Using market price reports to crunch numbers

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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.

6 thoughts on “Using market price reports to crunch numbers”

  1. $12 is an average labor rate we observe for paid labor, might be higher or lower depending on the business. Compensation for owners generally improves as the complexity of business management and overall profitability of the business increases. For some farm owners, the “value of time” is a challenging concept

  2. How did you get the $12/hour? Is that what most owner operators “pay” themselves? And if so, how long does it take/when do they know they can “pay themselves” (value their time) at a higher rate?

  4. Wouldn’t COP be more or less the same for a pound/ton of potatoes regardless of the sales channel? Or are you suggesting the wholesale production is more efficient, therefore less costly?

  5. My calculation only looks at a gross revenue and expenses on post productive activity. Next step is to include production costs.It’s safe to assume the wholesale farmer will have lower COP, but I would imagine total margin for a wholesale farm is only nickles or dimes per pound… a couple hundred dollars per ton. That wholesale farmer needs the to crank out tons and tons of more product to retain enough income for a reasonable compensation for management. So, we’d expect that extra time to be back in the fields “farming” to earn income. Gotta factor in the land constraint issue too…. how much land can the business access to expand production.

  6. Interesting numbers! That translates to about $133 per hour for wholesale vs. $39 for retail. At an hourly rate, it’s a no-brainer… but can the farmer uses those extra hours to earn more money?

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