Final Report for FNC02-417

Project Type: Farmer/Rancher
Funds awarded in 2002: $6,000.00
Projected End Date: 12/31/2003
Region: North Central
State: Missouri
Project Coordinator:
Earnie Bohner, MSPH
Persimmon Hill Farm
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Project Information

Summary:

Persimmon Hill Farm Background:
My wife and I began our farming operation in 1982 with the planting of 2 acres of high bush blueberries. Since that time we have added 2 additional acres of blueberries, 1 acre of blackberries, a few gooseberries, apples, and of course, shiitake mushrooms. We are primarily a you-pick farm that emphasizes the concept of a family farm experience. We have been involved in value adding on our farm for about 18 years and have over 25 products that we make on the farm. We sell most directly to our farm guests, but also sell wholesale to a number of retailers. We have an internet site, www.persimmonhill.com, and conduct mail order sales as well. A partial list of our added value products include: 7 varieties of jams, 3 varieties of berry-flavored BBQ sauces (all have won ribbons at the American Royal “World Series of BBQ Sauces” Annual Championship in Kansas City, Missouri), 2 butters, Blueberry Thunder Muffins, blueberry lemonade frozen drinks, Shiitake Mushroom Sauce, our farm’s honey, buttermilk biscuit mix, dry shiitakes, croutakies, the second edition of our Persimmon Hill Farm Berry Cookbook, raspberry vinegar, dried blueberries, chocolate covered cherries, and 7 different kinds of cobblers.

Our Shiitake Operation:
We have recently focused our attention on our shiitake mushroom operation in an attempt to make it more profitable. While shiitakes have always been popular with our farm guest, they are not as popular as our fruits and other products, so we maintained a relationship with a few upscale restaurants to provide them with shiitakes during our primary shiitake harvests in the spring and in the fall. This worked out well since this was also the busiest season for our local restaurants. As the Branson area grew in popularity as a tourist destination, the tourist season began starting earlier in the spring and extending further into the winter. Some resort restaurants are destinations in themselves, so they became a potential market for year-round sales of shiitake.

This brings us to the questions, which stimulated our on-farm marketing research:

1. How important is it for a chef/restaurant food buyer to buy from a vendor who can supply product on a year-round basis rather than on a seasonal basis?
2. Does a chef/restaurant food buyer’s perception of capability/reliability go along with your-round service?
3. Will year-round availability of shiitake improve our sales?
4. Would restaurants use more shiitakes if dishes incorporating them could be offered year-round?
5. Would the necessity of changing the menu be a factor without year-round availability?
6. Does the increased sales of year-round production justify the increased cost of year-round production?
7. Is there an economy of scale working in this scenario?

Our Plan
1. We compiled out records documenting all production and sales on our farm for the last 2 years of shiitake production (10/25/99 to 10/24/00 and 10/25/00 to 10/24/01), completed without the use of any indoor facility.
2. We established a plan based on our mushroom production experience and the expertise of Agricultural Engineer Bob Schulteis to construct a building the size of which would be commensurate with our marketing goal. Our goal here was build a fruiting facility that is extremely efficient in its use of energy, keeping it warm in the winter and cool enough in the summer. Second, but just as important, we constructed the building in a way that would make mushroom production extremely labor efficient.
3. The previously mentioned building was constructed.
4. We inoculated additional logs so as to be able to fruit the logs over the winter.
5. We then maintained resource input (energy and labor) records as well as production and sales records to document the value of year-round fruit availability as it relates to the profitability/marketing of fruit from our shiitake operation.
6. We interviewed chefs about their attitudes toward locally grown produce, with particular attention to issues such as price, seasonal vs. year-round availability, quantities, and chef-farmer relationships.
7. Our marketing goal was to establish a relationship with a group of local restaurants with shiitake usage commensurate in size with our production capabilities, and the supply them with mushrooms for the entire year with no gaps in service.

Retrospective Data Collection
In our consideration of our seasonal production records over the period of 10/25/99 to 10/24/00 and 10/25/00 to 10/24/01, we illuminated several important factors.

