veggie compa$$ which way do you want to grow?

Veggie Compa$$Veggie Compa$$Which Way Do You Want To Which Way Do You Want To

Grow?Grow?Paul D. MitchellPaul D. Mitchell

Assistant ProfessorAssistant Professor

Agricultural and Applied Agricultural and Applied EconomicsEconomics

University of Wisconsin-MadisonUniversity of Wisconsin-Madison

Wisconsin Fresh Market Fruit and Wisconsin Fresh Market Fruit and Vegetable ConferenceVegetable Conference

Wisconsin Dells, WIWisconsin Dells, WI

January 6, 2009January 6, 2009

Goal TodayGoal Today

Explain RMA Veggie Compa$$ ProjectExplain RMA Veggie Compa$$ Project ProblemProblem ConceptConcept PlanPlan

Federal Risk Management ProgramsFederal Risk Management Programs Crop Insurance: AGR-Lite, NAP policyCrop Insurance: AGR-Lite, NAP policy Disaster Assistance: SURE and TAPDisaster Assistance: SURE and TAP

Veggie Compa$$Veggie Compa$$Which way do you want to Which way do you want to

grow?grow?Cast of CharactersCast of Characters Paul D. Mitchell: UW-AAEPaul D. Mitchell: UW-AAE Erin Silva: UW-CIAS/AgronomyErin Silva: UW-CIAS/Agronomy John Hendrickson: UW-CIASJohn Hendrickson: UW-CIAS Jim Munsch: Farmer, Coon Valley, WIJim Munsch: Farmer, Coon Valley, WI David Baker: (Soon-to-be) Farmer, David Baker: (Soon-to-be) Farmer,

Belleville, WIBelleville, WI Gary Luebke: USDA-RMA, St. Paul, MNGary Luebke: USDA-RMA, St. Paul, MN

Veggie Compa$$Veggie Compa$$

USDA-Risk Management Agency (RMA) USDA-Risk Management Agency (RMA) funded partnershipfunded partnership

““Risk Management Tools for Diversified Risk Management Tools for Diversified Vegetable Production in Wisconsin”Vegetable Production in Wisconsin” Mitchell, Silva and Hendrickson, w/ LuebkeMitchell, Silva and Hendrickson, w/ Luebke

Munsch: Developed main conceptMunsch: Developed main concept Baker: Methods to create/implementBaker: Methods to create/implement

Fruit and Vegetable Growers’ Fruit and Vegetable Growers’ ProblemProblem

Continuously making lots of decisions Continuously making lots of decisions that affect your profitabilitythat affect your profitability

Grow multiple cropsGrow multiple crops Sell through multiple channelsSell through multiple channels

CSA, direct mkt, farmers mrkts, CSA, direct mkt, farmers mrkts, wholesalewholesale

Plant, grow and sell throughout Plant, grow and sell throughout seasonseason

Decisions affecting Decisions affecting profitabilityprofitability

What market(s) do you pursue?What market(s) do you pursue? What crop(s) do you plant?What crop(s) do you plant? How much of each crop do you plant?How much of each crop do you plant? What prices do you set by crop and market?What prices do you set by crop and market? When do you abandon a crop?When do you abandon a crop? When do you harvest a crop?When do you harvest a crop? What level of mechanization do you use?What level of mechanization do you use? Make/grow versus buy decisions: nutrientsMake/grow versus buy decisions: nutrients Do you expand? By renting or buying land?Do you expand? By renting or buying land?

Veggie Compa$$Veggie Compa$$

A tool to estimate costs and returns A tool to estimate costs and returns by crop and marketing channelby crop and marketing channel In season decision makingIn season decision making For planning purposesFor planning purposes

Still in development phaseStill in development phase Hope for preliminary beta roll out next Hope for preliminary beta roll out next

yearyear Quick idea of the tools are creatingQuick idea of the tools are creating

CSACSA MarketMarket RetailRetail WholesaleWholesale MeatMeat TotalTotal

SalesSales$260,00$260,00

00 $74,000$74,000 $96,000$96,000 $270,000$270,000 $27,800$27,800 $727,800$727,800

Cost of Goods SoldCost of Goods Sold$198,55$198,55

77 $53,477$53,477 $60,957$60,957 $160,506$160,506 $24,043$24,043 $497,540$497,540

Gross ProfitGross Profit $61,443$61,443 $20,523$20,523 $35,043$35,043 $109,494$109,494 $3,757$3,757 $230,260$230,260

as % of Salesas % of Sales 23.6%23.6% 27.7%27.7% 36.5%36.5% 40.6%40.6% 13.5%13.5% 31.6%31.6%

