2004 Annual Report for LNC01-194
Profit by Planning: Helping Fresh Market Vegetable Growers Meet Financial Goals and Improve their Quality of Life
Summary
Economic data and indicators of quality of life were gathered from 19 mostly organic, fresh-market produce farms for three years. Results—presented as a series of ratios (income per acre, labor hours per acre, net to gross, etc.)—are currently being analyzed. Preliminary findings confirm net returns can be highly variable but a livelihood is possible at a variety of farm scales. Participating growers contributed to a lively exchange about scale, profitability, and quality of life. They also refined an analytical tool others can use to compare financial performance over time or against other farms and target areas for improvement.
Objectives/Performance Targets
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.
Accomplishments/Milestones
1. Growers and farm support personnel will increase their knowledge and understanding of the economic and quality of life dimensions of fresh produce farming and direct marketing.
Economic data and indicators of quality of life were gathered on 21 participating fresh-market produce farms during the 2002 growing season and 19 farms during the 2003 and 2004 seasons. Two of the farms from the 2002 season failed to meet criteria for participation in the project and thus were dropped in 2003 and 2004. The data on all three years has been through an initial analysis by the primary investigator. The economic data is being used to generate ratios such as:
Gross income per acre
Net Income per acre
Labor hours per acre
Full time equivalent workers per acre
Net to Gross (gross profit margin)
Farmer hourly wage
Farmer labor as a percent of total
Percent of gross going to paid labor
Gross sales to asset value
The above economic measures are being compared within various farm scale ranges (less than 3 acres, 3-6 acres, 6-12 acres, and more than 12 acres) as well as across these scale ranges. While there is some variability across farms, some patterns and trends have emerged. Full details are not available for formal publication at this time but the following preliminary observations can be shared:
1. Gross sales per acre can be quite impressive for organic, fresh market produce farms and figures were relatively consistent across farms. Most farms achieved sales between $9,000 and $15,000 per acre. The highest gross sales per acre (over $20,000) were achieved on very small, intensive market gardens. Average gross income per acre tended to decrease as scale increased.
2. Net returns can be highly variable from year to year on the same farm and across farms. Average net income per acre ranged from $1000 to nearly $10,000 for the farms in the study. Some farms had relatively stable net incomes while some varied widely due to capitalization costs (investment of net income in farming assets such as equipment or buildings), major repairs, or the effects of a poor growing season on primary crops. Net income per acre was again higher, on average, for smaller farms than larger farms.
3. Labor needs on fresh produce farms are significant. The small market gardens in the project averaged close to 2000 hours of total labor per acre. As farm scale increased, labor per acre fell. Market farms in the 3-6 acre group utilized around a 1000 hours per acre while 6-12 acre farms required around 760 hours per acre. Farm labor per acre fell to around 500 hours on the largest farms in the study.
4. A farmer’s calculated hourly wage (net farm income divided by farmer labor hours) was widely divergent in the study. While net returns per acre were highest for small farms, they realized the lowest (on average) hourly wage: around $5.00. In contrast, the two middle size classes (3-6 acres and 6-12 acres) had average farmer hourly wages calculated at between $10 and $12 while the largest farms enjoyed the highest hourly wages, over $20. While not entirely consistent, farmers with more experience tended to have a higher hourly wage suggesting they had developed labor-saving work habits and techniques over time.
5. The net to gross ratio (gross profit margin) for the farms in the study ranged widely both across farms and from year to year on some farms. Fourteen of the nineteen farms had net to gross percentages above 30%; nine were above 40%; six above 50%; and only two above 60%. Many of the farms had been in business for many years reflecting that there are different business approaches to farming based largely on the issue of scale.
6. A livelihood from growing and marketing fresh vegetables is possible at a variety of farm scales. At the smaller end of things (less than 3 acres in production) most growers realized a partial or part-time income. At this scale household income is often supplemented by a winter off-farm job, a partner/spouse's off-farm job, or perhaps another home business such as sales of eggs, meats, or arts and crafts. On mid-sized farms there were examples of farms where a single farmer or a farm couple were supported solely by their farm with a modest but certainly livable income between $35,000 and $55,000. Others involved a spouse working off farm. On the largest farms, some households were able to achieve net incomes over $100,000.
In addition to the above financial- and labor-oriented ratios, the project is also generating some data that hopefully can be used to guide newer growers as the start farming and plan for investment and expansion, such as:
Asset value per acre
Seed and plant costs per acre
Greenhouse space per acre
Washing and packing space per acre
Cooler space per acre
It is hoped that these ratios can help guide newer or expanding growers as they plan infrastructure needs and capitalization costs. This data will be included in future publications and reports.
The project’s final report will also include a more complete discussion of the economic ratios and the financial and structural characteristics of different scales of fresh market vegetable production.
Economics is only one aspect of the sustainability challenge. This project strove to intertwine quality of life issues with discussion of financial performance. To help tease out key quality of life indicators, a focused session involving a facilitator, participating growers, and their partners/spouses was held in 2003. ‘Quality of life’ was also a central topic of conversation in later meetings. In addition, questionnaires were used in 2003 and 2004 to ascertain how growers rate their quality of life and the main factors or dimensions that impact their quality of life. A final, follow-up questionnaire will be conducted in 2005. The following observations about quality of life have emerged so far:
1. The vast majority of growers (88%) are satisfied or very satisfied with their quality of life. There is obviously room for improvement, however, as only six growers were “very satisfied” while 17 were “satisfied.” Two growers felt “neutral” about their quality of life and one grower was very dissatisfied. The very dissatisfied grower was a part-time grower who did not live on the land farmed and he/she longed for a more stable, full-time arrangement.
