Growing Your Range Poultry Business: An Entrepreneur's Toolbox

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Growing Your Range Poultry Business: An Entrepreneur's Toolbox

  1. 1. Growing Your Range Poultry Business: An Entrepreneur’s ToolboxWritten for Heifer International by Anne Fanatico, National Center for AppropriateTechnology and David Redhage, Kerr Center for Sustainable Agriculture. Withcontributions by Nancy Grudens Schuck, Wayne Knoblauch, Judy Joanna Green, and MarySaylor.October 2002 Table of Contents FOREWORD ANDForeword ....................................................... 1Using the Toolbox ......................................... 2 ACKNOWLEDGEMENTSIntroduction ................................................... 3Feasibility. ..................................................... 6 This Toolbox was produced by the National Personal & Family Considerations Center for Appropriate Technology (NCAT) and Choosing an Enterprise..................... 6 and the Kerr Center for Sustainable Marketing: Will it Sell? ................................. 8 Agriculture as part of a Heifer International Production: Can it Be Done? ..................... 13 project to enhance the opportunities to Profitability: Will it Make Money?............... 22 Financial Reality: Can You Afford expand range poultry businesses. to Do It? .................................................. 26Developing a Business Plan From the The three-year project also examined the use Feasibility Study ....................................... 26 of mobile processing units (MPUs) forRecord Keeping .......................................... 28 poultry. MPUs are an infrastructureAssistance and Resources ......................... 28Working Together........................................ 29 development tool for establishing smallProducer Profiles......................................... 31 regional processing plants to serve rangeReferences .................................................. 34 poultry producer groups. A state-licensedAppendix A: Decision Tree ......................... 40 MPU was built in Kentucky. IssuesAppendix B: Pasture Pen Budget ............... 46 surrounding meat inspection regulationsAppendix C: Net-Range Budget .................. 50Appendix D: MPU Budget ........................... 53 and infrastructure were examined inAppendix E: Small Plant Budget ................. 55 Alabama and Mississippi. The projectAppendix F: Sensitivity Analyses ................ 59 included additional reports on nutrition,Appendix G: Project Summary.................... 61 stock, custom processing plants, and legal issues. Refer to Appendix G: Project Summary for more information. NCAT and the Kerr Center thank the Community, Food, and Agriculture Program and the Natural Resource, Agriculture, and Engineering Service at Cornell University for permitting adaptations from the booklet Farming Alternatives: A Guide to Evaluating the Feasibility of New Farm-Based Enterprises (1988) (see References section to order). The authors of that booklet are listed along with Photo by Luke Elliott the primary authors of this Toolbox. Page 1
  2. 2. Special thanks are also given to LukeElliott of Blue Mountain Farms and Chan USING THE TOOLBOXZuber of Pickwick/Zesco Co. for their This Toolbox is written for anyone whocontributions. desires to make a profit from range poultry production, whether by direct-marketingThis project was funded by the Sustainable “pastured poultry,” building a processingAgriculture Research and Education plant, or working cooperatively with otherprogram, Southern Region. producers. The audience includes: The National Center for • New producers Appropriate Technology is a • Existing producers who want to expand nonprofit organization with • Individuals offices in Butte, MT, Fayetteville, • Groups Arkansas, and Davis, CA, that has • Small processorsprograms in sustainable agriculture,energy, and communities. NCAT It is not written for contract poultry growerspromotes the economic well-being and who work with large companies; theyquality of life of urban and rural residents generally cannot consider another poultrywhile working to conserve America’s enterprise because they are alreadynatural resources. committed. This Toolbox can help you: The Kerr Center for Sustainable Agriculture is a nonprofit education • “Pencil out” a range poultry enterprise foundation in Poteau, Oklahoma • Determine the profitability of an with a mission to encourage existing enterprise sustainable agriculture. • Understand the basics of feasibility and business planning Heifer International is a • Find additional information and nonprofit organization assistance dedicated to communitydevelopment through sustainable livestock Limitations of the Toolbox:production. The headquarters is in Little • You should seek additional informationRock, AR. and assistance to do a thorough feasibility study, business plan, or marketing plan. • You will need to do lots of legwork. • This publication does not provide technical information on production, processing, and meat inspection regulations, but it tells you where to get it. Photo by Karen MachettaPage 2
  3. 3. • The focus of this publication is licensed process- broilers but much of the ing plant. The information can be applied to consolidation of turkey and egg production the meat pro- cessing industryBudgets are a special feature of this in recent yearsToolbox. Range poultry budgets are A small-range operation can be a has resulted in good business.usually limited to small-scale “pastured fewer plants thatpoultry” operations that use on-farm will do custom processing, which limits theprocessing, but this Toolbox provides opportunity for small producers to sellbudgets for different scenarios based on inspected meat. This situation leadsthe production system and the type of individuals and groups to consider buildingprocessing. Worksheets provide a a plant. In a 1999 NCAT survey of rangetemplate to help you with number- poultry producers, 82% said they intend tocrunching. expand their businesses, and 38% were interested in building a government-licensed processing plant 1. INTRODUCTION Small range poultry producers who live inThere is growing consumer interest in states where exemptions allow on-farmpasture-raised poultry products, and many processing without inspection and who get asmall-scale producers have established good price from local markets have a realsuccessful enterprises. These producers advantage. They must think hard about atake full advantage of federal exemptions decision to expand. Expansion brings with itthat, in many states, permit farmers to sell the risks of a substantial investment in1,000 broilers per year directly to processing facilities and ties up workingconsumers without inspection. These capital.operations are usually seasonal, closingdown in winter. Producers net about $2.00 Enterprises are often stretched to theto $3.00 per bird and make a small breaking point by lack of labor and capital.supplementary income. See ATTRA’s Planning is a crucial entrepreneurial skillSustainable Poultry Production Overview for needed to avoid this strain. Planning is tieddetails. to goals, so first be clear on what your goals are. You can use the Range Poultry DecisionSome producers are content to stay small, Trees in Appendix A to help you makebut others want to expand to earn more decisions.money. They usually need access to a If you plan to limit your enterprise to small-scale production with on-farm processing and direct marketing, you may be interested only in parts of this Toolbox, such as the Budgets (located in the Appendices). For those planning to move beyond direct marketing, the sections on feasibility and business planning are particularly important. This Toolbox focuses on feasibility—the business plan will be much easier if the feasibility work is done first. Page 3
