By: Bethany Hellmann
Purpose of this document: To inform four-season farmers and four-season
incubator farms of how, where, to whom, and when to sell and market
their products. The following section is on General Selling Techniques.
Where Do I Begin?
You have decided that you want to run a successful, profitable business by selling the farm goods that you will produce. Now what? Writing a business plan is a good place to start. You can think of this business plan as a road map that includes your priorities, goals and objectives. This plan will help you review your progress in the future and to help you see where you can make adjustments. The business plan will also help you to identify potential business and production problems and find solutions before these problems arise. In general, a business plan includes a mission statement, long-term goals, marketing plans, production and operation plans, financial plans, staffing and organization plans, and management and contingency plans. [Source 1]
For instance, Tilian’s Seeley Farm wrote about the three types of customers they anticipated selling to in their business plan: health conscious customers, local foodies and gourmets. By putting this is writing, Seeley Farm could plan how they would talk about their goods to their potential clients. They decided to talk to their customers about the health benefits and politics of local foods to help connect with and sell to their customers. [Source 2]
Sustainable Agriculture Research and Education Manual
Sustainable Agriculture Research and Education (SARE) publishes a manual entitled, Building a Sustainable Business: A Guide to Developing a Business Plan for Farms and Rural Businesses. This manual outlines the business planning process for sustainable farmers. It includes worksheets to help you develop your own business plan. A free copy of SARE’s manual is available online, a printed copy is available for a fee, and an abbreviated Spanish version is available. [Source 3]
Additionally, Tilian’s Seeley Farm found the books, “The Organic Farmers Business Handbook” by Richard Wiswall and “Starting and Running your Own Small Farm Business” by Sara Beth Aubrey to be helpful in writing their business plan. Wiswall’s offers a walk-through of what a farm business plan can include and Aubrey offers many real-life samples of business plans. [Source 2]
After you thoughtfully fill out a business plan, you can use it to help obtain funds from financial institutions. A lender may look at a well-researched business plan as an indication of success ahead. [Source 1]
How Much and What Should I Try to Grow and Sell?
Before you begin planting, you need to plan out your farm. You can use your business plan and do additional research into the farming business in your community. A great person to consult is your farmer mentor, if you have one. This mentor can help you decide what can reasonably be planted on your farm and sold in your community. Also, you may ask other local farmers how much they planted and sold in their first years. Do enough research so you can decide what and how much you will produce, how much you can sell, at what price you will sell, and if your sales will yield a profit after all costs are considered. [Source 1]
Open House at Tilian
What Should I Keep In My Inventory?
It’s important to upkeep your inventory so that you have everything you need when the time comes to use it. For example, be sure to order your seeds in advance of needing them. Make sure you have enough compost for your future needs. The amount you will need is based on what you plan to grow each season. Try not to keep too much of anything that has an expiration date. Do look for sales and bargains on items your farm uses a lot. It’s ok to stockpile sale items as long as they are stored properly. The best method to determining your inventory is to ask your mentor farmer or other farmers that you trust.
Where Should I Sell My Farm Goods?
Veggie display at Farmers Market
There are a variety of venues for a farmer to sell his food locally and directly to the consumer. These include farmer’s markets, farm stands, CSAs, restaurants, food co-ops and grocery stores.
Many farmers use direct farmer-to-consumer selling options to supplement wholesale and retail sales. This reduces the farmer’s risk when relying solely on one market type. One of the most important things that a farmer can do when selling his product is to diversify his selling avenues and to keep searching for the niche that he belongs in. Don’t put all your eggs in one basket. Don’t just sell at the farmer’s market or just have a CSA. Sell in multiple venues. [Source 4]
What Advantages Exist in Selling DIRECTLY to the Consumer?
Buying from a local farmer satisfies the consumers need for fresh, high quality produce. However, the farmer can also greatly benefit. The farmer who sells directly to the consumer often earns higher financial returns from his farm goods than if he sells to larger commercial buyers. These higher profits are achieved through reducing or eliminating the middlemen in a supply chain.
Frequently, direct selling is the only viable method for small farmers who cannot meet the volume or selection demanded by large processors or retail purchasers. There is an easier entry and more flexibility associated with direct selling, so most farmers can readily start directly selling to their customers. There is less labor required by direct selling, including less harvesting, grading sorting and/or packing of produce, particularly in the Pick-Your-Own option. Farmers also get to be their own boss and run their own business in direct selling. These farmers determine what they will sell based on their own desire and guess at what their consumer wants, not based on what the commercial buyer demands. Farmers can use their own personal strengths, ideas, creativity and hard-work to make their business a success. [Source 1]
Farmer talks to CSA member at pick-up
There are additional benefits to buying or selling locally. For instance, money spent locally circulates longer in the local economy. Shoppers at farmers markets tend to spend money at other local stores. Buying local helps create new local businesses and expansion of existing local businesses. Selling food locally is also better for the environment. Food travels less and has a lower carbon footprint. Local food requires less packaging. Also, local food is often organic and has less processing than food at big box stores. Both consumers and farmers can view their direct food exchange as good for themselves and good for their surrounding community. [Source 5]
How Do I Price My Produce?
