New Maple Benchmark Report Highlights Top Profit Strategies

UVM Extension has published the 2014 Maple Benchmark report. This report displays detailed financial measures for maple producers from 2,500 taps to over 50,000 taps. Go to our Maple Benchmark page to download reports and learn more about the program.

Analysis of the 2014 season shows that top profit producers have a variety of ways to reach financial success with a maple business. Key findings reveal:

  • Average Cost of Production for Operating Expenses average $2.09 per pound or $9.15 per tap across 18 participating businesses
  • Full Economic Cost of Production (with depreciation and a valuation of owner management) averages $3.75 per pound or $15.71 per tap.
  • Top profit producers achieved high production income in relation to their investments. This comes from a combination of high yields and/or higher-paying market prices. In many cases the top profit producers are NOT low cost producers but they are able to generate optimum income based on their expenses.

Download the 2014 Maple Benchmark for all the details.

Online Farm Planning Resources

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Farm managers have dug into winter business planning projects and by now everyone has identified key questions that require analysis, research and technical information. UVM Farm Viability has filtered the internet universe and posted  the best resources to assist managers with legal decisions, market research and financial records. Visit our Resource Library and open up the Legal Toolbox, Market Toolbox and archive of online recordings.

Business Basics for Loggers: Workshops Dec 7th and 8th

UVM Extension, with financial support from VT Housing Conservation Board, is offering this one day “Business Basics for Loggers” workshop for Vermont loggers on two separate dates and locations:

December 7, 2015 – Chester, VT

December 8, 2015 – St. Johnsbury, VT

Workshop attendees will receive 8 Logger Education to Advance Professionalism (LEAP) credits. Click here for the full program flyer: Business Basics for Loggers

The Most Common Question: Rental Rates and Terms

The most common question these days is what to charge, what to pay and how to set terms for renting agricultural assets. Follow these links to our resource library to learn more about farm rental relationships. These resources are to be used for educational purposes and we encourage you to seek consult from legal, tax and insurance professionals when establishing formal rental relationships.

Sample Lease: Multi-year

Sample Lease: Short Form

Farm Rental Rate Guide

You can also contact Land for Good. They provide limited introductory consult and additional support services to assist you with your decisions.

Spaces Limited for Winter Farm Business Planning

UVM Extension Farm Viability provides individualized business planning support to commercial farm owners in Vermont. We have a small number of spaces left in our program for farms seeking to develop business plans or complete business analysis by Spring 2016. Sign up now or contact the program for more information. Once the winter roster is full we will begin to enroll participating farms on a short term waiting list for next years program cycle. Eligible farms are required to have been in  business for at least 3 years and show gross sales of at least $15,000 in the most recent year.

UVM Extension Farm Viability works with farms to develop business plans, complete enterprise analysis, prepare cash flow budgets/financial analysis and develop farm succession plans. Coming up this winter, our staff will also be providing additional business education programs. Watch our website for the schedule of winter 2016 programs.

 

Using market price reports to crunch numbers

The VT Agency of Agricuture, Food and Markets posts weekly Farmers Market Pricing Reports at this site:  http://agriculture.vermont.gov/localfooddatatracking

These reports provide a nice way to observe the pricing trends for direct market sales. If you are already selling directly, take a look and see how your prices compare to low, high and average prices.

Covering the cost of marketing: Many small farms default to direct markets on the assumption that the higher prices received are enough to compensate for the expenses of serving these markets. The price reports provide data to crunch the numbers to compare current wholesale prices vs. direct market prices to consider your best options.

