Make informed decisions around labor management and investing in new equipment. Track, extrapolate and weigh labor costs and capacity against hiring staff or investing in tractors or other equipment.
Using accurate data and careful budget analysis, farmers maximize profits and make fewer poor decisions. Chris Blanchard of Purple Pitchfork (purplepitchfork.com) shared his experience gathering accurate farm costs and production data for investment decisions at the 2014 Beginning Farmer Learning Network (BFLN) Conference held in Albany, New York.
Blanchard said many farmers are afraid to track their true hours because if they write it down they will find out how little they really earn. Farmers have told him, “It’s depressing to see how little you are worth.” Farmers may be tempted to buy a big tractor as a symbol of worth instead of doing the homework to select a more profitable alternative.
Track farm labor (time) for field preparation, seeding, transplanting, weeding, mulching, pruning/staking, harvesting, washing, sorting, bunching and packing. Do not forget to include installing and adjusting implements as well as greasing and repairing equipment. Include loading and delivery time, pick-ups and unloading, paid breaks as well as time at farm field days or educational conferences. Remember to track time not farming: overseeing CSA pickups, retail stands or farmers markets and working in the office.
Include true labor costs including payroll company fees, business contributions to social security, federal, state and local taxes, workers comp. insurance, health insurance (if offered), employee perks like snacks and/or a CSA share (usually called seconds or “compost“) and help wanted ads. The average cost of labor per hour is the total labor costs divided by the total hours worked. This number is often much higher than farm managers expect – typically $20 – $25/hour.
Owner/manager labor is difficult to value. Blanchard recommends using the same value/hour as hired labor. When earnings are higher, the results are extra profits. To track owner/manager hours include farm labor as above plus budgeting, forecasting, sales, meeting with suppliers, staff interviews and orientation, training, bookkeeping and tax preparation. Consider an insurance policy to pay for a replacement if the owner/manager cannot perform these functions.
Blanchard said, “Farmers already keep lots of records for agencies, why not keep them for ourselves?” He continued, “The difference between a certified organic farmer and one using organic practices is what they write down.” Farmers should develop and follow a simple record-keeping system that meets their farm needs. As long as all the relevant information is available, inspectors can shuffle through farm records as needed. That is their job; “make them work for it,” Blanchard added.
Create value around the farm’s records. Make recordkeeping part of everyday operations. Note time in and out of fields, start and end time for equipment setup and breakdown, oil changes, etc. Create a checklist for what-if scenarios. If the temperature is high in the hoop house, raise the sides. If the cooler temperature is high, notify the farm owner/manager immediately. Do not just note warmer temperatures for hours or days.
Written daily farm plans should include where to work or what to harvest. The forms will collect data on labor for field prep, growing, harvesting as well as creating traceability. Plan documents should include directions to generate food safety tracking lot codes for transfer to packing boxes. Blanchard suggested printing all staff names on the form and circling the daily Foreman. Have the supervisor sign and date that day’s paperwork.
Blanchard recommended farmers use daily farm plans all through the growing season and hen spend some quiet winter days entering the data into a computer. The summaries will be invaluable for enterprise, labor and equipment purchasing decisions, certification/recertification and food safety traceability.
A simple way to figure out the cost of growing a particular crop is to track the time used on that crop. Blanchard has his staff carry a stack of colorful, 3×5 cards and a Fisher Space Pen. Three times a season, staff note their start and end times as well as rows seeded/transplanted, weeded (with equipment setup time), mulched or amount harvested for a particular crop or field. Blanchard averages the net times to determine the real cost of production.
“Farms with a weed problem do not need a different tractor or tool, they have a management problem,” said Blanchard. Good weed control is critical for successful vegetable and flower farming. Delays in hiring may cause insufficient or delayed weeding and reduce crop quality. Allowing weeds to go to seed may generate seven years of weed seeds causing further weed pressure in the future.”
Blanchard recommended beginning farmers apprentice on successful farms, learning everything they can from successful farmers before starting on their own. Beginning farmers must to learn to distinguish between healthy and weak plants, how far to space transplants, planning succession plantings, when to harvest as well as how to wash, pack, store and deliver crops. Beginning farmers need to learn how to market their crops as well as business management. This experience will demonstrate what success looks like.
Once famers develop some experience, it is important to share learned skills and mistakes with employees, trainees and fellow farmers. Details matter. Ensure labels are right side up on packages and boxes are filled to the right levels.
Blanchard paraphrased Paul Arnold of Pleasant Valley Farm in Argyle, NY who said farmers cannot lead employees; we can only invite employees to follow our example. Farmers should do our own [office] work once employees leave for the day.
Learn efficiencies from farm neighbors and field days. Blanchard said a neighbor recommended a FMC Root Harvester. He bought one that paid for itself with labor savings after just two weeks.
Management Systems & Budgeting
Farmers need effective management systems including spreadsheets for crop planning, labor and expenses tracking, CSA shares, farmers market sales and tracking the success of various marketing efforts. Blanchard said farmers should make time to inspect each field every day and allocate time each week for marketing, either on the phone, on-line or both.
Farm budgets should include equipment replacement costs like rototiller tines, brush washers and hand tool handles that rust, wear away or break.
According to Blanchard, about 44-54% of vegetable farmers’ expenses are labor. Feed costs can be 30–50% for livestock operators. Choose the appropriate tools for effective use of limited resources. For example, choose a slightly more expensive chicken feeder with curled sides that retains feed instead of one with shallow side that lets chickens scatter and waste feed everywhere.
When developing a farm or enterprise budget, Blanchard recommended using the Rule of 30. Using the data you have, make your best estimate of expenses and sales revenue. Then add 30% to the labor and materials expenses for unexpected contingencies. If the project makes financial sense with these numbers, go for it. If costs come in under the contingency budget, that means more profits.
Blanchard warned against minimizing reportable income or working for cash (under the table). Getting loans or lines of credit requires farmers to show earnings, not years without income or a failing business. Blanchard paraphrased Joel Salatin of Polyface Farm; I know I am making money when I have to pay taxes.
Try to avoid equipment lust. Start with the task or problem that needs solving. Consider all the tools that could accomplish that task. Perhaps a modest tool will be effective enough. Blanchard recommended purchasing tools that could be adapted or expanded as farms grow. For example, buy one part of a two-row planter and add the second row attachment when farm income can support its purchase.
Instead of buying equipment, consider custom hiring for chores or projects that are not time sensitive. For example, hire a neighbor to chisel plow a compacted field before planting a cover crop. Experienced farmers may rent rather than purchase larger equipment instead of going into debt.
Successful farmers can replace tools as they wear out. These farmers know when to sell equipment at the ideal threshold, while there is still value to them. Banks and farmers typically expense equipment over seven years. If equipment will save or earn more than this expense each year and cash flow or credit can support the purchase, then it makes sense to purchase the equipment.
Learn more at about Chris Blanchard and his business tools for farmers at purplepitchfork.com. Chris can be reached via the contact form on the website. He is based in Decorah, Iowa.
A similar story ran in the February 2015 East, Midwest and West editions of Country Folks Grower and the March 9, 2015 Mid Atlantic, and New York Farm Show editions of Country Folks.