  4. 4. Not planning, or “grow as you go” “Pastured poultry” is an easy business to enter. According to pastured-poultry founderSome range poultry producers do not plan Joel Salatin in Virginia, you can get intofor profit because it is not really a goal. In production for the price of one $200 pen andfact, money is not always one of the main $500 for a used or homemade scalder/pickerreasons people farm. Range poultry set-up. Run four batches of 100 birds throughproduction may have other, indirect the pen and, even with 10% mortality, youbenefits, such as improving pasture will pay back the $700 investment the firstfertility, increasing farm diversity through year and still have $400 cash after paying thean enterprise with low entry costs, costs of feed and chicks3. (This assumes youestablishing a family work ethic, involving can sell your chickens for $6.50 each.) Thisyouth, and so on. Many range poultry assessment reflects the low entry cost, thoughproducers are in operation because they it does not include the cost of managementpassionately believe in the product, the and labor.system, or the philosophy. For some it is ahobby and they gain personal satisfaction Most producers recommend starting small iffrom producing and selling the product you are processing on-farm and direct-directly to customers 2. marketing. Processing is hard work—it will “buckle your knees,” according to one producer. Using a Mobile Processing Unit (MPU) is a way to start small and spread the equipment cost among a group of producers. It offers the chance to develop the product, test market, and iron out production problems. The group can later establish a small permanent plant. Range poultry production is a way to build community. Photo by Heifer International. Producers who process on-farm and direct market often see a real limit to the amount ofSome producers do accounting after sales birds they would even want to produce sinceto see if they made a profit—too late to it is a very labor-intensive enterprise. Manyplan. Some do not keep records at all and do all the labor, from brooding and grow-outmay not know how much money they areearning from their range poultryenterprise.Many producers who direct-market growonly in response to customer demand.Since these producers are not taking ashigh an investment risk as someonebuilding a government-licensed plant,feasibility and business planning is not asimportant to them. Mobile Processing Units are shared by small producers. Photo by APPPA.Page 4
  5. 5. to processing and marketing, as well as all may neglect the marketing side of thethe management involved in dealing with business.hatcheries, working out feed A feasibility study looks at “make or break”arrangements, evaluating processing issues that would thwart a sound business.equipment, and so on. In addition, the It also provides a framework to be used in apoultry enterprise is often part of a business plan.diversified farm with other enterprises thatrequire time and effort. The desired level Planning willof production for these farmers may be no help ensuremore than 1,000 broilers per year because A feasibility study success andthat is all they currently have time for. looks at “make or guide decision-Year-round production may also hold little break” issues that making. Likeinterest. Outdoor processing on the farmis not an option in winter because of cold would thwart a sound other start-up business. businesses, newtemperatures—plus, the winter break is range poultryusually welcome. If these producers do operations faceexpand, they probably need to do it in a challenges and may have a high failure rate.different way. For example, they could For most new businesses, “only 20% of start-join a collaborative group that has a central ups are in business after 5 years”4. Aprocessing facility and just raise birds. business plan will help guide your decision- making; it includes analysis of how theLarger-scale production is more difficult to business will work and plans for operationenter. The risk is higher but the potential (marketing, production, human resources,is there for higher income. finances, etc.). It is also a written document necessary for obtaining a loan and sharingFeasibility and Business Planning with potential partners, but “the reallyMany farmers are not familiar with important thing about this process is that itfeasibility studies, business planning, or forces you to think”5. It is more importantmarketing plans. A producer who has a for the producer than anyone else, includinggreat track record in terms of production loan officers.may not have strong planning skills or Most producers start with a “mind map.” It is the unwritten plan that directs your activities and contains untested hypotheses and assumptions. It differs from a business plan in that it is not based on research6. It is a start—and a very important start—but formal planning will fill in blank spots in your information. “A plan not written down is only a dream we hope will come true.” Planning is important when expanding a According to Luke Elliott7, former owner/ poultry business. operator of a small USDA-inspected processing plant, “It can be easy to market Page 5
  6. 6. your first 1,000 to 1,500 birds directly offthe farm. People actually seek you out and PERSONAL AND FAMILYcome to the farm. Beyond that, it is CONSIDERATIONS ANDimportant to develop a marketing plan, to CHOOSING AN ENTERPRISEwork with other producers, and to makecertain of the legality of your situation.” Questions about you, your resources, your preferences, and your potential tend to get overlooked. Why embark on an enterprise if FEASIBILITY you don’t have time or if“Feasibility” is a broad term and the it would stretch yourmethods for determining it vary. A family resources too far?feasibility study may examine technical, Is the whole familyeconomic, market, and social feasibility. interested? Do you haveFor many producers, small-scale the skills and experienceproduction constitutes a feasibility study— necessary to do it? Whata test run for production and marketing at are the strengths, assets,a larger scale. and interests within your Make sure the whole family is committed family? Someone mayThis Toolbox uses (with permission) the to the poultry be the natural marketer. business. Photo byoutline and concepts for feasibility studies Gwen Roland. Is your goalfrom the award-winning booklet Farming supplemental income or aAlternatives: A Guide to Evaluating the farm centerpiece that supports you8?Feasibility of New Farm-Based Enterprises8.The discussion of feasibility in this Toolbox Inventory:illustrates the following concepts with When deciding on an enterprise, it isrange poultry examples: important to consider the farm resources you have, or refer to farm inventories you have • Personal and family considerations done in the past. Inventory the following: • Marketing—Can you sell it? ⇒ Land: What are your physical • Production—Can it be done? resources? Describe your tillable land, • Profitability—Will it make money? pasture, and water resources. Will you • Financial—Can you afford to do it? use the land concurrently for both poultry and cattle or other enterprises?If you prefer a worksheet format for your ⇒ Buildings, machinery, equipment,research, Farming Alternatives has many and other farm resources: What is theuseful ones. condition of the facilities and equipment? Can you rent or borrowOther useful resources are Is Your machinery or storage facilities? Do youAgribusiness Project Feasible?9 and A Primer have freezing capacity? Are therefor Selecting New Enterprises for Your Farm10. useful by-products you have access to? ⇒ Management and labor needs: Who will perform management duties such as decision-making or supervising?Page 6
  7. 7. Who will do the necessary labor to look out for profitable raise birds, process, book-keep, etc. enterprises that can be How much labor will be required? easily and sustainably Does the enterprise use existing labor incorporated into their in off-seasons? Is seasonal labor systems. A producer who available? is already grazing cattle ⇒ Marketing resources: How can you may decide to add range distribute your product? You may be poultry since the land is able to create your own market, but already available. This is What kind of what are the markets presently buildings are called a supplementary available? What are the options for already available on enterprise since it uses your farm? Photo direct marketing? Do you have road by Steve Muntz. existing labor and frontage, a farm store or stand, facilities. A complementary storage capability, or a farmers’ enterprise actually benefits other enterprises. market? What are the resources For instance, a cattle producer might beyond direct marketing? Are there consider a range poultry enterprise in light slaughtering/processing facilities of its contribution to pasture fertility for and wholesalers? What is the nearest cattle forage. Products can have town? What is the population within complementary marketing relationships. a 30-mile radius? Poultry and eggs are products that direct ⇒ Financial resources: How much marketers use to attract customers to the money are you and your family farm, who then buy pork, beef, vegetables, willing to put toward a new and crafts. enterprise8? However, over-diversification is a danger forEnterprise preferences: family farms. This can happen fairly easilyPlanning can allow you to choose the job given that many “sustainable agriculture”you want to do. enterprises are relatively inexpensive to enter. Luke Elliott7 recommends that if you expandYou may be set on a range poultry to the point where you are building a plant,enterprise that includes raising day-old do not try to continue doing all thechicks, processing them on your own farm, production, processing, and marketingand then marketing the dressed birds to yourself. Consider collaborativecustomers from your farm. You may want arrangements.to produce eggs or turkeys as well aschicken. You may be interested in establishing a state or federally licensed processing plant—moreOn-farm processing and direct marketing a small agribusiness than a farm-basedcan be a good combination for small business—and custom processing forproducers. It requires equipment, labor, producers. Processing can also beand know-how for processing, but there diversified. Being set up for beef, pork, orare no travel costs to a processing facility wild game could allow a processing businessand no custom processing fee. to operate year-round. Value-adding byMany diversified farms are always on the further processing—for example, making Page 7