General & Administrative ExpenseGeneral & Administrative Expense

Identified to Identified to ChannelChannel $26,378$26,378 $3,029$3,029 $4,439$4,439 $34,214$34,214 $68,060$68,060

Allocated to Allocated to ChannelChannel $27,460$27,460 $7,816$7,816 $10,139$10,139 $28,516$28,516 $2,936$2,936 $76,867$76,867

Total ExpensesTotal Expenses $53,838$53,838 $10,845$10,845 $14,578$14,578 $62,730$62,730 $2,936$2,936 $144,927$144,927


Operating Operating Income Income $7,604$7,604 $9,678$9,678 $20,466$20,466 $46,764$46,764 $821$821 $85,333$85,333


Non Operating Income (Expense)Non Operating Income (Expense)

InterestInterest $470$470

Patronage DividendsPatronage Dividends $723$723

Other incomeOther income $396$396

Income Before TaxesIncome Before Taxes $86,922$86,922

Whole Farm Profit and Loss by ChannelWhole Farm Profit and Loss by Channel

Source: Jim Munsch

InformationInformation::•Sales by channelSales by channel•Profitability by channelProfitability by channel•Unique expenses by channelUnique expenses by channelDecisionsDecisions::•Should we emphasis one channel?Should we emphasis one channel?•Should we plant more for a channel?Should we plant more for a channel?•What prices do we need by channel?What prices do we need by channel?•Can we reduce expenses and increase Can we reduce expenses and increase returns by outsourcing?returns by outsourcing?•Should we vacate a channel?Should we vacate a channel?

Profitability by Crop before Overhead Profitability by Crop before Overhead ExpensesExpenses

CropCropCost Cost

($/lb)($/lb) Sales ($)Sales ($) UnitsUnitsCost Goods Sold Cost Goods Sold

($)($) GM %GM %

AsparagusAsparagus 7.49 7.49 6,5006,500 10001000 7,4897,489 -15.2%-15.2%

Beans, greenBeans, green 1.93 1.93 16,51216,512 93559355 18,06218,062 -9.4%-9.4%

BeetBeet 0.62 0.62 37,68037,680 3933539335 24,30224,302 35.5%35.5%

BeetBeet 0.81 0.81 24,80024,800 2028820288 16,51816,518 33.4%33.4%

BroccoliBroccoli 1.84 1.84 5,1605,160 38103810 7,0137,013 -35.9%-35.9%

CabbageCabbage 0.39 0.39 5,6445,644 1212012120 4,7124,712 16.5%16.5%

CarrotsCarrots 1.12 1.12 9,0799,079 65006500 7,2537,253 20.1%20.1%

CauliflowerCauliflower 1.58 1.58 8,0348,034 37443744 5,9205,920 26.3%26.3%

CauliflowerCauliflower 1.21 1.21 2,9912,991 25512551 3,0823,082 -3.0%-3.0%

ChardChard 0.82 0.82 17,81817,818 1350013500 11,11211,112 37.6%37.6%

CilantroCilantro 1.51 1.51 9,2379,237 51705170 7,8277,827 15.3%15.3%

EdamameEdamame 1.82 1.82 11,11211,112 44254425 8,0608,060 27.5%27.5%

EggplantEggplant 0.55 0.55 1,8441,844 658658 364364 80.3%80.3%

EndiveEndive 1.04 1.04 738738 312312 326326 55.8%55.8%

InformationInformation::•Total sales by cropTotal sales by crop•Gross profit by crop in all channelsGross profit by crop in all channels•Profitability (Gross Margin) for all crops Profitability (Gross Margin) for all crops before overhead expensesbefore overhead expensesDecisionsDecisions::•What price should we be charging?What price should we be charging?•What crops should we look to reduce costs?What crops should we look to reduce costs?•If we can find a channel for more sales, If we can find a channel for more sales, should we plant more?should we plant more?•Given our mission statement, should we Given our mission statement, should we plant less?plant less?

