Vegetable Growers Learn How to Price their Goods for a Profit

Name:                                 
Craig A. Chase, Farm & Ag. Business Management Field Specialist; and Ann Johanns, Extension Program Specialist

POW Number & Title:
128-Alternative enterprises and value added agriculture

Fiscal Year Submitted:
2011

Title:
Vegetable Growers Learn How to Price their Goodsfor a Profit

Issue:Vegetable production in Iowa has grown steadily for several years due to increasing consumer demand for locally grown products.  More and more growers are going into vegetable production because of the opportunities that exist that they cannot find in conventional agriculture.  However, most new growers don’t know how to price their products for a fair markup because they don’t know their costs to produce and market vegetable products.

Response:
New vegetable producers are faced with a multitude of decisions, such as the most cost-effective production practices, the product mix to grow, finding appropriate markets, and pricing their products to ensure a profit. To find answers, 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 fortheir most important vegetable crops over a 3-year period.  Fourteen enterprise budgets were developed by the producers.  Extension produced a bulletin and spreadsheet toolsthat allowed new or existing producers to plug-in their own production costs, and numerous presentations on enterprise budgeting and product pricing were conducted fornew or existing producers as well.  Extension specialists worked with participating growers on understanding their production costs.  The budget bulletin and spreadsheet tools were downloaded 3,256 and 6,743 times respectively from March 2010 through February 2011. 

Impact:
Because of their decision to keep production recordsas a result of the study, participating growers made significant changes in their production practices, product mixes, and appropriately priced their products to make a profit.  Follow-up by Extension after several years since the study shows that currently none of them are developing detailed enterprise budgets.  When asked why not, they respondedthat after a few years’ experience in doing enterprise budgets, they were able to adequately predict production practices, labor requirements, and pricing.  The producers stated they now know the important components of production costs and feel comfortable on estimating those costs and their relationship to product pricing.  When asked about how they determine costsregardingcrops they haven’t grown before, they state that their experience from participating in the studyhas given them a feel for the labor involved in the production and harvest of a new crop, as well as using receipts of input costs.  From this information they can base their decision making on setting prices for new products.  The research they participated in with Extension made a difference in how they approach the question on pricing, which no longer is difficult for them. Follow-up observations with these producers indicates that the mental process 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).

 

Page last updated: July 19, 2011
Page maintained by Julie Honeick, jhoneick@iastate.edu