Final Report for LNC01-194
Growing produce is not the biggest challenge facing most fresh market vegetable growers; earning a reasonable living poses the greatest challenge. One way for farmers to analyze their operations in order to better meet their financial goals is to share information through farmer networks, conferences and coffee shop talk. Farmers may feel reluctant to share sensitive financial information, however.
From 2002-2004, the Center for Integrated Agricultural Systems worked with a group of 19 growers on a participatory, farmer-led SARE research and education project. The growers collected data on their sales, labor and other aspects of their businesses. They then created financial ratios that allowed them to compare small, medium and large operations in a way that respected their confidentiality. Their goal was not to provide a complete economic analysis of their operations, but to provide a basis for comparisons between farms. Growers wanting a standard economic analysis of their farms can use traditional balance sheets, financial statements, and cash flow statements.
There is no ideal size for a fresh market vegetable farm; growers need to use their management skills and economic analysis tools to figure out the scale and level of mechanization that makes the most sense for them. The information contained in this case study can help guide growers as they set goals for their farms and structure their operations to realize their financial goals.
This case study involved a small number of farms that were not randomly selected. The results, therefore, cannot be generalized to other operations.
PLEASE NOTE: This on-line report lacks the data tables contained in the published report by the Center for Integrated Agricultural Systems. Readers are encouraged to obtain this report by visiting www.cias.wisc.edu or contacting the project PI, John Hendrickson at firstname.lastname@example.org or 608-265-3704.
Most of the farms in this project were located in Wisconsin, although a few were in neighboring states. All but one used organic production practices. They ranged from less than one acre to over 70 acres, and were divided into three scale categories:
Market gardens had fewer than three acres in active production, not including fallow or cover cropped areas. There were six market gardens in this project. Active annual production area ranged from 0.5 to 2.7 acres.
Market farms had between 3 and 12 acres in active production, not including fallow or cover cropped areas. There were eight market farms in this project. Some of these farms were struggling with issues mechanization versus hand labor while others were among the most successful and stable in the study.
Vegetable farms produced crops on more than 12 acres, not including fallow or cover cropped areas. There were five vegetable farms in this project. Four were diversified organic operations. An additional non-organic farm that followed low-input, integrated pest management (IPM) practices participated. Its numbers are not included in the stated averages or ranges. Active annual production acreage size ranged from 15 to 80 acres.
There are many similarities and differences between these farms in terms of marketing, equipment, crops and labor.
Marketing: Selling produce directly to customers was the cornerstone of most of these farms’ marketing plans. Most sold product through farmers’ markets, restaurants and retail outlets, or Community Supported Agriculture (CSA); pick-your-own and on-farm sales were less common. Most of the growers used one dominant marketing outlet along with a few minor outlets.
Equipment: Equipment value was defined as the growers’ estimate of current (resale) value of all farming equipment of lasting or enduring quality, excluding farmers’ personal dwellings and land. This is an imprecise measure that should be treated as a rough guide. Investment in equipment per acre ranged from $2,011 to $26,784, with the smallest farms with no tractor having the lowest investment.
Crops: All of the organic farms in this study grew a variety of crops, although some were more specialized than others. Diversification prevented pest build-ups and provided some insurance against crop failure. But learning to grow many different crops was challenging, and smaller harvests often did not justify specialized equipment purchases.
Labor: Labor hours on the market gardens with fewer than three acres ranged from 933 to 2,994 hours per acre, and averaged just under 2,000. Payroll amounted to between 0% and 42% of gross sales. The 3 to 12 acre market farms ranged from 402 to 1443 labor hours per acre and averaged just under 850. Payroll expenses consumed as much as 34% of gross farm sales. The four large-scale organic vegetable farms ranged from 462 to 613 total labor hours per acre and averaged 554. Payroll expenses consumed between 19% and 41% of gross farm sales.
The growers participating in this case study tracked their expenses, sales and labor hours over the three years of this project. The growers helped choose what data to collect and how to analyze it. They opted to compare the annual net cash income they earned from their farms without including factors such as depreciation, opportunity cost, prescribed machinery use costs and land values. In their own words, they wanted to know “how much cash they had at the end of the season to provide for themselves and their households—and perhaps take a vacation.” The averages and ranges for some measures are shown below. The growers used additional ratios that are described in the full report.
Gross sales per acre: Small plantings of organic, fresh market vegetables, herbs, flowers and berries can garner large gross sales. The farms in this study realized average annual gross sales between $6,267 and over $25,605 per acre based on three-year averages of land in production that year. The most impressive gross sales per acre were seen at the smallest scale of production. These gross sales per acre figures are based only on the land being used for cash crops in a given year. If land in cover crops or fallow land were included, these figures would be lower for most farms. Some farms had additional farm income from enterprises such as eggs, chicken or beef, which were not included in this study.
Net Cash Income per acre: Expenses, especially labor costs, can quickly eat into gross sales on a vegetable farm of any size. Net income matters most in terms of financial sustainability. The term net cash income is used in this report to describe a farm’s gross sales minus all current year cash expenses. Factors such as depreciation, opportunity costs, prescribed machinery use values and land values were not included. Market gardens experienced more year-to-year variation in net cash income per acre than the two larger farm types.
Community Supported Agriculture (CSA) can help stabilize income. CSA farms are assured relatively stable sales because members pay for their shares at the beginning of the year. Other sales are subject to the vagaries of the marketplace and weather.
Comparing net cash income to gross sales: Dividing net cash income by gross sales results in a net cash to gross ratio. Higher net cash to gross ratios were strongly associated with farms that concentrated on CSA. The smaller farms with higher net cash to gross ratios had lower payroll expenses, with the farmer doing the bulk of the work and keeping more money. Some larger farms maintained high net cash to gross ratios through careful training and management of labor crews.
Hourly wage: Hourly wages were calculated by dividing the growers’ reported net cash income by hours worked. Most of the small market gardens provided part-time livelihoods for the growers. For most of the market farmers with 3 to 12 acres in production, farming represented a primary or full-time livelihood. Farming was a full-time livelihood for all of the vegetable farmers with over 12 acres in production.
Quality of Life
All of the growers in this study reported that they were generally, but not overwhelmingly, pleased with their quality of life. They would like more personal time, health insurance and retirement security. The mid-and large-scale growers also felt that dedicated, skilled employees would improve their quality of life.
