Increase Small Farm Profit with Direct Marketing

Editor’s Note: The prices listed below reflect costs at the time Making Your Small Farm Profitable was published.

On my farm, I sell hogs at 80 cents a pound live-weight, which means about $100 for half of a hog, with the customer paying for the processing. Processing costs run between $35 and $45, depending on how the customer wants his meat cut and whether he wants any cured meat. Alternatively, I sell 80 percent lean sausage at a flat $2.50 per pound, and get about 100 pounds of sausage from a 225- to 250-pound hog. I sold all my pork this year in the midst of 10- cent hog prices at the local sale barn. Customers were willing to pay premium prices for quality meat. My pork is fresher and leaner, and my hogs were raised on pasture and not given any antibiotics or growth hormones. My pork comes from happy hogs — and my customers know it.

Farmers’ Markets

Farmers’ markets are perfect for direct marketing. Consider selling at any farmers’ markets within 1 hour’s driving time. Your state Department of Agriculture should have a list of markets.

The biggest advantage of selling at a farmers’ market is that you’ll find lots of consumers in one place. It is much easier to sell a little bit of produce to a lot of customers than a lot of produce to a few customers. If you have something new and different from the rest of the market, provide taste samples to the customers. Recipes featuring your produce are also a good marketing strategy.

The major disadvantages to farmers’ markets are cost and time. Time spent at the market is time not spent on the farm. When you figure all your expenses — production costs, booth fees, labor, and transportation — selling here may not be cost-effective. Count your pennies carefully.

Check out the market the season before you intend to sell there. See what the farmers are raising, and what they are not. Is there anything missing — yellow or purple snap beans, or heirloom tomatoes such as ‘Brandywine’? Talk to the farmers and customers to see what is needed that you could raise. This is a good place to start.

If there is no farmers’ market in your area, consider starting one. Evaluate the customer potential, determine the exhibitor (farmer) potential, and design a charter — all these are very important. Decide fees, dates, and hours, and investigate insurance and location. This entails a lot of work and requires community support. If you do start a farmer’s market, holding special events at it — bake sales, festivals, concerts — can be an additional way to draw revenue. Finally, a farmers’ market will require the same thing you do — advertising to let people know it is there.

Roadside Stands

These will usually be on or near your farm and can vary from a pickup bed, to a temporary shelter, to a shop. If your own property is off the beaten track, inquire at area businesses such as discount stores and gas stations about setting up a temporary stand on their property, or pool your produce with a farmer on a good road. Make your stand attractive, with bright signs and clear information.

Roadside stands bring customers to you at little expense. If you do well, you can develop this into a tidy little on-farm shop. With some advertising, it could attract people from miles away. Unfortunately, time is again a negative factor. Time spent in the stand may be worth less than at a farmers’ market (think in terms of customer dollars per hour), unless you are on a well-traveled road with an easy exit. You will have to decide what the stand’s hours will be. Will it be open daily, three times a week, or only on weekends? Will it be open all day, or just around rush hour, when customers are heading home? In some areas, the farmer leaves a can for money and lets customers help themselves. I’m not trusting enough for this approach, although it might be a good way of disposing of excess produce. Check insurance requirements to operate a roadside stand.

Community-Supported Agriculture (CSA)

Community-Supported Agriculture is a subscription service where the farmer signs up customers for a monthly or seasonal fee and agrees to deliver to them a percentage of the farm output for a season. CSAs are more than just a way to sell your produce: You form a definite relationship with your customer, and your customer shares in the production risk of your farm. By receiving the yearly fees up front, the farmer avoids borrowing money and paying interest, and has a paid market before he or she plants anything. The customers know how and where their food is grown, and receive fresh produce at a good price. Customers will also get a good lesson in the vagaries of weather!

Working a CSA is relatively simple. Most CSAs have a starting base of about thirty customers. The customer will pay, say, $300 for 7 months, and in turn receives a weekly delivery of his percentage of the produce — probably about 10 pounds per week. Customers may be allowed to work on the farm in peak labor times to reduce their cost. Some farms have customers pick up their produce on-farm, with a “rollover” table where a customer can remove produce he or she does not want and substitute something else. Some farms provide a yearly list of what they are planting; others seek input from the customers as to their preferences.

The main disadvantages of a CSA are determining a fair price and finding customers to sign up for it. Many people are afraid to commit money before getting any product. Most (but not all) successful CSAs are near metropolitan areas with a large customer base. You don’t want to start a CSA until you have a good knowledge of what you can raise each year, and what it costs to raise it.

Catalog Sales

Value-added products are required for catalog sales, which can be a natural outgrowth from a mailing list of customers. Starting a catalog requires a lot of thought and careful market research. Printing, packaging, and mailing the catalog — that’s the easy part. The hard part is juggling supply and demand, making sure you have the necessary supplies on hand without spending too much money or creating a surplus. If you don’t have what the customer wants when he wants it, you have lost a sale and possibly a customer. If you have thousands of unsold jelly jars, you have lost a business.

