Summer and Fall harvest can be an incredibly satisfying time of year. Picking the fruits of your labor, packing boxes full of product, and loading trucks headed to Farmers’ Market or a delivery run- just watching your goods roll down the driveway to meet their customers is inherently rewarding. I love stacking boxes and bags on a pallet and sending it off to market. Maybe the feeling is archetypal: growing plants and animals, caring for them, and then seeing customers appreciate your efforts in the wholesome, nutritious food you provide. Farmers everywhere find meaning in this chain of events.
But is that ‘feel good’ sight of a truck full of freshly packed product just a well-deserved end to months of hard work? Or could it be the anticipation of receiving the sales money for the product? Rewards for your toils are the spoils. Is the satisfaction of seeing your farm product meeting its customer addressing your needs of economic security?
As we go about our farming work week, often multiple tasks are tackled in a single day. Most farms grow and sell many different products such as numerous types of vegetables, flowers, fruits and/or animals. Even a dairy farm with one main sales product- milk- needs to put up hay, grow and store silage, rotate pastures, utilize manure, and raise replacement stock, just to name a few farm components. Most all farmers perform a myriad of tasks to produce a single item for sale.
So what does this have to do with that great feeling of seeing a truck full of product leave the farm? That truck represents sales money, and ultimately, financial security. But does it really?
In the harried and varied work day, farmers seldom connect the costs of the product with the sales that they bring in. Is the sales revenue from the product on the truck more than enough to cover all production expenses like seed, fertility, and employee paychecks? And enough to cover the farmer’s hours that she or he worked? And to pay for overhead expenses like phone, taxes, insurance and loans? What about farm upkeep? Vacations? Kid’s college educations? Why is my head starting to hurt? Where is that ‘feel good’ feeling? Why can’t I just farm?
All farms have an idea of how profitable they are, partly from looking at their checkbook balance, but more from mandatory annual tax filings with the IRS. Preparing tax forms for the IRS forces farmers to look at their business numbers at least once a year. What were the farm’s gross sales? What were the farm’s itemized expenses? And ultimately, what was the farm’s overall net profit (or loss)?
This year end tally is a valuable, but crude tool. While a farm may be profitable overall, it doesn’t show which components that make up the whole farm were profitable or not. Nor does it show how many hours the farmer logged to achieve that annual profit.
The penultimate business equation, Profit = Income – Expense is often calculated only once a year at tax time. In reality, that single equation is just an average of many smaller Profit = Income – Expense equations of all the different enterprises that comprise the farm. The farm may sell blueberries, eggs, salad greens, maple syrup and Christmas trees. How does each farm enterprise rate individually in terms of profit? Unless thought is given to the profitability of each product, all products will get averaged into the year end Profit = Income – Expense equation. Highly profitable individual components of the farm may see their earnings pulled down by less profitable (or even unprofitable) products.
A diversified vegetable farm may grow 40 or more different crops. The chances of them all being equally profitable is incredibly small. Some are money makers, some are so-so, and some are not pulling their weight. Until they are rated side by side, their contribution to the farm’s bottom line- the average year end profit (and the farmer’s reward)- will be hit or miss.
A goal of mine is to see more happy and prosperous farmers. To that end, I talk at farming conferences, help individual farms through consulting work, and recently wrote a book, called The Organic Farmers’ Business Handbook, published by Chelsea Green. The Organic Farmers’ Business Handbook is not about how to produce organic crops; rather it is how to manage a successful, profitable business that produces organic crops. I don’t want to repeat here in this article what is already in the book, but I want to walk through some of the basic concepts.
Though I desire to see more happy prosperous farmers, I don’t want farmers stressed out about record-keeping and taking copious notes of everything that happens on the farm. Being a profitable farm is not a hard nut to crack, nor does it have to be unpleasant. As in the old shell-and-bean game, the key is to keep your eye on the correct moving object. Focus on what data you need to increase your farm profit. And don’t overdo it at first. In the excitement of taking control of your financial destiny, it is easy to become overzealous and try to do too much.
As a starting point, I recommend you take your top selling items (1-5 products) and make a product (or enterprise) budget for each of them. Your top sales items will have the biggest effect on your bottom line because they constitute the bulk of your current revenue. Take a piece of paper and make the budget right now without any previous records. You will be able to rough out a budget surprisingly well, and the numbers you are not sure of will be the target of your future data gathering (like how long does it take to weed a 300 foot bed, or harvest a bushel of carrots?) Some numbers may be easier to recall, like sales prices, and some are documented with invoices and check stubs. The tougher numbers to figure are usually ones that involve labor: how long does it take to perform a certain task? Use your best estimates. For instance, try harvesting 20 bed feet of imaginary lettuce on your living room floor, going through the motions with an eye on the clock, and use that rate as a gauge for labor on longer beds.
