Putting it All Together Using Decision Making Tools

1. Putting it All Together Using Decision Making Tools Craig Chase, Field Specialist Farm & Ag Business Management

2. Decision Tools • Enterprise Budgets • Partial Budgets • Market Maker • Produce Market Calculator

3. What is an Enterprise Budget? • Estimate of costs and returns to produce a product (example Pm-2017). • For producers who grow a large number of different products. • Develop budgets for those products that contribute the most to business goals.

4. Decisions Using Enterprise Budgets • Three basic decisions • Pricing • Production changes (benchmarks) • Product mix

5. Pricing Strategy • Start with costs (need to sell products above the cost to produce them) and then consider both the customers and the competition. • If the competition will not allow a price to cover costs, then look at either differentiating the product or changing product mix.

6. Production Practices Strategy • Look for changes in production practices that reduce production costs without affecting yields or for changes that increase yields without increasing costs (example 3rd row of carrots). • Without detailed records, the affect of production practices on profitability is not known.

7. Product Mix

8. Product Mix Strategy • Annual returns over total costs ranged from $35.47 to $547.21. • Labor usage ranged from 1.55 to 18.25 hours. • Returns over total costs per hour ranged from $6.13 - $48.86. • Strategy: pick those crops that maximize returns to whatever resource restricts the size of your operation (land or labor).

9. Transaction Costs and Partial Budgeting • Transaction costs are costs that occur from the marketing activities of the product. • Transaction costs primarily include labor and transportation costs. • Partial budgeting is a tool that can be used to compare two different marketing outlets.

10. Example – Transaction Costs • You have two farmers’ markets; one close (40 miles roundtrip) and one long distance urban (140 miles round trip). • You sell about 100 lbs per market and feel the further market can gross about $.40 per pound more in revenue; or $40. • Is this a good strategy?

11. Example – Determine Margin • Revenue Increase - $0.40 per pound for 100 pounds, or $40 • Expense Increase - $50 per week • Bottom Line: Traveling to the further market would not be more profitable. • Is there a way to increase revenues? • How important is this market?

12. What is Market Maker™? • Interactive mapping system to locate businesses and suppliers of agricultural products (food) in Iowa. • www.marketmakeriowa.com

21. If you would like to register… you may do so online or using the paper handout

22. Market Maker Contact Iowa State University Extension Value-Added Agriculture Program 1111 NSRIC Ames, IA 50011 www.iavaap.org or www.agmrc.org 515-294-0588

23. Iowa Produce Market Potential Calculator • A market discovery tool for farmers • A transportation/logistics tool for farmers, distributors, retailers • An economic impact tool for local food groups and food policy councils

24. Iowa Produce Market Potential Calculator • Uses national per capita consumption data • USDA Ag Census and other production data • Compares “supply and demand” • Makes assumptions that markets are local and regional (these assumptions don’t work for California, Texas, Florida for many of their produce items).

25. http://www.leopold.iastate.edu/research/calculator/home.htm http://www.ctre.iastate.edu/produce/suggestion.htm http://www.ctre.iastate.edu/produce/suggestion.htm

26. Questions….. Thank You for Your Participation! Craig A. Chase Farm Management Field Specialist 720 7th Avenue SW Tripoli, IA 50676 (319) 882-4275 cchase@iastate.edu