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Basics of high tunnel economics high tunnel conference feb 7&8,2012
 

Basics of high tunnel economics high tunnel conference feb 7&8,2012

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    Basics of high tunnel economics high tunnel conference feb 7&8,2012 Basics of high tunnel economics high tunnel conference feb 7&8,2012 Presentation Transcript

    • Basics of High Tunnel Economics Statewide High Tunnel Conference February 7-8,2012 Prepared by Karl Foord/Presented By: Prof. Ward Nefstead University of Minnesota Extension Statewid High Tunnel Conference 12/2/10 - Karl 1 Foord
    • Today’s presentation Advantages of high tunnels reviewed Business strategy discussion Concerns reconsidered Financial picture Statewid High Tunnel Conference 12/2/10 - Karl 2 Foord
    • Advantages of High Tunnels 4-8 weeks earlier spring production 2-5 weeks later possible fall production Very high yield per plant Reduce cull fruit Very cost effective Guarantee a crop Statewid High Tunnel Conference 12/2/10 - Karl 3 Foord
    • Advantages of High Tunnels cont. Crop mix Grow crops not usually grown in the area Natural disease control Usually no pesticides needed Insect control Organic production Control water Statewid High Tunnel Conference 12/2/10 - Karl 4 Foord
    • The Trump of Advantages 4 – 8 weeks earlier spring production New niche Customer behavior Competitive Quality with field product Price and margin continuation into field season Statewid High Tunnel Conference 12/2/10 - Karl 5 Foord
    • The Trump of Advantages – cont. Fresh produce in high demand after long winter Selling early crops much-needed spring income Produce for the first markets – advantage  Customers in the habit of coming to your booth first, and continuing for whole season Statewid High Tunnel Conference 12/2/10 - Karl 6 Foord
    • Business Strategy Discussion If you are in the fresh vegetable business how will you respond to High Tunnel Competitors? How will you address the key features of the 4 – 8 week earlier produce? Statewid High Tunnel Conference 12/2/10 - Karl 7 Foord
    • Concerns of High Tunnels Cost involved Education Planning Management Time Statewid High Tunnel Conference 12/2/10 - Karl 8 Foord
    • The Trump of Concerns Costs Pricing Margins Let’s look at each in turn Statewid High Tunnel Conference 12/2/10 - Karl 9 Foord
    • Costs Capital costs  Buying and erecting a High Tunnel  Establishing maintenance systems to monitor irrigation and temperature Operation costs  Tomato budget and assumptions Statewid High Tunnel Conference 12/2/10 - Karl Foord 10
    • Capital costs Buying and erecting a High Tunnel Statewid High Tunnel Conference 12/2/10 - Karl 11 Foord
    • High Tunnel Construction Costs (24 x 96) Cost Range Item Low HighSite Prep. Site specific Base Upgrade Options Ship- Distributor Gothic Kit Door pingFrame Kit J.R. Johnson $5,535 $196 $5,535 $5,731 man- Where on the learning Local Labor 114 $15 per hr. $1,710 hours curve? Const- Professional ruction Per sq. ft. basis Cost per tunnel 2304 sq. ft. Construction Estimate $0.50 to $1.00 $1,152 to $2,304 $ $2,304 Non-kit Materials obtained locally for: baseboards, hipboards, rope (may want extra $300 $500Materials screws and metal banding)Irrigation Includes: set up, headers, drip tape $200 $400 Misc. Miscellaneous items not anticipated $100 $200 Totals Construction cost range based on above estimates $7,845 $9,135 J.R. Johnson http://www.hightunnelhub.com/Hightunnel; http://www.farmtek.com; Note http://www.ledgewoodfarm.com Statewide High Tunnel Conference, December 2, 2010 - Karl Foord Statewid High Tunnel Conference 12/2/10 - Karl 12 Foord