2. Two issues tied as being the key to improving growers’ quality of life: work time (hours) and employee management issues. Third on the list was “health issues;” only one grower pinpointed financial compensation as the single most critical factor.
3. As a follow-up to the above, growers were asked to rate how 23 different factors or changes would impact their quality of life. The following were considered to have the most significant positive impact:
Developing efficient systems on the farm
Having stable, skilled employees
Having more personal time
These factors were followed closely by “garnering higher prices,” “making progress toward a sustainable farm,” “decreased pest pressure,” “higher net income,” “receiving recognition from customers,” and “networking with other farmers.” Growers were collectively more mixed and/or ambivalent about the impact of factors such as “decreasing farm scale,” “having more employees” and “the weather.” The farmers were fairly consistent in terms of feeling that “having less employees,” “less equipment,” “increasing scale,” and “increasing work hours” would have a negative or at best neutral impact on their quality of life.
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 would not be 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.
Project data and outcomes have already been used at several workshops and conferences (Wisconsin School for Beginning Market Growers, Wisconsin Fruit and Vegetable Conference, and Upper Midwest Organic Farming Conference). When formal publications are complete they will provide an invaluable resource for existing growers, beginning growers, and farm support personnel. The publications planned (see below for a description) will fill noticeable gap in the literature by providing a picture of the economic and quality of life dimensions of fresh produce farming and direct marketing.
2. Growers will adopt and maintain successful record-keeping systems.
Participants in the project gathered at an initial informational and training session in March 2002. At this meeting, the group developed a consensus on what information would be recorded and discussed various record-keeping systems (spread sheets, notebooks or diaries, calendar-based systems, etc.) that would fit for each farm. Sample record-keeping forms were distributed via mail following this meetings as well as a detailed list of data to be collected. At the winter meeting in February 2003, however, it was determined that several of the data points were not well defined and the group proposed and implemented changes. For example, the original definition of net income was too complicated and created inaccuracies across farms. There were also far too many ratios presented at the meeting and the group chose to simplify the project down to the most important and telling labor, acreage, and financial figures. Through year two and three of the project, most growers reported that their record-keeping systems were improved and less time consuming than in year one. In most cases, farm data was submitted to the primary investigator earlier, with fewer questions, and was more accurate and complete. Interestingly, growers found many different ways to collect and record the data, particularly labor hours. Some utilized computer spreadsheets, others used daily diaries/notebooks, while others used standard calendars. Details of these record keeping systems and sample forms will be included in the project’s final report. Several of the growers expressed gratitude for this aspect of the project because it helped them better track labor inputs allowing for them to pinpoint where improvements and changes could be made. It also helped them set prices based on a more accurate knowledge of labor costs.
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.
Some growers have used the information from the project to implement changes on their farm already while others are using 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 actively use the data to target aspects of their farm for improvement. 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.
1. 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.
2. 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.
3. Still another farm recognized that they were undercapitalized in terms of equipment in their scale range and thus, they 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 farm's gross and net incomes increased significantly.
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.
Impacts and Contributions/Outcomes
The growers have all been very interested in the numbers and have greatly appreciated the opportunity this project has afforded in terms compiling the data and bring growers together to discuss the issues of profitability and quality of life. Participants have engaged in lively discussions about farm scale, profitability, and quality of life at annual meetings. The growers in the project have 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 are eager to learn more about the project via final publications, workshops, and other outreach activities.
It was hoped that the data compiled by this project could become a database that would expand in the future if other growers were willing to share their numbers. The project PI has already gather data from 2 additional farms and more have expressed an interest in doing so. This makes it possible to use the database to help growers assess their own operation compared to others of a similar size or type. It is also possible to provide projections as to how a farm is likely to change as it expands in terms of the labor and investment required and what returns are possible in terms of gross and net income.
Clearly, profitability and quality of life are and will remain major concerns for fresh market produce growers. This project fills a void recognized by existing and beginning produce growers: while there are many resources dealing with production issues, far too little information exists on the economics of growing and marketing fresh produce. A set of three publications will be produced that describe the profile and characteristics of fresh market vegetable farms by scale of enterprise: the market garden (less than 3 acres), the small market farm (3-12 acres), and the large vegetable farm (more than 12 acres). These publications will include sample budgets, equipment lists, economic profiles (gross and net income per acre, labor needs, net-to-gross ratios, etc.), entry strategies, special challenges, keys to success, and case studies. Each publication will also include a synopsis of the ratio analysis tool and record keeping requirements. These publications will be useful for existing growers as they will provide “guideposts” to compare their farm or provide information helpful when considering expansion. Beginning growers will benefit from having a clearer picture of start-up costs, operating budgets, and realistic income expectations.
Finally, the growers in the project have expressed their gratitude for a project that specifically addresses smaller-scale, fresh-produce farms—a somewhat neglected group of agricultural producers in terms of Land Grant University research and outreach. Thus, this project serves as a relationship-building and capacity-building effort as it will help develop a stronger connection between growers and the University of Wisconsin.