the enterprise, you may incur extra costs that weren’t required at the micro-scale (for example, needing to rent commercial freezer space for your poultry when your operation outgrows your home chest freezer)
- Cultivate a local farmer mentor (or other professional to advise you) who may be willing to review a budget you come up with, and may even be willing to share numbers from their own farm.
- If you’re in NY, NY FarmNet has consultants who can help you develop an enterprise budget. In other states, search for a local beginning farmer service provider on the Who Can Help? map
Develop Your Own Enterprise Budget
You can download this enterprise budget worksheet (.pdf format) template from the University of Vermont to assemble this information, plugging in your best estimates or actual costs and revenues as you go.
Enterprise Budgets Online
- The National Center for Appropriate Technology (NCAT) has published dozens of helpful mini-books on specific enterprises (from pastured poultry to paw-paws, grass-fed beef to blueberries, and everything in between) Each of these mini-books has economic info that is useful in building your enterprise budget. Most of the mini-books have a small price tag attached. Visit the Master Publication List and search “poultry budget” or whatever type of enterprise interests you.
- Vegetable, Fruit and Cut Flowers grown in high tunnels/hoophouses or greenhouses
- Veggie Community Supported Agriculture (CSA) Budget courtesy of Hawthorne Valley Farm (.DOC)
- Customizable Poultry Budget and poultry processing calculator from New Entry Sustainable Farming Project in MA
- Ethan Roland of AppleSeed Permaculture has collected enterprise budgets from all over the internet and makes them available for download (a 130MB file!) from his blog – these include the Penn State Ag Alternatives budgets and many more
- We can’t recommend enough the book by Richard Wiswall, The Organic Farmer’s Business Handbook: A Complete Guide to Managing Finances, Crops, and Staff – and Making a Profit. A search online will turn up several sources for purchasing the book. The author includes many crop budgets and a CD with spreadsheets you can adapt for your own farm.
More info to help you with budgets:
Crystal Stewart, a vegetable farm educator with Cornell Cooperative Extension in the Capital District of NY, put together the following ideas to help you develop a realistic budget if this is your first time:
Pricing seeds/transplants: You can work with your seed catalogs to price out seeds, or talk to the greenhouses where you purchase transplants to get up to date figures for flats of transplants.
Johnny’s Select Seeds has some nice tools to help you with calculating seed needs. First, it will help you figure out how many seeds you need for a certain length of row (for example, 100 feet of beets). Use their seed calculator to determine quantities you’ll need. Next, price your seed. You can use any catalog to do this.
Pricing your equipment: This will be tough if you don’t already have equipment. If you have a tractor, fill it with fuel and use it for exactly one hour. Go back and top it off with fuel again, so you know how much fuel you are using in an hour (pick an average task like discing, and an average speed. There will be some variation, but this gives you a good starting point). Price the fuel used in an hour, and use this number as a per-hour use cost. Remember, when calculating your cost for products, you also need to put in fixed costs so that your enterprises will eventually pay for the cost of replacing equipment. If you bought a tractor for $15,000 and you think it will be useful for 10 more years, the yearly cost will be $1500 spread over all enterprises. If you have 10 enterprises that use the tractor equally, each one will need to cover $150 worth of fixed tractor costs per year, plus the variable costs of the tractor (fuel). Remember to do this will all fixed costs when pricing your enterprises!
If you do not have a tractor, you can try shopping around to see what you might spend on a tractor. If you are going to use a tiller, the same ideas apply as with a tractor, but the tiller is smaller/cheaper and you put in more labor per acre.
If you are far from owning a tractor because you haven’t started your enterprise, you can skip this step for now and focus on some of your other costs.
Labor: In order to get an accurate idea of labor costs, you will need to monitor your activities during the growing season. Carrying around a piece of paper with you in the field is a great way to do this. When you start and complete each activity, note the time and the activity. After a while you will know how long it takes to weed the lettuce or stake the tomatoes. Or, you can look at the Roxbury farm website for some start-up numbers: www.roxburyfarm.com Go to the “Information for Farmers” tab and look at the crop manual. Looking at the other resources might also be very useful.
Visit the Achieving Profitability tutorial to learn some Pricing Strategies.
If you would like to compare your prices to those across the country, the following are good places to start. These references mostly list wholesale prices, which you might receive if you were selling to a food co-op, distributor, or grocery store. Retail prices may be marked up by 30% to 100%, depending on the product at the market. Or, you can visit grocery stores off-season to create estimates for retail pricing. During the market season visit other farmers’ markets to gain more accurate pricing for your product. Remember, you also have to look at your cost of production when setting prices. If you develop a budget based on prices you saw at someone else’s farm, make sure you can generate enough profit at this price point to cover your own profit needs, or else consider whether you could raise the price by distinguishing your product.
Agriculture Marketing Service: Find information of pricing from terminal markets on a daily or weekly basis. Wholesale information, and custom reports that provide retail information.
Rodale Institute Pricing: Find information on organic prices, and compare them to conventional. Wholesale information.
The Top of the Pyramid
All of the steps on the pyramid are important. As you get closer to the top of the pyramid, it is crucial to make sure that the choices you make will meet your future needs. Therefore, developing and reviewing budgets should be done with the support and advice of other key members of your farm business, and if possible, a farmer-mentor or advisor. Your local Extension Educator may also be a good resource in reviewing your budgets and offering suggestions.
Congratulations! You have made it to the top of the pyramid. What have you learned climbing up the pyramid? What enterprise(s) have made it to the top? Do you need to refine the list any more?