  8. 8. sausage—could be another business is not a market for the product, there is noopportunity. economic reason for continuing with the feasibility study8. The outline used in thisAs you move from on-farm direct section is adapted from Farming Alternatives:marketing to a more “off-farm” enterprise, A Guide to Evaluating the Feasibility of Newthe business gets more complicated. For Farm-Based Enterprises.example, consumer demand, meatinspection regulations, and poultryprocessing capacity and location all affect MARKETING—WILL IT SELL?the ability of an off-farm enterprise tomake a reasonable level of income11. It Some questions you need to answer are:becomes tricky when you try to make this What ARKETING—Who will buy ELL? M are you selling? WILL IT S thea primary enterprise. A rule of thumb is: product? What is the best way to market it?either stay small or collaborate. How will you distribute it? What is the demand? How strong is the competition?Collaborative efforts can also allow more What are future trends likely to be? Whatjob specialization. You may prefer to raise prices are you likely to receive? What volumebirds for a group and avoid processing and are you likely to sell8?marketing. Or you may prefer to doproducer education for the group. In the A market should be secured beforefuture, you may decide to focus on production begins; on the other hand, it isbreeding, hatching, milling feed, pullet- difficult to market until you have a product.raising, processing, or some other Poultry meat and eggs in particular requirespecialized stage of production, or on planned production and marketing becausemarketing poultry products. You might they are perishable2.even focus on by-products, such ascomposting poultry offal from processing. Product DefinitionYou may realize that your resources are Define your product by looking at thebetter spent in an enterprise other than following areas:range poultry. For example, many of the Product and service features:considerations for a poultry processing Describe the product, noting its range ofplant are similar to those for milk sizes and other characteristics8. Forprocessing. Would you and your familyprefer making cheese to processingchickens? Refer to ATTRA’s Evaluating aRural Enterprise for more options on typesof enterprises.Marketing is one of the first areas toconsider in evaluating feasibility. Youneed to understand your market, yourcompetition, and relevant consumertrends, and you need to be able to project If there is no market for the product, there is no need to continue the feasibility study. Photo bypotential sales volume and prices. If there Luke Elliott.Page 8
  9. 9. example, will your pasture-reared • Primary research—do-it-yourself8. chickens be sold as broilers or roasters; natural or certified organic; Secondary research: There’s not a lot of published data for fresh or frozen? Describe any related innovative products such as range poultry, services. Will the birds be whole or but the amount of information on the natural cut-up? Will you sell parts? (You will and organic markets—among the fastest- also need a market for the less- growing in the food sector—is increasing. desirable parts.) Will you provide The Hartman Group in Bellevue, recipes? Do you have a service- Washington, conducted a national study in oriented business such as a custom the mid 1990s to assess consumers’ attitudes processing plant or custom roasting of and behaviors about the food they eat—in soybeans for poultry feed? particular, sustainably produced food. TheyMarketing season: Will you provide the product year- found that 52% of consumers want to buy round? Will the poultry be fresh all “green”12. The organic foods industry year or will you freeze it in the reached almost $8 billion in total retail sales winter? in 2000, with 20–25% annual growth fromBenefits to buyer: 1990 to 200013. ATTRA has more information Identify the real reason someone buys on the natural and organic markets. your product8. They may buy for Primary research: gourmet taste or for welfare—they Since you cannot find all the answers to your may find the idea of chickens roaming marketing questions free on pasture appealing. They may through secondary also buy for health reasons (e.g., to research, plan on avoid the growth promotants used in conducting some do-it- conventional meat production). yourself research8. SomeCapsule description: common methods of Put it all together8. Example: “Pasture primary research are King Farms offers fresh pastured summarized below. You broilers in season, and frozen broilers may even be able to get in the winter, to customers who enjoy Calling customers. students from a local the taste of birds raised on green business school to help you. pasture with natural feeds.” ⇒ Observation: Count people, products,Market Research or events in a way relevant to yourWithout hard data, marketing is just enterprise. Your opinion is critical,opinion. You don’t need special training to especially about your own community.do market research—it’s a matter of asking Surveys: Do written or telephonethe right questions in the right places8. surveys8. A dot poster is an interestingMarket research methods can be divided way to survey groups at a farmers’into: market; participants simply place stick- on dots on a poster to indicate their • Secondary research—using existing preferences. information on demographics, consumption, future market trends, etc. Page 9
  10. 10. ⇒ Personal interviews: Interview chefs, potential buyers, and others8. The interviews can double as a promotional technique. You probably already know the white- tablecloth restaurants in your area; Zagat’s14 restaurant guide, can help you identify them in other cities. ⇒ Test marketing: sell your product on Restaurants that serve haute cuisine usually require fresh product. a small scale to evaluate potential sales8. Many producers use a small operation as a test market for larger income household, has a college education, production. and belongs to a health club.Your research will inform the issues you Besides selling directly to consumers, youneed to address in assessing your market. may plan to sell to restaurants, brokers, stores, etc. Talk to these potential customersAssessing Your Market to find out what they want. For example, aTo understand and assess your market, store may require a year-round supply ofexamine the following topics. inspected poultry at a particular volume. How well do you know the restaurants you1. Target Market Descriptions want to sell to? Oregon producer Aaron“Your ‘target market’ includes the people Silverman15 suggests marketing to chef-or businesses that you are trying to attract. owned restaurants that offer seasonal, hauteUnderstanding the characteristics of a cuisine.target market can prevent costly mistakesin developing and promoting your In addition to natural foods stores, considerproduct”8. family-owned specialty stores or meat markets.Describe the demographics of people youwant to sell to (age, sex, family status, 2. Marketing Optionsincome level, class, occupation, children, You need to decide what methods you willmarital status, ethnic group, education). use to get the product to your markets8.Do your customers live primarily in a Producers whocertain area or region? Lifestyle patterns sell directly to(common interests, values, behavior, consumers usepersonality types, attitudes, buying on-farm sales,motives) are important8. Typical buyers of farmers’ markets,range poultry products are health- special eventsoriented; potential customers may belong Customers may come directly to such as fairs,to a health club or they may be runners. A your farm to buy pasture-raised roadside stands, chicken.sample demographic statement is: the the Internet,typical range-poultry buyer is a married mail-order, etc.female with two children, lives in a two-Page 10
