In my last article, here, I explained how to track income and expenses on your market farm for your crop budget, without including fixed expenses.

Well, it’s now time to complete the puzzle and incorporate those fixed expenses into your budget.

To review, crop budgets are vital tools that allow you to analyze and compare different crops side by side.

The analysis of these different crops allows you to determine which crops are more profitable than others, and which crops may actually be losing money.

All of these individual parts make up the farm business as a whole and normally get averaged out in a year-end profit (or loss).

The individual parts are averaged to yield a single year-end profitability equation:

Profit = Income – Expenses

Once each crop’s profitability is uncovered, crops can be rated relative to one another for their contribution to your market farm’s overall profit.

The Index of Profitability is a primary management tool to increase farm profits.

Highly profitable crops can be emphasized and less profitable crops analyzed for possible improved earnings or dropped altogether.

Most of the information in this article is from the fantastic book by Richard Wiswall, The Organic Farmer’s Business Handbook. 

What Are Fixed Expenses?

Fixed expenses are the very real overhead costs that your market garden must bear.

Including, but not limited to:

• Insurance
• Telephone
• Taxes
• Land rent
• Interest
• Utilities
• Office supplies
• Advertising

Taking into account all farm expenses reveals the true costs of production for each crop.

Calculating these comprehensive budgets requires some extra math upfront, but once accomplished, you can use the same math for numerous crop budgets.

The first budget takes the longest; preparing subsequent budgets are much quicker.

Crop Budgets

Crop budgets are unique to each farm. All farms bring to the table a specific combination of factors including experience, skills, location, infrastructure, natural resources, markets, and access to services, to name a few.

One farm’s most profitable crop may not be another’s high earner.

Some costs of production are easy to determine, like the cost of seed or fertilizer (you have receipts for those), and some are harder to evaluate unless records are kept during the growing season. This is where your crop journal comes in handy.

Before you can calculate the comprehensive costs for each crop, certain farm production expenses need to be determined.

Such as:

• The average hourly employee labour rate
• The farmer’s hourly rate
• Total overhead costs
• What each size flat grown in the greenhouse costs
• The cost per hour of each running piece of equipment and implement
• The cost of setting up and running an irrigation system per unit area per use
• Delivery costs
• Farmer’s market fees and other marketing costs

In order to help track these production costs, The Organic Farmer’s Business Handbook comes with four useful worksheets to help simplify things for you.

Example (one of four worksheets from the CD):

The information in these worksheets is needed for each crop budget.

This is the extra math referred to when I was talking about fixed expenses earlier.

These worksheets show how to calculate many of the production expenses listed above.

These costs will be assigned to each crop budget.

All overhead expenses incurred on your market farm need to be accounted for from advertising to utilities. 

After these are determined, you can enter them into each actual crop budget.

Not all lines in the budget need to be filled in, as crop needs vary.

Try not to get overwhelmed with all this, over time it will get easier (at least that’s what I tell myself!)

The total area planted in each crop varies on the farm, so to compare crops side by side for profitability, all budgets are calculated for the size of the actual planting and then extrapolated to a standard unit area, such as a certain length bed, or by acre.

How To Calculate Fixed Expenses On Your Market Farm

There are many variables involved in each farm business, so for the sake of this explanation of calculating fixed expenses, some assumptions are going to be made for illustration purposes. 

The numbers used are more than likely going to be different from your farm numbers.

Use your own numbers with inputting your data.

These are strictly examples to show you how to calculate your fixed expenses for your own market farm.

Ok, let’s continue.

Operation Size

I am using the sample workbook from the CD that accompanies The Organic Farmer’s Business Handbook.

Richard uses his numbers based on a sole proprietorship organic vegetable farm with 5 acres in cultivation on two 96 ft long plastic-covered greenhouses.

One greenhouse produces seedlings; the other produces greenhouse tomatoes grown in the ground. 

Five acres of cultivated land grows a variety of mixed produce.

Operations of this size commonly use one or more tractors and an array of implements. 

If your farm is less mechanized (like ours is), it is easy to custom fit the budgets to your operation.

Time is involved in setting up and putting away equipment as well as its actual use in the field.

In a 5 acre operation, the scale of various tasks (preparing beds, cultivating, irrigating, etc.) will likely be in the ¼ to 1-acre size.

Time designated for labour and machinery in the budgets reflect this.

