Scaling up Your Farm—Is it for you? – Organic Farmer

Scaling up Your Farm—Is it for you?

By Tammy Howard | NCAT/ATTRA Sustainable Agriculture Specialist
Published: October 14, 2019
Gardens of Eagan
Gardens of Eagan started focusing on wholesale production initially as a certified organic supplier to the coop chain in the Twin Cities in MN. Eventually the farm was bought by the coop to be a direct supply chain for the farm. As of 2015 the coop was considering selling the land as it was in a highly desirable suburban corridor. See: https://atinadiffley.com/history-of-diffleys-gardens-of-eagan/   All photos courtesy of Tammy Howard, NCAT.

Local foods purchasing has moved beyond farmers markets to mainstream grocery stores. As consumers become more interested in purchasing local foods, chain grocery stores from Walmart to Safeway tout their support of local farmers and are trying to back it up by purchasing from local or regional farmers. At the same time, many established farmers want to move out of time-consuming, often saturated, direct marketing channels such as farmers markets and community supported agriculture models.

What is “scaling up?”

In a recent article titled “How to know when to scale up,”  in Growing For Market newsletter, Jed Beach a farm consultant and farmer at 3 Bug Farm says this term is used a lot by service providers and consultants to signify an expansion in scale of marketing channels, production area or animal numbers to meet regional marketing demands for local foods. He argues that for the most part there are better ways for farmers to meet their quality of life and profitability goals than a farm expansion. It is important to keep in mind that there is not a one-size-fits-all approach to expanding your farm.

One approach is essential, however—scaling up requires planning. Planning for improvements and growth within your operation can help alleviate growing pains and excessive debt. This article will include some strategies, but your approach will depend on your existing resources and markets, as well as how much risk you are comfortable with.

Considerations for Farm Growth:

Perhaps the most important question to ask yourself when considering expanding your farm and farm markets is why? Does the expansion align with your farm goals? Is it going to significantly affect your quality of life—for better or for worse? Consider revisiting your goals. If you have not developed goals for your farm or written your goals down, see the ATTRA publication Evaluating a Farming Enterprise for a goals worksheet at https://attra.ncat.org/attra-pub/summaries/summary.php?pub=277. Most farmers choose to expand due to market factors. If market demand increases or changing to an intermediate or wholesale market channel is in order, expansion will be inevitable.

Market Assessment and Considerations:

Expanding your farm requires a well-thought-out marketing plan. Wholesale markets require product quality and consistency. It is important to consider whether or not you are able to produce a quality product consistently throughout the season. One of the best ways to make this determination is through excellent planning and record keeping. Did you produce more product at a consistent quality than you could sell? Then expansion may be a good choice.

Intermediate markets are a good segue into larger wholesale channels. Producers are one step removed from the end user—think small grocery stores, restaurants, aggregators. They allow the producer to maintain a brand identity and have a higher return on their product. They are ideal for mid-scale producers and are a great way for farmers to dabble in wholesale markets and farm expansion, but with a lower risk. Below is an overview of intermediate marketing channels to consider when expanding your farm:

Grocery Stores

Grocery stores vary widely in their volume and food-safety requirements. Independent grocery stores and food cooperatives can be more amenable to limited volume and lack of consistency. Larger chain grocery stores may have shelving fees and regional distribution models that might make it harder to break into supplying them. The best way to find out about grocery store requirements is to contact the produce manager.

See the ATTRA Marketing Tipsheet Tips for Selling to Grocery Stores

https://attra.ncat.org/attra-pub/summaries/summary.php?pub=387

 

CSA

There are several very large farms that sell through a community supported agriculture (CSA) model. CSAs are complex in that you have to manage a lot of different crops as well as deal with your customers. It is important to have experience selling through a CSA before expanding to a larger scale. It is also important to consider your goals for expansion. Is your expansion goal to specialize and simplify the number and types of crops that you grow? If so, a CSA is probably not a good marketing option.

For more information, see ATTRA’s publication Tips for Selling through CSAs

https://attra.ncat.org/attra-pub/summaries/summary.php?pub=391

 

Not all scaling up is through wholesale marketing. Johnson’s Backyard Garden, literally started in Brenton Johnson’s Backyard. Now it is the largest organic farm and CSA in Texas.

