Friday
Jan212011
Small farm business planning
Friday, January 21, 2011 at 9:50AM
We are dedicated to showing everyone, everything that goes into our plants and animals. What's really exciting recently has been the increased interest in what we are doing from not just consumers but also other farmers / producers / homesteaders (one of our hottest pages is the "How to build your own chicken scalder part 1 and part 2"). That's really cool on a lot of levels. In the small, local food model, the reality is there's a lot less competition between farms and more helping - hey if I don't grow, raise or produce enough of product A - I'm more than happy to help you find a farm locally that DOES! That's one of the really powerful things about transparency in food production - if you use crummy methods and a true local food community develops... you are in trouble. Anyhow, I digress.
One thing we have struggled with has been the business plan for our small farm and we know that's a super common issue all small farms face. Sometimes I think my MBA helps... and sometimes I think it hurts the planning process. Like every business venture we are constantly questioning which enterprises make enough to pay the bills, which ones leave you most fulfilled, which ones are in demand... it's those 3 sides of a triangle that constantly push and pull against each other - threatening financial equilibrium. And you know what, for all the books, blogs, news articles and magazines we have read about small scale natural farming - there's almost NO information about costs, planning and finances. Usually it's just vagaries around things you might want to buy - and the references are typically ridiculously unreal Craigslist finds. Very little concrete direction exists.
I suppose that's not too surprising as each farm and venture tends to be as unique as the individuals operating it and the land on which it resides. Still - to the person just starting (or planning on starting out) out it can be daunting to find any concrete numbers to grab onto at least as a reality check. So we thought, going forward, we would start to provide even more transparency in our farming endeavors by sharing with folks what it is we do on the financial side - the costs - and the margins involved. Hopefully there will be other farmers, aspiring farmers, homesteaders and consumers that will look at these numbers and find better ways to do things OR just use these numbers as a bit of a reality check when they are considering their choices.
One of the simplest farm / personal / or homesteading endeavors anyone can undertake is the raising of hens for eggs. Their space requirements are minimal, they are hardy little creatures and they are productive most of the year. Still - the location, breed, source stock, feed and environment all contribute to the quality of the end result - eggs.
So let's look at our egg endeavor started last year:
We had to build a movable coop from the ground up. We also decided that we would size it for a larger flock than we were going to start with with the expectation of growth in the future.
Certainly some of the decisions we made in start up could be changed - but it's cheaper in the long run to have the electric netting and move that for the birds than to let them free range over to the neighbors dogs or get friendly with our high fox population.
So there's a pretty clear picture. Now, the facility could easily house another dozen hens. Technically - even more, but our methods say no! Next up - ongoing costs:
Lastly - we need to account for the egg sales. We currently charge a fair price of $3 / dozen. We ask our customers to return and recycle their egg cartons (because new they cost $0.25/each).
Now - here's where the math gets REALLY tricky. Our hens have continued to lay all this winter - which is great. Typically they drop off from November to March anywhere from 60-90% in production volume. So - to keep this math simple I'm going to assume our birds will continue to lay at full volume here - that's been about 10 eggs a day on average. So (10 eggs/day * 30 days/month) / 12 eggs/dozen = 25 dozen eggs/month. At our current price of $3/dozen, that's $75/month in gross revenue.
But we have to pay those feed and fresh litter bills - so that $75/month pays $50/month in bills. Our profit is $25/month.
Back to the cost to build the coop - $1560. If we had NO repair costs or unexpected expenses... the coop would be paid off in full in 5.2 years (longer than most car loans). But - those hens wear our after about a year of laying and their production drops WAY off... so we need to replace them. The coop has wear and tear and needs repairs, fencing breaks, things need replacing. You get the picture here.
And there's one factor that is accounted for nowhere in any of these calculations - the cost of time. daily chicken chores: feeding, cleaning, checking, egg collection, washing and packaging take about 30 minutes a day with an extra 30 minutes a week to move the fence to fresh pasture. That's 4 hours a week. Not a lot of time over 7 days - but what do you make in an hour at work? Because here we take that $25 in profit, save $5 for repairs and other expenses, leaving us with $20 to apply to 4 hours of labor. That's a wage of $5/hour (and we are writing off the entire cost of the facilities as a loss in start up capital).
One final thing - this operation takes place on land - land that has taxes and other costs. We use water and electricity. Those are completely unaccounted for - our COGS (Cost of Goods Sold) numbers are very simple and artificially low.
Very - VERY quickly you suddenly see the WHY producers that are asked to provide eggs to the grocery store to sell for $1.29 a dozen build MASSIVE houses - lock their chickens in cages because moving burns calories which makes them eat more which raises feed prices. You see why wall to wall production becomes an economic decision. The animals don't get a vote.