  11. 11. marketing with other producers. “Certain market channels may require larger volumes or longer seasonal deliveries than can be provided from an individual operation” (10). Other partners, such as local retailers and consumer groups, may have a shared interest in developing market opportunities for the product. Attractive packaging for range poultry products in France. It is not prudent to have only one market outlet. What kind of commitment haveYou also can sell directly to restaurants, buyers made? Personal relationship isstores, schools, or other institutions or sell important, but you may need a contract withto them wholesale through brokers or area buyers in order to expand yourdistributors. A broker does marketing for capacity. You don’t want to increase youryou and checks that the store is properly production only to have your customerpresenting your product. Small brokers in decide not to buy. Producers who direct-your community may serve only a few market to individual consumers have thebusinesses. Large natural foods advantage of many market outlets.distributors include Tree of Life andUnited Natural Foods. Can you meet the requirements for serving your markets?You might decide to join a collaborative • What does the packaging need to lookgroup such as a cooperative. Market like? Will you need to bar codedevelopment may depend on shared products for stores? • Distribution is especially important: Fresh vs. frozen meat Will you need to transport your product Fresh and frozen meat are two to the market? What is the distance? Do different markets and require different you have a truck? Can you load it fully? distribution channels. Consumers are Don’t underestimate the importance of accustomed to seeing only fresh meat distribution or, as Luke Elliott says, in most supermarkets, but many “Don’t drive 200 miles to sell 25 natural foods stores do not have a chickens.” fresh meat counter. Restaurants • Consider market entry: How will the usually prefer fresh meat delivered product be introduced to the market? once or twice weekly. You can sell Will it be marketed under the fresh meat to restaurants and then market frozen meat as a secondary producer’s name or the processor’s product to other channels. There is a name? What kind of advertising and stigma against frozen meats, but it promotion will get the buyer’s may be possible to establish a attention?10 marketing strategy that promotes a frozen sustainable product over a 3. Existing Market Demand fresh, unsustainable product. How many potential buyers are included in Page 11
  12. 12. Related publications available from ATTRA (free of charge): Sustainable Poultry: Production Overview Organic Livestock Feed Suppliers Range Poultry Housing Pastured Poultry: A Heifer Project International Case Study Booklet Legal Issues for Small-Scale Poultry Processors (a Heifer Project International publication) Label Rouge: Pasture-Raised Poultry in France Profitable Poultry: Raising Birds on Pasture (A SAN publication) Poultry Processing Facilities Available for Use by Independent Producers in the Southern Region Feeding Chickens Stockyour target market at this time? What is are your projections for market trends in thethe average purchase or frequency of next five to 10 years?8service per buyer per year? What is thetotal purchase or number of services per Possible trends include:year” (8) ? Small producers who market • More cut-up products and parts: Somedirectly to consumers report good demand producers are finding that the samefor their product. educated, sophisticated customers that buy their pastured poultry also demand4. Competition convenient cut-up products.Analyze your competition: business • Natural and organic marketsreputation, estimated sales volume, quality continuing to grow in conventionalof product, price, customer satisfaction, grocery stores.appearance, type of buyer targeted, • More distinction in the marketplace:strengths, and weaknesses. A “direct Range poultry products may need to becompetitor” offers the same product you further distinguished from conventionaldo. “Indirect competition” is anything products in the marketplace. Theyour customers can substitute for your conventional industry has reduced theproduct8. Although range poultry is a use of routine medication in feed indifferent product, conventional poultrymay compete indirectly. In fact, there is alot of consumer confusion about naturalproducts. Consumers may not understandthe difference between pastured poultryand an industrial specialty product fromPetaluma’s or Tyson’s organic line.5. Market trendsHas consumption been increasing? Is the Cut-up chicken will be important fornumber of competitors increasing? What specialty products in the future.Page 12
  13. 13. response to public concern, and is Three books are popular among poultry getting involved in “free-range” and producers: organic production. Producers who Pastured Poultry Profits17 market directly to customers can Free-Range Poultry Production educate them about the products, but and Marketing18 as producers move beyond direct Chicken Tractor19 marketing, opportunities such as slow-growing genetics and air-chill of production, quality, service, convenience processing can help to further provided, and types of buyers targeted8. distinguish products. • More emphasis on grassfed meats: Farmers tend to underprice their products. Organic production has been co-opted According to Silverman, charge the highest by large industrial companies, but few price you can from the beginning 15. “When use truly land-based production you first start, there are so many systems. The industry is able to fulfill inefficiencies you can’t charge the real price organic certification requirements at a because no one would buy it. If it all sells, much lower cost than the small the price is too low. At least 10% of people grower. However, the industry should walk by shaking their heads.” cannot produce a grassfed poultry product the way a small producer It is important to know how pricing affects with mobile housing can. As your profit margin—good record-keeping consumers catch on, they will look for and profitability analysis will help. grassfed products, which have different nutritional qualities or 7. Expected sales volume higher omega-3 fatty acids. Grassfed What minimum number of units could you meats can be more of an opportunity sell in a poor year? In a good year? What for small producers than for large would create these conditions? What is your industrial ones. expected sales volume? How long will it • Consumer education: More specific take to build the market to the desired sales definitions of outdoor poultry volume?8 production systems by USDA will help reduce confusion so consumers can make informed choices, as will the development of certification programs PRODUCTION— that have consumer education CAN IT BE DONE? components. For many, the easiest and most enjoyable6. Expected price part of poultry production is raising theThere are many formulas and strategies for birds. This section looks at technical, social,setting prices. What is the lowest price and organizational obstacles to raising andyou could receive? What is the highest processing birds.price? What conditions would create this?What is your expected price? Ultimately, In studying production feasibility, you needpricing will reflect your competition, costs to determine if you can reasonably provide Page 13
  14. 14. the product from available resources—you doing an internship with another farmer canmay discover problems in production. It is provide experience. Refer to ATTRA’simportant to gain “a thorough Sustainable Farming Internships andunderstanding of specific production Apprenticeships for more information on farmpractices, required resources, production work opportunities across the country.constraints, yields, and legal and liabilityconsiderations. If your available resources Production Requirementscannot adequately support the enterprise, Consider the following productiondevelopment may not be feasible. requirements, adapted from FarmingHowever, many production problems can Alternatives: A Guide to Evaluating thebe overcome by an infusion of labor, Feasibility of New Farm-Based Enterprises.capital, or ingenuity”8. Climate requirements Consider the high and low temperaturesSources of production information and annual precipitation expected onRange poultry production and processing your farm; list any anticipated climaterequire a lot of technical information. As problems8. For example, cold winters inof yet, land grant universities and the North and hot summers in the Southcooperative extension have limited can limit outdoor poultry production.information on small commercial outdoor Solutions include seasonal production,flocks or small poultry businesses. Range- solariums, or seasonal confinement.poultry producers often rely on each other Rain, wind, and temperature swings arefor information, learning from other also important considerations. Somesuccessful producers through Internet areas have long wet seasons that limitdiscussion groups and other networks. range production.The American Pastured Poultry ProducersAssociation (APPPA)16 is a source of Soil and land requirementsinformation, as is the PasturePoultry What are the soil pH, moisture/listserver at <www.groups.yahoo.com>. drainage, fertility, and acreageSustainable agriculture conferences, trade requirements to grow adequate forageshows, and equipment suppliers can also for your birds (or cattle and sheep)?be good sources of information. What does your land provide? List anticipated problems such as steepAlthough you can read materials and terrain that can interfere with movingbooks, experience is an even more valuable portable poultry housing. Heavilyresource. Starting a small test operation or wooded areas may increase predator Common types of outdoor poultry production systems • Yarding: a stationary house with a fenced yard; buildup of manure and pathogens in yarding has led farmers to search for ways to rotate pasture. • Pasture pens: small batches of birds are kept in floorless pens, which are moved daily to fresh pasture. • Net-range or “day-range”: a house is surrounded with movable net fencing. The netting is moved every few days and the house may be moved as well. • Free-range: portable houses are moved regularly to fresh pasture—no fencing is used.Page 14
