Craig Chase, Farm and Ag Management Field Specialist, Northeast Iowa
The agricultural industry in Iowa and the U.S. is dominated by commodity production, which is a high volume, low profit margin industry. Narrow profit margins force farm businesses to grow in assets, output, and labor income to remain profitable. Small and medium-sized farms are faced with the difficulty of remaining economically viable in this business environment because they rely solely on family capital versus venture capital. Many farmers are asking how to convert their current low margin commodity production system into one with a higher margin structure.
Interest is increasing in vegetable production, which is a low volume, high profit margin industry. Two acres of vegetables could net up to $12,000 whereas it could take up to 600 acres of corn and soybeans (at $20 net per acre) to net that amount. Total machinery and land investment for the two-acre vegetable farm could be under $12,000 whereas the 600-acre corn-soybean farm could have over $1,500,000 invested in land and equipment.
Although small acreage vegetable production is unlikely to replace commodity agriculture in Iowa, it is a way to add income to small or mid-sized farm families or acreage owners with little invested capital. New vegetable producers, however, are faced with a multitude of questions such as how are vegetables grown, what product mix of vegetables should be grown, what markets are available and how do they compare regarding economic returns? To help answer the first question ISU has developed a series of horticultural bulletins. To answer the profitability questions, research is underway to analyze vegetable crop profitability for three small vegetable producers in Iowa.
The study completed the third year of a multiple year project. Initial economic analyses were conducted for ten herb and vegetable crops: asparagus, basil, carrots, eggplant, garlic, green beans, potatoes, raspberries, snow peas, strawberries, cherry tomatoes, and heirloom tomatoes. Each crop except strawberries was converted to a standard 4 ft. x 100 ft. bed. Bed numbers per acre vary by density, but 60 beds per acre would be common. Crop net returns were calculated by subtracting all costs (including land and labor) from gross revenues. Net returns varied widely but averaged about $100 per bed ($6,000 per acre). Heirloom tomatoes net substantially more, whereas strawberries net about $4,000 per acre.
Producers are using this information to fine-tune their production practices and set selling prices above the cost for their labor, land, and management. For example, one producer was selling carrots near his/her cost of production. Profits quickly increased as the producer both raised the price for carrots sold and changed production practices that dramatically increased output (and reduced costs per lb). Another producer is changing his/her product mix. The budgets indicated, although price for snow peas was high, labor and other production costs lowered the margins compared to other vegetables and herbs. Although he/she is still growing peas, some of the space formally used was converted to higher margin crops. The third producer noticed the margins for a couple of his/her crops were lower than expected. Changing his/her cultural practices to increase yields and raising prices of the product increased margins. In all cases, budgets helped the producers make management decisions to increase overall profitability of the farm.
ISU Extension is looking at and beginning to answer questions regarding economics of small-scale vegetable farming. With this added information, 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 319-234-6811 or firstname.lastname@example.org.
March 18, 2005
121 - Adding Value and Enhancing Agricultural Products, 2nd (Jan - March)
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July 9, 2006
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