1. For both of these year-long periods, we found that after all costs were considered, we were at a marginal profit margin for out shiitake operation.
2. Our on-farm retail mushroom sales represented about 55% of our total mushroom sales, and our wholesale mushroom sales to restaurants and other resellers made up the remaining 45% of mushroom sales.
3. It was during this period that we realized that there were enough upscale restaurants in out area whose chefs appreciated the value of shiitake mushrooms to being a concentrated effort to pursue shiitake sales to those businesses.
4. Even though the romance of having locally grown mushrooms served us well, we found that our intermittent seasonal supply of shiitake mushrooms proved to make it difficult to market seriously to restaurant chefs and managers who seemed to prefer consistent supplies from their vendors.

Our Building
The concept of producing shiitake mushrooms on a year-round basis is not a new one and after raising them for a number of years, it becomes obvious to a grower exactly what he/she needs to construct a growing area that will match his/her particular cultural practices. Our greatest challenge was to develop a building that was efficient with regard to maintaining a proper fruiting environment as well as structured to be an efficient work environment as well. Our construction was basic using conventional building techniques and well-proven energy conservation techniques.

Our shiitake fruiting building has proven to be functional and well suited to our farm’s cultural practices.

• We had a reduction of 46.6% in our energy cost per pound of shiitake mushrooms produced, as compared with our energy cost for production in our converted greenhouse the previous year.
• We were also pleased with our facility’s efficiency of production. Our cost per pound of production was 38% less when comparing the new fruiting building with our outdoor system. While we recognize that some of this increased efficiency is likely correlated with the increased volume, our experience shows an identical 38% decrease in labor costs per pound of production.
• We believe that our labor efficiency improvement has been buffered somewhat by the increase in log inoculation this year over previous years. The added expense for additional logs inoculated inflates cultural costs because it is a year before we will realize increased production from the additional inoculation effort. With the inclusion of the extra cost of inoculating additional logs for use next year, it decreases this year’s efficiency in cost of cultivation per pound of mushrooms produced.
• We have noted a significant improvement in the mushroom quality coming form logs that were fruited in our fruiting building. This not only improves our overall quality, it also reduces the number of unusable mushrooms that we produce due to incontrollable environmental factors such as rain splash, slugs, rain soak, rodent problems, etc.

Results
Comparing our old means of production with our new production facility, we were able to produce 263% more pounds of shiitake mushrooms in the new building than via our traditional seasonal production. Those mushrooms cost us 38% less to produce in the new building than using the seasonal production facility. When using seasonal production, we were only able to produce mushrooms 6 months of the year. With our new building, we were able to produce all year long. By producing shiitake 12 months out of the year, we were able to significantly increase our wholesale sales. As a percentage of the total sales, wholesale production increased from 45.5% in the seasonal comparison years to 88.5% when selling on a year-round basis. During the time under consideration, the actual value of retail sales stayed nearly the same, varying by only a few hundred dollars. The negative, of course, is the significant capital expenditure for the building, which was over $16,000, the cost of which we believe is worthwhile when one considers the length of time it will be used.

Even though our year-round production building has greatly cut down on the percentage of #2 shiitake mushrooms we produce, the greater quantity we are now producing has increased the number of #2 mushrooms. We find that we will have to either increase sales of our value-added products using shiitake or develop another product to utilize the extra mushrooms.

Making Year-Round Production Worthwhile: Selling the Shiitake
In our experience of seasonal shiitake production and our brief experience with year-round shiitake production, we have had the opportunity to interview about 20 chefs and food buyers about their views on direct purchases from farmers and their ideas surrounding seasonal vendors vs. year-round vendors. A summary of those communications is below:

We found that the best market for our shiitake is upscale restaurants for several reasons: first, they normally employ chefs who know about the value of shiitake. Second, these same chefs have an appreciation of the freshness of locally grown produce and typically even believe that it is worth the extra effort to deal with one more vendor, the shiitake grower, in order to obtain the freshest ingredients.

The downside, as seen from the restaurant’s perspective, of a restaurant dealing with an individual farmer is the extra time it takes out of his/her schedule to deal with one more vendor. When you look at a chef or food buyer’s position he or she is responsible for negotiating the purchase of literally hundreds of ingredients to support food preparation, and there are institutional food purveyors that carry many if not all of the ingredients needed by the restaurant. Having one or two sources for ingredients greatly simplifies the life of a restaurant food buyer who can make a minimum number of calls and have the ordering completed. One can imagine how impossible it would be for a food buyer to contact the producer of each product to confirm availability, delivery times, etc. the bottom line is that we, local farmer, have a wonderful product desired by chefs, but we must make it as painless as possible for them to obtain it. As an individual with one product, the farmer has little to offer to simplify the food buyer’s job, but a great deal to offer when it comes to food quality and local color. So our job is to offer the best quality of product possible and consistently provide immediate, no-hassle service.

