Enterprise Budgeting for Vegetables

Name:                                 
Craig A. Chase, Farm & Ag. Business Management Field Specialist

POW Number & Title:
127 - USDA and state farm programs education

Fiscal Year Submitted:
2010

Title:
Enterprise Budgeting for Vegetables

Problem:
The agricultural industry in Iowa is dominated by commodity production. Historically, the narrow profit margins forced farm businesses to grow in assets, output, and labor income to remain profitable.  Moreover, the high cost to entry has introduced a barrier for young and beginning farmers.  Existing farmers unable or unwilling to grow or new farmers looking at starting a farming business have had to look to higher margin alternative crops such as vegetables.  Vegetable production has grown steadily for several years due to increasing consumer demand for locally grown products and the move toward higher profit margins. 

Response:
New vegetable producers are faced with a multitude of questions such as what production practices should be used, what product mix of vegetables should be grown, what markets are available, and how should the vegetables grown be priced. To help answer some of these questions, Extension research was conducted on three small vegetable farms in central Iowa from 2003 to 2005.  The study required each producer to develop enterprise budgets on those crops that were important to them over a 3-year period.  As a result, 14 vegetable budgets were developed, a bulletin and spreadsheet tool created in 2006, and numerous presentations made each year since then.  The budget bulletin and spreadsheet tools were downloaded 3,135 and 7,730 times respectively from March 2009 through February 2010.  Initial information on enterprise budgets and budgeting still appears to be in demand.  But what about the original producers, are they still developing enterprise budgets to help make decisions in their farming businesses?
               
Impact:
Each of the producers made significant changes in production practices, product mix, and pricing during the study period and a couple years following the end of the study.  None of them are currently developing detailed enterprise budgets.  When asked why, they said after a few years budgets become predictable as production practices, labor requirements, and pricing become stable.  They know production costs are going to come within a small cost range and pricing can be made with relative ease.  When asked about what they do about new products they haven’t grown before, they state that they simply have a feel for how much time is involved in the production and harvest of the new crop (labor is the largest expense), as well as receipts of the input costs.  From that information an approximation of profitability can be made.  The mental procedure of enterprise budgeting has become integrated into their decision making process.

ISU Extension is looking at the profitability of small scale vegetable production. With added information, existing and potential commodity producers can make informed decisions regarding whether 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 319-238-2997 or (cchase@iastate.edu).

2010

127  USDA and state farm programs education

Page last updated: July 21, 2010
Page maintained by Linda Schultz, lschultz@iastate.edu