Posted by Betsy Miller, UVM Extension Farm Viability Coordinator
On August 13, 2018 Agri-Mark hosted a Dairy Summit in Albany, NY. This was an opportunity for farmers and dairy industry representatives to discuss the current state of dairy pricing and to offer proposals for a new structure.
Proposals posted on the website share a common theme of supply management and price stabilization. Many suggest a pro-active approach lead by co-ops. Expansion of current farms and entry of new farms into the business are both areas that offer challenges to the idea of a quota system. All seem to agree that this is a complex problem that doesn’t have an easy solution.
Proposals are available to read and comment on at this site: https://dairyproposals2018.com
The UVM Extension Farm Viability program provides one on one business planning to farm owners in Vermont. For more information see the program summary page.
Credit: Mark Isselhardt
As global maple syrup production increases the markets, communities, and business owners are facing changes. Vermont has a long cultural heritage of syrup production ranging from subsistence production to commercial activity for over 100 years. 2018 is no different… for every new maple enterprise setting up to tap 50,000 trees we are likely to have 10+ new hobby producers making their own syrup and selling the excess directly in their neighborhood.
Research on farm economics has demonstrated how farms can often get caught in the middle of the push and pull of dynamic business environments and consumer preferences. The 2008 text Food and the Mid-Level Farm (Lyson, Stevenson, Welsh) explains the dilemma that faces “agriculture in the middle.” The super-small farm can often maintain a specialty niche that serves local or direct clientele. It’s common that these farms might be part-time or lifestyle farms. They may be profitable but it may not matter. The largest scale farms are producing goods at low costs and high volumes and they are serving broader markets that value uniform product, lower price points, and require sophisticated supply chain logistics. What’s left is the farm “in the middle”. These farms are full time jobs for their owner -operators that need to earn a livelihood from risky business activity. They are too big to be accepted in niche markets and too small to compete with the big players.
The recent maple price downturn has begun to reveal where the “middle maple producer” may be. Four years of maple finance benchmark analysis has shown how a reasonable owner livelihood can disappear as the business environment shifts. A small sample of 7,500-15,000 tap maple producers in VT has demonstrated the looming risk for a formerly viable owner-operated bulk syrup enterprise that can’t break even if market prices stay below $2.10 per pound. These businesses can be a too big to pivot into niche direct marketing and too small to compete in the larger wholesale markets. We don’t know where the sweet spot for a commercially viable “middle” operation will be but we do know not to assume it will stay in the same place forever. We also wait to see if a group of informed consumers that value the people and practices of “ag in the middle” will persist.
Photo Credit: Mark Isselhardt
Escalating trade disputes are reverberating through US farm sectors and our US specialty products. Farming sectors could become minor bargaining chips or worse, collateral damage, as high impact manufacturing interests drive the policies. In Vermont the two primary ag drivers of dairy and maple may get caught up in the fuss. Ironically, our suffering US dairy economy and dairy families have been pitted against Canadian farm owners and a supply management system that has facilitated viable milk prices for smaller farm operations. The liquid gold of maple flows freely across the US/Canadian border. At least it did. In 2017, 62% of Canadian syrup exports came to the United States ( US Maple Statistics)
Have Canadian imports been flooding US markets with cheap syrup? Until recently most US bulk syrup was purchased on parity with Canadian market price after currency exchange adjustments. Again, Canada has a market management strategy to stabilize prices (for better or worse) and US producers received the benefits of price predictability.
Branding could be equally important in future trade policy. In Vermont we have enjoyed an explosion of artisan cheese in the past 20 years. Vermont makes darn good cheese. But we fall prey to a cultural delay on developing the necessary protections to promote or protect our regional foods. For years many award winning Vermont cheeses have been “cheddars” “tomme” “french alpine”. Now we are seeing regionally named products like Rupert . Will US producers organize themselves to adopt the legal process verification that European food-rich regions have mastered with Champagne (the legal process) and Cheddar (the verb!)?
The sign-up period for MPP coverage in 2018 will close on June 1, 2018.
If you’re shipping milk you should check out how the USDA has revamped the Margin Protection Program (MPP) for 2018. Premiums have dropped, especially for Tier I pricing (less than 5 million lbs of milk). Here’s how it works.
The program makes payments when the monthly margin between the U.S. all-milk price and national average feed costs falls below the level of coverage chosen by the producer. Above the basic $5 margin level for the first 5 million pounds there are supplemental coverage options available for purchase in 50-cent increments. Supplemental coverage can extend up to $8/cwt. The program pays on one-twelfth of a producer’s annual production history, multiplied by the percentage of supplemental coverage chosen, from 25% up to 90%, plus the remaining coverage provided on the farm’s production history at the basic $5 level. Once a farm enrolls in the MPP it is committed to the program through 2018. Farmers must have an up-to-date Form 1026, signifying that they meet conservation requirements, in order to participate.
