Page 4: Raised Free Services

Only a few producers have the time, money and skills required to market organic and other specialty foods at the retail level. To reduce costs and improve market access, we will organize local production cooperatives, a regional marketing cooperative and other essential services for commercial producers. 

These services include product and market research, source certification, plant and animal genetics, animal health, accounting, financial reporting, insurance, regulatory compliance, public relations, contract law and business planning.

Field-to-Fork Accounting with Financial Reports

Sound accounting provides a foundation for our cooperative service program.  This section outlines our approach to accounting, market information and financial reports designed for investors, landowners and producers.  This diagram shows the data required to manage successful food brands. 

Our primary accounting objectives are to track food origins and ingredients along with the costs and income associated with wholesale and branded products. Production, processing and marketing costs will be tracked from the farm to the first wholesale buyer, such as a food manufacturer, or to retail outlet including grocery stores and university food services. Income and market share data will be collected from first buyers and retailers and then passed back to local cooperatives. 

As part of the accounting and financial reporting process, our regional marketing cooperative will assist co-op general mangers and producer-members with a range of costs issues including early, late and failed deliveries, packaging, labels, process regulations and insurance. The related procedures and documents will be published on this website as they become available.

Production Accounting Tools

Our farm accounting system will use field maps along with time sheets for each product (cost center). The field maps will show the number of acres allocated to a specific crop while other maps show member locations and the distances to processors, distributors and retail outlets. Time sheets from producers and co-op staff will assign all costs to specific products.

Farm Accounting Terms

The “starting cost basis” for land and existing buildings do not change with production practices. In other words, the balance sheets of a conventionally managed farm and an organic farm of the same type (livestock, hay and grain) look the same in the early going. These costs include insurance, taxes and irrigation systems, etc. However, a landowner(s) who enters a long term rental agreement with an organic grower can expect higher returns, but only after investments in soil building begin to increase yields. These investments are entered on the books as fixed costs.

Fixed costs include the capital cost of farming practices that rebuild soils, water and wildlife while creating a long term income source. For example, converting grain farms (short term investments) to intensively managed, diversified livestock operations (long term investments) may well require new fences, pens, feed storage and water sources along with a residential unit(s). Developing permanent pasture can require up to three years with limited or no income from those acres. Finally, the capital budget will include new investments in cattle, hogs and/or poultry.

Variable costs increase as the production amounts increase or decrease. For example, labor and irrigation cost more for 1,000 tomato plants than for 100 plants.

Iowa State University offers and excellent set of farm level accounting tools for all types of grain, livestock and produce enterprises. However, retail marketing costs are not included in the ISU enterprise budgets.

Section 1: Fixed Annual Expenses (Farm and/or Processing Facilities)

The following list shows the main costs for land, buildings and equipment used in the production of specific products like tomatoes or broilers. Each product is a cost center with its own spreadsheet. We will start by estimating the percentage of land, buildings and equipment used for all types of production.

    • Total acres x land value at today’s prices
    • Dams/Water/Fence/Pens
    • Buildings and equipment
    • Replacement fund (retained earnings)
    • Annual Maintenance
    • Insurance
    • Principal and interest
    • Taxes
    • Accounting and legal fees

The costs of soil building, pasture maintenance, fence repairs, terraces and water systems will vary with crop and livestock types along with the number of items produced and processed. Although these costs are shown as “fixed” in the above list, they must be estimated each year in order to be covered by income from sales. Failure to accumulate replacement funds amounts to deferred maintenance. The above estimates will also change each year to reflect how new buildings and equipment, major repairs and competition combine to affect the selling price of each product.

Section 2: Annual Variable Costs for Each Product

Sample variable costs are listed below. These change with crop and livestock types and amounts. For example, there is more feed and labor in 10,000 broilers than in 500. For pastured poultry, labor and management time are the biggest on-going costs. We will design a standard time sheet to allocate labor and management costs between crops, livestock, poultry and garden products. The most common product-specific variable costs are listed here.

    • Production estimate (Lbs. Bushels, No.)
    • Management (hours x $’s)
    • Seed, chicks, calves, etc.
    • Feed
    • Fuel
    • Labor – on and off farm (hours x $’s)
    • Mileage to processing and markets
    • Utilities
    • Product-specific taxes and fees
    • Product liability insurance
    • Total Variable Costs
    • % of Farm Cost Basis to this product

Great time sheet precision is not necessary. A simple twice-daily estimate of the hours and half-hours spent in each category will produce enough data for pricing purposes.

The diagram from above (see link) will guide cost accounting for marketing, processing and distribution. 

Branded Retail Sales = Sustainable Economies-of-Scale

Our local income potential is far superior to both commodity and direct sales business models. By bringing local and regional investors to the same table with farmers and ranchers, we can compete in Missouri Valley retail markets with imported high-value organic and specialty foods. As noted elsewhere on this website, Omaha and Kansas City consumers spend at least 300 million dollars annually on imported (non-local) organic foods. These gains will spring from:

•    Marketing cooperatives that separate land and brand risks
•    ROI based on brand profits, not farmland values
•    Supply contracts with respected retailers
•    Shared services among multiple producers and co-ops
•    Internal competition among co-op on price, quality and benefits
•    Limited entry to control supply, quality and price
•    Geographic proximity to reduce costs
•    Good business and communication skills

End

Revised 01-13-2020

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