To carry this thought into year-round vs. seasonal production of shiitake is then pretty simple. Even if a farmer with a seasonal product provides his/her product perfectly, on time etc., at the end of the season the food buyer has to end the account and establish the parameters for that item with another vendor. Even if such a transition is with a large food vendor, it is just one more thing to do that complicates the restaurant staff’s job. When we come into season again, we have to go back to the food buyer and go through the process of getting our product back online with them. If we are lucky enough to have a product that we can provide year-round, our produce is even more attractive to the food buyers and chefs.

Summary/Conclusion
Direct Answers To The Questions We Posed At The Onset Of This Producer Grant-Funded Project:
1. How important is it for a chef/restaurant food buyer to buy from a vendor who can supply product on a year-round basis rather than on a seasonal basis?
It is not essential that a producer supply product on a year-round basis to restaurants since upscale chefs have an ability to be flexible with foods that are in season locally and this helps them change up their menu, which is helpful to maintain customer interest. If the producer is providing a product that is or becomes a staple for the restaurant, then the value of a consistent source for the product is greatly appreciated by the chef/food buyer. Having a solid, consistent source for an important ingredient seems to be well appreciated by the restaurant staff.
2. Does a chef/restaurant food buyer’s perception of capability/reliability go along with year-round service?
The relationship that we have established, with the chefs and restaurant food buyers, is significantly better since we switched to the year-round sales of our shiitake mushrooms. Chefs have seemed pleased that our produce is available to them on a year-round basis. However, as previously stated, seasonal production has its place and can fit in with a creative chef’s offerings.
3. Will year-round availability of shiitake improve our sales?
With out a doubt, our effort to provide shiitake on a year-round basis has greatly improved our sales. Increase sales have been seen in two ways: first, obviously, just offering a product over a 12 month period as opposed to a 6 month period should nearly double sales. Second, sales per order have increase as well. I think this is mainly due to our commitment to the chefs in each restaurant that we are their prime supplier of shiitake mushrooms. They seem to respect our commitment and inmost cases have no need to order form anyone else. While there is till an adequate market for shiitake on a seasonal basis and this is absolutely where a small grower should being having the capability of year-round production has greatly improved our sales. However I believe that this success had been based significantly on our initial marketing of shiitake on a seasonal basis.
4. Would restaurants use more shiitakes if dishes incorporating them could be offered year-round?
Yes. We have found that it is not difficult to market the idea of having shiitake mushroom soup through the winter instead of just using mushrooms at times they are typically seasonally available. Obviously, the bottom line here is restaurant patron’s interest and orders placed for entrees with shiitake mushrooms. It should be noted here that while subtle shiitake recipe suggestions can be offered to chefs, being too aggressive in such suggestions is foolish and can potentially be counter productive.
5. Would the necessity of changing the menu be a factor without year-round availability?
This depends greatly upon the type of restaurant and the skill of the chef involved. Some restaurants have a stock and trade menu and in a sense are just selling “widgets.” They have “X” number of items on their menu, the menu items are all moving, customers have no complaints, so why make more work? These restaurants are not likely going to be the ones that hold on to creative staff members, their menu is set and they have little to no room for daily innovation or change. Any seasonal change in the menu is unlikely to happen. These are not our customers anyway, as shiitake tend to be more interesting to more upscale restaurants that generally tend to have more flexibility with a creative staff and customers that appreciate the same. Our inroad is with a good chef who is creative and ready to take advantage of our unique local mushrooms and then we service that business well so that our produce becomes an integral ingredient in many items they offer.
6. Does the increased sales of year-round production justify the increased cost of year-round production?
We feel that the cost of our shiitake fruiting building has justified the capitol expense for its construction. We base this on the first year of production and, as any farmer knows, “stuff happens” both in production as well as in marketing. Please consider the following:

• Building construction costs $16,000 + (we project that after all of the building is up to speed, we will have slightly less than $20,000 invested in the building).
• Cost of production per pound of shiitake mushrooms has decreased 38% with the use of the year-round facility.
• Labor costs decreased by 38% with the use of the year-round facility.
• We had a 342% increase in total sales, including retail and wholesale sales. This increase was due to the increase in wholesale sales as retail sales remained about the same.
• We had a 265% increase in on-farm production of shiitake over our seasonal production methods. (Our increased production was not sufficient to fulfill the demand, so we had to rely on another grower to help us meet our commitments on a number of occasions. We have made adjustments in our systems, so we anticipate being able to meet the demand in 2004.)