For example, if you use 3,000,000 lbs milk production history and the $8.00 MPP level and elect to insure 90% of that production you could receive an estimated $13,897 in total payments. At a premium cost of $4,196, that’s a net return of $9,701 for the whole year, after premiums are covered. The January, February and March margins are set, and in the above scenario, the payout so far in 2018 is $8,798, more than covering the $4,196 premium. This program is worth revisiting!
For more information, follow this link to the MPP Decision Tool where you can make inputs specific to your farm. The sign-up period for coverage in 2018 opened on April 9 and will close on June 1, 2018. The U.S. Department of Agriculture is allowing farmers to opt out of coverage for 2018. For more information, contact your local USDA Farm Service Agency (FSA) and ask about MPP or read this MPP Factsheet.
For many years maple sap and syrup producers have referenced the print version sap buying pricing sheet that is regularly posted in industry publications like the Maple News or the annual Maple Syrup Almanac. There is now an online Sap Value Calculator developed by Cornell and Ohio State available for use. Cornell also has the Cornell Sap Buying Spreadsheet available for download (excel version) from their website.
Some sap sellers had historically used a 50% or 60% value share to price sap but those percentages are not necessarily current to all regions. Fast growing maple regions are cited for up to 65% – 70% of final syrup market value being paid to the sap producer. The online Sap Value Calculator and the Cornell Spreadsheets offer more flexibility to target a specific crop share percentage for sap pricing.
Are you looking for more online maple business planning tools? UVM Extension has been awarded a new grant to develop online business planning tools and financial calculators for maple producers. The project starts in June 2018. If you have ideas please contact Mark.Cannella@uvm.edu
UVM Extension farm business educators (Mark Cannella, Tony Kitsos and Betsy Miller) are available to work one-on-one with farmers on their finances and business planning. Reserve a 1½ hour appointment to prepare documents and plans to manage the business. Use the time to develop a balance sheet, update financial statements, review a business plan, consider changes to the business and more. Bring your financial statements, recent records and questions!
The winter-spring schedule has been posted with dates available from mid-January through April at 10 locations statewide.
Register now at this website: http://www.regonline.com/clinicswinter2018 or download the program brochure.
The Vermont Farm Viability Service Provider Network met on October 4th. This meeting of consultants and business educators is a place to share current resources to enhance farm business planning in Vermont. Topics of the day:
- NOFA-VT has produced cost of production benchmarks for carrots, onions, lettuce, winter squash and potatoes. The study has also produced whole farm financial benchmarks. Go to the cost of production benchmarks to see the sales per acre, costs per acre and net profit per acre for these crops.
- VT Agency of Agriculture, Food and Markets announced the first round of Vermont Produce Safety Improvement Grants that farmers can apply for to improve on-farm produce safety. Farms can also get support for an On-Farm Readiness Review to have a one on one conversation on how the farm is doing on produce safety in advance of formal inspections.
- Dairy Industry Overview: discussions continue about how the oversupply of conventional and organic milk is impacting farm gate prices. Stagnant or declining prices paired with regulation/certification driven investments present a difficult situation for dairy business owners to navigate. Farm transfer planning is further complicated as the outlook for many dairies remains uncertain. Back to brass tacks, this group talked about the need to revisit accurate and responsible asset valuation on dairy herds and how to develop pro forma statements that negotiate short term cash flow shocks.
- Farm to Institution Spending: active research continues to explore possible opportunities to enhance regional institutional spending (schools, colleges, hospitals) on agricultural products. The looming question remains: What will it take for farms or distributors to find solutions that get the right products to the buyers at the right price.
Here are two recent reports that shed light on the varying opportunities and constraints facing the expansion of food sales for New England farmers and food distributors.
“Getting it There”, Farm to Institution New England. This report looks at food distributors in the farm to institution market channel.
“Storage and Distribution Report for the Northeast Kingdom”, Rosalie J Wilson. Development Services
These organizations are among the many that are working to advance farm to school and farm to institution development.
VT Feed : NOFA VT and Shelburne Farms
Sodexo: VT First
Fifteen years ago the buzz word was “direct sales”, seven years ago it was “scaling-up” and in 2016 the call is to build brands. Many small farms and their owners can’t manage the “scale-up”. Can food systems entrepreneurs harness the cumulative capacity of small farms to supply market demands both near and far?
Check out this recent article originally published in Local Banquet (Spring 2016)
and featured through the Vermont Farm to Plate website: Building Brands in a Small Farm Food System
A store with empty shelf space in 2011 for locally produced eggs
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.