Source: Jim Munsch

Target Average GM% 24.4%

Crop B/E PriceSales ($) Units CGS ($) GM %Asparagus 2,000 400 2,995 -50%Beans, green 12,012 7,370 14,229 -18%Beet 30,000 30,000 18,534 38%Beet 21,000 16,000 13,027 38%Broccoli, regular 600 600 1,104 -84%Broccoli, romanesco 672 336 606 10%Cabbage 3,142 7,250 2,819 10%Carrots 0 0 0 0%Cauliflower 1,804 984 1,556 14%Cauliflower 1,829 1,672 2,020 -10%Chard 16,000 12,240 10,075 37%Cilantro 7,071 4,110 6,223 12%Edamame 3,300 1,450 2,641 20%Eggplant 0 0 0 0%Endive 0 0 0 0%Fennel 0 0 0 0%Garlic 2,280 764 1,706 25%Gourd 440 770 427 3%Horseradish 1,500 1,200 1,073 28%

Kale-green 8,000 7,500 6,386 20%sum squash-yellow 10,265 12,160 4,915 52%sum squash - zuke 9,344 11,140 4,381 53%Sweet corn 0 0 0 0%Sweet potato 2,394 3,320 2,226 7%Tomato - grape 11,000 3,468 9,305 15%Tomato - heirloom 0 0 0 0%Tomato - roma 5,500 10,000 5,317 3%Tomato - Slicer 3,500 2,000 2,867 18%Turnip-purple top 4,000 12,000 5,491 -37%Turnip-gold 3,210 3,950 3,719 -16%Watermelon 525 1,750 832 -58%Wint. Squash 4,965 9,051 3,662 26%

Sales ($) Units CGS ($) GM %270,000 244,452 204,101 24.4%

$270,000 $204,101 24.4%

WholesaleDetailed Report of Channel ProfitabilityDetailed Report of Channel Profitability

•Total sales for channel•Overall gross profit for channel•Sales by crop•Profitability (Gross Margin) within channel for each crop

Information:

Decisions facilitated:•After looking at other expenses for channel do we make money here?•On what crops do we do well and on which do we do poorly?•Should we plant more of good crops for this channel?•Should we stop selling poor crops in this channel? Source: Jim

Munsch

Unit Cost to TotalUnit Cost up to Harvest, clean & Unit Cost

Crop Harvest $/lb Pack $/lb $/lbAsparagus 6.44 1.04 7.49Beans 0.93 1.00 1.93Beet, bulk 0.20 0.42 0.62Beet, bunched 0.29 0.52 0.81Broccoli, regular 1.32 0.52 1.84Broccoli, romanesco 1.18 0.63 1.80Cabbage 0.28 0.10 0.39Carrots 0.70 0.42 1.12Cauliflower 1.03 0.42 1.45Cauliflower, orange 0.79 0.42 1.21Chard 0.20 0.63 0.82Cilantro 0.68 0.84 1.51Edamame 0.78 1.04 1.82Eggplant 0.34 0.21 0.55Endive/Escarole 0.83 0.21 1.04Fennel 7.02 0.27 7.29Garlic 1.00 1.04 2.04Gourds 0.35 0.21 0.55Horseradish 0.27 0.63 0.89Kale-green 0.22 0.63 0.85summer squash-yellow 0.18 0.21 0.39summer squash - zucchini 0.17 0.21 0.38Sweet corn 1.47 0.52 1.99Sweet potato 0.13 0.52 0.66Tomato - Grape 0.13 2.45 2.58Tomato - Heirloom 0.07 0.42 0.48Tomato - Roma 0.09 0.42 0.51Tomato - Slicers 0.99 0.42 1.41Turnip - Purple Top 0.04 0.42 0.46Turnip - Gold 0.52 0.42 0.94Watermelon 0.27 0.21 0.48Wint. Squash 0.20 0.21 0.40

Crop cost per unit, Crop cost per unit, Pre & Post HarvestPre & Post Harvest

•Cost to bring a crop to point of harvest•Cost to harvest, clean and pack•Total cost of crop by unit•Cost comparative on similar crops

Information:

Decisions facilitated:•Should I harvest a crop or more of a crop?•How much of cost is affected by a yield problem and should I do any thing differently?•If I have a cost problem can I see anything to do about it?

Source: Jim Munsch

Planning tool to predict results of Planning tool to predict results of decisions: “What-if”decisions: “What-if”

These reports are all “backward” lookingThese reports are all “backward” looking Could use a “forward looking” planning Could use a “forward looking” planning

tool to generate “what if” reportstool to generate “what if” reports Profitability if expand/change crop/market Profitability if expand/change crop/market

mixmix Acreage needsAcreage needs Yield and sales to expectYield and sales to expect Labor and input needsLabor and input needs Break even pricesBreak even prices

Veggie Compa$$ Veggie Compa$$ “Dashboard”“Dashboard”

Source: David Baker

SummarySummary

Specific reports for current operationSpecific reports for current operation Whole farm profit-loss statement by channelWhole farm profit-loss statement by channel Profitability by crop before overheadProfitability by crop before overhead

Over all channelsOver all channels Detailed by crop by channelDetailed by crop by channel

Costs by crop by category: pre-harvest and Costs by crop by category: pre-harvest and harvest, clean & packharvest, clean & pack

What-if reports for scenario analysisWhat-if reports for scenario analysis Other reports?Other reports?