We assumed that we would have increased costs of production with our year-round facility. However, due in part to our increase production, which made our cost per pound of shiitake decrease, and our much improved labor efficiency, which had the same effect, we have realized a decrease in cost per pound of production instead of an increase.

7. Is there an economy of scale working in this scenario?
As with many farming operations, big can be more efficient in the production of shiitake also, and with the management of a large operation, I suspect that there would be more room for error and the importance of efficiency might not be as crucial. However, I can comfortably say that with the efficient use of energy and systems to improve efficiency of labor in production, we are able to operate a relatively small shiitake operation (less than 10,000 logs) in a way that can produce a profit. At this time we are not at peak efficiency of our operation and anticipate that with some fine-tuning, we will be able to further improve on our efficiency.

People Participating in the Project
Curley Miller – Outstanding Shiitake Producer – Helped us fill in gaps when our production did not meet the demand of our marketing.

Bob Schultheis – Agricultural Engineer with University of Missouri Extension – Helped us with the proper design of our building, particularly focusing on materials that would be strong enough for our application.

Ancelmo Lumus – Shiitake Yard Manager of Persimmon Hill Farm – Maintained production records, provided input for building construction and worked in the construction as well.

Pasquel Rangel – Kitchen Manager of Persimmon Hill Farm – Aided with harvest, provided input for building construction, kept data regarding harvest.

John Luecke – Metal Instructor for the Lives Under Construction Boys Ranch – Set all steel and supervised his students in the construction of equipment they built for the project.

Reid Bohner – Our son – Helped primarily with construction, some harvesting, and editing of final report.

Savannah Bohner – Our daughter – Helped with the construction, some harvesting.

Ron Macher – Publisher of Small Farm Today magazine – Aided in the general marketing principals used by our farm and for his continued push to think outside the cube.

Project Impacts Include the Following:
1. Provided our farm with additional cash flow during our slower times.
2. Provided is additional labor for our workers so that they can remain fully employed with our farm all year long.
3. Reduced the amount of energy used, both human energy and hear energy, to produce a pound of mushrooms, therefore making us more efficient and more sustainable economically.
4. Allowed us to take a careful look at our past marketing of shiitake mushrooms and develop a plan to improve our marketing and sales of product thus that farm enterprise more efficient and more profitable.

Outreach
The outreach component of this project initially involved the development of a report available for distribution to individuals particularly interested in the marketing of shiitake on a year-round basis. This has been written and is found as a component of this report. In addition to this project report, we plan to also do the following:

• Continue conducting farm tours as interested individuals come on to our farm. This has been done since the onset of our shiitake production and will continue with the inclusion of the marketing information gleaned form this on farm project.
• Our annual Persimmon Hill Farm Blueberry Festival always attracts a good crowd (200+) and tours have always been made available to those special-event farm guests. Again we will include the marketing information gleaned from this on farm project.
• We receive phone calls, letters, and emails from individuals interested in shiitake production and will continue to respond to those queries with the marketing information gleaned form this project.
• On February 16th, 2004 our farm is hosting a group of farmers from the Small Fruit Conference held in Springfield Missouri. This conference always contains a segment on alternative crops and always has individuals that are interested in shiitake production. I suspect that our amercing project will be of interest to the group. This group of farmers will tour our farm, and we will include the marketing information gleaned from this on farm project in our farm tour.

A Note on Outreach
I believe that sharing information is a critical component to the success of small farms today, and farmer to farmer contact can never be replaced as the most efficient means to build the local body of farming information. With that said, I believe that it is a huge responsibility of those receiving said information to sue that knowledge responsibly. By this I mean that by the very nature of small farm nitch marketing we rely on specialty markets whether they be local or unique situations on a larger scale which means that our markets remain rather volatile with regard to supply and demand. The take home message here is that if a farming operation is replicated within the same market if there is not adequate business than both operations can be ruined.

Program Evaluation
I was impressed with the way the program has been conducted and enjoyed Ken Schneider’s visit and appreciated his ideas as well. I have no suggestions for the improvement of the program other than to maintain its availability as it allows a farmer to justify a careful evaluation of a component of his/her operation.

Research

Participation Summary
Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.