Meat Goat Economic

1. Meat Goat Economic$ GEOFF BENSON, PhD Extension Economist Dept. of Ag. & Resource Economics N.C. State University August, 2009

2. G. A. BENSON, ARE-NCSU 2 Outline Why do you want to have goats? Who will buy your goats or goat meat? How will you produce your goats or goat meat? Are goats a good fit for your farm and family? Will it be profitable? -- Running the numbers

3. G. A. BENSON, ARE-NCSU 3 WHAT IS SUCCESS? �WHEN THE MOST IMPORTANT FAMILY AND BUSINESS GOALS ARE BEING MET� How will meat goats contribute to your definition of success?

4. G. A. BENSON, ARE-NCSU 4 1. Why Have Goats?

5. Why Have Goats? Are Goats a Good Fit With: Your Personal Goals Your Business Goals Goals of other family members

6. Why Have Goats? How much money do you want to make from selling live goats or goat meat? How much time and money are you willing to invest? Write it down! Your answer helps determine the size and type of enterprise

7. Income Potential There is little published information from actual meat goat operations To base planning decisions on To use as benchmarks for evaluating farm performance Several Universities have developed goat enterprise budgets

8. Meat Goat Enterprise Budgets, $ per Doe per year

9. Why the differences? Based on different production systems Differences in animal performance Differences in the cost categories included There is no standard budget methodology � user beware!

10. Farm Financial Performance Varies from Farm to Farm Net Returns over Total Expense, Minnesota FINBIN data Cow-Calf, per cow, 2008: Top 20% = +$46, Bottom 20% = -$688 Stockers, per head, 2007: Top 20% = +$65, Bottom 20% = -$223 Dairy Net Farm Income per cow, Cornell University, 2007 Top 10% = $1,985, Bottom 10% = $67 GEOFF BENSON, ARE, NCSU 10

11. Size & Income Larger farm operations may be truly profitable Smaller operations can Depend on non-farm income � either from choice of lifestyle or financial necessity Get bigger More of the same Develop �value added� activities All sizes -- Manage for profitability if net income is the primary motivation, especially cost control

12. Economies of Size If you double the size of your goat herd It doesn�t take twice as much time to feed or move goats from one field to the next, time and expense to take your goats to market, fencing, equipment, facilities, etc. You spread your fixed costs & overhead You might get volume discounts on purchases But there can be diseconomies too, especially in marketing your product(s) ?Prediction � Meat goats will become more like other commercial farm enterprises

13. Value-added? Sell meat or meat products instead of the live goat Wholesale Restaurants Direct to consumer Farmers Markets On-farm sales Event Catering CSAs, etc.

14. Value-added There are also Added Costs! Processing Wrapping, packaging, labeling Storage Sales and distribution costs Record keeping, office, etc. Cost of complying with regulations More of your time or cost of extra hired help An opportunity, not a magic bullet! Run the numbers!

15. Other Financial Benefits Tax advantages for farmers Preferential sales tax rates �Agricultural Use� property tax rates Farm income tax rules All farming tax advantages have qualification requirements Do you qualify as a farm/farmer (acreage, gross income)? Are you farming for profit? Do you �materially participate�?

16. GEOFF BENSON, ARE, NCSU 16 2. Lots of Market Opportunities People: NC = 9.2 million, VA = 7.8 mil. Personal Income: NC = $318 bil., VA = $333 bil. Consumer trends: Buy less on price, more on convenience Care how food is produced � no GMOs, no added hormones, no antibiotics, organic, �natural,� Value special characteristics �locally produced, sold direct, �fresh�, type or variety, �heritage�/nostalgia, etc. Demographic trends: Changing racial & ethnic mix, population growth, aging, more two-wage earner families, single head of households, etc.

17. Who Are Your Customers?

18. GEOFF BENSON, ARE, NCSU 18 Know Your Customers When planning a new enterprise: Helps you identify opportunities and challenges more clearly Helps you develop your product & a marketing strategy to sell your product to the consumer Helps you develop a farm production plan For an existing business: Helps you see new opportunities, see if your operation is meeting, exceeding or falling short of your customers� expectations, helps you fine tune your marketing efforts

19. Know Your Customers Live Sales Where will you sell your animals? What kind of animals does this market want? What premiums are available for certain characteristics � frame size, weight, fleshiness, breed, sex, kosher or halal, number of head, etc. When does the market want them � is there a seasonal pattern to prices? Are their ethnic holiday opportunities? G. A. BENSON, ARE-NCSU 19

20. Selling Meat � Who are Your Customers Four Characteristics: They want or need your type of product They have the ability to buy what you are selling They have decision making power over purchases They have ready access to your product or service

21. GEOFF BENSON, ARE, NCSU 21 Selling meat � Some Key Questions 1. What type of person will buy my product? Race or ethnicity Attitudes towards food, health, production methods and animal welfare Income Age Marital Status Education

22. GEOFF BENSON, ARE, NCSU 22 Selling meat � Some Key Questions 2. What are their buying habits? Who makes the purchasing decisions? Where do they make their purchases? How often do they buy? How much do they buy? What form of product do they prefer�live, meat package size, type? 3. How much can or will they pay?

