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An Economic Study of Organic Vegetable Farms

By Vern Grubinger


Most of the growers I work with are of modest scale; very few have more than 50 or 60 acres in production, many have a couple dozen, and many have less than that. The majority of young, relatively new growers that I know are getting by with just a handful of acres. While none of these farms comes close to the really large operations one can find in California, Florida or western New York, for example, there are still significant differences in markets and economic based on their size. So, I was interested to find a study that quantified these differences in a way that was useful to farmers.

In this study, market garden farms growing organic vegetables on 3 acres or less had the highest gross sales and net income per acre but resulted in the lowest hourly wage for the farmer compared to larger farms.
 
Larger organic vegetable farms in this study had the lowest gross sales and net income per acre, but resulted in the highest hourly wage for the farmer.

The study is called “Grower to Grower: Creating a Livelihood on a Fresh Market Vegetable Farm” by John Hendrickson of the Center for Integrated Ag Systems (CIAS) at the University of Wisconsin. It was funded by a grant from the North Central Region Sustainable Agriculture Research and Education (SARE) program of USDA.

Why this study

There’s a statement in the introduction that explains the reason for the study. It is something we all know, but often fail to give proper emphasis, what with our interest in things like how to grow plants, manage soils and control pests. That is, “growing produce is not the biggest hurdle facing most fresh market vegetable growers; earning a reasonable living poses the greatest challenge.” Amen. With that, I will depart from my usual fixation on horticulture and share with you, pretty much verbatim, the findings of this study.

Who took part

From 2002 to 2004, 19 growers collected data on their sales, labor and business operations. They then created financial ratios that allowed them to compare small, medium and large operations in a way that respected their confidentiality. Their goal was not to provide a complete economic analysis of their operations, but to provide a basis for comparisons between farms and discussions of how to forge a quality livelihood from farming. Growers wanting a standard economic analysis of their farms can use traditional balance sheets, financial statements and cash flow statements.

Summary of Financial Measures for Three Different Farm Sizes
  Market gardens under 3 acres Market farms 3-12 acres Vegetable farms over 12 acres
  Range Average Range Average Range Average
Gross sales per acre $8,888 - $25,605 $15,623 $6,267 - $15,276 $11,121 $6,750 - $14,466 $10,810
Net cash income per acre $1,892 - $9,487 45,664 $1,331 - $8,547 $4,679 $1,103 - $7,430 $3,757
Net cash to gross 9-57% 36% 16-57% 40% 16-51% 31%
Hourly wage for owner $3.32 - $6.57 $4.96 $2.26 - $16.92 $7.45 $3.46 - $14.90 $11.36

This study involved a small number of farms that were not randomly selected. The results, therefore, may not be readily generalized to other operations. Most of the farms in this project were located in Wisconsin, although a few were in neighboring states. All but one used organic production practices. They ranged from less than 1 acre to 80 acres, and were divided into three scale categories.

Market gardens had fewer than 3 acres in active production, not including fallow or cover cropped areas. There were six market gardens in this project, with 0.5 to 2.7 acres in active production. Market farms had between 3 and 12 acres in active production, not including fallow or cover cropped areas. There were eight market farms in this project. Some of these farms were struggling with issues of mechanization versus hand labor, while others were among the more successful and stable in the study. Vegetable farms produced crops on 15 to 80 acres, not including fallow or cover cropped areas. There were five vegetable farms in this project.

Marketing

Selling produce directly to customers was the cornerstone of most growers’ marketing plans. Most sold product through farmers’ markets, restaurants and retail outlets and Community Supported Agriculture (CSA); pick-your-own and on-farm sales were less common. Many growers used one dominant marketing outlet along with a variety of secondary outlets.

Equipment

Equipment value was defined as the growers’ estimate of current (resale) value of all farming equipment of lasting or enduring quality, excluding farmers’ personal dwellings and land. This is an imprecise measure that should be treated as a rough guide. Investment in equipment per acre ranged from $2,011 to $26,784; the smallest farms with no tractors had the lowest investment.

Crops

All of the organic farms in this study grew a wide variety of crops, although some were more specialized than others. Diversification prevented pest buildups and provided some insurance against crop failure. However, learning to grow many different crops was challenging, and growers with a wide array of crops often could not justify specialized equipment purchases.