 

Restaurants

Selling to restaurants can be a great way to scale up the farm. This opportunity really depends on the restaurant and their purchasing volume, however. Some restaurants will want small quantities of very specialized products from farmers but buy larger quantity items from a wholesale distributor. Contact chefs that have expressed a desire to purchase local foods. Many local food organizations have events that connect producers with restaurant and other wholesale markets. Keep an eye out for these types of events locally. Some restaurants and grocery stores are willing to finance equipment purchases.

 

Gallatin Valley Botanical in Bozeman, Montana worked with a large restaurant in Bozeman to scale up their farm. Ale Works has partnered with Matt and Jacy Rothschiller since 2010, when they invested in the family’s organic vision at a key moment when expansion capital was needed.

Their first initiative—Cash for Carrots—helped Matt and Jacy purchase farm equipment to expand their carrot production such as a seeder and root washer. Ale Works was paid back in veggies. The collaboration earned Ale Works an EcoStar award in 2014.

They also stepped up to help the family purchase neighboring Rocky Creek Farm in 2018, increasing  their acreage and ensuring the longevity of an organic family farm just three miles outside busy downtown Bozeman. (Montana Ale Works, 2019)

Aggregators and Food Hubs

If your operation is not quite large enough to reach wholesale volumes, you may need to aggregate your product with products from other growers. This can pose a challenge for product quality, consistency, and traceability. Aggregating can also have significant implications for food safety and marketing (Day-Farnsworth et al., 2009).

 

There are many innovations and solutions that have helped growers successfully aggregate their products to sell to larger markets. Food hubs coordinate the aggregation of products from multiple producers. Some food hubs can be Internet-based, or virtual. Others provide the physical infrastructure for packing and shipping quantities that most small-scale producers find difficult to manage on their own. An older study of marketing through food hubs as a way to meet the demand for local foods at a wholesale level, researchers found the following innovations to be most successful:

  • Pre-season planning among grower pools can help match supply to demand and give growers a better idea of what it costs to produce specific products.
  • Buyers, growers, and distributors can collaboratively project product sales in advance of the season, and growers can plant according to these projections.
  • Aggregators and distributors can provide buyers with product availability updates at least weekly during the growing season.
  • Growers and entrepreneurs can pool their resources to improve their storage capacity, make transportation more efficient, and streamline logistics.
  • Development of processing infrastructure can build markets for blemished produce that may not make the cut for fresh market sales but can serve as ingredients in processed foods (Day-Farnsworth et al., 2009).

 

For more information and models on aggregating, see the Good Food Network’s Food Hub Center. This includes information and resources on starting and managing foods hubs. http://www.ngfn.org/resources/food-hubs

Schools and Other Institutional Buyers

Selling to institutions such as schools, hospitals, and government agencies can be a challenge because they often have tight budgets, are locked into contracts with certain distributors, and have limited cooking capacity. There is growing interest on the part of hospitals and schools in sourcing local products, however. It is likely that food safety requirements will be greater in these settings, and producers will need higher liability insurance. If you intend to sell to institutions, it is also important to consider whether or not you are able to provide a consistent quantity, supply, and if the price point is acceptable. Contact the food service manager at the institution you are interested in selling to, in order to find out their requirements.

For more information, see ATTRA’s publication

Tips for Selling to Institutional Markets

https://attra.ncat.org/attra-pub/summaries/summary.php?pub=399

 

With wholesale markets, there is typically not a higher price point or brand identity retention. Some growers appreciate the security of forward contracting and less time spent on marketing despite the lower price point. Wholesale Success, is an essential guide for fruit and vegetable farmers that are considering scaling up for wholesale markets. See the Resources section of this article for information on purchasing this manual.

Tips for Wholesale Success—Excerpted from Wholesale Success by Family Farmed

  • Buyers want larger quantities—many prefer pallets. Production should yield a consistent weekly supply.
  • Producers must build relationships with wholesale buyers and stay in touch regularly to communicate issues such as timing, quantity, price, quality, etc.
  • Field heat must be removed with proper cooling. The “cold chain” must be maintained from the field to the customer with refrigerated storage of most fruits and vegetables.
  • Products must be sorted uniformly to match United States Department of Agriculture (USDA) grades. Food safety procedures must be followed including necessary record keeping.