In creating a budget now from memory, you will be able to target specific data you need and keep a razor sharp focus on the prize- your profitability. And keep it simple, don’t get bogged down for now with exact costs of things like tractor time, guesstimate for now, but be consistent. The exercise is get to a feel for which numbers in the budget stand out, and how they compare with other budget items.
Let’s do a simple budget for eggs from 50 laying hens. I usually think in chronological order when creating a budget, starting with the first step performed in the season and ending with sales. Then I set some basic parameters like scale (50 hens, or say, 300 bed-feet for crops) and the average cost of labor. I’ll set the labor rate at $15/hour which includes employer taxes and Workers’ Comp. If the farmer does all the work, she or he will, in essence, earn those wages in the end net profit. But if the farmer has a hernia operation and has to hire someone to do all the work, the employee will get the wages, and farmer will only see any net profit from the enterprise.
Here goes: On Sept 1st, I buy 50 pullets (at $8 each = $400) that just started to lay eggs. I put them in a corner of my barn, go buy some fencing ($50) and a feeder and waterer ($50 for both). I make a pen in two hours. I go buy some organic feed at $20 per 50 lb. bag and some bedding for the coop area ($12). I’ll pack eggs in used cartons and sell them from my front porch, with an honor system cash-box.
I’ll keep the hens for 1 year, and then sell them for $2 each. For simplicity, I have zero mortality in the flock. During the winter, I add a light to the coop for 6 hours each day, and supply bedding as needed. Morning chores takes me 45 minutes with egg cleaning and boxing, and evening chores just 15 minutes on average (includes periodic bedding work), each day for 365 days.
The hens each eat 90 pounds of feed/year, and each produce 22 dozen eggs/year.
So this is how it looks as a budget:
First off, don’t shoot the messenger. And you with the hatchet, move away from the hens. These numbers are just numbers, but numbers with some very valuable lessons. Notice the big numbers: feed, labor, and egg sales. And don’t sweat the smaller numbers for now, (saving some money on less winter lighting or a used waterer will not do a lot to change the effect of the big numbers). Can you buy feed in bulk for less money? Can you supplement the hens feed with other free food sources (forage, day old bread)? Can you raise the price of eggs to $6/dozen? Those possibilities will all tilt the profitability of the enterprise in your favor.
But the burning question in most people’s mind is, “why include the whopping $5481 for labor?” Sure, it can be looked at as a chore like laundry or dishes, just part of farm life. But we all only have 24 hours in a day, and some is needed for sleep and family. The hours remaining for work should hopefully pay some of the bills of life. And what if circumstances dictate that you have to hire someone to do chores? Farmers are famous for being guilty of self-exploitation. Not valuing your own time is not a sound farm business model.
You’ll notice that without labor accounted for, the hens are a profitable enterprise: Sales of $5800 minus expenses of $2351 yields a very positive $3449 profit. That’s quite a difference from the above net loss of $2032 with labor figured in. Another way of looking at the labor figure is that you, the farmer, are earning that $5481 even though you didn’t write yourself a paycheck. If you did all the chores, at the end of the year your checkbook would have a positive balance: your $5481 in labor minus the overall budget loss of $2032 still yields a positive $3449. It can be looked at in yet another way- you didn’t get paid $15/hour, but rather $9.44/hour ($3449 divided by the 365.5 hours worked).
Let’s revisit our old friend, Profit = Income – Expense. Profit can be increased by raising income, decreasing expenses, or both. By selling eggs at $6.50/dozen and decreasing feed costs to $1100/year changes the net profit to a positive $18, while still paying you (or someone else) a fair wage of $15/hour.
Again, this is a simple budget with no marketing or packaging expenses, or contribution to overhead expenses. It is an example of roughing out a budget to see where the big numbers are, and how they may get tweaked to increase profit. Whether you decide to keep hens or not is your decision. The numbers are just information so you can make informed decision. My dear old dog Tucker costs us $600/year in food, another $500 or so in vet bills (depending on how many porcupines he finds) and he stinks most of the time. He sure doesn’t pencil out on paper too well, but we know that and are not about to send him packing. Budget numbers will get you thinking, and change may be a result, maybe it won’t.
In my book I detail some net profitabilities per acre for different vegetable crops. I talk in terms of net profits of $10,000 or more per acre. To a commodity farmer, some of these numbers may seem like some sort of parallel universe. A hay crop with 200 bales per acre yields only $800 GROSS sales per acre (at $4/bale). Corn silage at 25 tons/acre (at $25/ton) yields GROSS sales of $625. Those are gross sales, not net profits. The difference of what I cite in my book and these commodity crops is almost incomprehensible.
