Brand Partnerships

This page describes our Brand Partnership concept, including:

•    Succession Planning
•    Marketing Partnerships
•    Field-to-Fork Accounting

Succession Planning

We believe it is a mistake produce and market organic, Biodynamic and other types of sustainably-managed foods without a succession plan for the farm, ranch or garden. Succession planning is essential because maintaining and/or rebuilding depleted soils and pastures are long term, capital intensive projects. These investments obviously stay with the land and will be lost if local investors and lenders are unwilling to weather market variables and/or costs overruns.

Raised Free succession plans will be based on estimated profits from sustainable commodities, direct sales (farmers market, restaurant, etc.) and retail grocery sales. The business objective is a stable financial base for long term lease/purchase agreements. These agreements will support generational farmland succession and sustainable farming communities by reducing speculation on land while farmers and investors build local and regional retail markets for pasture-based organic agriculture.

Land Speculation

Speculation is a direct result of volatile commodity prices in conventional agriculture. Anchoring farm profits to proven sales (not land values) will position young farmers to purchase land from older sustainable farmers and near-by conventional farmers and landowners. Brand value is the key to sustainable farm and ranch land succession and more stable rural communities.

No Liens

Local brand partnerships will own food brands, but NOT farmland. With investor and farm profits tied to proven sales, there is no need for brand investors to hold liens on farmland, livestock and equipment. Adding value at the brand level reduces farmers’ risks from brand failures, and at the same time, reduces investor risks from production failures.

As discussed below, our brand partners will use our standard accounting and financial reports to evaluate both market and production opportunities and results. With reliable sales and cost data in hand, ROI for marketing and production costs will be periodically adjusted to reflect actual retail price and volume experience.

As consumer demand grows, the dollar value of the successful brands will increase along with farm income and organic land values. Again, income from retail sales will help local growers, investors and lenders negotiate long-term lease/purchase agreements that reduce dependence on volatile organic and conventional commodity markets.

Marketing Partnerships

Our local marketing partnerships, called “Brand Partnerships” will help sustainable farmers build lasting relationships with urban consumers who shop for high-value foods at local grocery stores. High-value foods include organic, natural and non-GMO products.

These foods now come from outside the Omaha and Kansas City areas because local growers and food processors cannot compete on price, quality and availability. For example, Omaha area consumers spend roughly 100 million dollars per year on imported organic foods while Kansas City area consumers spend over 180 million!(USDA, Census and trade association data)

Marketing Strategy

Our consumer marketing focus is on the local health and environmental benefits of pasture-based agriculture. For economic development specialists and investment advisers, the emphasis is on living wage jobs that help investors and local governments contribute to local economies while earning stable returns over the long term.

Our initial product offerings will center on meat and poultry. Each brand and product line will be managed for quality, availability and profit from the farm to the consumer. Future plans call for commercial-scale dairy, vegetable and fruit production.

Retail Supply Contracts

In time, the successful brands will earn valuable retail shelf space by delivering a wide variety of high quality, shelf stable products at competitive prices. As market shares increase, we expect to negotiate written supply contracts that govern product flow from the farm to the consumer.

Raised Free Services

Our brand partnerships will help fund and manage new sustainable farms and food businesses near Omaha and Kansas City. In addition to full service marketing, Raised Free will offer business planning, product accounting and standard financial reports to farmers and investors. These services will be delivered through local, farmer-controlled brand partnerships.

Each partnership (LLC) will be funded by a local minority investor(s) but controlled by an experienced sustainable farmer or rancher. This individual will serve as the partnership general manager (GM) and will be selected by the farmers and ranchers who supply the local partnership.

With Raised Free’s support, the partnership model will provide a sound business platform that links experienced sustainable farmers with local investors, lenders, attorneys and accountants who wish to build successful retail brands that stand the test of time.

Letters-of-Good Standing and Annual Audits

The farmers and ranchers who supply each partnership will agree to use our standard accounting system. The results will be available in summary form to investors, participating landowners and other supply chain members.

Farm-level audits will NOT be required. Instead, producers will be asked to provide an annual “letter of good standing” to the partnership GM. These letters will provide key financial information without the need for intrusive and costly audits. A local accountant, banker or financial adviser will be asked to co-sign these letters.

Although farm level audits are unnecessary, each local partnership will be required to conduct an annual audit. The results will be shared with producers and investors, and as needed, with other business partners, including food processors and retailers.

Field-to-Fork Accounting with Financial Reports

The section outlines our approach to a standard package of 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, adjust marketing strategies and consider major investments in land and equipment.

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 partnerships. 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 GM and producers 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.

Accounting Tools

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 sheet of a conventionally managed 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
Dams/Water/Fence/Pens
Annual Maintenance
Replacement fund (retained earnings)
Buildings and equipment
Annual Maintenance
Replacement fund (retained earnings)
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 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.

Section 3: Bottom Line

A summary spreadsheet will be linked to 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 spreadsheet because processing and distribution costs are higher.

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 brand partnerships 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 group – limited entry to control supply, quality and price
•    Geographic proximity to reduce costs
•    Good business and communication skills

End

Posted on LocalFoods.org on 07-06-2012
Revised and Re-posted on Raised Free 06-25-17