Analyzing Production Costs of Organic Hazelnuts in Oregon

Research will investigate how organic hazelnut producers can analyze their costs of production to increase the profitability of their enterprises. This study is a form of farm management economic analysis; it aims to equip farmers to better understand how their businesses are performing and how performance could be improved. Standardized financial tools can be helpful but limited for small-scale organic farms. For instance, conventional enterprise budgets may not reflect key cost considerations associated with different production techniques, processing requirements, and labor allocation. 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. The research plan will focus on designing and testing an approach that can fill this need.

Once developed, the approach can be used by organic hazelnut growers and other organic tree nut producers as a tool for management and decision-making. It can help them calculate costs, understand how different production activities affect profitability, analyze the impact of potential changes to their systems and scale, and make choices leading to better financial outcomes. Ultimately, our goal is to help these producers grow healthy, sustainable farm businesses, inspire others to transition, and build a thriving sector with long-term economic opportunities and ecological benefits for the region. To accomplish this goal, research objectives and methods will include:

1. Develop a production costing model, time study protocols, and data collection requirements for organic hazelnut enterprises. The PI will design the model with extensive input from the producer team and the technical advisor. The model will include all relevant fixed and variable cost categories; including labor, machinery, and materials broken into key production activities. WSU agricultural economist Suzette Galinato will provide technical advising to the project. Suzette is the Assistant Director of WSU’s IMPACT Center, where her focus includes cost analysis and enterprise budget development for regional tree and specialty crops. Suzette will be contracted for ten hours of input and review on design and development of the cost analysis model. (Suzette will not be a cooperator but she will receive a contract service fee. A letter of agreement and scope of work are attached in Letters of Support. A CV is attached in CVs.)
   
   Time studies will be developed as short exercises using stopwatches or cellphones to measure time to complete tasks under standard conditions, e.g., “minutes to mow one acre of orchard floor @ two passes of flail mower per row.” Producers will then track tasks throughout the season, for example, recording the number of times mowing is performed. At season’s end  the data can be extrapolated to calculate total time spent per activity and estimate the cost of that activity. An Excel-based spreadsheet template will be created for data input and calculations.

2. Develop and implement on-farm data collection and recordkeeping processes that producers can use with the costing model. Each producer will identify existing recordkeeping systems and/or develop systems that can be used to capture the necessary data on their farm. Producers will determine the data to be tracked, how, with what equipment (whiteboards, iPads, voice memos, etc.), where, when, by whom, etc. Our past experience highlighted the importance of establishing data collection and recording systems prior to the start of the season. It’s also critical that these systems are practically integrated into farm operations and employees trained so data can be consistently and accurately captured. The PI will provide guidance and suggestions to help each producer establish efficient systems prior to the start of data collection in fall 2021.  

3. Test the feasibility and effectiveness of the costing approach through a pilot on six to ten organic hazelnut farms. Producers will collect two seasons of data, beginning with post-harvest mowing and fall fertilization in Fall 2021 and ending with the Fall 2023 harvest. The PI will conduct regular check-ins with participants via phone and email, helping them stay on track, make adjustments, and troubleshoot if necessary. The group will also meet several times (in-person or virtually) to discuss progress and share insights. Producers will calculate and analyze the cost data collected from the 2022 season in the winter of 2023. The PI will help producers calculate costs and incorporate revenue data for a complete picture of profitability. Throughout the pilot we’ll identify key considerations for data collection, challenges that arise, and ideas to improve the process.

4. Generate results from analysis that producers expect to support improved management and increased profitability of their enterprises. After completing calculations on the first year of data, we expect producers to have a more thorough, detailed understanding of production costs, especially labor costs associated with specific activities, and how these costs are driving profitability. With this analysis they can explore the potential effects of various changes to production methods, scale, equipment, timing, and labor strategies. Some may compare costs between different practices, for example, hand-cutting suckers vs. mowing with a side-cutter, or sweep vs. "catch and shake" harvesting. Producers with more than one variety may compare costs associated with the management requirements of each. Costs of conservation activities such as hedgerows and cover crops can also be incorporated and evaluated. Growers might also examine processing costs, weighing the advantages of investing in their own wash and dry lines or contracting for those services. On the marketing side, they can analyze packaging, delivery, and sales costs in the context of their revenue strategies; for instance, looking at how substituting a portion of retail sales with wholesale accounts may lower costs and increase returns.

   While we don’t expect producers to realize major increases in profitability during the short project time frame, we anticipate they’ll report having thought through the implications of their analysis and identified steps they will take to strengthen their businesses and improve the bottom line. They can begin to implement these as they continue to track data for a second season.

Project location: Participating producers operate diverse organic hazelnut farms in the Willamette Valley. Farms include the oldest organic hazelnut orchard in OR, dating back to 1965, as well as several that will soon harvest their first crops. Many are growing newer varieties designed for resistance to EFB, which devastated Northwest orchards beginning in the 1960s. Producers' farms are described above, in "Agricultural Business/Operation of the Project Members." Other producers have expressed interested in participating; an additional two to four farms may be added before the project begins.