  15. 15. pressure. If you are planning a product. Facilities are also required for processing plant, consider the ability of cold storage and possibly for retail of the soil to support wastewater systems. poultry products. If you or your group builds a plant, siting is critical. You willWater requirements need to transport inputs to the plant, Consider the water requirements of the transport the product to market, and enterprise, including the flow rate, transport wastes away. While a rural volume, and location (g). How does area offers land for wastewater disposal, the water need to be distributed for transportation is easier and labor is more production and processing? Are you available in an urban area. Most on municipal water or a septic system? importantly, put a plant where you are Evaluate your water quality. wanted. For example, Aaron Silverman’s plant is in an Oregon town that lost a lumber mill. Siting in an Empowerment Zone can provide resources. The Empowerment Zone and Enterprise Community program20 is a federal assistance program that helps communities with high poverty rates find opportunities for growth and What are the water requirements for revitalization, especially entrepreneurial your operation? Photo by Karen Machetta. initiatives, small business expansion, and training for jobs.Building and facility requirements Consider the facilities needed for the When coordinating the stages of enterprise for housing, processing, production, remember that the handling, and storage. Is new processing plant is usually the limiting construction or renovation required for facility and all other facilities (such as the your existing facilities?8 Housing for hatchery, grow-out, and feed mill) must range operations is often minimal, built be geared to the processing plant10. with available resources on the farm. Processing set-ups are varied. You See ATTRA’s Small-Scale Poultry could process under a Processing for information on building tree, use an existing and operating a plant. outbuilding, build a Equipment and machinery requirements shed, or even put up a Consider whether you already own the government-licensed equipment or must buy, rent, borrow, or processing plant. Or make it8. Consider heaters for brooding, you could rent a mobile pasture pens (or net fencing and electric processing unit (MPU). chargers), feeders, waterers, and feedA mobile processing You could take your storage. You don’t actually need a lot ofunit is a good way to birds to a custom plant processing equipment for poultry; birdsshare resources.Photo by Steve for processing but you are small and there is no need for a trackMuntz. do lose control of the and a saw. Consider carefully before Page 15
  16. 16. buying used equipment; it may not meet the exact specifications needed and therefore lead to less efficiency or higher labor costs21. (Used equipment may also not satisfy meat inspection requirements.) At what point should equipment be substituted for labor (the “mechanical transition threshold”)? Equipment like an egg grader can Keep replacement parts around for reduce labor. emergencies and keep future equipment upgrades in mind. in poultry production systems that improve efficiency and profits. It Marketing equipment may be needed, takes many hours of management such as a refrigerated truck or trailer to time to gather information on breed, transport dressed birds to market. Also hatcheries, feed suppliers, affordable consider supplies such as litter to raise processing equipment, and so forth. birds on and bags for marketing. If you are milling your own feed, you If you are building a plant, you will may need a grinder, mixer, and roaster. put in lots of management hours going over regulations, design, and other aspects. For operation, small plant managers need an impressive array of skills—including electrical, plumbing, knife sharpening—to maintain the plant and equipment, especially for emergency breakdowns during processing. In addition to supervising the facility and ensuring compliance with regulations, the processing-plant manager might be expected to monitor performance, judge quality, buy live birds, oversee Equipment should be accounting-office functions, oversee appropriately scaled to your operation. Photo by Paul waste disposal, and be a marketing Helbert. and salesperson. Many producers underestimate the amount of time andManagement and labor requirements effort needed for marketing8. ⇒ Management: The function of ⇒ Labor: management is to plan, organize, How much labor will the day-to-day direct, staff, and control. activities of raising, processing, and Considerable knowledge and marketing poultry, and keeping diverse skills are needed. Managers records, require? The philosophy of should keep abreast of innovations free-range and organic poultry production often reduces the optionsPage 16
  17. 17. for automation, resulting in very experienced farmer spent only 10 labor-intensive operations, minutes per chicken from chick to especially with processing2. Direct processed bird; a less experienced marketing requires substantial labor farmer worked more than an hour per to build a customer base and bird. maintain a database to track them. ⇒ Labor efficiency: The size of the operation is the main determinant of labor efficiency2. Producers need to spread labor costs over a larger number of birds to increase output per labor unit. (See the Sensitivity Analysis discussion under the Profitability section.) Some automation may be needed to Pasture-raised poultry can be very labor optimize labor input. Automation intensive. reduces time needed for feeding, watering, cleaning, and other⇒ Labor budgets: activities2, but requires more capital Record the management and labor investment. hours you will need for your operation. As a guide, the budgets ⇒ Labor source: in the Appendices of this Toolbox The farmer’s own unsalaried labor is include management and labor often a large part of the labor in a hours needed for the four different small poultry operation. Family labor production and processing scenarios is common; however, kids cannot be described; however, these are not expected to work as hard as adults. detailed labor budgets. You will need to modify them to fit your situation. Make a chart of labor activities on the farm for each month to determine if there is time available for a new or expanded enterprise8. Since many poultry producers have diversified farms, it is important that the poultry enterprise complements rather than Automation can optimize labor input but costs conflicts with the labor peaks of more. other farm enterprises. Consider what type of chore cycle will work Hired labor is required for some for you: steady work or intensive activities. Many producers have bursts of work. trouble obtaining processing help on- call in rural areas, and it will not be According to University of trained labor. An Oregon company Wisconsin estimates22, one has considered an unusual option: Page 17
