Why view the orchard as a business?
Because it is a business.
by Tim Clymer
Almost no one gets into farming because of the business side of the operation. We farm because we care deeply about producing nutritious food for ourselves and our communities. We farm because we love the land and desire to steward it well. Unfortunately the business side of the farm operation is often neglected until it becomes a problem. Financial problems that could have been foreseen through a little financial forethought and simple spreadsheet work then become an urgent problem of profitability on the ground.
Food production as a whole has become a heavily industrialized system with typically thin profit margins made workable by scaling up to greater and greater acreage. At any size, orchards require a heavy upfront investment of capital with the promise of returns over the long term. Therefore it’s imperative if you’re planning a small or large orchard that the financial numbers work out for years into the future.
Business Plans and Why You Need One
At Threefold Farm our business didn’t start with a business plan and it was a huge mistake. There, I said it.
Let me clarify that we didn’t go into this totally blind. We did a lot of research into the crops we were going to grow, varieties, trellising systems, spacing, orchard layout, even made yield estimates. We attended conferences and gleaned information from as many books and articles as we could get our hands on. We did as much homework as we knew to do at the time to educate ourselves to be good growers. We imagined the key to being a successful farmer was mostly defined by how successful we could be at growing our chosen crops. We were only half right.
In our ignorance and lack of experience, we failed to sit down and focus the same amount of energy to the business side of the farm. Looking back, this is likely the biggest mistake our farm made and one of the biggest lessons learned since starting Threefold Farm.
Your new orchard needs a business plan. I’ve seen business plans described as a road map for your business. They lay out where you’re going to go, how you’re going to get there, and help you think through the journey to avoid (or at least lessen) some of the bumps you will encounter along the way.
Terms like “cash flow,” “profit and loss,” and “balance sheets” may sound like they are just for accountants and you may be tempted to ignore them. However, these basic accounting concepts and terms are critical to understanding how you want your business to start and where you want it to go. Similar to the critical practice of scouting in your orchard to assess its health, routinely familiarizing yourself with accounting practices and terms is critical to understanding the anticipated financial health of your orchard.
We’ll provide some numbers and advice in this section to help you think about your startup costs and help you to plan your yields.
“Your new orchard needs a business plan. I’ve seen business plans described as a road map for your business. They lay out where you’re going to go, how you’re going to get there, and help you think through the journey to avoid (or at least lessen) some of the bumps you will encounter along the way.”
Determining the Focus and Size of your Farm: Estimating Cost and Income
When it comes to deciding what you’ll grow, money-making potential is just as important as a farmer’s particular ability. It doesn’t make much sense to plant a crop (especially a perennial one!) when you can’t make money off it. But how do you go about making that determination? You need to have a handle on your orchard’s establishment and operational costs as well as its potential for income. The decision to grow fruit organically will add additional startup costs especially if part of your farm operation is not currently being grown organically. The higher price of organic fruit might offset some of the additional organic expenses and may prove in the end to increase overall profitability.
Should You Pursue Organic Certification?
Once the decision has been made to grow organic fruit, the orchardist must decide whether to certify the crop through the USDA. Some growers choose to strictly follow USDA regulations for organic production but do not complete the necessary steps for USDA certification. This makes perfect sense when the fruit is sold face-to-face because the consumer and orchardist have the opportunity to build a relationship of trust. However, the one drawback to this scenario is that the orchardist cannot advertise that the fruit is being grown organically. Only fruit that is USDA certified can be advertised as organic. In the case of fruit being sold through a retail market (where there is no face-to-face interaction with the grower) the consumer needs some assurance that the fruit they are buying, often at a higher price, has indeed been grown following USDA guidelines. The USDA certification process and labeling provides the consumer with confidence that the fruit is indeed organic. Too often orchardists don’t certify their fruit because of the imagined time and expense of USDA certification. Orchardists routinely keep good records to aid in decision making. The certification process does require very specific record keeping but not much beyond the orchard records already being kept. Once set-up the record keeping for USDA certification becomes routine. The expense to certify is not excessive and is often worth the value added to the crop.
The following sections help you to begin to think through the startup costs for your orchard as well as the ongoing costs. Additionally we’ll cover the process of estimating income. All together, this will help you to begin to form an accurate picture of what your orchard business will need to look like in order to support your family and grow your farm.
Estimating Startup Costs
An early infrastructure project at Threefold Farm, our perimeter goat fence — Threefold Farm
Orchard startup costs are difficult to estimate. Many of the startup costs will vary greatly depending on what resources you already have available. Newer farms can be a blank slate, requiring significant investments in equipment, buildings and even roads that established farms won’t require. However, existing conventional farms who are adding organic production may have to designate separate chemical storage, post-harvest fruit storage, and even duplicate equipment in order to meet organic certification requirements. To further complicate things, many costs can vary greatly depending on where you are in the country.
Unfortunately, there’s no single go-to budget or purchase list that will allow you to create an instant farm. Creating your business plan will not only allow you to dream a little, it will also help you to list, think realistically, and justify the costs of starting up an organic orchard. This process will also help you balance your farm startup plans with your available resources. You’ll find the planning can be as rewarding as the doing.
