Using Enterprise Budgets for Decision Making

Craig A. Chase, Field Specialist -Farm & Ag. Business Management, Northeast Area

Problem:

Interest is increasing in Iowa vegetable production, which is a low volume, high profit margin business venture. Profit margins, however, vary a great deal among producers based on what produce is grown (i.e., product mix), what market outlets are chosen (and prices received), and what production practices are implemented. The problem for producers is two-fold. First, there are very few budgets published, which allow producers a benchmark to compare their farm to. Second, many producers don’t understand how to develop and make decisions based on budgets.

Response:

Two Extension bulletins were developed to help answer producers’ questions regarding budget development and how to use them in decision making; Iowa Vegetable Production Budgets (PM 2017) and Using Budgets for Decision Making (FM 1875). The information from these publications has been shared at conferences and workshops with over 150 producers. In particular, three types of decisions were outlined: (1) pricing; (2) changes in production practices; and (3) product mix.

Impact:

Initial comments from the series of presentations have been extremely positive. Participants agree marketing is difficult and pricing extremely important to their profitability. They note they will begin to develop budgets for their own operation to determine how to price their products and choose the product mix that makes sense for their farm. Comments from producers indicate they didn’t see the need for keeping enterprise records, but now acknowledge the various decisions that can be made from a better understanding of how to evaluate enterprises and their contribution to overall profitability.

As producers begin to understand budgeting and decision making based on those budgets, they also begin to discuss how they will use the process beyond what they are currently growing. For example, one producer asked if the decision making process would be the same for pasture poultry and indicated they would have an interest in determining how that enterprise would fit with their farm. Another producer asked about moving closer to the consumer through food processing. The question whether food processing budgets and food production budgets followed the same process and the decisions made from the budgets were similar.

ISU Extension is looking at the economics of small-scale vegetable farming and the development of decision making tools such as budgeting. With added information, existing and potential vegetable growers can make informed decisions regarding what vegetable crops should be grown given the potential risks and rewards. If interested in learning more about economics of vegetable production, contact Craig Chase at 319-882-4275 (cchase@iastate.edu).

March 21, 2007
120 – Farm and Business Management

Page last updated: April 26, 2007
Page maintained by Linda Schultz, lschultz@iastate.edu