Using Enterprise Budgets for Decision Making

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

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:

Research was conducted, funded by the Leopold Center for Sustainable Agriculture, focusing on small farm vegetable production. Records were kept over a three-year period on fourteen different crops. The research was followed up with a series of workshops, conference presentations, and publications focusing not only on the budgets that were developed, but also on how to use them in decision making. In particular, three types of decisions were outlined: (1) pricing; (2) changes in production practices; and (3) product mix.

Impact:

Interestingly, the cooperating producers made changes in either their production and/or marketing strategies after the first year of keeping records. One producer changed selling price for a particular crop based on his/her cost of production. Another producer changed product mix after looking at the annual returns and labor usage for the various crops. The third producer changed cultural practices to increase yields while maintaining costs thereby increasing margins. In all cases, budgets helped the producers make management decisions to increase overall profitability of the farm.

Initial comments from the budget presentations have been positive. One participant stated they will develop budgets for their own existing operation to determine what product mix makes sense for their farm. They need to know what crops are contributing to farm profitability and which crops aren't. They want to get a return for all the labor they are providing. A second participant stressed that budgeting is a way to evaluate what they are currently doing to what they could do differently. They are open to a better, more profitable way, of doing business.

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 31, 2006

121 - Adding Value and Enhancing Agricultural Products

Page last updated: July 20, 2006
Page maintained by Linda Schultz, lschultz@iastate.edu