Iowa Fruit & Vegetable Production Budgets
An enterprise budget is an estimate of the costs and returns to produce a product (enterprise). For example, an Iowa corn and soybean producer would be interested in developing both a corn and soybean enterprise budget. Vegetable growers that may have 35 - 40 different products may wish to develop budgets on their key products (those products that contribute the most to the attainment of producer goals).
Why use enterprise budgets? In economic terms, enterprise budgets help to allocate land, labor, and capital, which are limited, to the most appropriate use. The most appropriate use is defined by the person in control of the resources and may be used to maximize profits or minimize soil loss or any other goal. The estimated costs and returns illustrated in this publication are based on farm data received from three small farms over a three year period. Not all crops were grown on each farm each year. The original farm-derived budgets were adjusted slightly to make them more uniform regarding ownership costs, fertilization cost and amounts of inputs, and other expenses.
The budgets were developed on a 4 ft by 100 ft bed basis to better represent small farm production. The exception is strawberries, which is on a per acre basis.
Enterprise budget formats vary. Some are complex. Others are quite simple. Note that the budgets included in this publication are divided into five sections. The first section illustrates the total receipts the enterprise provides on a set unit(s). Records should be kept on both a sales unit (per lb.) and land unit (per bed) basis.
The second section is the costs of planting and growing the product. These costs are segmented for two reasons. First, these costs are incurred whether a product is sold or not. Once the seed is planted or weeding is completed, it is a sunk cost and needs to be covered from some source. The second purpose is there is a time delay between preharvest expenses and the time the product is sold. These expenses may have to be covered by borrowing or savings or some other source. Therefore, interest on pre-harvest costs should be included as a production expense.
The third section is the harvest component. Note that packaging costs are included with the harvesting activity. Pre-harvest and harvest expenses are combined to equal total variable costs.
The fourth section relates to ownership costs. Each producer owns or controls assets that they use to produce income such as land, machinery, irrigation equipment, and other items. Ownership costs are an allocation to realize some return for the use of those assets. In this example, the land use is $160 per acre. It is assumed that produce is grown on 70 beds per acre so the $160 cost is shared by the 70 beds, or $2.29 per bed. Machinery investment is assumed to be $7.14 per bed or about $500 per acre. Machinery is assumed to have a 3-year life so the total machinery investment for replacement purposes is $1,500 per acre. Therefore, a 3-acre produce farm would have approximately $4,500 worth of machinery investment that could be replaced every 3 years. The irrigation system is assumed to need replacement every 3 years for a total per acre investment of approximately $240. Total ownership costs are estimated at $10.57 per bed. The last section is the summary of returns. Total costs would be variable and ownership costs combined. The return over variable costs would be total receipts minus total variable costs. The return over all costs would be total receipts minus combined variable and ownership costs.
The illustrated budgets are to be used as an indication of what a particular crop could average over time and location. Individual farm results will vary from these numbers based on soil types, location to markets, and managerial ability, among other considerations.
Note the budgets include receipts as well as costs through harvest and handling. Marketing and/or transaction costs have been excluded. Marketing costs vary tremendously based on whether products are distributed through a community supported agriculture share, wholesaler, or direct through a farmers’ market or other outlet. For this reason, they have not been included in the budgets. Marketing costs should, however, be included to determine crop profitability because, in some cases, costs can shift annual returns from a positive to a negative number. A method to determine and compare marketing (transaction) costs will be described in a future publication.
Craig Chase, local foods extension specialist, 515-294-1854, email@example.com