There is no universal recipe for success as a vegetable grower. Farmers who excel have a passion for growing and they often have business and marketing savvy. Employee management skills are also important. Keys to financial success included increasing work efficiency and utilizing techniques and tools to keep expenses low. Four of the five farms that focused on CSA as their sole or primary marketing outlet were among those with the highest net cash incomes in the study.
If you would like to learn more about the financial information and ratios described here, contact John Hendrickson at the Center for Integrated Agricultural Systems: telephone: 608-265-3704, email: email@example.com, or visit the CIAS web site at .
Growing produce is not the biggest challenge facing most fresh market vegetable growers. Although each year has its ups and downs of weather, weeds, insects, and other uncertainties, earning a reasonable living poses the greatest challenge. It is easy to locate information on the fertility needs of broccoli and trellising tomatoes. It is much harder to investigate the prospects for making money growing and selling fresh produce. If you wish to earn $12,000 or $36,000 or $75,000, how many acres do you need to farm to reach that target? How much labor will be required? What kinds of equipment and facilities will you need to invest in?
Traditional tools such as balance sheets, income statements and cash flow analysis are critical to understanding the economics of any farm business. In addition, farmers analyze their operations by sharing information through farmer networks, conferences and coffee shop talk. Many growers are looking for ways to collect financial information and comfortably share it with other farmers.
The Center for Integrated Agricultural Systems worked with a group of growers to share financial information in a way that respected their confidentiality and allowed small, medium and large farms to compare their numbers. This was a participatory, farmer-led case study. The 19 growers involved in this effort collected data on their sales, labor and other aspects of their businesses over a three year period from 2002-2004. They then created financial ratios such as net cash income per acre to launch discussions on how to forge a quality livelihood from farming. They used their ratios to evaluate labor needs, product pricing, investment in labor-saving equipment and other decisions.
Most of the farms in the study were in Wisconsin, although a few were in neighboring states. All but one used organic production practices. The farms ranged in scale from less than one acre to over 70 acres. These scales are described as the less than three acre market garden, the 3 to 12 acre market farm, and the greater than 12 acre vegetable farm.
This project helped a group of fresh market vegetable growers analyze and compare their finances, equipment and labor. This case study provides information about gross sales and hourly wages on these farms, as well as how much cash the participating growers had on hand at the end of each growing season. Because this case study involved a small number of farms that were not randomly selected, the results cannot be generalized to other operations.
The farms in this project achieved impressive gross sales per acre, especially at the smallest scales. Earning decent net cash income (gross sales minus all operating expenses except depreciation and the opportunity costs of unpaid/family labor) was a challenge complicated by labor needs and expenses, equipment needs and repairs, and yearly vagaries in markets and weather. Three year average net cash income for the farms in this study ranged from under $2,000 to over $8,000 per acre. Average per hour wages were about $7.45 for all of the participating farmers, with larger farms generally, but not always, providing higher hourly pay.
While fresh market vegetable growers need a variety of tools in order to evaluate the sustainability of their operations, participants in this project found it very helpful to compare their financial data to farms of similar and different scales. There is no ideal size for a fresh market vegetable farm; growers need to use their management skills and economic analysis tools to figure out the scale and level of mechanization that makes the most sense for them. The information contained in this case study can help guide growers as they set goals for their farms and structure their operations to realize those goals.
Funding for this farmer-driven project came from the USDA Sustainable Agriculture Research and Education Program.
An Overview of Context and Participating Farms
Organic, fresh market vegetable farming represents an important, viable agricultural business opportunity for growers in Wisconsin. This popular, expanding form of agriculture appeals to those with a passion for growing fresh, high quality food. These growers share a commitment to farming approaches that emphasize soil health and prohibit the use of synthetic pesticides and fertilizers. The organic marketplace has averaged 20% growth over the past decade, creating opportunities for existing and beginning growers.
Consumers have also come to recognize the value of locally grown food. This has contributed to the growing popularity of farmers’ markets, community supported agriculture (CSA, see explanation on page 5) and other forms of direct marketing. Across the Upper Midwest and in other regions, increasing numbers of farmers and consumers are working to create sustainable systems where organic food can be grown and sold mostly within local markets. Fresh market vegetable farms of all sizes contribute to local economies and provide employment opportunities. They also perform valuable educational and social functions in connecting consumers with the source of their food.
The majority of organic, fresh market vegetable farms are small by conventional standards. For this publication, the market garden is defined as an operation with fewer than three acres in active production, not including fallow areas. Market gardens are capable of producing significant quantities of food or flowers per acre. The small size of a market garden often reduces the amount of machinery and hired labor a grower needs. There were six market gardens in this project ranging from 0.5 to 2.7 acres in active production. Two were separate enterprises that shared equipment and greenhouse space. The market gardeners had an average of 10 years of experience at the beginning of the project.
Market gardeners are most often part-time vegetable growers. All of the market gardeners in this project had additional household earnings from another job, an additional farm or home enterprise, or a partner or spouse with off-farm employment.
The market farm is defined here as a mid-size operation with between 3 and 12 acres in active production. At this scale, a farmer or family typically works to secure a full-time livelihood from a relatively modest operation without the equipment costs and labor management issues associated with larger vegetable farms. There were eight market farms in this project, with an average of 10 years of experience at the beginning of the project. They ranged from 3 to 11 acres in production, not including fallow land. At certain points in this report, this group is divided into farms under and above six acres. Some of the farms below six acres rely mostly on personal or family labor, while those above six acres more often need significant hired help and equipment.
These mid-size vegetable farmers must strike a balance between employees and mechanization. Some of these farms are large enough to require a relatively significant investment in equipment and facilities, but not large enough to achieve a reasonable return on that investment, or even afford some types of equipment. If mechanization is shunned in favor of hand labor, payroll expenses can greatly diminish net cash income for these farmers. At this scale, some farms were struggling with these issues while others were among the most successful and stable in the entire study.
Vegetable farms, as defined in this project, produce crops on more than 12 acres. They typically have large work crews, invest more than $100,000 in their farms, and are more likely to sell wholesale than smaller operations. Labor management is a primary activity at this scale of production. Farms above 12 acres most often have a fleet of tractors and a wide range of implements. Harvest and post-harvest handling are more likely to be mechanized, although significant hand labor is still required.