Below we’ve provided a few of Threefold Farm’s startup costs to show you how different startups might look. A business plan will help you see the costs clearly and help you plan ahead on how and when to spend.
Threefold Farm Sample Startup Costs
(not exhaustive, costs are estimates and do not indicate entirety of farm expenses)
Threefold Farm is fortunate to already have two existing barns that we utilize for equipment storage and our farm stand, though they will continue to need upkeep. We also had an aging agricultural well that we opted to upgrade, replacing the liner, plumbing, and wiring. Digging a new well in our area, to the depth of the current one, would have likely run $10,000 or more, so retrofitting the old one was a much more desirable alternative. A clean water source is important for safe food products and part of organic certification requirements. The ground was already mostly cleared for raising field crops, but the fenceline required clearing that we did ourselves to save money. We started with no equipment other than an aging riding mower and some basic lawn and garden tools.
-
$8,000 - 16’x34’ Building for Storage and Well House
$600 Annually for First Three Years - Cover Crop Seed
-
$26,000 - Cab tractor with loader and rotary cutter
$5,500 - Refurbish old agricultural well
$12,000 - Double-run perimeter orchard fence
$600 - $1,200 - Annual fertilizer & compost expense
$1,600 - Replacement driveway stone
$7,500 - 1.3 acre bramble planting
-
$2,000 - Small DIY Walk-In Cooler
$4,500 - Replace Metal Barn Roof
$4,780 - 0.5 Acre Pawpaw Planting
-
$3,000 - Timber Frame Barn Repairs
$500 - 40 Gallon Skid Sprayer
Threefold Farm Startup Experience and Cost Takeaways
What We Did Right
It can be difficult to measure the impact of good decisions on the farm, because we often don’t think about positive outcomes (or a lack of negative side-effects). But taking inventory of what went right can be beneficial for both current morale and for future planning.
1. Infrastructure
We were smart to invest in infrastructure from the get-go. Our well provides a clean water source and operates almost seamlessly. The advantage of deer fencing has meant less issues with four legged critters (though groundhogs and rabbits are still an ongoing issue). Keeping animals out of the fruit production area is important in fruit production and a requirement for organic certification.
2. Timely Purchases
For the most part, we only purchased items and equipment as we needed them rather than rushing to purchase lots of equipment and supplies up front. Many times equipment salesmen and even bankers think you need everything before getting started, not true. If used equipment is purchased you’ll need to know the history of its use and what your organic certifier requires for its use in organic production. New equipment is no issue for organic production but it is more expensive, and a new farmer should always be cautious of debt. Not very many farms go out of business because they have too little debt.
3. Quality Equipment versus the Least Expensive Option
I swear I’ve only watched like, maybe one episode, but on one of those court TV shows, the judge has a saying that for some reason stayed with me: “The cheap comes out expensive.” We’ve found that to be true. Poor quality machines and tools often cost way more in repairs and lost productivity due to poor performance. The law of diminishing returns certainly exists, but more expensive and better-built items are often worth the investment. Labor is expensive, and you can’t afford to constantly fix and replace poorly built tools. Equipment breakdowns at any random time of year can result in lost crop and lost income.
Where We Failed
1. Lack of Foresight
We installed our first pawpaw planting with 3’ wide plastic in an attempt to save money. Through the first year, it became apparent that 3’ was not going to be enough. Weeds grew over the plastic and closed in on the trees. Once the trees grew wide it would be impossible to mow close enough to them to be effective. The following year we bit the bullet and installed additional plastic on either side of the tree row to address the issue, costing us considerably more in time and money than if we had budgeted the entire cost up front and planned accordingly.
2. Don’t Do Everything
We spent our first few years thinking we would do it all and that we’d have the time to do it. Farmers do have to be knowledgeable in a variety of areas, but there are folks who can do things better and more efficiently than you. You simply can’t be an expert at knowing and doing everything. One example is pounding ground posts. I was able to pound fence posts for our initial goat fence and kiwi berries with a borrowed hydraulic post pounder. On a good day I could probably do 60 posts by myself, not great. By contrast, we could hire a team that would charge a flat rate per post, do a better job of it, and go at the rate of 300 posts per day. For our deer fence, time was of the essence. We hired out and we still don’t regret the expense.
3. Lack of Experience
I’m slowly developing the ability to think through the potential negative aspects of a decision in the orchard. It’s easy to get excited about a particular approach to farming and think that it’s bulletproof. Experience and past difficulties will help to better clarify a design before it is implemented. Take, for instance, the decision to use woven plastic mulch as a groundcover in your orchard. Weed suppression and competition-free space are obvious benefits, but what are the potential drawbacks? How will you deliver fertility or plan for the product’s disposal and replacement? How will you deal with potential critters that may use it as a refuge between nibbles on your trees? If you do move forward, what do you need to do to ensure that your solution performs as desired?
There is a balance between the business operation and the fruit growing. They exist together in one system, the farm. In our startup years, my focus was unbalanced: too much on fruit growing at the expense of the business operation.
The foundation you provide your orchard through good planning and wise startup decisions will impact the profitability of your orchard. Solid foundational decisions will be felt and experienced each day in smooth business operation, healthy orchard management, effective marketing and profitability. Finally and most importantly, good start-up planning can make farming and the farming lifestyle an enjoyable experience.