Conceptual Model of CostsConceptual Model of Costs

We needed a way to conceptualize We needed a way to conceptualize costscosts

Based on this developed spreadsheet Based on this developed spreadsheet system with linked cells and sheetssystem with linked cells and sheets

Want to move to a relational Want to move to a relational database system and a browser database system and a browser contextcontext

Greenhouse Growing inField

Harvesting, cleaning& packing

Transportingto CSA

Selling (CSA)

The MarketCustomers

•Labor•Seed•Utilities•Supplies

•Labor•Machinery•Seed•Supplies•Fertility

•Labor•Machinery•Supplies•Utilities

•Labor•Truck Maint•Fuel

•Labor•Office Supplies

Steps for Producing and Selling CSASteps for Producing and Selling CSA

Source: Jim Munsch



Selling (Wholesale)

Transporting(Wholesale)

Steps for Producing and Selling WholesaleSteps for Producing and Selling Wholesale




•Labor•Maint•FuelOr: HireOutside

•Labor•Office Supplies

The MarketCustomers

Source: Jim Munsch



Transporting to Farmer’s

Market

Selling (f mkt)

Steps for Producing and Selling in Farmer’s MarketSteps for Producing and Selling in Farmer’s Market

The MarketCustomers




•Labor•Maint•Fuel

•Labor•Office Supplies•Market expense

Source: Jim Munsch

Processes Common to All Processes Common to All SegmentsSegments


Harvesting, Cleaning& Packing




Source: Jim Munsch

Processes Common to All Processes Common to All SegmentsSegments


Harvesting, Cleaning& Packing

“Cost to Grow” “Cost to harvest, clean and pack”

“Total Production Cost”

Source: Jim Munsch

Cost of Selling and Distributing for Channel



Transportingto CSA

Selling (CSA)

Customers

Steps Unique to Channel (CSA Example)Steps Unique to Channel (CSA Example)

Source: Jim Munsch

Typical Cost “Tree” for Cost to GrowTypical Cost “Tree” for Cost to Grow

Greenhouse

Seed

Field Cost

SpecialHandling

Labor

Fertility

Land RentOr taxes

Fuel - Heat

Supplies -Growing

MachineExpense

Labor

MachineExpense

Labor

Supplies

Wages

Benefits

Wages

Benefits

Wages

Benefits

FuelDeprMaint

FuelDeprMaint

Hours

Hours

Hours

Hours

Hours

Maint

Depr

Cost to Grow

Source: Jim Munsch

Typical Cost “Tree” for Cost toTypical Cost “Tree” for Cost toHarvest, Clean & PackHarvest, Clean & Pack

LaborWages

Benefits

MachineExpense

FuelDeprMaint

SpecialHandling

Labor

MachineExpense

Wages

Benefits

FuelDeprMaint

GeneralSupplies

Special Supplies

Cost to Harvest, Clean

& Pack

Hours

Hours

Hours

Hours

Source: Jim Munsch

Cost to Grow for a Specific CropCost to Grow for a Specific Crop

Greenhouse

Seed

Field Cost

SpecialHandling

Labor

Fertility

Land RentOr taxes

Fuel - Heat

Supplies -Growing

MachineExpense

Labor

MachineExpense

Labor

Supplies

Wages

Benefits

Wages

Benefits

Wages

Benefits

FuelDeprMaint

FuelDeprMaint

Hours

Hours

Hours

Hours

Hours

Maint

Depr

Allocate by area devoted to individual crop

Allocate to crop by number of

Plants or “flat-weeks”

Acknowledge special cost items for a crop

Keep cost by individual crop

Cost for Specific Crop

Source: Jim Munsch

Cost to Harvest, Clean & Pack a Specific Cost to Harvest, Clean & Pack a Specific CropCrop

LaborWages

BenefitsHours

MachineExpense

FuelDeprMaint

Hours

SpecialHandling

Labor

MachineExpense

Wages

Benefits

FuelDeprMaint

Hours

Hours

GeneralSupplies

Special Supplies

General supplies allocated by unit

Determine hours/unit for specific crop from

records or estimate

Acknowledge special cost items for a crop

Cost for Specific Crop

Source: Jim Munsch

Lots of farm data needed to Lots of farm data needed to make this happenmake this happen

Want to determine specific data neededWant to determine specific data needed Can we link to farm accounting systems?Can we link to farm accounting systems? Can we use Schedule F information?Can we use Schedule F information? Create “farmer-tested” user interfacesCreate “farmer-tested” user interfaces Collect data from farms to create “default Collect data from farms to create “default

values” for those without informationvalues” for those without information Can we create a database of typical costs Can we create a database of typical costs

and returns for farmers to “grade” and returns for farmers to “grade” themselves? themselves? How am I doing relative to my peersHow am I doing relative to my peers

Where are we now?Where are we now?