I recommend catalog sales only for those with several years of experience in both farming and direct marketing of value-added products. A catalog requires a large volume of production. Factoring in the weather, amounts of production, and projected customer returns calls for knowledge and experience. It might be wise to have another farmer close by who can supply you with extra produce if you run short — but it must be of a quality comparable to yours.

Shows and Fairs

A booth at trade shows and community events can promote your farm and increase your sales. These booths are a good way to tap into local markets, appealing both to brand-new customers and to people who have already heard about your Aunt Sally’s Special Mustard Recipe but have never tried it. You might consider offering some kind of exhibition in trade for the booth — cooking, milking a goat, or demonstrating a craft (soap-making, spinning, felting, for example). Have cards or flyers available with maps to show interested people how to find your farm.

Check with the chambers of commerce in nearby communities, and also with your local extension office, to see what events are available to you. Don’t look just at traditional farm and craft shows. Consider everything, from ballooning events to food fairs, from music festivals to church gatherings, from association conferences to Living History events. If no such events exist in your area, consider hosting one yourself.

The next step up from local events is a booth at a major farm and craft show or a state fair. You must be careful about costs. Remember that you have to recover the booth fee (usually $50 for small shows and $250 or more for larger shows) before you make a profit. If you are in another city, you may have to recover transportation, lodging, and meal costs as well. I recommend attending a major show the year before you exhibit at it to assess the customer potential. Talk to entrepreneurs marketing similar products and ask what they think of the show. In the end, though, finding out if you will have enough customers to justify the expense can be done only by trying a show or two and keeping good records. Be warned that some shows will be great, outdoing all expectations — but some will be duds.

The “major leagues” of shows are the food festivals and gourmet food fairs, where booths can cost $2,000 or more, plus fines if you don’t do exactly as instructed. These are not for faint-of-heart, low-volume producers, or those without a good cash reserve. You must be professional, knowledgeable, competent, and know your costs of production to the tenth of a cent. If a buyer asks what it costs you to deliver 100 six-packs of jam to 20 different stores, you have to be able to say, “Yes, I can do that for XX dollars and cents per case.”

U-Pick Farms

U-picks are definitely a “people-person” business. All sizes, shapes, and ages of people will come to your farm, full of all kinds of problems, stories, and misconceptions about farmers. They will gladly share their experiences while you try to deal with five customers waiting to check out, a small child trampling plants in the field, and cars blocking the parking lot. If you are a “people person,” though, and believe you can sell your visitors products that are wholesome while providing them a fun experience, this can be a good way to market.

U-picks do away with the expense and time of harvesting your crop and hauling the produce to town. (Some farms pick part of their crop and sell it to hurried visitors at a higher price.) Once customers are on the farm, you have a great opportunity to sell them other products, too.

There are many other cost considerations, however. You need to check into the requirements for U-picks before you start: insurance, parking, bathroom facilities, a shady rest area, and so on. For information, talk to insurance companies, other U-pick farmers, and your local extension office. Check county regulations, as well.

Think, too, about the problems inherent in letting large numbers of people onto your farm — consider fence placement and security, for starters. Once again, it is helpful to do your research, and consult with other U-pick farmers and your extension service. You’ll need to offer pointers to inexperienced pickers to reduce damage to your crops. There will always be some free “field tastings,” but discourage massive consumption. Require parental supervision of children — you are not a baby-sitter (unless you want to set this up as an extra perk for a fee). Some farms require phone-in appointments, while others just have drive-bys. Phoning allows control of customer numbers with production, but requires more advertising until you acquire a regular clientele.

U-picks used to sell only by the container, but most now choose to sell by weight. Thus, accurate scales are essential.

It is best to have a large population center within 45 minutes’ driving time, unless you have some innovative ways to draw people to your property. Earnie Bohner, at Persimmon Hill Farm in Lampe, Missouri, operates a U-pick that is well over an hour away from any major city. He’s on a road that leads to a camp, however, and many parents driving down to see their kids stop by. He offers homemade muffins and fresh berry smoothies, plus his unique add- on-value berry and mushroom products (dried berries, mushroom sauce, and berry barbecue sauces). His special products and fun farm serve as a tourist magnet. He even has tour buses come. There is more information on attracting customers in the advertising section later in this chapter.

Food Circles

A food circle is sort of a cross between a CSA subscription farm and a cooperative. A limited group of farmers and others in town pool their produce — usually 1 farmer for each 10 nonfarm families is a good ratio. Members may pay a fee to join, and some circles require a deposit. A tightly structured food circle will have a distribution site (perhaps  more than  one) where  produce is delivered weekly. Members buy the produce at the distribution site. A member who does not buy enough during a certain period (monthly or seasonally) may have to pay a fine. A loosely structured food circle may just have people get together on an informal basis to trade or barter their goods.

The major disadvantage of a food circle is that lots of people must participate in starting it up and keeping it going. A farmer will find a lot of his or her time spent on organizational matters. It does have an advantage over cooperatives in that a set volume of produce is not needed from a farmer, and an advantage over CSAs in that the customer does not have to contribute as much money up front; this makes it easier to attract customers. Farmers may not be free to set the price on their produce, however. Most food circles set a consistent price for all like produce, combine it, and return the farmer a percentage of money equal to the percentage he contributed.