 

 

Distributors

Produce distributors are businesses that aggregate product and resell it in small or large quantities to their customers. Distributors may range in size from an individual with a van to a company with a fleet of eighteen-wheelers. Distributors primarily purchase directly from farmers, although they may also buy from brokers or packing houses. Most distributors will expect producers to follow stringent food safety requirements and use an invoicing system.

For more information, see ATTRA’s publication

Tips for Selling to Produce Distributors

https://attra.ncat.org/attra-pub/summaries/summary.php?pub=403

 

Infrastructure Evaluation and Needs:

Equipment

The type of market will dictate the level of infrastructure investment. Typically, a farm that expands to sell through wholesale channels moves from a very diverse operation to one that is more specialized. Nationally, there are several regional CSAs that have scaled up to serve more than 1,000 members. Managing 50 + crops at that scale can be very difficult but there are some farmers that have successfully pulled it off.

 

Generally, however, most farmers that scale up decrease the diversity of their crops. While you may grow fewer crops, these crops should be available consistently, for a longer period of time, to satisfy your markets. If you choose to grow fewer crops, it is also important to manage soil quality on your farm through crop rotations, cover cropping, and other measures. This will typically require specialized planting, harvesting and cultivation equipment. Many farms that choose to expand, have acquired equipment over a period of time, however.

This flatbed trailer is converted into a field based grader in the peak harvest season. Consider what your current farm resources are? Where do you need to specialize, and what equipment investments can address the “weak link” on your farm.

As Jean-Paul Courtens of the Roxbury Agriculture Institute and Hudson Valley Food Hub says in his Roxbury Farm Equipment manual “The ideal equipment system for your farm is (a decision) you must make before you spend a nickel. Purchasing equipment narrows your options for future purchases. Try to discover what the weakest link on your farm is. The chain breaks at the weakest link. Out of this you create a list of priorities of equipment to purchase. At our farm we are very dependent on good plant establishment from transplants. For years we set our plants out with a water-wheel planter. As we grew in size, this method developed problems: it was time consuming, the planter was not ergonomically well designed for long periods of work, and plants would not get into the fields when we had only small windows of opportunity. Our field production suffered, so the process of transplanting became our weakest link. Reducing the number of transplants was in our case not an option. We bought a high-speed carousel planter that allowed us to increase the efficiency of transplanting by 300 percent It is important to be realistic about the scale you will be operating at and allow for improvement.”(Courtens, 2006)

Land

Often, one of the limiting factors for a farm expansion is land access. Leasing land can be a great option if financing a land purchase is not possible. It also gives you the opportunity to try farming at a larger scale without committing to a piece of land through purchasing. When renting, however, it is important to have a lease that is fair and legal. Research the market price of land rentals in your region. Your county cooperative extension office or farmland preservation organizations may have local land-lease rates. The Farm Commons provides information on leasing and lessee and landowner rights. It also provides sample leases. See https://farmcommons.org/land-matters

 

Another consideration when leasing land is the quality of the land and the existing infrastructure. If you are leasing, it is important to use land that will not take a lot of time and resources to improve. If the land is excessively weedy or has poor soil, it is likely not worth investing time because you will not get any equity out of your land improvements. It is also important to consider access to the land, as well as to water and electricity.

The ATTRA publication Tips for Farm Leases and Contracts: Creating Smart, Effective Documents (https://attra.ncat.org/attra-pub/summaries/summary.php?pub=427) can help you understand the considerations in developing an effective and fair farm lease.

If expanding your farm has been a part of your long-term goals, buying land may be a better option than leasing. Purchasing can be costly, especially if you live in an area that has high land prices. Financing the purchase of land can be difficult. The USDA-Farm Service Agency (FSA) can be a great option for obtaining a low-interest loan for the purchase of land or equipment for your expansion if you do not qualify for a conventional loan. Any financer will expect you to have a projected cash flow statement to demonstrate that your expansion will be profitable.