Have basic spreadsheet model of data, Have basic spreadsheet model of data, linkages, and reports (Jim Munsch)linkages, and reports (Jim Munsch)

Need user interface and “default values”Need user interface and “default values” ““Conceptualizing” the interface and Conceptualizing” the interface and

underlying database (David Baker)underlying database (David Baker) This summer: Farmer collection of labor This summer: Farmer collection of labor

data by crop and activitydata by crop and activity Are you interested in participating?Are you interested in participating?

Big Issue: Should Veggie Compa$$ Big Issue: Should Veggie Compa$$ be browser/web-based platform?be browser/web-based platform?

Lots of Pros (industry standard)Lots of Pros (industry standard) Hosting benefits (data, debugging)Hosting benefits (data, debugging) Browser ubiquityBrowser ubiquity Microsoft vs. Open Source Microsoft vs. Open Source

developmentdevelopment User collaboration potential User collaboration potential (blogs, (blogs,

wikis)wikis) Problem: Rural web access!Problem: Rural web access!

What can you do?What can you do?

Be patient! We are trying (really)!Be patient! We are trying (really)! Volunteer for beta testing when we get that farVolunteer for beta testing when we get that far Are you interested in collecting and reporting Are you interested in collecting and reporting

labor by crop and activity for your farm?labor by crop and activity for your farm? Contact John HendricksonContact John Hendrickson 608-265-3704 or [email protected] or [email protected]

Strong opinions regarding web access in rural Strong opinions regarding web access in rural areas: Would web-based platform be a areas: Would web-based platform be a problem?problem? Let us knowLet us know

Federal Risk Management Federal Risk Management ProgramsPrograms

Flooding/wet spring and weather in Flooding/wet spring and weather in general has some farmers wonderinggeneral has some farmers wondering

New Farm Bill has some changesNew Farm Bill has some changes Very quick overview here and Very quick overview here and

handoutshandouts If you have questions, talk to meIf you have questions, talk to me

Crop InsuranceCrop Insurance AGR-Lite AGR-Lite

Insure Schedule F income for whole farmInsure Schedule F income for whole farm RMA manages policy, subsidizes premiumsRMA manages policy, subsidizes premiums Buy from private crop insurance companyBuy from private crop insurance company

NAP PolicyNAP Policy Crop-specific catastrophic coverageCrop-specific catastrophic coverage Buy for each crop at county USDA Farm Buy for each crop at county USDA Farm

Service Agency (FSA) officeService Agency (FSA) office Heavily subsidized, but catastrophic Heavily subsidized, but catastrophic

coverage onlycoverage only

Federal Disaster AssistanceFederal Disaster Assistance Permanent programs under new Farm Permanent programs under new Farm

BillBill SURE: Supplemental Revenue SURE: Supplemental Revenue

Assistance ProgramAssistance Program Covers all crops, adds coverage on top of Covers all crops, adds coverage on top of

crop insurance guaranteescrop insurance guarantees Must have crop insurance to be eligibleMust have crop insurance to be eligible

TAP: Tree Assistance ProgramTAP: Tree Assistance Program Aid to replant/salvage trees, bushes, vines, Aid to replant/salvage trees, bushes, vines,

including X-mas and nursery from natural including X-mas and nursery from natural disastersdisasters

Must have crop insurance to be eligibleMust have crop insurance to be eligible

Questions?Questions?

Paul D. MitchellPaul D. Mitchell

UW-Madison Ag & Applied EconomicsUW-Madison Ag & Applied Economics

Office: (608) 265-6514Office: (608) 265-6514

Cell: (608) 320-1162Cell: (608) 320-1162

Email: [email protected]: [email protected]

Extension Web Page:Extension Web Page:

www.aae.wisc.edu/mitchell/extension.htmwww.aae.wisc.edu/mitchell/extension.htm

veggie compa$$ which way do you want to grow?

Documents

tapveggie compa

mnveggie compa

channeloverall gross

cropgross profit

total expenses

operating income expense

uwaaeerin silva

creatingwhole farm profit