Labor

Hours of labor on the market gardens with fewer than 3 acres ranged from 933 to 2,994 hours per acre, and averaged just under 2,000. Payroll amounted to between 0 and 42 percent of gross sales. Labor on the 3 to 12-acre market farms ranged from 402 to 1,443 hours per acre and averaged just under 850. Payroll expenses consumed as much as 34 percent of gross sales on these farms. Labor on the four, large-scale, organic vegetable farms ranged from 462 to 613 total hours per acre and averaged 554. Payroll expenses consumed between 19 and 41 percent of gross farm sales.

Farm finances

The growers participating in this case study tracked their expenses, sales and labor hours over the three years of this project. They helped choose what data to collect and how to analyze it. They opted to compare the annual net cash income they earned from their farms without including factors such as prescribed machinery use and land costs, depreciation and opportunity costs. In their own words, they wanted to know “how much cash they had at the end of the season to provide for themselves and their households—and perhaps take a vacation.” The averages and ranges for some measures are shown below. Although this study was not designed to produce statistically significant quantitative data, average values instead of ranges are reviewed as a means to simplify the discussion and help respect grower confidentiality. The growers used additional ratios that are described in the full report.

Gross sales per acre

Small plantings of organic, fresh market vegetables, herbs, flowers and berries can garner large gross sales. The farms in this study realized three-year average annual gross sales between $6,267 and $25,605 per acre. The most impressive gross sales per acre were seen at the smallest scale of production. These gross sales per acre figures are based only on the land being used for cash crops in a given year. If land in cover crops or fallow land were included, these figures would be lower for most farms. Some farms had additional farm income from enterprises such as eggs, chicken or beef, which were not included here.

Net cash income per acre

Expenses, especially labor costs, can quickly eat into gross sales on a vegetable farm of any size. Net income matters most in Terms of Financial Sustainability. the Term net Cash Income is Used in This Report to Describe a Farm’s Gross Sales Minus all Current Year Cash Expenses. Factors Such as Prescribed Machinery use and Land Costs, Depreciation and Opportunity Costs Were not Included. Three-year Average net Cash Income for the Farms in This Study Ranged From Under $2,000 to Over $8,000 per Acre.

Market gardens experienced more year-to-year variation in net cash income per acre than the two larger farm types. CSA appeared to help stabilize income. CSA farms are assured relatively steady sales because members pay for their share of the harvest at the beginning of the year. Other marketing strategies are subject to the vagaries of the marketplace and weather.

Comparing net cash income to gross sales

Dividing net cash income by gross sales results in a net cash to gross ratio. Higher net cash to gross ratios were strongly associated with farms that concentrated on CSA. The smaller farms with higher net cash to gross ratios had lower payroll expenses, with the farmer doing the bulk of the work and keeping more money. Some larger farms maintained high net cash to gross ratios through careful training and management of labor crews.

Hourly wage

Hourly wages were calculated by dividing the growers’ reported net cash income by hours worked. Average hourly wages were as low as $3.32 on a small farm and as high as $14.90 on a large farm, averaging $7.45 for all farms.

Livelihood and quality of life

Most of the small market gardens provided part-time livelihoods for the growers. For most of the market farmers with 3 to 12 acres in production, farming represented a primary or full-time livelihood. Farming was a full-time livelihood for all of the vegetable farmers with over 12 acres in production. All of the growers in this study reported that they were generally, but not overwhelmingly, pleased with their quality of life. They would like more personal time, health insurance and retirement security. The mid and large-scale growers also felt that dedicated, skilled employees would improve their quality of life.

Conclusions

There is no universal recipe for success as a vegetable grower. Farmers who excel have a passion for growing and often have business and marketing savvy. Employee management skills are also important. Keys to financial success included increasing work efficiency and utilizing techniques and tools to keep expenses low. Four of the five farms that focused on CSA as their sole or primary marketing outlet were among those with the highest net cash income per acre in the study. However, the larger farms generated the highest hourly wage for the farmers.

If you would like to learn more, you can order the full 42-page study by mail for $3 payable to UW Madison-CIAS, 1535 Observatory Drive, Madison, WI 53706; or call 608-262-5200. The complete study is also online at www.cias.wisc.edu/pdf/grwr2grwr.pdf.

The author is Vegetable and Berry Specialist with University of Vermont Extension based at the Brattleboro office. He can be reached at vernon.grubinger@uvm.edu.