The 1/10 acre size depicted in the crop budgets can be reliably scaled up to an acre without skewing expenses, but sales prices may decline with greater volume if you are selling to large wholesalers.

Standard Bed Length

Designate a standard-size bed for your farm that best fits all your fields and typical planting size. 

To calculate how many beds make up an acre, multiply your bed length (in feet) by the overall bed width (from bed centre to bed centre). This is the number of square feet in one bed.

Next, divide the area of an acre (43,560 square feet) by your bed area and round the result to the nearest whole number.

This is the number of beds per acre and is very useful in planning and budget work.

Example: 

We are using 100ft beds that are 65 ft wide.

100 X 65 = 6500 square feet

43560/6500= 6.7 

Rounding up, we will have 7 beds per acre on our market farm.

Labour Rates

All labour rates should be counted at whatever you are paying your employees. Richard uses $12.55/hr. Your number may be different.

When the farmer (you) works on crop production, the hours that you contribute are counted as a cost even though no paycheck is written.

This way all production hours are accounted for.

If you break a leg and cannot work in the field, your hours can be hired out.

When working in the field, you are “paid” a base wage similar to the employee wage, but you get to keep any profit for the crop (or suffer any loss).

If you don’t work in the field, the only money made would be the crop budget net profit.

On the other hand, if you do help produce the crop, compensation includes any net profit plus the hourly wages worked in the field (no paycheck, but hours are recorded in the Crop Journal).

In the big picture, the hours a farmer works in the field each year producing crops can be substantial. 

These hours are rewarded financially even if the crop yields a zero net profit because the farmer’s hours are counted as a production cost, even though no paycheck was written.

Overhead Appropriation

Overhead costs consist of expenses that are spread out over the entire farm business.

Such as:

• Telephone
• Office supplies
• Insurance

They represent a significant cost to each crop budget.

Also included in this are the labour hours required for business management, office duties, and maintenance.

These tasks take time, usually the farmer’s, and often go unaccounted for.

Richard allots a few hours each week for this work even though some parts of the year demand more time than others.

The total cost of overhead must be divided and allocated to each crop budget, otherwise off-farm income would be necessary to pay for them.

Overhead costs are divvied up according to the percentage of the individual crop budget’s acreage or sales.

This is a somewhat subjective allocation.

You may opt to assign more overhead to a particular area, such as greenhouses, and less to other areas, like field crops.

Do your best to be accurate in spreading out the total overhead costs.

The important point is that all overhead costs are assigned somewhere.

Greenhouse Costs

In Richard’s workbook example, two different greenhouse operations are portrayed:

One with benches for bedding-plant production, and the other for in-ground tomato growing.

The bedding-plant greenhouse analysis is more involved and yields great information for hard-to-find greenhouse production costs.

Example:

The cost of transplants is entered into each appropriate crop spreadsheet.

The greenhouse tomato budget is included with the other crop budgets.

Tractor and Implement Costs

The formula to figure out the hourly cost of using a tractor is:

(Total cost of tractor/years of useful life) + (annual repairs and annual fuel expenses/number of hours used per year)

Tracking various implement’s costs is similar to tracking the cost for tractors but without the fuel expense.

Some implements have lots of moving parts and cost more than implements like a bedlifter, which has no moving parts.

Irrigation Costs

Irrigation costs take into consideration the annual equipment and any repair expense, as well as time for setup, running, and taking down the system for the area you water each time.

If the system irrigates an acre, the cost can be prorated for each bed, per use.

Example:

Conclusion

Most farmers have preconceived notions as to which crops are most profitable. This bias may originate from other farmers, high demand, or simply an affinity for certain crops.

However, good ol’ fashioned number crunching is going to shine the light on the crops with real profitability.

Yes, gathering information, making budgets, and analyzing the data takes time and practice (you are accounting for your time in your overhead costs, right?) but you need to do it in order to be a profitable market gardener. 

There’s no getting around it.

Luckily The Organic Farmer’s Business Handbook comes with worksheets budgets that you can fill in with your own information. This will make things a little easier for you.

Once you make these practices a habit, they will just be normal things you do each day and won’t have to think about too much. 

It’s easy to get overwhelmed with all this new information, so take things one step at a time and know that your efforts will pay you back in dividends once you discover what crops are making you money and which ones you can forget about.

Are you a spreadsheet master? How do you stay motivated to keep up with record-keeping? Let us know in the comments below.

Stay Local,

Kathy & Jon

your friendly neighbourhood growers