  18. 18. using prison labor to run a spent- Uniformity and consistent quality fowl plant. Although uniformity in bird size is not as important in manual processing as it is in Later, in a business plan, you can be automated processing, it is still an issue. more specific, naming who will be Consistency can be very important in your on your management team, market. For example, your restaurant including salaries and benefits. You accounts may demand a range of 3.5 to may also need a hiring and training 4.5 lb. birds every order. Silverman found policy. How will you promote and that his birds varied so much in weight— maintain good labor relations, because of the heavier finished weight of strong morale, and high-quality males compared to females—that he output from workers? Handling of switched from straight-run chick orders to employees is an important issue. cockerels only. When feed rations change dramatically, it can change the quality of Show that you have organized your the meat. Feeding more corn will result in staff needs23. If you incorporate, more yellow color in the bird and different you will need to name a Board of fatty acids and flavor in the meat Directors. compared to wheat feeding. Meat from birds confined in winter will differ fromAdditional production requirements meat produced outdoors in spring. The production system used also has an effect: ⇒ Supply: birds tend to grow faster in pasture pens Consider your supply sources8. For compared to net-range systems because year-round production, chicks are the feed is right in front of them all the harder to source in winter. time. However, birds are often injured Sourcing suitable feed ingredients when pasture pens are moved, and there can be difficult. If you have may be more broken wings. Weather, difficulty finding a reliable supplier forage, weed species, and other of chicks, feed ingredients, feed environmental factors have an impact on rations, or other needs, you may the consistency of poultry in land-based want to consider becoming a production systems. supplier yourself. ⇒ Reliable supply: you. What kind of future-supply If you have a processing plant, assurance do you need? Are contracts consider how you will get a necessary? A reliable supply is crucial sufficient supply of live birds to when you are committed to fill an support the plant year-round. What order. will the travel time be from the farm to the plant? Will you raise all the When working with multiple growers, birds yourself? If not, survey you will need to require standardized producers in your area to determine production practices, including stock whether they can provide an selection and feed formulation. You adequate supply of birds. However, may need to develop a producer local producers may prefer to education program and have them process on-farm and market their start out small. Silverman limits own birds instead of working withPage 18
  19. 19. not permit flocks to be more than seven days apart in age on the same farm. You might plan to operate your plant as an independent custom processor—rather than collaborate with a group. However, the financial risk of building a plant will be high if you aren’t sure that enough These birds are non-uniform in growth. producers will want to use your processing services to make your beginning growers to 1,000 birds plant profitable (and to keep cash their first year of production. flowing).⇒ Logistics of working with multiple growers: Because the storage capability of For a plant that processes 120,000 most small plants is limited, you will birds per year, if the average grower most likely need to move and market produces 5,373 birds/year, there your product quickly. If you don’t will need to be a minimum of 23 have a lot of freezer capacity, you growers close to the plant. The may be able to rent freezer space production schedules of these elsewhere. growers must be coordinated so that birds arrive at the plant for Quality and production rate processing at staggered times What is the level or range of quality you instead of all at once. Harvesting an expect to achieve? How does your quality entire flock at a time allows you to compare with your competitors’? What rate manage the flock as a unit. This of production do you think you can “all-in, all-out” approach also has achieve?8 Range-poultry producers usually health advantages: in multi-age plan on an eight-week grow-out period flocks, older birds can carry diseases using the commonly available fast-growing that younger birds are susceptible broilers. However, specialty slow-growing to. On the other hand, the grower genetics may take 12 weeks to grow out, can “skim” flocks to fulfill market which reduces the number of flocks a orders that require a range of sizes. grower can raise per year. Biosecurity measures (footbaths, disinfecting of vehicles, traffic Processing rates depend on many factors. control, etc.) are important for On-farm processors typically handle 10 reducing the spread of disease when birds per hour from kill to chill (i.e., a crew working with multiple growers. If a of four could process 40 birds per hour), plant has a truck that picks birds up excluding set-up and clean-up time and from different farms, the truck packaging. In a small processing plant, should visit younger flocks before Kansas processor Diana Endicott24 estimates older ones. Some supply chains do that an experienced crew of four can Page 19
  20. 20. process a bird from kill to box in four Legal, regulatory, and liability factorsminutes (15 birds per hour), excluding set- The Legal Guide for Direct Farm Marketing25 byup and clean-up time and paperwork. attorney Neil Hamilton is an excellentMPUs have more set-up and take-down resource for information on legal, regulatory,time than other options. and liability issues.Poultry usually dress out at about 67% of Legal:live weight at processing (without giblets), The Legal Guide for Direct Farm Marketingbut track your yield. It affects your bottom has information on legal structures forline, and different batches may yield your business (e.g., sole proprietorship,differently. partnership, limited partnership, corporation, limited liability companyBusiness size [LLC], or cooperative). When workingYou might want production to equal the with a collaborative group, formalexpected sales volume you determined arrangements such as contracts are usefulfrom your market research8. However, for smoothing operations and for legalgrowing a business in stages could be and financial protection for all. You maymore feasible. want to find an agricultural lawyer (a county clerk or a lawyer referral serviceExpected Sales Volume = Maximum can help).Average Production Rate Business Size8 Regulations:Business size is expressed in terms of birds Regulations you will have to followraised per year on farm or number include rules for meat inspection,processed per year, week, or day. If you environmental impact, and labor.are planning a big investment, it is criticalto make an accurate estimate of your Meat inspection regulations arebusiness size. “Once you’ve determined notoriously difficult for small poultrythe maximum size of the enterprise, you producers, and an “unclear legalwill take into account the availability of environment increases risk”8. All meatyour resources”8. and poultry sold in the U.S. is inspected by federal or state inspectors (27 states useThere may be certain economic thresholds their own state meat-inspection program).where you need to either produce at a low However, federal exemptions allowvolume or commit to a higher volume. In- custom processors and small producers ofbetween is no-man’s land. As mentioned less than 1,000 birds per year or less thanbefore, size is also related to labor 20,000 birds per year to process a limitedefficiency. Paperwork for 10 birds or 500 number of birds without bird-by-birdbirds requires the same amount of time. inspection. In states that do not have aSet-up and clean-up take time, regardless state meat inspection program, the federalof volume. See the Sensitivity Analysis in exemptions apply, but they are notProfitability section. recognized and interpreted the same in these states. States that have state meat inspection programs do not recognize the exemptions. Legal Issues for Small PoultryPage 20
  21. 21. Producers26 was developed by Heifer outdoor poultry operations. On theseInternational and summarizes meat smaller, dispersed farms the manure is aninspection regulations on a state-by- asset rather than a liability. However,state basis. It is available free from composting of mortalities may be an issueATTRA or at for small producers.<www.apppa.org>. In the plant, you need to think aboutOperating under federal exemptions for disposal of offal and wastewater. Smallfacilities that process less than 20,000 on-farm processors usually compost offalbirds per year usually requires an and apply wastewater to their land, butenclosed building that meets state on a larger scale, composting of wastesbuilding codes, with smooth washable such as offal, feathers, and blood is time-walls and floors, an approved waste consuming and subject to regulations.system, a restroom, etc. Under federal Large amounts of wastewater “cannotregulations, poultry processing plants simply be discharged into lakes and riversalso must have a Pathogen Reduction because of the relatively high content ofand HACCP program. organic matter such as protein and fat and the microorganisms present28.“ ProcessingCertification programs: plants may need at least initial waterCertification programs have many treatment before discharging into arequirements but can be good municipal sewage system. Or moremarketing options. Certified organic extensive water treatment facilities mayproduction is now subject to the be required—breaking down dissolvedregulations of the USDA National organic matter by microorganisms—Organic Program27. If your annual before final discharge to sewer, streams,gross sales are less than $5,000, you are or land. One small processorexempt from certification but you still recommends siting your plant in a smallmust follow the rules and keep records city that needs jobs and has a good sewer.for a possible audit.Environmental and LaborRegulations:Operators must also comply withenvironmental regulations, and anenvironmental assessment may beneeded.On the farm, you need to think about Regulations for wastewater managementdisposal of mortalities and litter. The are strict.conventional poultry industry’sdisposal of litter by field application is You may also face labor regulations suchincreasingly regulated, and nutrient as minimum wage, workman’smanagement plans are becoming compensation, and Occupational Safetycommon. This is not an issue for most and Health Administration (OSHA) Page 21