There were five farms larger than 12 acres in this project. Four were diversified organic vegetable operations. An additional non-organic farm that followed low-input, integrated pest management (IPM) practices participated in the project. Its numbers are not included in the stated averages or ranges but present an interesting contrast in terms of labor inputs, sales, net cash income and other characteristics. These growers averaged 20 years of experience at the beginning of the project. Farm size ranged from 15 to 80 acres, with an average of 37 acres in active production. Two farms expanded by at least 20 acres during the course of the project; the others stayed about the same size.
There are expanding market opportunities for large scale, wholesale-focused organic vegetable farms, especially in large urban markets such as the Twin Cities and Chicago. Nationwide, over 70% of supermarkets now carry organic products, and natural food retailers in the region are expanding. Despite these marketing opportunities, the number of larger organic vegetable farms does not seem to be increasing at the same rate as smaller operations. The reasons for this are unclear, but may include hesitation about labor management and equipment costs. Smaller scale vegetable farmers may also be lured by ideals about quality of life on small farms and therefore not interested in larger scale vegetable farming.
There are many similarities and differences between all three scales of farms in terms of marketing, equipment, crops and labor.
Selling produce directly to customers was the cornerstone of most of these farms’ marketing strategies. Ten of the farms sold product at farmers’ markets, where customers seek high quality produce. Fourteen sold directly to restaurants or retail outlets such as natural food stores, cooperatives and supermarkets. This direct wholesale marketing usually brought these farmers higher prices than selling through a distributor. While vegetable growers also sell directly to customers through pick-your-own and other on-farm sales, these strategies were less common in this project.
Another marketing option used by 13 of the 19 farms was Community Supported Agriculture (CSA). CSA customers become farm members by paying for a share of the harvest at the beginning of the season. This membership or share price entitles them to weekly deliveries of whatever is being harvested. The CSA farms in this study served from 25 to 35 member households per acre.
All of the growers in this project generally followed diversified marketing schemes. Among the market gardens under three acres, all but one sold produce through more than one outlet, with an average of 2.5 marketing strategies per farm. These strategies included farmers’ markets, CSA, selling to restaurants and retail stores, and on-farm sales such as pick-your-own or farm stands. However, all but one farm had a clearly dominant marketing avenue that accounted for at least 70% of sales. One farm sold its produce exclusively to CSA members. Having a focused marketing plan seemed to work well for most of these growers, although they valued having several sales outlets.
Like the smaller market gardens, the 3 to 12 acre market farms engaged in an average of 2.5 different marketing strategies per farm. Five of these eight farms used a focused marketing approach. One farm sold all of its produce to restaurants and retail stores, and another sold 80% of its products at farmers’ markets. Three farms were exclusively, or almost exclusively, supported by CSA members. Based on data collected in this project, a hypothetical six-acre CSA farm could supply food for 150 to 200 member households, have gross sales of $80,000 and a net cash income of around $40,000. The remaining three farms engaged in multiple marketing efforts including farmers’ markets, CSA, restaurants, retail stores, a distributor, and on-farm sales.
The vegetable farms over twelve acres also tended to be diversified with a clear marketing focus. The four organic farms averaged 3.4 marketing outlets, which is slightly more than for the smaller farms. Three of these farms had a dominant marketing strategy accounting for at least 80% of gross sales. Although larger farms are more apt to sell wholesale, these four farms sold large amounts of their product directly to consumers as well as wholesale markets. Each sold produce via the CSA model. Using data from this project, a 20-acre CSA vegetable farm might supply food to as many as 600 member households. The non-organic farm sold all of its product, in addition to produce purchased from neighboring farms, at a well-established roadside stand.
It is possible to operate a market garden of less than three acres with little more than a shovel, rake, hoe and garden hose. However, most serious market gardeners acquire labor-saving tools such as walk-behind rototillers, mowers, small greenhouses and small refrigeration units. Some growers, especially those farming more than an acre, use small tractors with a limited array of implements.
The market gardeners owned farming equipment that ranged in value from $2,011 to $26,192 per acre. Those without tractors had equipment valued at $4,000 to $6,000 per farm. Market gardens with tractors had equipment valued at $12,000 to over $40,000 per farm. The growers who spent the most money on equipment had been in business longer, were using the equipment for another farm- or home-based enterprise, and/or had made the decision to buy a new tractor.
Experienced market gardeners advise beginning growers to first purchase equipment that will support the back end of their operations. A small walk-in cooler to maintain high product quality or an irrigation system to assure consistent yields and quality might be more important early purchases than a tractor.
A market gardener with one or two acres may be able to operate with a sturdy walk-behind tiller. On 3 to 12 acre market farms, it is more efficient and easy on the body to use small tractors and implements such as a plow, rotovator, mower, field cultivator and transplanter. Walk-in coolers, greenhouses for transplant production, and hoophouses for crop protection and season extension are found on most market farms. Growers in this project felt that market farms need, at a minimum, a reliable tractor (and often a back-up tractor), a rotovator to incorporate cover crops and prepare ground for planting, a walk-in cooler to maintain product quality, and an irrigation system.
The estimated current value of farming equipment on the 3 to 12 acre market farms ranged from $1,543 to $26,784 per acre, with an average value of about $10,500 per acre or $60,000 per farm. The median value was just $7,500 per acre, as two farms had considerably higher estimated equipment values. Farms under six acres averaged around $50,000 in equipment while those above six acres averaged $70,000. Equipment values were not always directly related to farm scale. Three of the eight farms carried debt on their equipment that ranged from $1,200-$90,000.
Vegetable farms over 12 acres have considerable equipment needs, unless a limited range of crops is grown. These farms often have a fleet of at least three tractors and numerous implements for tillage, cultivation, cover crop management and harvesting. Some have several small tractors with specific cultivating tools mounted and ready to go at a moment’s notice. Large vegetable farms tend to have relatively sophisticated post-harvest handling facilities. A typical setup includes a designated building for washing, grading, sorting, bagging and cooling produce. Multiple walk-in coolers are often used to accommodate vegetables with different optimal holding temperatures.
The estimated current value of farming equipment on the large-scale organic farms ranged from $4,054 to $12,915 per acre. The non-organic farm had less than $36,000 in equipment, but only farmed 17 acres and produced a limited array of vegetables on 17 acres. The organic farms had equipment valued at over $7,454 per acre on average. Two farms had higher equipment values per acre—around $12,000—while the two others were much lower: $4,054 and $6,106. These latter two farms carried debt on their equipment.