Pricing can be one of the hardest decisions for any farmer. It is advisable to use a combination of several of the methods discussed below. Stay flexible. It’s normal to have to adjust your prices for a variety of reasons including seasonality and competition.
One popular way to price your goods is based on the cost of production. Price your goods above your cost of production to make a profit. Cost of production includes ALL costs incurred while growing and selling your produce. It is one of the most important tools for determining how to price your goods. It is easier to find cost of production on a small farm than a large farm.
The cost of production is found with the following:
This yields cost per pound of sellable produce.
Seedlings starting in a hoophouse
Production expenses include the cost of anything you spent to directly grow your produce such as maintenance of farm equipment, new equipment purchase, seeds, compost, hoop house construction or maintenance, irrigation costs, wages for additional farm hands, utility costs for equipment like electric fencing or heated hoophouses. Marketing expenses may include hiring a web designer for your personal website development, creating produce bags or business cards with your farm’s logo, creating banners or signs with your farm’s logo for Farmers Markets or advertising in local newspapers. A decent wage for the farm owners is often forgotten in this equation but is essential to making your farm viable. Other costs may include taxes, insurance, interest, basic utility costs, advertising and depreciation.
Once you’ve calculated your expenses, divide this number by a unit area that works best for your farm. This could be by number of beds, acres, square feet, or another unit of area. Finally, divide your answer by the pounds of sellable produce harvested from each unit of area that you chose. For example, if you can harvest 200 pounds of produce from each of your beds, and you chose beds as your unit are, you would divide by 200. This final number will approximate your cost of production per pound. The following example illustrates how to use the cost of production equation. [Source 6]
EXAMPLE:
Production expenses = $9,000
Marketing expenses = $500
Other Costs = $500
Decent wage = $20,000
Production Area = 300 beds
Pounds harvested from each bed =200
This means it costs 50 cents to make one pound of sellable produce for this example farmer.
After determining your cost of production to be $0.50 per pound, price each pound of produce higher than your cost of production to make a profit. For example, you may charge $1 or $1.25 for a pound of produce.
Another method to determining price is called the break-even analysis. This analysis is very similar to the cost of production method described above except the break-even analysis breaks costs into fixed costs and variable costs. Fixed costs remain the same no matter how much is grown including insurance, taxes and advertising. Variable costs are reliant on how much produce is grown such as seeds, compost and water bills. This method is beneficial when you cut prices and need to determine how much you must sell per week to break-even. [Source 7]
Break-even calculators are available at the following sites:
-Fast4Cast
-Jaxworks
More advanced spreadsheet-based budgeting tools which help determine price and agricultural analysis are available at the following sites:
-Agricultural Marketing Resource Center Enterprise Budgeting Tools:
-The Ag Decision Maker from Iowa State University:
AgMRC Budgeting Tool
A complementary method to pricing your goods is to visit several farmers markets, grocery stores, farm stands, produce auctions and other produce outlets near your farm. You can see what others are charging for produce similar to yours and what it is worth to the consumers in your community. Also, some states post their prices from farmers markets online through weekly farmers market pricing reports reducing the need to visit as many markets.