  22. 22. regulations on ergonomic issues. It is Consider social issues in your feasibility important to be aware of such study. Is this a socially acceptable regulations on federal, state, and local enterprise? The conventional poultry levels. You may have to deal with industry must deal with difficult social several agencies, including USDA, your issues such as fairness to contract growers state department of agriculture, your and high turnover in processing plants, state department of health, your state including immigrant labor. depart-ment of environmental quality, and local agencies. Remember that it Will establishing or expanding this takes time to jump through regulatory enterprise bring you profits? “Profitability is hoops. the measure of the return your business receives after operating costs and other Liability: expenses are subtracted from income”8. Liability coverage is important for your protection. If you have an existing farm liability policy, just add a rider. A PROFITABILITY— stand-alone policy may be more expensive. WILL IT MAKE MONEY? Contracts are useful for certain To project whether the enterprise will be production and marketing profitable, the farm manager should arrangements. If you are setting up complete an income statement. An income contracts with other growers, check statement lists income and expenses for a resources such as the Livestock given time period, usually a year. “The Production Contract Checklist29. income statement lists all business receipts (cash and non-cash payment received from A good resource for small poultry the sale of goods or services or other sources) producers is economic information and expenses (operating expenses and from the University of Wisconsin22. depreciation) related to the year’s Based on data gathered from production. Expenses are then subtracted experienced farmers, labor for a from receipts, and the amount remaining is 1,000-bird-per-year enterprise is net farm income.” Net farm income 20−22 hours per week over a four- represents the return to the operator’s labor month production schedule, and the and management time, unpaid family labor, farmer can expect hourly earnings of and equity capital8. about $10 per hour. Based on this analysis, they also created a model Estimating expenses for a 5,000-bird enterprise, which would require 35−42 hours of work There are two types of expenses: per week over a six-month • Capital costs: Relatively major production schedule. With a net income of $18,000, an experienced purchases that are made infrequently. farmer could expect to earn about Examples include land, processing $12−∃18 per hour11. equipment, a building for processing, poultry housing, etc. • Operating costs: Recurring expensesPage 22
  23. 23. that are a regular part of the Note: With the exception of the Pasture Pen production cycle. Examples include and Net-range budgets, the cost of feed, chicks, utilities, and interest and marketing is not included, so don’t forget principle payment on debt for capital that the expenses of brochures, signs, costs. samples, advertising, calling prospective buyers, delivery routes, certification fees,Increased capital purchases expose you to and so on can be high.greater financial risk, while increasedoperating costs can put you at a The numbers in the budgets were compiledcompetitive disadvantage8. by the primary authors, and drawn from several producers. The figures do not applyBudgets for building your income to a particular producer. Pickwick/Zesco30statement are provided in the Appendices. provided the prices for processingThey will help you figure costs. There are equipment.four budgets for different scenarios, basedon the type of production system and the Using the budgets:type of processing: Use the budgets as general guidelines. There is space to write your own estimates. • Appendix B: Pasture Pen Budget: Costs will vary depending on the individual Pasture pen production with on-farm circumstances of your operation. Range processing. poultry production is still a new enterprise, • Appendix C: Net-range Budget: Net- and variations in performance, expenses, range or “Day-range” production with overhead, market prices, and condition of custom processing. buildings or equipment will affect the • Appendix D: Mobile Processing Unit bottom line. (MPU) Budget. • Appendix E: Small Processing Plant You can use the budgets individually. The Budget (Capital budget and operating Pasture Pen Budget in particular is designed budget). for an individual producer. In the other budgets, however, the areas of production, Lowering fixed costs by using a plant at full capacity Normally, a plant should be used at full capacity to be financially viable (i.e., at least 40 hours per week, 50 weeks per year)33. “A large portion of the financial obligation of the plant is in fixed costs: the physical structure of the building and the equipment. While variable costs, such as utilities and labor, can be reduced during periods of shortages, the cost of the capital investment does not change”21. If you cannot use the facility at full capacity with only poultry, you may want to consider a multi-species facility. However, your state may not allow red meat and poultry in the same plant. Some producers use a facility at partial capacity—even just one day per week. In this case, the facility should have low fixed costs because these costs will be there every day of the week. It is important to project when the plant will operate at full capacity. If you plan to build a small, simple facility, build it so that you can expand later (especially the waste management system). For an example of a sensitivity analysis of capacity utilization of a small processing plant, see Appendix F. Page 23
  24. 24. processing, and marketing are handled as Blue Mountain Farm Pricesseparate profit centers or businesses thatan individual or a group can put together. Store Price WholesaleWith the pieces working independently of Price Deliveredeach other, an enterprise may not be Whole $2.15/lb $2.50/lb $2.15/lbprofitable. Working with a collaborative Chickengroup can lower the cost of the enterprise. Cut-up $2.35/lb $2.50/lb $2.35/lbA collaborative group may not require Chickeneach profit center to actually make a profit.For example, the processing plant may just Boneless $6.50/lb $6.75/lb $5.50/lbbreak even; the profit will be made when Breastthe group markets the product. Turkey $2.25/lb $2.99/lbSome notes on costs: and only available as a computer • Feed prices affect profitability a lot spreadsheet. Contact Don Schuster31. since feed is the major cost of production; organic feed is especially Sensitivity analysis expensive. • Mobile housing has a higher annual It is important to ask “what if” questions. depreciation cost per bird because it Proponents of unique enterprises tend to be does not last as long as permanent too optimistic about potential income. You housing. need to ask: “What if prices are 25% below • Marketing costs depend on the my estimates? What if I have a weather market. A common rule of thumb is problem? What if it takes twice as much that 3% to 4% of total income will be labor as I think?”10. What if a lot of chicks spent on marketing costs. die? “Since you know the future is uncertain, you may want to examineSince many small-scale poultry operations different possible price and yield scenariosare complementary enterprises on and see how your strategies perform”32.diversified farms, you may be able tocharge some of the costs to other A sensitivity analysis is used to determineenterprises. For example, the tractor that how changes in various assumptions changemoves your portable houses may also pull the costs of production and processing,a plow. which in turn will affect the profitability of an enterprise. Make allowances for worst-Estimating income case scenarios. After sensitivity analysis is complete, you may want to makeMost direct marketers charge $1.50–$2.50/ adjustments to your income statement tolb. for whole carcasses. Larger marketers reflect the effects of such changes8.have more complex pricing. Important production costs and determinants of profitability are:Another budgeting tool for range poultryenterprises is available from the University • Feed cost: “Feed consumption isof Wisconsin. It is a very detailed budget directly related to the quality of thePage 24