The final report published by CIAS includes an appendix C which details sample equipment options at different scales of operation. There is also a sidebar which contains information about facility space requirements (greenhouse, cooler, packing area) per acre for fresh market vegetable farms.
All of the organic farms in this study grew a variety of crops for farmers’ markets, although some were more specialized than others. Crop diversity provided these farmers with a degree of security. In a given year, some crops may have fared poorly but others performed well. Diversity enabled crop rotations that prevented pest build-ups, although rotating crops was hard for growers with limited space. On the other hand, diversification challenged farmers to become adept at growing a wide variety of crops. Especially at smaller scales, it was difficult for diversified farms to justify buying specialized equipment because smaller harvests usually did not warrant significant equipment expenditures.
Labor impacts sales, net cash income and quality of life on all farms producing fresh market vegetables. Planting, cultivating, harvesting, washing, packaging and selling produce are labor-intensive activities, even at a small scale. In addition, marketing, sales and deliveries require a significant time investment. Vegetable growers spend considerable time during the off-season planning, marketing, repairing machinery, updating records and ordering seed and supplies. Vegetable production is a year-round vocation.
Labor hours on the market gardens with fewer than three acres ranged from 933 to 2,994 hours per acre, and averaged just under 2,000. These growers performed anywhere from 33% to 98% of the total labor hours in their enterprises. Payroll amounted to between 0% and 42% of gross sales, with an average of 22%. The farm with the highest labor needs and payroll grew berries as a primary crop.
The 3 to 12 acre market farms in this study ranged from 402 to 1443 labor hours per acre and averaged just under 850. Farms under six acres averaged 1,000 labor hours per acre, while farms over six acres averaged 700 hours per acre. The market farmers in this project contributed 40% to 97% of the total labor hours in their enterprises themselves. The four market farms over six acres typically managed crews of four to eight workers. Payroll expenses consumed as much as 34% of gross farm sales, although the average was 16%.
Vegetable farms over 12 acres often have crews of 10 or more people during the growing season. A 20-acre vegetable farm may require 12,500 or more total labor hours per year. The four large-scale organic operations ranged from 462 to 613 total labor hours per acre and averaged 554. The farmers themselves accounted for between 17% and 45% of the total labor hours in these enterprises. Payroll expenses consumed between 19% and 41% of gross farm sales (average of 32%). This average may be low, given that one of the farms used unpaid volunteer labor from CSA members. In contrast, the non-organic farm logged only 166 labor hours per acre.
1. Growers and farm support personnel will increase their knowledge and understanding of the economics of fresh produce farming and direct marketing.
2. Growers will adopt and maintain successful record-keeping systems.
3. Growers will adopt new decision-making methods, management approaches, cropping and harvesting systems, technologies, or marketing strategies to make their farms more profitable and improve their quality of life.
Because this project required trust and collaboration among growers, the farms were not randomly selected. Selected growers were willing to share their financial information. In addition, growers were chosen to represent a variety of scales, marketing avenues and levels of experience. While 24 farms initially participated in the project, this number dropped to 19 because some farms chose not to continue and others did not fit the project’s goals and objectives. In order to protect growers’ identities, this report does not share complete data on individual farms.
The growers helped choose what data to collect and how to analyze it. They opted to compare and contrast the annual net cash income they earned from their farms without including factors such as depreciation, opportunity cost, prescribed land use values and prescribed hourly machinery use costs. In their own words, they wanted to know “how much cash they had at the end of the season to provide for themselves and their households—and perhaps take a vacation.” Because of this, the financial figures discussed in this case study present a different picture than a standard economic analysis, which would include depreciation, opportunity costs, prescribed machinery use costs and land values. See the published report from the Center for Integrated Agricultural Systems (www.cias.wisc.edu) more information on the data collected for this project.
The benefit of the approach used in this case study was that the growers actively participated in the research process and decisions, and helped define project objectives. The ratios provided a useful tool for growers to compare their economic performance without divulging sensitive figures. However, the picture represented here is partial. The results of this work cannot be generalized to other farming operations. The numbers here cannot be compared to standard economic analyses and should not be used by any grower approaching a banker for a loan. The analysis is intended for real-time comparisons of operations and, if used as part of a long-term plan, should be considered alongside traditional financial statements including balance sheets, income statements, and cash flow statements.
Growers were compensated for their time in collecting the data and their travel costs associated with the annual meetings when the group gathered to share and discuss the data.
The farmers participating in this case study identified financial indicators they wanted to track and kept diligent records of these numbers over the three years of the project. Tracking expenses, sales and labor hours helped them set prices that covered their costs, and put them in a better position to make decisions that could improve their efficiency and quality of life. They used ratios—numbers in relation to one another—such as net cash income per acre and labor hours per acre to compare their numbers in a confidential way with farms of similar and different scales. In order to protect the identities of participating growers, most of the numbers are presented here as ranges and averages.
Appendices in the published final report contain specific descriptions of the data collected for the project and additional comparisons of the ratios for each of the farm scales. There is also a worksheet you can use to collect numbers for your farm and create your own ratios.
Given the high value of organic, fresh market vegetables, herbs, flowers and berries, relatively small plantings can garner large sales. The farms in this study realized average annual gross sales between $6,276 and over $25,605 per acre based on three-year averages of land in production that year. Potential gross sales per acre for cut flowers alone are reported to be even higher.
These gross sales per acre figures are based only on the land being used for cash crops in a given year. If land in cover crops or fallow were included, these figures would be lower for most farms. The farms in this study varied widely in how intensively they used their land and how much land they had available for cover crop rotations.
The most impressive gross sales per acre were seen at the smallest scale of production. The three-year average for the farms under three acres ranged from $8,888 to $25,605 and averaged $15,623 per acre. Two farms influenced this average with gross sales over $20,000 per acre; the median value for these six farms was $13,586. Not surprisingly, labor hours per acre were nearly directly related to gross sales per acre.
For the 3 to 12 acre farms, three-year average annual gross sales ranged between $6,267 and $15,276 and averaged $11,121 per acre. The farms under six acres had a significantly higher per acre average—$12,658—than those farming more than six acres—$9,701. Only one farm that mainly sold wholesale earned less than $8,000 in gross sales per acre.
