One of the first things that pops out of guest’s mouths when they visit the farm is an idea about something we could be doing. Farms are very inspiring and we go through the same thing all the time. Multiple times per day one of us will blurt out something like, “Hey, we should totally be doing [this]!”. Followed by, “and we could label it this way and have marketing for it this way” and so on. When you look out at the land there are endless possibilities.
So how do you decide which paths to pursue and which to forget about?
Is the Enterprise Scalable?
It's kind of ironic that I'm writing about this when we don't officially sell anything yet, but since we're going through the process of figuring it out I think it could be helpful for others.
A big consideration for us is whether a specific farm enterprise is scalable. By “scalable” I mean whether or not your land and your method of farming can support a specific enterprise at a size that would have a meaningful impact on your profitability as a farm.
A good example is egg production. It’s also one of the most frequently mentioned ideas for possible farm enterprises. People love farm fresh eggs. And chickens seem so easy. The price of farm fresh eggs is high ($5-$8 per dozen in certain markets), so why not start selling eggs ASAP? If ALDI can sell a dozen for 59 cents (seriously) then you should be making a killing at $5/dozen, right?
Maybe. It helps to run through the numbers first. I start with two things: Revenue (Sales) and Costs. So let’s see how it would look for eggs.
Egg Revenue Potential
I start out aggressive in my revenue assumptions to see if it would even make sense at a 'large' scale. In general, if it doesn’t make sense at a large scale it won’t make sense at a small scale.
Take 1,000 egg laying chickens, that's a lot of chickens to raise on pasture. The average egg layer will produce around 260 eggs per year, primarily distributed over the days with more daylight (spring through fall). You’d be getting around 260,000 eggs per year. That equates to about 21,700 dozens of eggs. If you assume a 10% chicken mortality, spoilage, breakage, etc you end up with closer to 19,500 dozen.
Multiply 19,500 by $5 per dozen and you get a hefty $97,500 in revenue from eggs.
That looks very attractive. Eggs pass the revenue check, but how does it look in terms of costs? After all, the only thing that really matters is what you take home to pay the bills.
Costs of Patured Egg Production
One of the biggest issues that I can see with producing 19,500 dozen eggs per year is distribution. If you want to get the full $5 (or $8!) per dozen price you will have to sell direct to the consumer. You cannot sell at $5 per dozen to Whole Foods or they’d have to be selling your eggs for $8-$10 per dozen after the take their mark-up, which most retailers aren't willing to do.
That means you have to sell at farmer’s markets, have on-farm pickup, maybe sell as an egg add-on option through a local CSA, and so on. Most egg sales will be over the months of March through October/November when there is more daylight. Let’s assume you have 260 days to sell your eggs since you won’t always have an abundance of eggs year-round and not all farmer’s markets are open year-round. At 19,500 dozen that equates to 75 dozen per DAY, or 525 dozen per WEEK. That’s a lot of eggs at a $5-$8 price point. Is there a market for that type of volume? If so, how much will it cost you to access those markets? Will you have to hire employees or part-time labor?
Fuel, labor, storage, packaging, etc all needs to be figured in. How many farmer's markets would you have to sell at? Maybe you sell 10 dozen per hour over a six hour day, that's 60 dozen per day. At that rate you'd have to sell at about 9 markets per week, or sell through other channels. Are there even 9 markets that you could access? If so, you'd definitely need to hire someone to run the markets. That brings up a whole different set of concerns.
Distribution becomes a concern, but we haven't even discussed feeding and managing 1,000 egg layers. You better be feeding organic/Non-GMO if you’re hitting a $5+ price point, which isn't cheap. The chickens should have access to fresh pasture all the time. Not just a small hole in the side of a giant warehouse like the "free range" eggs you see at the store. Your customers will want to know how you're managing the birds.
When I’ve talked with most farmers selling eggs they say if you’re getting $0.50 to $1/dozen profit you’re doing an incredible job. The equates to about $10,000-$20,000 in profit per year. Pretty good for eggs.
However, I think that’s probably aggressive unless you’re also selling other products at the markets and you can distribute some of your costs over multiple enterprises. For instance, if you’re selling meats or veggies at the market then your fuel costs and the labor costs of being at the market are distributed across more product categories.
A lot of farmers actually view eggs as a “loss leader”. A loss leader is a product that you might lose a little money on, but that keeps customers coming back and allows you to cross-sell higher margin products along with the egg sale.
Now comes the real question? Would you enjoy managing 1,000 egg laying chickens? How would you house them and give them access to fresh pasture? What would you do if your flock got an illness? Chickens are known to be fragile. Could you afford to lose the entire flock and start over again from scratch? If so, how long would it take you to re-coup those costs?
Could you afford to buy 1,000 egg layers to begin with? If not, how long would it take you to hatch out your own and build your flock “organically”?
Those are all questions that come to mind and there’s a million more that I haven’t mentioned. This is what goes through my head when we have a visitor with a seemingly great idea. When you really “run the numbers” how does it look?
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