  25. 25. production is possible through capital investment, automation, and collaboration between producers, particularly in the area of packing, processing, and slaughtering2. See Appendix F for a chart from the U.K. showing the profitability of organic table bird production units of different sizes.A plant should be used at full capacity to be Break-even analysisfinancially viable. Photo by Steve Muntz. Break-even analysis determines the profits possible at various levels of output. “Break- rearing environment, including even calculations will show the level of housing insulation and time spent on production where the enterprise can cover range in cold weather”2. Organic feed operating costs for alternative output prices, is especially expensive. wages, and costs of raw product”9 . Some of• Finishing age and the price per bird : the budgets show break-even analysis and If you plan to raise a slower-growing the unit cost of production (i.e., per-bird bird (such as a Label Rouge-type bird) cost). it will cost more to get it to the same live weight as a fast-growing Cornish FINPACK is a computer program for Cross. Although many direct markets financial analysis. Many Extension agents will not sustain the higher price have it and can help you learn to use it. needed, other markets may2. There are numerous publications and• Operation size and cost efficiencies: Extension fact sheets on preparing and using Profit generally increases with scale financial statements. since larger units can spread out overhead costs. Input costs such as How much profitability do you need? feed and chicks, transport, processing, packaging, and marketing also tend to It may be that using the numbers in the be higher for small producers because Toolbox’s budgets do not result in of the small quantities involved2. profitability in your income statement. Producers try to lower costs by buying in bulk, charging a premium price, Profitability measures include net returns and using family labor2. However, per bird, net returns to labor and small units may not be profitable management, and dollars earned per hour of unless the poultry is processed on- labor11. A 17−25% margin is often needed to farm and direct marketed. “Smaller cover fixed costs. The level of profitability units require less capital investment, you need is related to whether or not you but housing and labor costs per bird include your labor as an expense. If you do, are generally higher than in the case of then 0% profitability could be acceptable— larger units where economies of scale the enterprise breaks even and you have may be significant”2. Larger-scale made a job for yourself. The level of profitability is also related to your standard Page 25
  26. 26. of living. Some families draw a lot more that you need to know your monthlyon an enterprise for their living expenses payments on a loan for this exercise.than other families would and thereforerequire a higher profit. Most businesses do not turn a profit for the first few years. “A new enterprise with a payoff in five years may look good strictly FINANCIAL REALITY— from a profitability standpoint but may not pay the bills between now and then”10.CAN YOU AFFORD TO DO IT?One of the most critical items for a small Obtaining financingbusiness is having enough cash to meet You may need to borrow money to start orneeds throughout the year. Even a expand your range poultry enterprise.profitable enterprise can be sunk by cash- Lenders want to know: “What is the businessflow problems. You need to know how idea, and what evidence can you offer tomuch cash will be needed for day-to-day show that there is a market and that it isexpenses (operating costs, family living likely to turn a profit”8? They also need toneeds, and debt payments) and where the know the amount you want to borrow and ifcash will come from (e.g., customer you can repay the money. Financialreceipts, borrowing, membership equity, institutions look at the “5 Cs” (character,other). If sufficient cash is not available, cash flow, collateral, conditions, andcash flow analysis will tell you the amount capital—the owner should be putting upof debt you can afford8. 30−50% of the capital needed5. If you are working with a cooperative, can you raiseA cash flow analysis is a summary of the the necessary investment capital from youramount of cash that flows into and out of members? It can be hard to identify sourcesthe business over a given period, generally of financing for nontraditional enterprises.one year. Monthly or quarterly cash flow Besides borrowing, you can pursuestatements showing the timing of cash investors, business angels, or venture capital.flow are especially critical in anagricultural business, which is seasonal innature8. Winter bills must be balanced out DEVELOPING A BUSINESS PLANwith summer revenue. FROM THE FEASIBILITY STUDYBy completing a cash flow statement themanager can determine the amount of You have gathered a lot of information aboutcapital needed to finance the business, as your proposed idea; most of the legwork iswell as the repayment ability of the already done. If the result of the feasibilitybusiness if money is borrowed8. study is positive, incorporate the work you have done into a business plan.You should develop a current cash-flow A business plan can help you getstatement and a series of projected cash- government or foundation funding. It is aflow statements for the first and second communication tool to attract the interest ofyears, and for a future average year. Note collaborators and stakeholders. The audience is not only investors and bankersPage 26
  27. 27. but also your family, stockholders, in the conventional poultry industry,directors, managers, employees, suppliers, restrictions on routine antibiotics. Smallgovernment, manufacturers, transporters, single-plant chicken companies may beand wholesalers and customers. Most on the outs in the conventional industry,importantly, the business plan is a but these plants are an opportunity for aplanning tool for you. A business plan small niche company.guides decision-making for the farm • Threats: conventional poultry industry,business. It will not sit on a shelf after government policycompletion. A business plan is anoperational tool to put your ideas into The operational plans for business functionspractice23. can be filled in by the work already done in the feasibility study.Business plan • Market plan: (use the information fromA business plan includes a business your Market Section)description and an assessment of the • Production plan: (use the informationenvironment/market in which you intend from your Production Section feasibilityto operate, along with the operational study)plans for business functions such as • Human resource plan: (use themarketing, production, human resources, information from your Labor andfinances, and so on. The business Management Section under Production)description is “a brief description of the • Financial Plan: (use your incomeMission Statement, Business Goals, statement and cash-flow analysis)Business Background, Business Structure,and Management Team”23. It contains You can also add a title page, executivetarget customers and markets, principal summary, and appendices that includeproducts and services, geographic domain, resumes of business owners or keytechnologies used, philosophy, and desired personnel, agreements, etc.image. A business plan assesses strengths,weaknesses, opportunities, and threats to Some business plans are 25−35 pages long,the business (SWOT). Range poultry with 10−20 pages of appendices23. However,SWOT examples: they do not have to be long. • Strengths: image, good taste and A Canadian website has a tutorial on texture business planning as well as a several sample • Weaknesses: expensive business plans, including one for a broiler • Opportunities: concern about business, at Genetically Modified Organisms <www.agf.gov.bc.ca/busmgmt/> . Many (GMOs) in food production, concern books available on small business include about “mad cow” disease, growth in information on taxation, zoning, labor and eco-labeling programs such as employment, insurance and liability, and organic, interest in animal welfare, entrepreneurial skills. Extension has increasing environmental regulations materials on farm business and agribusiness management. Page 27

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