The ATTRA publication Finding Land to Farm (https://attra.ncat.org/attra-pub/summaries/summary.php?pub=174) includes important considerations as well as helpful resources on leasing or purchasing land.

Labor

Labor is a very important, if not the most important consideration for scaling up your farm. Labor costs can quickly eat into gross sales on a vegetable farm of any size. Labor requires a whole new level of planning, financial management, and communication. Yet, if you are scaling up your farm, you most likely will need to hire labor. It can be difficult to find labor and many farmers refrain from scaling up for this reason alone. Consider whether you enjoy working with people and feel like you have the management skills to take on employees. Check into your state’s labor laws before hiring anyone. If you intend on hiring labor, at the minimum you will need to pay workers compensation tax and the state’s minimum wage.

 

In a study about livelihoods of several different scales of market farms, the Center for Integrated Agricultural Systems found that vegetable farms over 12 acres often have crews of 10 or more people during the growing season. A 20-acre vegetable farm may require 12,500 or more total labor hours per year. The four large-scale organic operations in their study ranged from 462 to 613 total labor hours per acre and averaged 554. The farmers themselves accounted for between 17 percent and 45 percent of the total labor hours in these enterprises. Payroll expenses consumed between 19 percent and 41 percent of gross farm sales (average of 32 percent) (Hendrickson, 2005).

 

Return on Investment and Gross Margin—In Other Words, are you Financially Equipped for a Farm Expansion?

Jed Beach in his article in Growing for Market recommends that every farm have an understanding of their “gross margin” before considering an expansion. He says “Gross margin is an important measurement of efficiency for any farm—it measures your ability to convert sales into gross profit. The higher the gross margin, the better.” Calculating gross margin happens by simply subtracting your variable costs from your gross revenue (AKA your sales). This calculates your “gross profit.” Next, divide your gross profit by your gross revenues. This calculates your gross margin—the percentage of every dollar in sales you make that is gross profit (Beach 2019). He suggests tracking your gross margin over time. If it starts to go up—maybe it is a good time to expand your farm.

 

Another important consideration is your return on investment. In other words, will you make more money based on your investment if you expand? The publication titled Fearless Farm Financing helps farmers gain a deeper understanding of their finances. Chapter 13 on Farm Investment Analysis is a great place to start in breaking down the decision into a series of questions that you should consider when thinking of making investments to expand a farm enterprise. Fearless Farm Financing is a great book to have in your farm library.

 

Scaling up your farm to meet regional market demand takes a lot of planning and investment. Revisit your farm goals to insure that a farm expansion aligns with your farm and lifestyle goals. Be sure to do some return on investment calculators to make sure your expansion will pay off in the not so distant future and finally, before expanding, make sure you have a thorough marketing plan.

 

References:

Beach, Jed. April 2019. How to know when to scale up. Growing for Market.

Courtens, Jean-Paul. 2006. Roxbury Farm Equipment. Regenerative Farming Practices- Information for Farmers.

https://www.roxburyfarm.com/information-for-farmers

 

Montana Ale Works Web site. Farm to Fork. 2019.

https://www.montanaaleworks.com/farm-to-fork

 

Day-Farnsworth, Lindsey, Brent McCown, Michelle Miller, and Anne Pfeiffer. 2009. Scaling Up: Meeting the Demand for Local Food. Center for Integrated Agricultural Systems, Madison, WI. www.cias.wisc.edu/scaling-up-meeting-the-demand-for-local-food/

Resources:

ATTRA Scaling up for institutional markets tutorial

https://attra.ncat.org/tutorials/

 

Scaling up your Vegetable Farm for Regional Markets

https://attra.ncat.org/attra-pub/download.php?id=469

 

Produce Safety tutorial and videos

https://attra.ncat.org/food_safety/

 

Padgham, J., Dietmann, P., Chase, C., and Blanchard, C. 2012. Fearless Farm Finances. Midwest Organic and Sustainable Education Service. https://mosesorganic.org/fearless-farm-finances/

Diffley, A. and Slama J. 2012 Wholesale Success: A Farmer’s Guide to Food Safety, Postharvest Handling, Packing and Selling Produce. Family Farmed.org