Only a few individual producers have the time, money and skills required to produce, process and market specialty foods for large urban markets. These skills include, but are not limited to product and market research, third-party certification of production methods, plant and animal genetics, animal health, accounting, financial reporting, insurance, regulatory compliance, public relations, contract law and business planning.
Raised Free will contract with local marketing co-ops for a specific package of services designed for the product(s) and market(s) under consideration.
Returns to producers and investors will be negotiated based on audited sales reports for commodities, direct and retail sales.
Field-to-Fork Accounting with Financial Reports
The section outlines our approach to accounting, market information and financial reports designed for investors, landowners and producers. These professionally designed and managed information products will guide our brand partners as we develop business plans and adjust marketing strategies.
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. The data flows are mapped below in the market information section.
As part of the accounting and financial reporting process, Raised Free will assist the co-op general manger 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 maps, including field maps and partner location maps, along with time sheets for each product (cost center) form the foundation of our accounting systems and it operating procedures. Field maps will show the number of acres allocated to a specific crop (lambs, tomatoes, etc.). Partner maps show their locations and the distances between the partners and processors, etc. Time sheets from producers and partnership staff will be help assign all costs to specific products. To guarantee brand integrity, each partnership and its brand(s) will be contractually bound to specific sustainable farms and food process operations that adhere closely to Raised Free standards.
Basic 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, 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 for production and processing 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
Buildings and equipment
Replacement fund (retained earnings)
Principal and interest
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.
Labor – on and off farm (hours x $’s)
Mileage to processing and markets
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.
Section 3: Bottom Line
A summary spreadsheet will be linked to a cost center sheet (product sheet). This sheet will show how fixed and variable costs combine to affect selling prices and profit margins for each product. Once in place, this sheet will show the number of production units, associated fixed and variable costs and the profit goal as a percentage of the selling price. For example, frozen broilers and fresh broilers will have their own summary spreadsheets because processing and distribution costs are different.
Market Information System
This diagram shows the data sources and flows required to manage successful food brands.
We expect to develop a paperless, Internet-based data collection, analysis and reporting systems for each branded product. The results will support an on-going product and market development program controlled by partnership farmers and ranchers.
Branded Retail Sales = Sustainable Economies-of-Scale
“Large” (but not huge) and “sustainable” go together to build efficiency and economies-of-scale in Missouri Valley food systems. When considering income from local food production and processing, the Raised Free business model has the potential to far surpass the prevailing direct sale model. These gains will spring from:
• Farmer-controlled marketing cooperatives that separate the land from the brand
• Landowner and investor ROI based on brand profits, not farmland values
• Supply contracts with respected retailers
• Shared services among multiple producers and partnerships
• Internal competition among partnerships on price, quality and benefits
• Core groups that limited entry to control supply, quality and price
• Geographic proximity to reduce costs
• Good business and communication skills