Grocery and Health-Food Stores

These can be good outlets for your products, but you will be selling them wholesale, so you must move more product to make up for your reduced income and increased time and travel. While helpful, any wholesale selling should be a small portion of your total sales volume.

Stores may be hard to break into if they do not already carry local produce. Try to guarantee them certain amounts, packed the way they prefer — they may be more amenable. Of course, make sure you will be able to supply the amounts you promise. Consignment sales may be a way to get your products into the store. These also have the advantage of giving you a higher profit, but you will have to spend more time in arranging displays and accounting.

Restaurants

This again is not a retail market, but you may get prices slightly better than wholesale. Target specialty restaurants with staff chefs: They will be more interested in buying fresh produce. They also tend to be very particular. It is best to talk to the chefs before you grow, to find out what they want and what quantities they will need. Bring complimentary samples so they can experiment. Some chefs can be a bit temperamental. Tactfully encourage their purchases with one-sheet newsletters of information and quotes from food fairs and gourmet magazines. If you find a chef receptive to trying your produce, grow one or two new herbs or vegetables each season and give them as samples.

More Tips on Selling to Restaurants

• Make sure anything you supply to a restaurant is clean and attractive. Dirty produce is a quick way to lose a sale.
• Restaurants should be in a tourist area or close to a large population, or their volume may not be worth your time and effort.
• Try to have several restaurants as customers, and have produce that is used in a wide variety of dishes. If your sales are based on produce used only in the chef’s house special, or in a single salad, you will be in trouble if that dish changes.
• Arrange delivery dates. If the chef can’t make his specialty when he wants to, you may lose him as a customer. Leave your number with the restaurant for rush orders.
• Above all, make sure to supply the quantities a restaurant requests. If the chef asked for ten cases, don’t bring six. Never promise what you can’t deliver.

It is important to evaluate the volume of business available for each of your products. When I started my aquaculture business, I was selling trout and catfish to restaurants. I found though, that I was selling ten catfish for every trout, because there were only enough upscale restaurants in my area to use 25 pounds of trout per week. In contrast, I sold 50 to 100 pounds of catfish per week to several “home-style” restaurants, plus these fish sold much better in the grocery stores. I soon dropped the trout and raised only catfish.

Market Pools and Groups

Market pools are often retail. They are simply a group of farmers in an area who agree to refer sales to each other and promote each other’s businesses. A farmer may refer a customer to someone else in the pool if he or she is currently out of what the customer wants or if the customer is looking for something just a little bit different. This system also allows the customer to have more choice. To go a step farther, the farmers may band together to sell their stock as a group at the sale barn, or to a company looking for larger numbers than a single farmer can provide. If this is done on a regular basis, it would be better to form a cooperative.

Market groups are usually regional or national associations that try to put together buyers and farmers. There are a number of these groups, particularly in the herb and flower businesses. The advantage is that the farmer does not have to do sales. The disadvantage is the commission that most of these groups charge. To find these groups, start by talking to some of the herb and flower associations and magazines listed in the appendix.

Cooperatives

Cooperatives are another way of getting someone else to do the marketing. These are especially good for farmers who dislike the effort of direct marketing or who have no “people skills.” Cooperatives work by gathering together a group of small producers who are all raising the same product(s). They pool their produce to provide the volume required by major buyers. The selling is done by a co-op salesperson, freeing up the farmers for more production time. The disadvantage is that farmers will not get the retail price for their produce (although they may get a small premium for quality), and part of their profits are eaten up by co-op fees (including the salary of the salesperson). A member may also be in trouble if the co-op has contracts for X amount of produce and his or her yield is poor that year. Depending on co-op rules, there may be fines or other penalties.

There are all types of cooperatives. A co-op may be as small as eight to ten ranchers pooling calves to get a bunch of 100 for sale as first-time calvers, or it could be a group of farmers specializing in heirloom tomatoes for delis. Co-ops can also be quite big, such as the sugar beet cooperatives in the Dakotas, where farmers who join sign strict production contracts.

Investigate cooperatives carefully before joining. If you want to start one, do your research first, and talk to lots of other cooperatives. Even loose cooperatives need rules and regulations for members to abide by. It must be determined what percentage of sales goes to co-op salespeople and advertising, how administrative duties will be carried out, and how many growers will be allowed in the co-op. The new “New Generation” cooperatives set strict limits for numbers of members, differentiating them from older co-op models such as the Missouri Farmers’ Association and rural electric co-ops. In a small co-op, make sure the other members are all people you trust and are willing to do business with.

More on Increasing Small Farm Profit

• All About Crop Rotation
• The Best Animal Shelters for Small Livestock
• Creating Microclimates With Windbreaks

Excerpted from Making Your Small Farm Profitable (c) Ron Macher, line drawings by Chuck Galey, used with permission from Storey Publishing.