Here is a partial budget exercise using September white potato prices:

9/13/15 Report:  Organic White Potatoes: $2.50 average per pound

I can currently wholesale ORG white potatoes for $0.90 per pound or $1,800 per ton equivalent. If I were to bring them to farmers market, I could potentially gross $2.50 per pound or $5,000 per ton equivalent. Let’s crunch…

  • Farmers market = 200 pounds per week
    • market days per ton (2,000 lbs /200) = 10 days
    • market labor = 10 days x 6 hours x $12 per hours = $720
    • packaging = $0.25 per pound (labels, carton/bag) = $500 per ton
    • market fee (day fee): $35 x 10 days = $350 per ton
    • Fuel: 30 mile round trip x 10 days (@$0.13 per mile fuel) = $39 per ton
    • packaging product (retail bags): (100 lbs per hour @ $12 per hour)= $0.12 per pound or $240 per ton
    • Gross Sales $5,000 less market expenses of $1,849 = partial net $3,151 per ton
    • $3,151 = 63% of gross sales retained for production and profit
    • Cost to Market: $0.92 per pound
  • Wholesale sales = 750 pound per delivery
    • delivery days per ton (2,000 / 750) = 2.7
    • delivery labor = 2.7 delivery x 3 hours round trip x $12 per hour = $97 per ton
    • packaging = $.70 per bag per 50 lbs = $28 per ton
    • fuel: 90 mile round trip x 2.7 trips (@ $0.13 per mile fuel) = $32 per ton
    • packaging product (from bins to bags): (500 pounds per hour @ $12 per hour) = $0.02 per pound or $40 per ton
    • Gross Sales $1,800 less marketing expense of $197 = partial net $1,603 per ton.
    • $1,603 = 89% of gross sales retained for production and profit
    • Cost to market: $0.10 per pound

There is no right or wrong decision here. The big trade off is time  vs. money… the direct market farm makes much more money but has also invested ~80 hours to prep and market 1 ton of spuds. The wholesale producer earns a smaller margin but has only spent ~12 hours to prep and market 1 ton.

Business Benchmarks for a Start-Up Small Vegetable Farm

Last week I had the opportunity to sit with 9 farm managers and business advisers to analyze 3 years of farm financial data for 25 farms. This meeting was closure on a  three year research project coordinated by The Carrot Project and funded by Northeast SARE. The project set out to deliver financial education, measure financial performance and assist in planning for micro loans (under $25,000) with farm managers in New England.

How much money can a small vegetable farm owner expect to make? After looking at three specific sets of finances and combining that with the numerous farm financial statements I read every year for UVM Extension Farm Viability, I have observed a few key trends for small vegetable farms:

  1. Farm start up is driven by initial owner visions, resources at hand and easily accessible markets.
  2. Early market plans of direct sales (CSA, farmers market) mixed with direct wholesale (stores/restaurants) typically gets the business to about $35,000 – $50,000 in gross sales somewhat “easily”. At that point, the market mix is maxed out and it becomes difficult to expand. The business now needs a phase 2 market strategy.
  3. Owner operated produce farms can hit $30-40,000 in annual sales with one full time equivalent/FTE (the owner) working seasonally. During this phase, the owner may be able to pay themselves up to 20%-30% of gross sales from cash flow if costs are managed well… that equals a paycheck of maybe $10,000 not including equity generation as assets are acquired and paid for.
  4. To grow past $40,000 in sales, hired labor is required. This paid labor will require cash that typically leaves an owner unable to pay themselves from the business. I advise managers to find ways to leap-frog or grow through the $40,000-$80,000 scale as fast a possible. It’s a tough scale to operate at.
  5. As the produce business hits the $80,000 – $125,000 scale, many of the blips of start up have passed. The farm is in Phase 2 of marketing, usually including a reduced amount of direct sales and a specialization of few key crops for wholesale. A small but manageable labor force (and formula) is in place.
  6. Here are some benchmarks at this scale: try to keep hired labor at 30-45% of gross sales, capital expenses or debt service will range from 10-20% of gross sales (largely depending on how the real estate is being paid for) and owner draws might be about 25% of gross sales.

 

The Winery: Keys to Financial Success

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In June I attended the National Farm and Ranch Business Management Educators annual conference in Rochester NY. Steve Richards, manager at Casa Larga Vineyards and Winery (Fairport, NY), shared his expertise on managing a winery. Steve also worked for many years at Farm Credit East and the Winery Benchmarks Program: https://www.farmcrediteast.com/winerybenchmarks

New York State Wine Overview

• Influence of international trade: when Australia grape/juice prices go down, wineries will increase usage of this supply up to the allowable thresholds under current regulations
• 60% of wine volume produced is non-varietal sweeter wines
• Riesling is the top NYS varietal, about 10-15% of overall wine volume produced
• A good way to forecast wholesale wine sales is to research the general restaurant sales forecast for the upcoming periods.

