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 .
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.