Am I making a profit? Using calculators to develop profitable prices for farm-raised meats
The market for locally-raised meats and poultry has greatly expanded and livestock producers must deal with three different equations to determine if they are indeed making money from their meat sales-
(1) production and processing costs
(2) Carcass yields
(3) pricing structure for differentiate cuts
Producers need to collect costs and then have the tools to first determine whole animal profitability and then pricing with mark-up levels for per cut prices. These pricing margins help them handle the extra risks involved in direct sales first by determining profitable pricing that includes the production and processing costs and then matching pricing to cuts. Matt LeRoux, Cornell Extension, has developed a calculator that calculates both total carcass costs and differentiated pricing of cuts based on a projected profit margin. It handles beef, pork, lamb, and goat calculations
The five farmers who were invited to participate in this project were drawn from the 42-Member Maryland Niche Meats Producers’ Group. A directory for this group is updated annually to provide consumers with a list of local meat and poultry producers they purchase product from directly. While part of the larger producer group, these five producers all:
1. Have several years of experience with direct marketing their products or other retail sales venues.
2. Maintain annual production and sales records.
3. The Market more than one species.
4. Utilize a variety of marketing channels including but not exclusive to on-farm sales, farmers’ markets, CSA, and direct wholesale to specialty stores and restaurants.
5. Are still in growth mode for both their number of animals produced and their target sales volumes.
Prior to the launch of the project at a face-to-face meeting of all the project participants, the cooperating farmers were asked to complete a brief survey that examine their current marketing outlets, Pricing methods, and initial attitude toward their current pricing procedure. The same survey will conducted at the end of the project to determine changes in marketing strategies, pricing of their cuts, and any change in their attitude and skill sets in direct marketing and product pricing.
While the survey contains several questions about species raised and market outlets, the final question went to the core of the project:
Please check the one statement that best describes your current pricing margins.
I am satisfied with my prices and current profit margin.
I am satisfied with my current prices, but I’m not sure about my profit margin.
I need a better way to set my prices and maximize my profit margins.
Total 5 100%
By the end of October four farmers completed at least four worksheets for animals they processed and used the sheets to check their margin spread and individual cut pricing. One participating farm, Cabin Creek Heritage Farm decided to leave the project due to time constraints. The Project Leader met with each participant individually to review their sheets and evaluate the ease of use and accuracy of the calculator tool. Discussions also were held about pricing structures and marketing outlets
April- Project team met to review project goals and milestones. Training session on how to use the Cost/ Pricing Calculator and how to submit finished calculations sheet with computers available for each cooperating farmer. Introduce marketing Channel analysis tool with option to collect that data too for their own farm. Publicized project.
May- Sent farmer cooperators on-line survey to determine their current pricing philosophies and practices. Listing their current marketing channels.
June- September- Monthly emails to cooperating farmers to answer questions, give updates, share support materials. Visited each cooperating farmer. Collected data from farmers about what worked and what didn’t when using the calculators.
October- Collected all final input sheets. Prepare project presentation for Maryland Small Farms conference in November and prepare farmer to present. Send Matt LeRoux feedback from the group about the calculators and marketing analysis tool.
November- Second face-to-face meeting with cooperating farmers to review experiences using pricing calculator and distribute worksheets for collecting data for evaluating marketing outlets. Several producers want to expand into CSA models for their meat sales.
Impacts and Contributions/Outcomes
Producers struggled more with the calculator tool than anticipated. During the on-farm summer visits they recommended the following revision or clarification for using the tool and the need for better explanation of how to calculate input numbers. Their comments included:
What % Margin should we use?
Needs more columns for cuts
No way to add costs such as smoking or slicing
Not sure of hot weight costs or % yield to use
Fill color of profit block is confusing since it is pink. Should be a neutral color.
The group composed a letter to LeRoux with more detailed evaluations and suggestions for improving the tool. A copy of the letter is included here.
However, each producer also commented that by using the tool, they realized they weren’t accounting for all their product costs such as packaging, labor, marketing costs, and on-farm storage costs.
The groups met in the late fall and reviewed their experiences with the pricing calculator and made several recommendations for revisions. They also noted their lack of in-depth understanding of many of the carcass yields and financial terms used on the worksheet.
Another niche meats group, Southern Maryland Meats, has been following the project results and looking for ways to include the calculator tool and these project results in their education outreach program to their farm-raised meat producers in that region. The Project Leader is coordinating proposed training sessions with the Southern Maryland Meats marketing team.
592 McCauley Road
Conowingo, MD 21918
Office Phone: 4106589731
Cabin Creek Heritage Farm
18235 Clagett Landing Road
Upper Marlboro, MD 20774
Office Phone: 3014300170
5235 Bryantown Road
Waldorf, MD 20601
Office Phone: 2402164065
231 Polling House Road
Harwood, MD 20776
Office Phone: 4433368492
10500 Clarksville Pike
Ellicott City, MD 21042
Office Phone: 4107304049