Math like this is why so many small farms cease to exist. Why so many new farms fail so fast. One absolute constant we have discovered - farming requires a significant reserve of start up capital for any endeavor. It's math like this that keep both of us employed in full time jobs. But it's also the value that this type of food brings to families and communities that makes us work our farm as a second full time job. We are incredibly grateful that we have customers that are willing to pay the $3.00 a dozen for eggs - willing to learn about our production methods and willing to accept that good food is not cheap food... it can't be.
One thing we have struggled with has been the business plan for our small farm and we know that's a super common issue all small farms face. Sometimes I think my MBA helps... and sometimes I think it hurts the planning process. Like every business venture we are constantly questioning which enterprises make enough to pay the bills, which ones leave you most fulfilled, which ones are in demand... it's those 3 sides of a triangle that constantly push and pull against each other - threatening financial equilibrium. And you know what, for all the books, blogs, news articles and magazines we have read about small scale natural farming - there's almost NO information about costs, planning and finances. Usually it's just vagaries around things you might want to buy - and the references are typically ridiculously unreal Craigslist finds. Very little concrete direction exists.
I suppose that's not too surprising as each farm and venture tends to be as unique as the individuals operating it and the land on which it resides. Still - to the person just starting (or planning on starting out) out it can be daunting to find any concrete numbers to grab onto at least as a reality check. So we thought, going forward, we would start to provide even more transparency in our farming endeavors by sharing with folks what it is we do on the financial side - the costs - and the margins involved. Hopefully there will be other farmers, aspiring farmers, homesteaders and consumers that will look at these numbers and find better ways to do things OR just use these numbers as a bit of a reality check when they are considering their choices.
Eggs-actly how much is an egg?
One of the simplest farm / personal / or homesteading endeavors anyone can undertake is the raising of hens for eggs. Their space requirements are minimal, they are hardy little creatures and they are productive most of the year. Still - the location, breed, source stock, feed and environment all contribute to the quality of the end result - eggs.
So let's look at our egg endeavor started last year:
We had to build a movable coop from the ground up. We also decided that we would size it for a larger flock than we were going to start with with the expectation of growth in the future.
(All 2010 costs)
All the lumber, roofing and hardware for a 12x10 coop cost about $1200 (coop cam not included).
Day old chicks of selected breeds that forage heavily to reduce feed costs cost $3.50 each * 14 = $50
Waterers, feeders, brooding supplies, lamps, etc (all the things you need to take chicks to adulthood) = $60
Electric Poultry netting and fence energizer = $250
Total start up costs for a 12 hen + 2 rooster flock = $1,560 (+/- $200)
Certainly some of the decisions we made in start up could be changed - but it's cheaper in the long run to have the electric netting and move that for the birds than to let them free range over to the neighbors dogs or get friendly with our high fox population.
So there's a pretty clear picture. Now, the facility could easily house another dozen hens. Technically - even more, but our methods say no! Next up - ongoing costs:
(All 2011 costs)
Feed - this is a big one because all the other costs are one time - this goes on and on and on = $17 every 2 weeks
Wood shavings to keep the litter in the coop fresh and healthy = $5 every 4 weeks
Extra feed items in the winter like tuna, lettuce, greens - things they forage for naturally 6 months of the year = $8 / month
Total MONTHLY costs for a 14 bird flock = $50 (+/- $10)
Lastly - we need to account for the egg sales. We currently charge a fair price of $3 / dozen. We ask our customers to return and recycle their egg cartons (because new they cost $0.25/each).
Now - here's where the math gets REALLY tricky. Our hens have continued to lay all this winter - which is great. Typically they drop off from November to March anywhere from 60-90% in production volume. So - to keep this math simple I'm going to assume our birds will continue to lay at full volume here - that's been about 10 eggs a day on average. So (10 eggs/day * 30 days/month) / 12 eggs/dozen = 25 dozen eggs/month. At our current price of $3/dozen, that's $75/month in gross revenue.
But we have to pay those feed and fresh litter bills - so that $75/month pays $50/month in bills. Our profit is $25/month.
Back to the cost to build the coop - $1560. If we had NO repair costs or unexpected expenses... the coop would be paid off in full in 5.2 years (longer than most car loans). But - those hens wear our after about a year of laying and their production drops WAY off... so we need to replace them. The coop has wear and tear and needs repairs, fencing breaks, things need replacing. You get the picture here.
And there's one factor that is accounted for nowhere in any of these calculations - the cost of time. daily chicken chores: feeding, cleaning, checking, egg collection, washing and packaging take about 30 minutes a day with an extra 30 minutes a week to move the fence to fresh pasture. That's 4 hours a week. Not a lot of time over 7 days - but what do you make in an hour at work? Because here we take that $25 in profit, save $5 for repairs and other expenses, leaving us with $20 to apply to 4 hours of labor. That's a wage of $5/hour (and we are writing off the entire cost of the facilities as a loss in start up capital).