Keys to Financial Success:

Inventory Turnover: a typical winery will to have 1.5- 3 years max of annual sales in inventory. Larger inventory is less favorable and wineries must work to increase the number of inventory turns per year to over 1. Successful wineries move inventory faster and bottle final product as close to sales date as possible (accounting for any bottling/conditioning factors influencing final quality). Aging inventories over 3 years old is less desirable.
Labor Efficiency: Wineries track cases per worker and this is a key focus of scaling the business. The biggest cost factor as a winery grows is the overhead costs of marketing and regulatory compliance. There are labor efficiency sweet spots at different scales

  • 500-2,500 cases is a good place to be. Labor efficiency ranges from 6k-10k  cases per full time worker.
  • At ~5,000 cases the retail only establishment has maxxed out on sales. The winery begins to wholesale product. This creates an increased administrative burden to serve these new markets.
  • 5,000 – 10,000 cases tends to be poor scale for labor efficiency, possibly down to 4k cases per worker
  • At around 15,000 cases the labor efficiency curve begins to get better.
    Labor efficiency peaks at the scale of ~35,000 cases per year, with the labor benchmark approaching 10,000 cases per full time worker.

Family Systems and Farm Business

Emotional Anxiety, Entanglement, Conflict…finding a Family Leader, Neutrality and Coach-ability. These were the concepts discussed at a December training for Farm Viability business advisers provided by Erik Thompson ( http://www.thompsonleadership.com/ ). Dr. Murray Bowen described the natural emotional processes that shape how families and social units function. Bowen Family Systems Theory provides valuable concepts for farm families and farm business advisers seeking to advance common family goals and aspirations in a productive way. It is not easy! Some of the highest risk forms of chronic anxiety in a family system manifest themselves in forms of avoidance and “over-tolerance of irresponsible behavior.”

To move past that, families and family coaches need to test their own emotional maturity to promote the best outcomes. Family leaders will develop , according to Bowen ” ….with the courage to define self, who is as invested in the welfare of the family as in self….whose energy goes to changing self rather than telling others what to do….”

Family coaches and  business consultants work to establish emotional neutrality and emphasize coachability from their clients. For more on Family Systems click this link to the Vermont Center for Family Studies :   http://www.vermontcenterforfamilystudies.org/

You can also check out trainings for Social Sustainability on Farms training programs through Northeast SARE: http://www.uvm.edu/~vtsare/?Page=projects.html&SM=submenu.html

Crop Storage Workshops and Profitability

UVM Extension Ag Engineer Chris Callahan will be offering crop storage workshops this fall. Click this link for details on events in October: Crop Storage Workshops

Inventory turnover and asset turnover are key factors to consider when you make the investment in crop storage. “Turnover” ratios provide efficiency measures that reveal how much bang you get for your buck. Here are two possible ways to improve these ratios: a) select high “value per volume” products for long term storage and b) move more product through the storage unit over the course of the year (more turns).

Quick example 1: Farmer Mark grows $25,000 of potato and has them all in storage on January 1. He sells them all winter and hits gross sales of $22,000 (there are always losses!). The cooler sits empty until next season. Thats 1 turn on the inventory, not so great. How could he improve? He could  grow a  $15,000 beet crop that fills the storage unit from July – October before the potatoes go into storage. Now he’s moving more product and increasing efficiencies by getting more product sales from the same storage investment.

Quick Example 2: Farmer Beth fills a walk in cooler with a variety of root crops in October, turnips, carrots, beets and even some cabbage. She wants to increase her profits next year. She wants to figure out which crop is worth the most in relation to the volume it requires. To keep it simple, she fills a .5 bushel box with each crop and multiplies weight x sell price. She could drop the lowest value per volume crop and grow more of the higher value per volume crop. She better factor in her marketing plan the selling costs though, high value crops may cost more to market…better keep the calculator out.

Click this link for October Crop Storage Workshops