23. GEOFF BENSON, ARE, NCSU 23 How many potential customers are there in my market area?

24. GEOFF BENSON, ARE, NCSU 24 More Marketing Questions 5. Who is my competition? Operations selling the same product Sellers with a similar product in a different market channel Sellers of a competing product that is a substitute 6. How will I compete? Price Product Service Quantity X Price = Your revenue

25. GEOFF BENSON, ARE, NCSU 25 Competitor Analysis �If you don�t have a competitive advantage, don�t compete� Jack Welch Former CEO of General Electric

26. GEOFF BENSON, ARE, NCSU 26 3. How will you produce goats, meat? Revenue Type and number of animals Sale weight and form Time(s) of year Operating expenses Feed � forages and supplements Health care Labor Processing &/or Marketing Other � utilities, repairs, services

27. GEOFF BENSON, ARE, NCSU 27 How will you produce goats, meat? What will you invest? Animals � does, bucks, kids Buildings and facilities � feeding, shelter & handling, storage Fencing, water, lanes Cash flow � is it feasible? Operating income and expenses New investments and asset sales Borrowing and debt repayment Non-farm income and family living needs New operations -- Make quarterly estimates through the start-up phase

28. Fitting the pieces together

29. Planning for Success �Suck it and see� This can work if the business venture is small in scope and the cost of failure is not significant�if not, then more effort is required

30. G. A. BENSON, ARE-NCSU 30 Planning for Success

31. Revenue Sources & Amounts Kids sold live and/or as meat Kids sold for breeding Cull does & bucks Does & bucks sold as breeding stock Value of inventory changes, +/- ?Calculate revenue per doe based on number of does exposed to the buck

32. Goat Enterprise Expenses Operating or Variable Costs (Vary with scale of production) Feed Costs -- Pasture & hay, Supplements -- (Number of head X days fed X lb./day X cost/lb.) Health care -- (No of head X no. of treatments X cost per treatment) Hired labor -- (hours per day X 365) Processing &/or Marketing -- (time, travel, advertizing, etc.) Other � utilities, repairs, office, professional services

33. More Expenses Fixed or ownership costs � annual charges to recoup your investments in your goat enterprise, including buildings, equipment, facilities, fencing, pasture improvements, and breeding livestock Depreciation, Interest Property taxes Insurance

34. Fixed or Ownership Costs Average annual depreciation charge = [New Cost - Salvage Value] Years of life Average annual interest charge = [New Cost + Salvage] X Interest rate 2

35. More Expenses Overhead Expenses Specific to goats, e.g., goat association memberships and subscriptions Farm overhead -- general to farming, e.g., accounting and tax preparation, legal, land cost (ownership cost or rent), etc. Value of your and your family members contributions (opportunity cost) Chore labor time Management time Money you invested in the goat enterprise

36. Expenses & Decision Making Fixed or ownership costs to be recouped Will these be new investments? If you have existing equipment & facilities, do they have alternative uses or value? Land cost � who pays? Lifestyle farm � your cost Land as an investment � your cost Farming for profit � farm enterprises must justify the land investment or land rent Profit v. Cash Flow Budgets do not consider cash flow issues, such as how to finance new investments, make debt principal payments and family living withdrawals

37. G. A. BENSON, ARE-NCSU 37 Consider Risk Probability or chance of an event Exposure � financial impact if an event occurs Sources: Production Prices and market risk Financial Legal, Business, regulatory, etc. Human, including the 5Ds

38. G. A. BENSON, ARE-NCSU 38 What Are Your Figures?

39. Are Goats a Good Fit? Lifestyle or supplementary farm enterprise Fitting and showing, pleasure Controlling brush and weeds Using underutilized pasture species, e.g., with cattle Farm Income Breeding stock production Commercial meat production � live or meat sales Income Goals Gain tax advantages Cover Cash costs Make a true profit

40. G. A. BENSON, ARE-NCSU 40 Once your are in production, Is it working? �Controlling� -- Evaluating the results Set standards or targets Measure performance � keep records! Compare actual performance to target or benchmark Take corrective action promptly if performance is below target

41. G. A. BENSON, ARE-NCSU 41 Summary Why have goats � what are your family business and personal goals? Who are your customers, Where will you sell, what do they want, how much do they want, what will they pay? Develop a farm production and marketing plan geared to your market

42. G. A. BENSON, ARE-NCSU 42 Summary Develop projections based on realistic expectations of farm and financial performance Profitability Cash flow Are goats a good fit for your operation? Monitor and evaluate how your farm and business plan is working Production performance Financial performance

43. G. A. BENSON, ARE-NCSU 43 Summary �If it�s easy, fun or can be done from the seat of a tractor, there ain�t no money in it� Anonymous Cowboy

44. G. A. BENSON, ARE-NCSU 44 Remember the Economic$

45. G. A. BENSON, ARE-NCSU 45 Geoff Benson Phone: 919.515.5184 Fax: 919.515.6268 E-mail: Geoff_Benson@ncsu.edu Web page: http://www.ag-econ.ncsu.edu/ faculty/benson/benson.html