One final thing - this operation takes place on land - land that has taxes and other costs. We use water and electricity. Those are completely unaccounted for - our COGS (Cost of Goods Sold) numbers are very simple and artificially low.
Very - VERY quickly you suddenly see the WHY producers that are asked to provide eggs to the grocery store to sell for $1.29 a dozen build MASSIVE houses - lock their chickens in cages because moving burns calories which makes them eat more which raises feed prices. You see why wall to wall production becomes an economic decision. The animals don't get a vote.
Math like this is why so many small farms cease to exist. Why so many new farms fail so fast. One absolute constant we have discovered - farming requires a significant reserve of start up capital for any endeavor. It's math like this that keep both of us employed in full time jobs. But it's also the value that this type of food brings to families and communities that makes us work our farm as a second full time job. We are incredibly grateful that we have customers that are willing to pay the $3.00 a dozen for eggs - willing to learn about our production methods and willing to accept that good food is not cheap food... it can't be.
Reader Comments (10)
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Great article on costs. Surely you could charge $6:00 a dozen for that quality, assurance and taste for these eggs? I pay that for free range in the grocery store and who knpws how old they are or how they are produced - you have a very unique product ...up the price and they become even more special - people will pay for the best!
rob, vancouver, Canada
Thanks for the kind words - certainly appreciate the encouragement. I think you are right - we could raise the price on our eggs (and might have too with feed prices continuing to climb) - but one thing we keep in our mind is the subtle difference between raising fresh, whole, healthy food... and raising fresh, whole, healthy food that's affordable. That's the challenge.
We would love to send you some eggs but I fear by the time you got them you would just have the makings for an shell filled omelet!
My husband and I are considering using our income tax to start up a small chicken farm. Your
Article is very informative, but really makes me wonder if it would be a bad idea. Sounds
Like you barely break even.
Jen,
The point of us being transparent in these endeavors is to help people like yourself make that very decision. Yet there's just too many variables in the equation to help you beyond sharing our experiences. Things like access to a local market, its carrying capacity and its interest in local food, general local culture, your drive (the real drive not desire - very different), your land, your available inputs and available capital... To name a few.
Farming is a great lifestyle - but it's also far from the idyllic, simple, pastoral, bucolic vision so many people have. Animals get sick and injured, the strong pray on the weak, there's blood, death, angst and frustration. All in all the good days significantly outnumber the bad - but the bad days weigh on you far heavier than a bad day at the office does.
But to your comment specifically, having capital and a LOT of it is, in our opinion, a requirement to start any farming enterprise... And the return on investment absolutely can't be calculated in an Excel spreadsheet alone.
Great article. Our family has a 40+acre farm in Morocco, N Africa. Had dreams of it being organic, sustainable, and community based. Financially we are at a point that we have had to make big changes including dropping the organic portion. Do you have any websites or articles that would have ideas on how to make such an endeavor work? It is hard to get find full time jobs overseas that would supplement our income. Thanks.
I'm about to plant my first small plot of fall vegetables as step 1 in phasing into a sustainable farming operation on land owned by my family. I discovered you through your podcast and look forward to learning more about your experience.
Any chance you could reduce feed costs by growing a portion of the grain needed for chicken feed? I realize that involves the need for additional grain harvesting equipment (or lots of time to do manual harvesting).
Or, perhaps, collecting certain food waste like uneaten salad greens, veggies and other items that chickens would enjoy?
Sheree,
We have looked at the costs associated with growing our own feed on farm but the equipment (even used and a "good deal") is many, many thousands of dollars and then there's time and operating upkeep on it. On top of that you are not just planting corn, you want a mixed and balanced ration... so that's MORE equipment to purchase, operate and maintain. It's juts too cost prohibitive.
We are looking at a bulk storage system (like a mini 3.5 ton silo) for a seasons worth of feed... but even that has a poor return over the local feed store 80# bags.
We do supplement the layers with greens from the garden that have bolted, tomatoes and other produce (like those giant cucumbers that get missed). It helps but its not really significant in terms of their feed consumption... With the broilers, even less so.
The other option is provide less feed and let them forage farther... then you have increased risk of predator losses, lost eggs being laid outside nest boxes AND with less feed, they lay less often.
I'm now an urban homesteader who is just starting to put together the infrastructure of garden/barn layout. I'm limited to only three chickens in town. My calculations show no income at all. However I place value on the chickens ability to turn table scraps into compost. Though I won't be selling any eggs I won't have to buy any either.
Have you ever used your chicken to till up parts of your greenhouse in the winter?