Profit by Planning: Helping Fresh Market Vegetable Growers Meet Financial Goals and Improve their Quality of Life

Project Overview

LNC01-194
Project Type: Research and Education
Funds awarded in 2001: $71,914.00
Projected End Date: 12/31/2005
Region: North Central
State: South Dakota
Project Coordinator:
John Hendrickson
CIAS, UW-Madison

Annual Reports

Commodities

  • Fruits: berries (other)
  • Additional Plants: herbs, ornamentals

Practices

  • Education and Training: technical assistance, decision support system, extension, farmer to farmer, on-farm/ranch research, participatory research
  • Farm Business Management: budgets/cost and returns, community-supported agriculture, agricultural finance, whole farm planning
  • Production Systems: holistic management
  • Sustainable Communities: new business opportunities, analysis of personal/family life, sustainability measures

    Abstract:

    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 jhendric@wisc.edu or 608-265-3704.

    Participating Farms

    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.

    Farm Finances

    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: jhendric@wisc.edu, or visit the CIAS web site at .

    Introduction:

    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.

    Definitions
    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.

    Marketing
    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.

    Equipment
    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.

    Crops
    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
    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.

    Project objectives:

    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.

    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.