The four organic vegetable farms over 12 acres realized three-year average annual gross sales between $6,750 and $14,466 per acre. These figures are similar to the gross sales on the 3 to 12 acre farms. The smallest farm in this size category achieved the highest gross sales per acre over the course of the project:
2002: $12,137 2003: $14,575 2004: $16,687 Average: $14,466
The organic vegetable farms earned average gross sales of $10,810 per acre. The non-organic farm, which concentrated on crops such as sweet corn, tomatoes and other standard fare, achieved $2,500 in gross sales per acre.
High gross sales per acre are not always easy to achieve. Local markets and prices significantly influence gross sales potential. Most growers in this case study had access to markets in at least one mid-size town, if not a city such as Madison or the Twin Cities. Smaller farms earn greater gross sales per acre by planting at higher densities, providing more attention and care to crops, growing high value crops for specialty markets, and planting more than one crop on a given area over the course of a season. Greater gross sales per acre may be achievable with extensive use of season extending technologies or in locations with longer growing seasons. Prior to the study, the author had anecdotal evidence that organic vegetables can gross $8,000 to $12,000 per acre. This research confirms this observation, but also suggests that larger gross sales are possible.
Most growers find that they cannot sustain high gross sales per acre as their farms get bigger. Dense plantings become impractical because of the need for tractor cultivation. Growers’ time and attention is spread over more acres and the niche markets for valuable specialty crops may not be large enough to warrant extensive plantings.
Net Cash Income
Expenses, especially labor costs, can quickly eat into gross sales on a vegetable farm of any size. Net income matters most in terms of financial sustainability. As explained in the methods section, the farmers in this study chose not to collect standard net income figures for their operations. Depreciation was not included, but all cash outlays related to depreciable property (such as interest payments) were included as expenses. The value of buildings and land was not included. The group wanted a figure that reflected the amount of cash in hand at the end of the year. The term net cash income is used in this report to describe a farm’s gross sales minus all current year cash expenses.
Three-year average net cash income for the market gardens under three acres ranged from $1,892 to $9,487 per acre, with an average net cash income of $5,664 per acre. This is not a great return for a season’s worth of hard work, especially when a market gardener may have worked 1,500 to 2,000 hours on his or her farm. The highest single-year net cash income per acre recorded over the three years of the project was $17,269 ($8,980 from a half-acre farm) and the lowest was a loss of $1,886.
Nearly all of these market gardens had extremely variable net cash incomes from year to year. For example, over the three years of this project, a one-acre market gardener reported earning annual net cash income of $5,056, $7,753 and $12,260. These figures reflect variation in weather and markets as well as outlays for major equipment repairs and purchases. They demonstrate the challenge of earning a steady livelihood from a small farm.
Three-year average net cash income for the 3 to 12 acre market farms also ranged widely—from $1,331 to $8,547 per acre, with an average of $4,679 per acre. The 3 to 6 acre market farms had a significantly higher average, $5,903, than the $3,550 average achieved on the 6 to 12 acre farms. This is because smaller farms often have lower labor needs and operating expenses than larger farms. At 3 to 6 acres, the farmer or farm couple can still perform a significant amount of the work themselves. The highest single-year net cash income per acre was $9,792 on a farm just above three acres.
While net cash income on individual market gardens under three acres varied widely from year to year, most of the individual 3 to 12 acre market farms realized relatively consistent net cash income per acre. The following net cash income figures were reported by two of these mid-size farms:
Farm Acres in vegetables Total Farm Net Cash Income
2002 2003 2004
Farm 1 4 $35,615 $39,400 $37,821
Farm 2 10 $47,940 $48,750 $46,750
Three farms in this category, including the two in the above table, were established CSA farms. CSA farms are assured relatively stable sales because members pay for their shares at the beginning of the year. Other sales are subject to the vagaries of the marketplace and weather. Earnings on all market farms varied somewhat from year to year as a result of outlays for major equipment repairs and purchases.
Three-year average net cash income for the organic vegetable farms over 12 acres ranged from $1,103 to $7,430 per acre. The average was $3,757. The non-organic farmer earned $1,546 per acre.
Individual larger scale vegetable farms achieved fairly consistent gross sales and net cash income per acre throughout the project compared to the small farms. This is likely due, in part, to the fact that many of the farmers had more experience and established markets for their products. One of the newer, large farms had the lowest sales and net cash income per acre. Furthermore, some of the smallest scale growers were juggling farming with an off-farm job, which could lead to lost opportunities and other struggles. All of the organic farms over 12 acres used CSA, which provided consistent sales.
Crop failures and bumper crops obviously affected net cash income. One farm over 12 acres had a bumper crop of high-value red peppers in the last year of the project that dramatically boosted its gross sales and net cash income. Another farm experienced a loss of a significant crop that caused its sales and net cash income to dip in year two.
Reinvesting in the farm business
Investment in equipment such as tillers, tractors and coolers enhances a farm’s net worth. Adding net cash income to the amount invested back into the farm and dividing by acres in vegetables yields net cash income plus reinvestment per acre. This ratio provides a means to compare farms that are currently making major equipment purchases or repairs.
Each scale group reinvested an average of 13 to 14% of its gross sales in new equipment or major repairs to existing equipment. This demonstrates that some cash will almost always be needed for improvements and repairs. There may be years when reinvestment is low or nil, but other years it could consume 10 to 30% of gross sales.
The average net cash income plus reinvestment for the market gardens under three acres ranged from $3,202 to $10,478 and averaged $7,133 per acre. This is about $1,500 more than their net cash income per acre. Net cash income plus reinvestment on the 3 to 12 acre market farms ranged from $2,651 to $9,807 and averaged $6,141 per acre. This is $1,462 more than their net cash income per acre. On the vegetable farms, net cash income plus reinvestment ranged from $2,169 to $9,526 and averaged $5,049 per acre. This is $1,292 more than their net cash income per acre.
Comparing net cash income to gross sales
Dividing net cash income by gross sales results in the ratio net cash to gross.
The market gardeners had an average three year net cash to gross ratio ranging from 9% to 57% and averaging 36%. All but one fell between 32 and 57 percent. One grower’s ratio was very low due to a major crop failure one year. Although crop failures are part of farming, it is likely that most market gardens can achieve and maintain net cash to gross ratios of at least 40%. Most of these farms had considerably lower net cash to gross ratios in one of the three years. One farmer had ratios of 77% and 80% for two years, but this ratio plummeted to 15% one year due to a major tractor repair.
