Analyzing Production Costs of Organic Hazelnuts in Oregon

Research was focused on developing an approach for organic hazelnut producers to analyze their costs of production. Our goal was to equip farmers with a tool that would help them to understand how their businesses are performing and how performance could be improved, aiming to increase the profitability of their organic hazelnut enterprises. While enterprise budgets can give growers a preliminary idea of what they can expect costs and returns to be, ultimately it's important for producers to look at costs in the unique context and conditions of their operations, using their actual, current costs to produce accurate, meaningful analysis. In addition, currently no enterprise budgets are available for organic hazelnut production. The research portion of this projected focused on designing and testing an approach that can fill this need.

The research methods that were conducted to achieve our research objectives included convening a small cohort of organic hazelnut growers to begin identifying the costs that the tool would need to account for and the best approach for capturing this data.

At our fall 2021 kick-off meeting we focused specifically on brainstorming to identify the labor activities that growers would be keeping records on. Next we introduced growers to time studies as a sampling technique that can be used to establish labor activity rates e.g., “minutes to mow one acre of orchard floor” that are ultimately used to calculate the total time spent per activity and estimate the labor cost of that activity.

The growers were asked to begin experimenting with conducting time studies immediately so that they could identify the recordkeeping system that worked best for each of them. We emphasized identifying recordkeeping systems early on because our past experience highlighted the importance of establishing these systems so that the time studies get done. When we asked growers how they were recording time studies they shared varied approaches including: recording in a farm journal; keeping track on the phone via text messages and then inputting them into a spreadsheet; and recording on a whiteboard (dry erase board). We worked with the growers to clarify the protocols for doing time studies including determining the units to use to measure their time studies and how to distinguish between labor that was variable with production and labor that was fixed.

WSU agricultural economist Suzette Galinato provided input on the initial design of the costing tool, specifically on the how establishment costs factor into decision-making; resources for estimating costs that will occur far into the future; accounting for opportunity costs using discounted cash flows and NPV  analysis versus as interest charges; and how to account for having trees of different ages/maturity in the same orchard. We also referenced (conventional) hazelnut enterprise budgets and economic studies to inform the development of the costing tool including:

Orchard Economics: The Costs and Returns to Establish and Produce Hazelnuts on a Standard-Density and Double-Density Orchard System in the Willamette Valley, Nik Wyman, Matt Miller, and Clark Seavert, 2022

A Production and Economic Model for Hedgerow Hazelnut Production in the Midwestern United States, Jason Fischbach & Lois Braun, February 2017

A Comparative Cost-Benefit Analysis of Conventional and Organic Hazelnuts Production Systems in Center Italy F. Coppola, M. Costantini, l. Orsi, D. Facchinetti October 2020

Growers collected data during the 2022 and 2023 growing seasons and began plugging data into an initial version of the costing tool in 2022. Quarterly meetings with the growers during 2022, including individual phone meetings with each grower in winter and spring, in-person farm visits with 5 of the 6 growers in the fall of 2022 and a group meeting in December of 2022. During these meetings the PI observed the accessibility of the approach and UX (user experience); challenges arising in using the tool (e.g., too complicated, too time-consuming); adaptability by diverse producers (e.g., different scales of operation, stages of maturity, production methods). All observations and feedback informed the on-going development of the costing tool.

In the summer of 2022, we also gave a presentation on this project as part of the Oregon Organic Hazelnut Collective Summer Farm Tour. While the presentation was primarily intended to promote awareness of the project and ultimately interest in the costing tool and user guide, this presentation included a costing exercise during which participants estimated some the different costs and other factors that go into cost analysis including the cost of different production tasks (pruning, mowing, harvesting), the cost of amendments and the expected yields in an organic system. The way that growers approached this exercise and the estimates they came up with further informed the development of the costing tool.

At the end of the 2022 growing season 4 of the 6 growers had completed a preliminary cost analysis. The consensus at this point was that having an additional season to fill in gaps in their data would be beneficial before using the results to evaluate any production changes. The growers focused on collecting this data in 2023, while further refinements to the tool were made based on observation and direct grower feedback from the 2022 season.

In fall 2023 investigators met one last time with each participant. Together, they checked the data entered into the tool for accuracy and used the results of the cost analysis as the basis for further enquiries. These included projecting multi-year analyses as well as performing a “what-if” analysis regarding the price and yield combinations required to cover cost of production.

Investigators also engaged one conventional hazelnut grower – Jonathan Edmonds - about using the tool to help decide about transitioning part of the orchard to organic production methods. In the fall of 2023 this grower entered information from his current conventional practice into the tool, and then worked with investigators to project what production changes would need to be made to meet organic standards, and how costs and revenues would change in this new system. While the grower was not yet ready to decide about transitioning to organic, we were able to show how the tool could be used to help with the decision-making process.