Yet, I have fun in my alternate universe. I like to point out the profit differences of two similar crops, broccoli and kale. Both are in the same family, have very similar planting and growing requirements, yet yield dramatically different net profits per acre. The spreadsheets in my book, in hindsight, are mind-numbingly detailed. They started out much simpler, like the ones I use on my farm. But I wanted to be accurate and cover all bases, yet in doing so, I may overwhelm the viewer. There is tons of useful information in the fine print if you take the time to read it- I wanted to be as transparent as possible. But to cut to the chase, the short version of the story is that popular broccoli nets about $1100 per acre after all expenses for a hypothetical diversified 5 acre vegetable farm, while nondescript kale nets about $24,000 per acre. That’s $24,000 net per acre! Have I got your attention?
A well-managed diversified vegetable/flower/herb operation can readily gross $20,000 per acre on a small to medium scale. (Larger farms may achieve this, but may need to sell volume at lower prices). Some smaller start up farms realize this higher potential- I know of one 4 acre farm netting $51,000 after only five years in business, and another netting $65,000 after 8 years farming. Granted, these are smart farmers that seized market opportunities. But it is possible. All farms are unique, We all need to carve our own niche in the marketplace. And we all need to pay attention to our profitability.
I have had the benefit of working with numerous farmers in New England, and I’d like to share some hard to find numbers for farmers to guage their own businesses. Keeping in mind that there is no typical model farm, some common numbers I’ve found for diversified organic vegetable farms are:
Gross sales per acre: $20,000 to $30,000 per acre
Net profits per acre: $0 to $20,000
Hired labor as a percentage of gross sales: 25% to 35%
Farmer hourly wage: a 40 hour work week times 50 weeks/year is 2000 hours. A vegetable farmer in New England may work 20 hours/week January-March, 60 hours /week April-June, 60 hours/week July- October, and 30 hours/week November- December, for a total of 2160 hours, not that much different from a 40 hour/week year-round worker. Take your net profit and divide it by 2160 hours, or by the number of hours you figure you work. For example, a $30,000 net profit divided by 2160 hours equals $13.89/hour.
For a hypothetical 5 acre diversified organic vegetable farm grossing $20,000 per acre, here’s how the $100,000 gross sales may be spent:
Plants and supplies: $4000
Fertility and pest control: $4000
Fuel, utilities: $2000
Capital improvements, machinery: $6000
Rent, interest, miscellaneous: $10,000
Paid labor: $30,000
Owners profit: $30,000
Again, there is no model farm, but these expense categories paint the picture in broad strokes to get an idea of where the money flows.
A note on the word “Profit”
Some farmers have a knee-jerk reaction to the word Profit, like it was some four letter word. I was raised in a household that confused “Profit” with “Greed” and felt the same thing. Farmers are drawn to their work not as a get-rich-quick scheme, but because of the fundamental satisfaction of growing plants and animals. Some farmers have a homestead mentality, and want to live outside of our current monetary system. But we all need to survive economically to pay some unavoidable bills. It won’t matter how environmentally sustainable a farm is if it can’t survive economically. But what is an appropriate profit? Surely one enough to provide the basic needs of the farm, the farmer and any employees. And if the profit is increased by sharpening one’s pencil and becoming more efficient, why not pay the farm’s workforce more? Everybody wins. As the organic movement continues to mature, should we promote the poor farmer paradigm and the USA’s cheap food policies? I’m all for a cheap food policy as long as we also have a cheap health care policy, cheap education policy and cheap & clean energy policy. Should the survival of organic farms depend on cheap labor? Can we pride ourselves in a product that pays workers poorly to produce it? Farmers and employees that make a living wage needs to be a priority, and not viewed as some unattainable goal. Farmers often respond to low profits by working longer and longer hours- how sustainable is that?
Increased profit margins on farms provide increased “wiggle room” to weather bad growing seasons, market fluctuations and unforeseen events. More profits can be invested in farm infrastructure, enable experimentation, pay employees well, and meet retirement needs. I’m happy to say that we pay our employees well above the going rate. Profit isn’t a bad word; it is all in how you use it.
About the Author: Richard Wiswall is the owner of Cate Farm, a family owned and operated organic farm in Central Vermont. He and Sally Colman and family cultivate 22 acres and seven 100-foot long greenhouses of organic vegetables, medicinal herbs, and flowers. Everything they sell is certified organic and always their own. From his thirty years of experience at Cate Farm in Vermont, Wiswall knows firsthand the joys of starting and operating an organic farm—as well as the challenges of making a living from one. Also, check out his new book, The Organic Farmer’s Business Handbook, where he shares advice on how to make your vegetable production more efficient, better manage your employees and finances, and turn a profit. This is a valuable book for any beginning or seasoned farmer!