Most of the 3 to 12 acre market farms had average, three-year net cash to gross ratios ranging from 16% to 57% and averaging 40%. The average was influenced by two farms with average ratios of 16% and 17%. One of these farms had high payroll expenses while the other had unusually high annual operating expenses. Without these two farms, the average climbs to nearly 50%. This seems like a reasonable target for most market farms. Most of the more established farms had higher, relatively stable net cash to gross ratios while several of the newer farms’ ratios increased over the course of the project.
The organic vegetable farms over 12 acres had average, three-year net cash to gross ratios between 16% and 51% and averaging 31%. The non-organic farm came out on top, at 61%. This farm grew fewer crops and therefore had less equipment than the organic farms. The lower net cash to gross ratios on the larger farms result from more wholesale marketing, and may be compensated for by volume. A 30% to 40% net cash to gross ratio may be a practical target for large-scale organic vegetable farms. However, a higher ratio is possible.
Higher net cash to gross ratios were strongly associated with farms that concentrated on CSA. Of the nine farms that had ratios over 50%, eight had a strong CSA component. CSA tends to assure more stable gross sales that are sheltered from unfavorable weather and marketplace fluctuations. Some CSA farms make extensive use of unpaid volunteer labor or have members who barter for their share of vegetables by working for the farm, thereby reducing labor costs. Marketing costs may be substantially reduced for established CSA farms. Crafting a budget and having cash in hand at the beginning of the season may result in more careful spending on CSA farms.
The market gardens and smaller farms with better net cash to gross ratios were those that had lower payroll expenses, with the farmer doing the bulk of the work and keeping more money. Some of these operations had less equipment and did more work by hand. Some larger farms maintained high net cash to gross ratios through careful training and management of labor crews. Several newer farms with low ratios were in the process of buying equipment and expanding acreage. Some also carried debt. Part-time market gardeners with significant off-farm earnings sometimes had lower ratios. Interestingly, in this project, farms in the 3 to 12 acre range were more likely to have net cash to gross ratios near or above 40% than those below three acres or over 12 acres.
An appendix in the published final report provides examples of sales, expenses and net cash income on three of the project farms, one at each scale of operation.
These net cash income to gross sales ratios paint a partial picture, as they do not account for net cash income that was invested back into the farm business. Net cash income plus reinvestment divided by gross sales includes this reinvestment. For this ratio, the market gardens of less than three acres ranged from 23% to 83% and averaged 46%, the 3 to 12 acre market farms ranged from 33% to 67% and averaged 53%, and the vegetable farms with over 12 acres ranged from 32% to 64% and averaged 43%. The non-organic farm ratio for this measure was 66%.
Hourly wages were calculated by dividing the growers’ reported net cash income by hours worked. Hourly wages varied widely for individual market gardeners farming fewer than three acres. For example, one market gardener’s calculated net cash hourly wages were $3.72, $5.54, and $8.83 in each of the three years of the project. The average annual net cash hourly wage for this group was about $5.00. The highest single year net cash hourly wage was $10.68; the lowest was -$2.76, a result of a primary crop failure. An alternative hourly wage can be calculated using net cash income plus the cash invested back into equipment of enduring value. This increased the average hourly wage for the market gardeners to $6.43, ranging from $4.22 to $7.58.
Most of these small enterprises provided part-time livelihoods and were combined with growers’ off-farm jobs, a partner or spouse’s off-farm job, and/or a complimentary small business such as selling other farms’ produce via a farmstand, pastured poultry or crafts.
Net cash hourly wages on the 3 to 12 acre market farms ranged from less than $3.00 to about $17.00 with significant annual variation on individual farms. The average annual net cash hourly wage for the whole group was $7.45. Including cash invested back into the farm, the average hourly wage for these farmers ranged from $4.38 to $20.12 and the average rose to $9.58. Finding and affording appropriate equipment was considered a key challenge by many of these farmers. There is a clear need for tools, equipment and systems that can help these growers work efficiently and reduce labor costs
For most of the mid-size market farmers in this study, farming represented a primary or full-time livelihood. On four of the eight farms, the growers worked part-time off the farm during the winter. On another, a spouse had off-farm earnings. One farm combined its vegetable operation with a large pastured poultry enterprise that was not included in the project data.
While the large vegetable farms typically had significantly lower gross sales and net cash income per acre than the smaller farms, these growers tended to earn higher hourly wages. The three-year average net cash hourly wage for the four organic farmers ranged from $3.46 to $14.90 and averaged $11.36. Three of the farms had very similar averages of over $13 per hour while one earned only $3.46. The non-organic grower’s net cash hourly wage was $6.79 per hour.
Farming was a full-time livelihood for all the large scale farmers in this study. None of these farmers had off-farm jobs, although spouses had off-farm jobs on one farm managed by two partners.
Managing an efficient work crew coupled with an effective line of tools and implements was a key to achieving a decent hourly wage at all scales. Achieving high gross sales per acre also helped. A high net cash income to gross sales ratio did not guarantee a good hourly wage, but a low net cash income to gross sales ratio was always associated with a low hourly wage.
Each farmer brings a different set of experiences, skills, resources, savings and goals to his or her enterprise. Accordingly, financial success is uniquely defined and achieved for each individual. A retiree who operates a market garden on land he or she owns will have different financial needs and goals than a young market gardener who may want to buy a small farm. The growers in this project were passionate about farming and deeply appreciated the farming lifestyle. They may have been willing to accept lower pay in order to achieve quality of life goals that included living and working on a farm.
Larger farms are also building significant equity. When they decide to call it quits, they will have land and equipment to sell. Larger farms also offer the possibility for farmers to sell off a portion of their land upon retirement and still keep a house to live in. Zoning restrictions may limit this option for smaller farms, even if they have enough land to divide and still maintain a house.
Quality of Life
Dollars are not the only measure of success or sustainability. Organic vegetable growers may go into business for other reasons. They may want to live as a farmer in the country, raise their children on a farm, create sustainable farming and food systems, grow healthy food, or restore degraded land. Quality of life is a vital part of the decision to grow and market fresh vegetables.
