How Do You Set Your Prices? ~ Advice from the Folks at the UCCE Foothill Farming Program

cooking, Eva Antczak, farmers market, Marin, market-to-table, organic, Shanti ChristensenIMG_2931

This blog first appeared on the UCCE Foothill Farming website on August 20, 2013.  The University of California Cooperative Extension (UCCE) Foothill Farming program works in partnership with farmers and ranchers across Placer and Nevada Counties to provide a range of educational training programs and workshops, farmer-to-farmer mentoring and a wide variety of events and networking opportunities.

Written by Molly Nakahara, Specialty Crops Program Representative, UCCE Foothill Farming Program.

“Set your own prices.” This piece of advice, given to me by a seasoned fruit and vegetable farmer, has proven to be one of the critical foundations of my own farm business. So, here’s a test for all of you business savvy farmers out there: What is the secret message, the subtext, the implied meaning in this great guiding sales principle?

I’ll give you a hint: It does not mean you should set prices to what you think your customers will like, or set prices based on prices at the grocery store. Any ideas?  YES!  You’ve got it: KNOW YOUR COSTS! It means set your prices based on the true costs of production. If you can embrace this concept, it will become one of the most influential tools of analysis you will use on your farm.

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Molly Nakahara

As small farmers and business owners, I would like to challenge my fellow producers with this idea: We have an obligation to the long term viability of local agriculture (and to each other, for that matter) to know the true costs of our production (and yes, that means the cost of your labor as well!) and to set our prices according to these costs.

Up here in the Foothills, we farm in a unique community made of folks who are farming for a living, farming as a hobby, farming as a second career, and farming as a second job! While this diversity of producers creates a vibrant small farm culture, it can also really impact the prices that we see at markets. The great news: We can all make more money by working together! If we truly want to see small farms thrive in Placer and Nevada Counties, let’s challenge ourselves to set prices based on real costs, including a living wage for farmers.

Of course efficiency of production must be considered. Understanding production costs will help you weed out the profitable farm enterprises from the less efficient, unprofitable ones. If it is costing you $7 to produce a bunch of kale, you may run into trouble putting those bunches on your market table at $8 apiece. The better idea may be to transition away from kale and focus on the areas of your business that are more efficient.

So, how do you calculate costs? There are many tools out there to help farmers calculate the true costs of production:

While these may not fit all the details of your operation, they will give you an idea of the types of expenses you need to be capturing. Make your own spreadsheet, jot some numbers down on a napkin, or have your 5th grade math whiz kid take the reins – whatever works for you, works for you. And you don’t need to track every minute of every day. To capture labor costs, have your employees track their time for one day or one week a season, and extrapolate from there.

Let’s take a broiler chicken as an example. The following cost breakdown assumes that a farmer is growing about 3,000 chickens in a season (6 rounds of 500 birds each).

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Broiler Chickens

  • Chick: $2.50
  • Shipping and handling: $0.10
  • Brooder infrastructure: $0.50
  • Brooder electricity: $0.35
  • Brooder bedding: $0.10
  • Organic feed: $7.5
  • Field and fencing infrastructure: $0.50
  • Livestock guardian dog costs: $0.20
  • Field and brooder labor: $3.90 (2 hours per day for 75 days @ $13/ hr for 500 broilers)
  • Slaughter: $2.50
  • Fuel: $0.25
  • Cut and wrap (labor, supplies, kitchen rental): $1.50
  • Storage costs: $0.05
  • Marketing costs: $0.50
  • Total costs for one chicken from chick to consumer: $20.45
  • Your average chicken weighs 3.5 lbs., so to cover this year’s costs you need to be charging $5.85/lb.

But wait! We haven’t captured all of the costs associated with your business. You also know that to get next season started (buy feed, make repairs to infrastructure, buy your first couple round of chicks, etc.) you will need at least $15,000. You could borrow this money and pay it off next year, or you could plan for profit this season and have the money in the bank at the start of next season. If you do not make this start-up money this season, you will have to borrow it next year, and then your cost breakdown per chicken will need to include: DEBT REPAYMENT!

So, to hit our new profit goal you will need to make an additional $5 from each chicken. Therefore, your new price per pound, the price that will keep you in business year after year, the price that will let you make a living wage as a farmer, the price that will keep delicious chicken in the marketplace for your wonderful market customers is…$7.27/lb!!

I know what you’re thinking: Can the market bear this price? Here’s my response: the market HAS to bear this price, because this is what it costs to produce your high quality, humanely raised, delicious and nutritious, “can’t be bought anywhere else,” chicken.

However, this raises a concern for me: How do lower income families afford boutique farm products that are priced so highly? I don’t know the answer to this, but I have been thinking critically about it. One thought is that the pricing calculation above is based on the average weight of a chicken. But there will be large variation in your production (i.e. some birds will weigh more than 3.5 lbs) and you may find that you are able to save more than the $25K needed for next year’s start-up costs. This extra profit could go towards subsidized sales to a specifically low-income audience.

Okay folks, go forth and calculate your true costs of production! It will take some effort, sitting in a chair, in front of a computer, with a calculator, and a spreadsheet, but it will be time well spent. You will be able to make sound decisions about your operation, and have the confidence at market that you are selling your products at a price that ensures the long-term success of your business and the long-term viability of our local agricultural community.


Get in touch with Molly or the many other helpful small farm advisors at the UCCE Foothill Farming Program.

For more resources on pricing your products, enterprise budgets and record-keeping, visit our Marketing & Sales and Business & Financial Planning Toolkits!  Here you’ll find info sheets, checklists, worksheets and recommended resources to help you increase your bottom line.

If you have other great resources to share, contact Eva: evaa@farmsreach.com.

One Thought on “How Do You Set Your Prices? ~ Advice from the Folks at the UCCE Foothill Farming Program

  1. Paul Underhill on November 6, 2013 at 8:50 pm said:

    While it’s great to spend time thinking about how low income people might be able to afford the food we produce, it’s also important to remember that it isn’t worth doing so if, in the end, we end up low income people as a result.

    Big farmers that collect big checks from the federal government every year may have an obligation to produce their crops as cheaply as possible to provide the most inexpensive food possible. Those of us who are not even eligible for most of these subsidies have no such obligation.

    Once you have a profitable business, you are free to return as much of the profit as you like to your favorite charity. In the meantime, leave charity to people who can afford it — and very few small farmers can.

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