My name is Ray, and I use “farmer math.” But it’s okay. I’m trying to get help.
For years I sold my freezer beef, lamb, or pork at wholesale prices, based on what I’d get at the local stockyards. In other words, my prices were way closer to rock bottom than necessary. Now I’m in recovery, and warning you to avoid the same path.
I blame what Jessica Kelly calls “farmer math” – the tendency to sell yourself short. To be fair, I’m a producer, not a marketer. Like so many other farmers, I’d much rather be out mucking around in the fields or the barn, not flogging a product. In the process, I was underselling my products and probably failing to accurately tally the cost of production.
Farmer math is a common malady, according to Kelly, direct farm marketing specialist for the Ontario Ministry of Agriculture and Food. You practice it when you ignore costs or undercut margins. “Maybe you don’t put any value on your own time, or you never account for the cost of operating your truck,” she says.
But “if you don’t put anything in for yourself, there won’t magically be any money left over for you, at the end.”
Working out a fair price is crucial for anyone selling direct to the consumer. Unlike commodity producers, you can’t rely on stockyard auctions or commodity exchanges to establish a “going rate.” And because you’re selling a niche product that’s grass-fed, grass-finished, or pasture-raised, you’re unlikely to find comparable cuts at your small-town supermarket.
Instead, Kelly says, start with “the three Cs: consumer, competitors, and costs.”
If you’re targeting urbanites, for example, you may have a customer who’s accustomed to higher prices at the downtown butcher shop. Urban sales may come with additional delivery costs, but the internet makes it relatively easy to reach out to city dwellers. If you can earn a higher margin, it may be worthwhile.
“Our main market is the Toronto region,” says Randy Martin, of Whispering Meadows Farms, near Desboro, Ont. He sells chicken, beef, lamb, pork, and beef jerky produced on his own farm and from other local operations. Although Martin is almost 200 kms from Toronto, he reckons the premium is worth the trip to the Big Smoke. “It’s a high-end market, but that’s what we try to get.”
Even if you’re selling to neighbours, surveying prices for similar products gives you an idea of the going rate. Lincoln Smith markets lambs through web-based sales from Freith Farm in Pinantan Lake, BC. “Our price was based on suppliers in the local area who have a similar quality and online presence,” he writes in an e-mail. Lambs are pre-sold to customers who pay a deposit every June. “Generally we have always had a waiting list of new customers wanting lamb.”
Now Smith plans to grow the flock to 50 head. At that point, “if we still have more customers than lambs we will adjust prices accordingly.”
The gold standard is to cover all your costs and add a healthy margin on top – but getting that right requires some reckoning. “What are your costs to meet the demand, rather than simply to produce the product?” Kelly asks. “Can you accurately capture your full cost of actually getting beef (or whatever you produce) to the customer?”
Direct costs, including feed, mineral, veterinary supplies, processing, marketing and delivery are relatively easy to calculate. Labour is a little trickier, as are indirect costs such as building and machinery depreciation, fencing and pasture maintenance. At the very least, you need sufficient markup to cover these direct and indirect costs, with room for profit.
“In general, whatever my direct cost of production is, I need to double that in order to have a profit and cover additional fixed expenses, mortgages, and so on,” says Lance Bishop, of Wild Mountain Farm in Canning, NS.
Bishop retails cuts through a Saturday farmer’s market, and markets bulk orders through his farm web site. One secret to maximizing revenue is to extract as much value as possible from a carcass. Responding to his customers’ interest in healthy fats and thick broths, Bishop markets not just marrow-laden soup bones, for example, but frozen broth made from bones, and farm-produced lard for pastry. “I listen to what customers ask for, and if there’s one that wants it, maybe there’s 100 that want it.”
Once you’ve set your price, you’ll need to continue tracking changes in costs. “We check that price with detailed calculations of input costs (forage, labour, processing) on a per-animal level,” Lincoln Smith says. “We want to push the high side of price that our target market will bear, while watching that the input costs are not increasing to make our margin too small.”
Finally, Martin says a healthy margin offers marketing flexibility. “I always aim for a 30-40 per cent margin. If you get stuck with a lot of ground beef, for example, you can offer your customers a discount—put on a flash sale, and offer this beef at a ten per cent discount.”
Direct marketing frees small, pasture-based farms from relying on commodity markets. Instead of being “price-takers,” they can have a say in their own pricing, and, ideally, extract a premium to help compete with the big boys.
But first, you have to free your own brain from the price-taking mentality. If you’re a farm kid who grew up listening to stockyard reports on the radio (it was an unwritten rule that no one could speak during the stockyard report), this is no easy feat. Thinking in commodity terms is my brain’s default setting. But I’m learning. (I think.)
The key is to pair a superior product with superior marketing. “Don't underestimate the value of your product,” Bishop says. “Have faith that there are people out there who want to have access to your products.”
“Our customers seldom ask what our prices are because they are not looking for inexpensive meat,” Smith adds. “They are willing and actively look to pay for the story behind the food they consume. Improving your story and brand is the one farm improvement that can be done from the couch and directly affects your revenue.”
“Don't set price based on your cost to produce plus a little extra,” he adds. “Always know what your cost to produce is, but set your price on the value you build in your product and brand.”
For more information
The web is full of helpful spreadsheets designed calculate production costs and suggest pricing. Check your provincial agricultural department’s online presence, or, for an example of a pasture-based sheet, search for Michigan State University’s Grass-Finished Freezer Beef Pricing.
For an excellent example of pricing, and an understanding of how much meat comes from a carcass (and how that affects pricing) see Pennsylvania State University’s How Much Should You Charge? Pricing Your Meat Cuts
https://extension.psu.edu/how-much-should-you-charge-pricing-your-meat-cuts.
An all-round overview of direct marketing, with a chapter on the economics of pricing, can be found in Ontario’s Direct Farm Marketing Business Resources: http://www.omafra.gov.on.ca/english/busdev/directfarmmkt/directfarmmarketing2016.pdf
Also valuable for any livestock producer is Alberta’s Direct Marketing Meats…Selling Freezer Beef: http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/agdex10321
Finally, check out the web sites from the savvy producers who helped with this article:
--Lance Bishop’s Wild Mountain Farm: https://wild-mountain-farm.myshopify.com/
Randy Martin’s Whispering Meadows Family Farms: https://www.whisperingmeadows.ca/
--Lincoln Smith’s Freith Farm: http://www.freith.ca/
- Ray Ford