The market gardeners operating fewer than three acres reported that they were generally pleased with their quality of life, although one expressed frustration because he did not own or live on the land used for production and longed for more stability. All but one market gardener associated larger farms with decreased quality of life and did not have plans to expand. One young couple expanded from two to almost ten acres in year three of the project. This move helped them realize their dream of working together full-time on their farm. All of the market gardeners wanted more personal time, health insurance and retirement security, and increased financial compensation.
The market farmers operating 3 to 12 acres also reported that they were generally pleased with their quality of life. However, nearly all the growers at this scale rated their quality of life with a score of two on a scale of one to four, suggesting room for improvement. Quality of life for these growers was diminished by employee management difficulties and long work hours. All the growers strongly desired skilled, dedicated employees who would stay with the farm for more than one year.
There was a clear and challenging dynamic between the level of mechanization, equipment expenses, and hired labor on the 3 to 12 acre market farms. Most farms associated having more equipment with a more positive quality of life, while several associated mechanization with decreased quality of life. All growers wanted efficient systems that would help them accomplish their work in a timely, effective manner.
Most of these farmers aimed to earn a livelihood from a mid-size farm, although two farmers were planning to expand beyond 12 acres. The other growers felt an increase in farm scale would bring a decline in their quality of life. These growers also desired health insurance and retirement security, networking opportunities with other growers, progress toward developing a sustainable farm, and increased financial compensation.
Like the mid-size market farmers, most of the vegetable farmers with more than twelve acres rated their quality of life with a score of two on a scale of one to four. Employee management issues were the main reason for diminished quality of life for these farmers. Like the mid-size farmers, these growers valued hard-working employees who stayed for multiple years. They put a high value on developing sustainable farming systems and rotations that build soil health and reduce weed and pest pressure.
The growers were unanimous in there sentiment that the project has been invaluable in terms of expanding there knowledge and perspective on the economics of fresh market vegetable farming especially as it relates to scale. A testament to the usefulness of the project is the fact that all the participants were willing to collect data for an additional year (2004), even though stipends and travel expenses were not covered by the project. The growers not only value the time for exchange with their peers but there was a collective sense that three years worth of data would be considerably more valuable than two.
Several of the participating growers have used the information from the project (and interactions with other growers) to implement changes on their farm while others plan to use the data to set goals and make changes on their farm in the near future. It has become clear that it may take longer than initially conceived for some farms to target aspects of their farm for improvement, implement changes, and witness results. This is in part due to the variability in the data from year to year. It will take time for some growers to distinguish patterns and “abnormalities” in the financial performance of their farm businesses using these ratios. It is also true that, given the complexity of the farming systems and the uniqueness of individual farm businesses, it is often difficult to directly see the connection or cause and effect of specific practices and systems and a given financial ratio. However, as stated before, some growers have indeed utilized the ratios and reported on successful changes they have implemented. The following examples demonstrate ways the data from this project can be used by growers.
One farm in the study observed that in comparison to other farms in their scale range, they had very low external labor inputs. Thus, they made the decision to hire more part-time labor in 2003. Because this farm operates as a community supported agriculture farm, they communicated with their membership about this change and increased their share price in order to cover the increase in employee payroll. The end result was one of the best years on their farm in terms of their quality of life (lower stress) and the farm was also financially very solid.
Another farm used the labor hour recordkeeping system to better determine their labor needs as well as make changes to product pricing based on labor inputs and expenses.
One farm used the data to set more realistic (data-driven) income goals on a per acre basis and also uses project data to help set harvest goals for employees and motivate them to work more efficiently and effectively.
Still another farm has recognized that were undercapitalized in terms of equipment in their scale range and thus made plans to purchase some machinery and tools allowing them to work more efficiently and increase the amount they produce. Over the three years of the project, this farms gross income and net cash income increased significantly. Other farms have followed their lead and are using the data to make investment decisions (greenhouse seeding technology, cultivating equipment) based on where they stand to reduce or replace hired labor costs.
These examples provide proof that the ratio tool can and will be used to aid decision-making. As some growers pointed out, however, the ratios alone may be an incomplete tool for decision-making. These growers remain committed to the project and greatly appreciate the perspective that the ratios offer, but believe that the biggest benefit of this project has been the dialogue generated among growers. The exchange of ideas and perspectives on scale, labor inputs, profitability, and quality of life has widened and deepened their perspective and will help them as they continue to strive toward sustainability.
The growers have all been very engaged by the numbers and have greatly appreciated the opportunity this project afforded in terms compiling the data and bring growers together to discuss the issues of profitability and quality of life. Participants engaged in lively discussions about farm scale, profitability, and quality of life at annual meetings. The growers in the project developed a strong sense of trust and spoke very openly and frankly about both financial and personal (quality of life) issues.
The impacts and outcomes of this project will become clearer in the future as participating growers have time to glean lessons from the data and implement changes and witness improvements in quality of life and financial performance. Participating growers have been extremely thankful for the project and its goals. There is strong interest from other growers and farm support personnel in the project and many have been eagerly awaiting the final report, workshops, and other outreach activities.
The farmers participating in this case study were able to earn livelihoods growing and marketing fresh vegetables at a variety of farm scales. Most growers with fewer than three acres in production realized a part-time income, often supplemented by another job or farm enterprise. On 3 to 12 acre farms, there were instances where farmers or farm couples earned between a net cash income of $35,000 and $55,000 from their farms. On other farms at this scale, a spouse worked off farm. On the largest vegetable farms, some households were able to achieve net cash income over $100,000.
The farms in this project achieved impressive gross sales, with the highest gross sales per acre observed at the smallest scales. Although this study was not designed to produce statistically significant quantitative data, average values instead of ranges are reviewed in most of this summary as a means to simplify the discussion. Over the three years of this project, the farms under three acres earned average gross sales of $15,623 per acre. The 3 to 12 acre market gardens averaged $11,121 per acre and vegetable farms over 12 acres averaged $10,810 per acre.
Earning decent net cash income (gross sales minus all operating expenses except depreciation) was a challenge complicated by labor needs and expenses, equipment needs and repairs, and yearly vagaries in markets and weather. Three year average net cash income for the farms in this study were, in some instances, under $2,000 per acre and in other instances exceeded $8,000 per acre.
