GON-CF4-MR-2-DECISION MAKING120by Sanne Kure-Jensen
Make decisions regarding labor management and new equipment investment is something that most farmers face during normal business operations. Chris Blanchard of Purple Pitchfork shared his experience gathering accurate farm costs and production data for investment decisions at the 2014 Beginning Farmer Learning Network Conference recently. The lecture covered ways farmers can track, extrapolate and weigh labor costs and capacity against hiring staff or investing in tractors or other equipment; Using accurate data and careful budget analysis, farmers can maximize profits and make fewer poor decisions.
According to Blanchard, many farmers are afraid to track their true hours because if they write it down they will find out how little they really earn. Farmers have told him, “It’s depressing to see how little you are worth.” Blanchard urges farmers to track farm labor (time) for field preparation, seeding, transplanting, weeding, mulching, pruning/staking, harvesting, washing, sorting, bunching and packing. Do not forget to include installing and adjusting implements as well as greasing and repairing equipment. Include loading and delivery time, pick-ups and unloading, paid breaks as well as time at farm field days or educational conferences. Remember to track time not farming: overseeing CSA pickups, retail stands or farmers markets and working in the office.
Another suggestion was to include true labor costs, including payroll company fees, business contributions to social security, federal, state and local taxes, insurance costs, employee perks like snacks and/or a CSA share and help wanted ads. The average cost of labor per hour is the total labor costs divided by the total hours worked. This number is often much higher than farm managers expect – typically $20 – $25/hour. Owner/manager labor is difficult to value. Blanchard recommends using the same value/hour as hired labor. When earnings are higher, the results are extra profits. To track owner/manager hours include farm labor as above plus budgeting, forecasting, sales, meeting with suppliers, staff interviews and orientation, training, bookkeeping and tax preparation. Consider an insurance policy to pay for a replacement if the owner/manager cannot perform these functions.
According to Blanchard, “Farmers already keep lots of records for agencies, why not keep them for ourselves? Farmers should develop and follow a simple record-keeping system that meets their farm needs.
Blanchard suggests that farmers should create value around the farm’s records by making recordkeeping part of everyday operations. Note time in and out of fields, start and end time for equipment setup and breakdown, oil changes, etc. Create a checklist for what-if scenarios. If the temperature is high in the hoop house, raise the sides. If the cooler temperature is high, notify the farm owner/manager immediately. Do not just note warmer temperatures for hours or days.
Written daily farm plans should include where to work or what to harvest. The forms will collect data on labor for field prep, growing, harvesting as well as creating traceability. Plan documents should include directions to generate food safety tracking lot codes for transfer to packing boxes. Blanchard suggested printing all staff names on the form and circling the daily foreman. Have the supervisor sign and date that day’s paperwork. Blanchard recommends farmers use daily farm plans all through the growing season and then spend some quiet winter days entering the data into a computer. The summaries will be invaluable for enterprise, labor and equipment purchasing decisions, certification/recertification and food safety traceability.
A simple way to figure out the cost of growing a particular crop is to track the time used on that crop. Blanchard has his staff carry a stack of colorful, 3×5 cards and a pen. Three times a season, workers note their start and end times as well as rows seeded/transplanted, weeded (with equipment setup time), mulched or amount harvested for a particular crop or field. Blanchard averages the net times to determine the real cost of production. “Farms with a weed problem do not need a different tractor or tool, they have a management problem,” says Blanchard. Good weed control is critical for successful vegetable and flower farming. Delays in hiring may cause insufficient or delayed weeding and reduce crop quality. Allowing weeds to go to seed may generate seven years of weed seeds causing further weed pressure in the future.”
Blanchard recommended beginning farmers apprentice on successful farms, learning everything they can from successful farmers before starting on their own. Beginning farmers must to learn to distinguish between healthy and weak plants, how far to space transplants, planning succession plantings, when to harvest as well as how to wash, pack, store and deliver crops. Beginning farmers need to learn how to market their crops as well as business management.
Farmers need effective management systems including spreadsheets for crop planning, labor and expenses tracking, CSA shares, farmers market sales and tracking the success of various marketing efforts. Blanchard urged farmers to make time to inspect fields daily and to allocate time each week for marketing, either on the phone, online or both. Farm budgets should include equipment replacement costs like rototiller tines, brush washers and hand tool handles that rust, wear away or break.
According to Blanchard, about 44-54 percent of vegetable farm expenses are labor. When developing a farm or enterprise budget, Blanchard recommended using the Rule of 30. Using the data you have, make your best estimate of expenses and sales revenue. Then add 30 percent to the labor and materials expenses for unexpected contingencies. If the project makes financial sense with these numbers, go for it. If costs come in under the contingency budget, that means more profits. Blanchard warned against minimizing reportable income or working for cash. Getting loans or lines of credit requires farmers to show earnings, not years without income or a failing business.
Try to avoid equipment lust. Start with the task or problem that needs solving. Consider all the tools that could accomplish that task. Blanchard recommended purchasing tools that could be adapted or expanded as farms grow. Instead of buying equipment, consider custom hiring for chores or projects that are not time sensitive. Experienced farmers may rent rather than purchase larger equipment instead of going into debt. Successful farmers can replace tools as they wear out. These farmers know when to sell equipment at the ideal threshold, while there is still value to them. Banks and farmers typically expense equipment over seven years. If equipment will save or earn more than this expense each year and cash flow or credit can support the purchase, then it makes sense to purchase the equipment.