Additionally, you may choose to price for profit, price for value or price against competition. In pricing for profit, you make your selling price higher than your cost of production. In pricing for value, the farmer gives a price break with larger purchases, such as $2 a piece and 2 for $3. This pricing for value occurs most often when a farmer is trying to move more product, is selling a large volume to a regular customer or doesn’t wish to return home with produce. Be careful not to give price breaks that are less than the cost of production or else you’ll end up with no profit. Pricing against competition involves intentionally setting your prices lower than your competition. It is often discouraged by farmers markets because it spreads undercutting and negative feelings among the vendors. Price-cutting leads customers to bargain for all products on the table, and encourages customers to wait until the end of the day to obtain the highest discounts. The best pricing strategy is to maintain high quality products that consumers will consistently buy for a fair price. There will likely be some trial and error when determining the fair price for your produce. For instance, you may try lowering your price to increase the volume sold if sales have been consistently down over a few weeks period or more. [Source 1] [Source 6]
Farmers Market Price List
Tilian’s Green Things Farm (GTF) has successfully integrated several pricing methods to determine the right price for their products. GTF researches other CSA’s and farmers markets in their area to remain competitive with others’ prices. They will also adjust their prices somewhat based on their inventory. For instance, in the summer during peak tomato season, GTF sells them for less than during other times. GTF negotiates the price with chefs at local restaurants based on their supply, seasonality and what the chefs can afford to pay. Additionally, GTF may lower the price in wholesale for a product that is not selling in other venues. This increases the volume of that product sold. [Source 8]
Adding value to your product before sale increases the profit on your goods by making your goods unique and more attractive to your customer. For instance, Tilian’s Seeley Farm puts its high quality, small-cut salad greens mix into plastic clam shell containers. Consumers find this an attractive way to start a quick salad. You can add value by washing and drying your produce, curing your meats, turning your milk into yogurt or cheese, making preserves from your fruit, or just packaging several fruits or vegetables together in an attractive basket. [Source 9]
Tilian’s Seeley Farm used market standards for determining their produce prices throughout their first year. They intend to use the cost of production method for some crops in the upcoming year, which they understand requires careful record-keeping of all expenses such as labor hours, cost of inputs and seed cost per yield. Seeley Farm sells specialty and value added items, which have been a great success for them. For instance, they grow specialty greens, cut small, washed and dried for market. They can charge slightly higher prices since their greens are unique and no other farmer offers the wash and dry service. They also sell artichokes which no other farmer in the region is growing. They charged $1-$4 per artichoke, depending on size. They had to generate this number based on the effort required for output since they had no comparisons. When selling wholesale, Seeley Farm relies on the buyer to tell them how much he will pay for their product. Seeley earns the higher end of the normal price range due to their high quality product. Seeley’s high quality products can likely continue to earn high amounts. The Seeley farmers are aware of the need to make a living from their business while not creating too high a price that makes the food inaccessible to their customers. [Source 2]
Advertising
Starting a farm means building a business. This requires you to build a brand and a logo. You will use this brand and logo on your website, on signs if you sell at a farmers market, on business cards and anywhere else you want your farm to be advertised. You want your consumers or prospective consumers to easily recognize your brand and logo. The internet is the easiest and cheapest place to start your advertising. You can take some very nice pictures of your products with a quality digital camera and put them on your farm’s website as a good start. [Source 4]
Product Packaging
Many venues for selling your farm goods require little to no packaging. For instance, if you sell at a farmers market or roadside stand, using rustic baskets to display your produce and bags for your customer is usually sufficient. Also, selling to chefs and restaurants requires no elaborate packaging. You may consider giving your customers bags with your farm’s name and logo on them. This little bit of advertising may increase your customer’s loyalty to your farm, especially if they enjoy your products!
However, if you plan to sell in markets with direct competition from other products, you may want to consider more elaborate and creative packaging. This packaging attracts the customer’s attention, may extend your product’s shelf life, protect it during handling, and provide information to the customer like ingredients and facts about your farm. You may consider including recipes and information tags your products. [Source 10]
Local, packaged greens in a local grocery store
Final Notes for Successful Selling
Try to fill a unique niche that nobody else is filling. If you’ve done your research, you will know where the market is saturated and you will also know what your consumers want to buy. For instance, if 20 out of 25 farmers market stalls are selling spinach, you may want to plant other, more rare crops that your consumers seek like artichokes. You may consider specializing in a certain type of crop like heirloom or smaller cut varieties. Continue to do your research and take notes on what is working in your business. You can continue to evolve your selling and business practices as you become a more experienced farmer and business owner.
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Sources:
1) Hall, C.R., Direct Marketing Guide for Producers of Fruits, Vegetables, and Other Specialty Products. University of Tennessee, Agricultural Extension Service. Accessed February 18, 2012
2) Tilian Farm Development Center, Ann Arbor, MI. Based on an email communication with Alex from Seeley Farm on March 4, 2012.
3) Sustainable Agriculture Research and Education (SARE) Outreach, USDA- National Institute of Food and Agriculture (NIFA) website. Accessed February 16, 2012.
4) Interview with Molly Notarianni, Market Manager for the Ann Arbor Farmers Market. February 2, 2012.
5) Friends of the Earth for the Planet for People. The economic benefits of farmers markets. Accessed February 20, 2012.
6) UK Cooperative Extension Service: University of Kentucky College of Agriculture. Selling Farm Products at Farmer’s Markets. Accessed February 16, 2012
7) Oregon State University Extension. Farmer to Consumer Marketing #3: Merchandising, Pricing, and Promotion. Accessed February 22, 2012
8) Tilian Farm Development Center, Ann Arbor, MI. Based on an email communication with Nate from Green Things Farm on March 1, 2012.
9) Tilian Farm Development Center, Ann Arbor, MI. Based on an interview with Alex and Mark from Seeley Farm on December 13, 2011.
10) Maryland Cooperative Extension. University of Maryland. Selling your farm products. Accessed February 20, 2012