Gross sales and net cash income varied both on individual farms and across all farms. Variability at all scales was the result of labor needs and expenses, equipment needs and repairs, markets, crop failures and bumper crops, and the weather. Individual large scale vegetable farms achieved fairly consistent gross sales and net cash income per acre from year to year. Individual small farms generally saw more variability. Many of the larger scale farmers had more experience and established markets for their products, which reduced variability. All of the organic farms over 12 acres and three of the mid-size farms used CSA, which provided consistent sales. Net cash to gross ratios tended to be more variable on smaller, newer and/or expanding farms. Expanding farms had higher rates of reinvestment. On the smallest operations, the relative impact of year-to-year gross and net cash income fluctuations was accentuated simply because of the smaller amounts of sales and income.
Per hour wages were generally low, and these farmers worked hard, long hours during the growing season. The market gardeners with fewer than 3 acres worked an average of 2,000 hours per acre at an average net cash hourly wage of about $5. Average labor hours per acre dropped to 1,000 on 3 to 6 acre farms and 850 on 6 to 12 acre farms, with an average net cash hourly wage of $7.45 for all of these farms. Farmers with more than 12 acres worked about 550 hours per acre on average at an average net cash hourly wage of $11.36.
While these average hourly wages were low, the ranges varied widely among all farms. The least variability was seen on the market gardens under three acres, where per hour wages ranged from $3.32 to $6.57. Hourly wages ranged from $2.26 to $16.92 on 3 to 12 acre market farms, and from $3.46 to $14.90 on vegetable farms over 12 acres. Significant variation in hourly wages was seen on individual farms as well. Some of this variation can be explained by season variation in yields, weather and markets. Given that the reported farmer hourly wages are based on net cash income, reinvestment expenses in a given year also caused fluctuations in hourly earnings.
The growers in this study mostly enjoyed their work and felt positive about their quality of life. Employee management issues were considered a primary detriment to a more satisfactory quality of life. The growers suggested that more personal time, earning higher net cash income, and finding reasonably priced health insurance would improve the quality of their lives.
There is significant demand for high quality organic produce and, by selling directly to their customers, the farmers in this study were able to set fair but often premium prices. Most of the organic vegetable growers in this study followed diversified marketing schemes, but many focused on one primary market, usually farmers’ markets, CSA or restaurants.
Keys to financial success included increasing work efficiency and utilizing techniques and tools to keep expenses low. It also helped to develop a particular niche in terms of products or marketing. CSA appears to have been one key to higher gross profit margins for the farmers in this study. Four of the five farms that focused on CSA as their sole or primary marketing outlet were among those with the highest net cash incomes in the study.
Given the complexity of farming and the uniqueness of individual farm businesses, it can be difficult to see how the financial ratios presented here can shed light on the advantages and disadvantages of specific practices and systems. However, as detailed in the previous “Impact of Results” section, project participants have used these ratios and the financial records they kept during the project to improve their farming enterprises.
The growers in the project all recognized the benefit and utility of examining the ratios and doing so as part of a larger group effort. In fact, this latter component, especially the opportunity to gather and discuss things was the most beneficial and provocative aspect of the project. Farmers outside the project who wish to adopt the ratio analysis tool will now have the benefit of comparing their numbers to the existing pool but they are strongly encouraged to join together with other growers in order to replicate the exchange of ideas and perspectives that made the project so dynamic and rewarding.
Many of the growers in the project have indicated that they plan to monitor several key ratios over time as a result of the project. The PI plans to keep in touch with all the growers in order to track adoption and continue adding to the database of results.
Growers outside the project are contacting the PI and are anxious to compare their farm numbers with those in the project. This demonstrates the considerable demand for this type of information and the value of what has been collected. Several new farms have, in fact, supplied numbers to the PI and these were compared and contrasted with the project database (while not being included in official project results and analysis. These new contacts and figures help confirm the validity and usefulness of the ratios. This exercise was also a great test for the PI to experiment with using the database to evaluate other farms and provide feedback on specific issues such as the impact and requirements of farm scale expansion.
Finally, farm support personnel in other states have begun to express interest in learning about the project in order to replicate the effort in other areas. This will be part of an on-going outreach effort tied to the original project.
Educational & Outreach Activities
The primary outreach document for this report is a 43-page report titled Grower to Grower: Creating a livelihood on a fresh market vegetable farm. It is available from the Center for Integrated Agricultural Systems by contacting John Hendrickson, firstname.lastname@example.org or 608-265-3704 or visiting www.cias.wisc.edu and searching for “Grower to Grower”
Several shorter publications will be produced over the coming year that highlight certain aspects of fresh market production such as including labor and payroll.
In addition to written reports, several workshops have and will continue to feature this work including: presentations at the Upper Midwest Organic Farming Conference, the Wisconsin Fresh Fruit and Vegetable Conference, the Wisconsin School for Beginning Market Growers, and elsewhere. Now that the results are published these outreach activities will expand and continue.
The project PI has had numerous interactions with growers interested in the project on an individual level and has provided detailed analysis and observations to growers who have wanted to compare their farm numbers with those in the project. This will be one of the most significant and long-term impacts of the project because it is now possible for a grower to use the ratios and the existing database of results to compare their operation.
Areas needing additional study
Several areas are ripe for further work in this area. First and foremost, it is hoped that additional growers will provide financial and labor figures to the PI so that the database can grow and become more randomized. This will help make the results (ranges and averages) a more accurate reflection of reality. This has already begun happening and many figures from new farms fall very close to the averages calculated in the project.
The project PI has heard from several economists who would appreciate seeing standard income and cash flow statements to augment the ratios featured in the project. Also, growers expressed a desire to collect detailed costs (especially labor hours) on selected crops to better determine which crops are most profitable and help with pricing. Another grower in the project has worked with a consultant to analyze profitability by crop and by market. This farm grows a very wide variety of both standard and specialty crops and sells in a number of direct wholesale markets. Their analysis is helping them be more strategic about where to focus their time and energy given the varying returns among crops and among markets for the same crop. Other areas that deserve attention include the need for low-cost, scale appropriate tools and systems, especially in the 3 to 12 acre range. Transplanting, weeding, harvesting, and post-harvest handling are labor intensive and, while some of the tools and techniques used at larger scales are adaptable to smaller scales, there is still room for improvement in terms of adoption of available technology and the development of new types of equipment. Finally, given the so many growers expressed frustration about labor management, it is likely that seminars or workshops on managing labor effectively and avoiding and dealing with personnel conflicts would be helpful for many producers.