    • Operation costs Tomatobudget and assumptions Statewid High Tunnel Conference 12/2/10 - Karl 13 Foord
    • TUNNEL CROP BUDGET - TOMATOES $/Tunnel (20 x 96 - 5 rows - 320 plts/tunnel) Yield (lbs. per plant) 7 10 14 17 20 Yield (lbs. per tunnel) 2,240 3,200 4,480 5,440 6,400 VARIABLE COSTS Fertilizer $40 $50 $60 $70 $80 Pest Control $50 $50 $50 $50 $50 Black Plastic Mulch $20 $20 $20 $20 $20IRRIGATION Dripline $25 $25 $25 $25 $25 Drip Irrigation Operation $25 $25 $25 $25 $25 Plant Maintenance (Stakes, Twine) $30 $30 $30 $30 $30Bees for Pollination $100 $100 $100 $100 $100 Fuel (Tractor & Propane) $75 $75 $75 $75 $75 Transplant Materials $160 $160 $160 $160 $160 Packaging - Boxes (@$1.50) $105 $150 $210 $255 $300 Marketing (3% of ave. revenue) $50 $75 $100 $150 $200LABOR Bed making & laying plastic $50 $50 $50 $50 $50 Transplanting $70 $70 $70 $70 $70 Initial staking $60 $60 $60 $60 $60 Trellis - Staking, Training $200 $200 $200 $200 $200 Weeding $30 $30 $30 $30 $30 Ventilation & Monitoring $300 $300 $300 $300 $300 Machinery Operation $35 $35 $35 $35 $35 Harvest $263 $315 $350 $438 $525 Grading/Packing $68 $81 $90 $113 $135 Seasonal Cleanup $55 $55 $55 $55 $55 Land Preparation* $55 $55 $55 $55 $55Interest Expense $98 $106 $113 $124 $135TOTAL VARIABLE COSTS $1,963 $2,117 $2,263 $2,489 $2,715 FIXED COSTS Land (rent of .2 ac at $150 per acre) $30 $30 $30 $30 $30 Depreciation $700 $700 $700 $700 $700TOTAL FIXED COSTS $730 $730 $730 $730 $730 TOTAL COSTS $2,693 $2,847 $2,993 $3,219 $3,445 Statewid High Tunnel Conference 12/2/10 - Karl 14 Foord
    • TUNNEL CROP BUDGET - TOMATOES AssumptionsPlanting rate - 64 plants per 96 ft Variable YieldTunnel dimensions: 96 by 20 expenses - (lbs./tunnel)96 ft x 20 x 5 rows = 320 plants per tunnel interestYield at 7 lbs. per plant = 2,240 $1,865Yield at 10 lbs. per plant = 3,200 $2,011Yield at 14 lbs. per plant = 4,480 $2,150Yield at 17 lbs. per plant = 5,440 $2,365Yield at 20 lbs. per plant = 6,400 $2,580Land area = 1.2 x area of tunnelInterest expense = 7% loan 9 month term on: variable expensesLabor @ $10 per hour; Transplants @ $.50 ea* assigned a land preparation charge in lieu of machinery and equipment expenses Statewid High Tunnel Conference 12/2/10 - Karl 15 Foord
    • HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS Yield Cost BreakevenYIELD (lbs. per plant) 7 10 14 17 20YIELD (lbs. per tunnel) 2,240 3,200 4,480 5,440 6,400TOTAL VARIABLE COSTS $1,497 $1,651 $1,798 $2,025 $2,252TOTAL FIXED COSTS $730 $730 $730 $730 $730TOTAL COSTS $2,693 $2,847 $2,993 $3,219 $3,445BREAKEVEN PRICE 32# box $38.47 $28.47 $21.38 $18.94 $17.23 per pound $1.20 $0.89 $0.67 $0.59 $0.54 Statewid High Tunnel Conference 12/2/10 - Karl 16 Foord
    • Enterprise Profitability Profitability analysis (Net Present Value) Combine capital costs and operational costs Statewid High Tunnel Conference 12/2/10 - Karl 17 Foord
    • HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS Profitability Scenarios ( 5 year life expectancy of tunnel) Scenario # 1 - Low Price ($1.50) / Low Yield (7 lbs. per plant) YEARYEAR 0 1 2 3 4 5AVERAGE YIELD (lbs. per tunnel) 2240 2240 2240 2240 2240AVERAGE PRICE (per pound) $1.50 $1.50 $1.50 $1.50 $1.50REVENUES $3,360 $3,360 $3,360 $3,360 $3,360EXPENSES $2,693 $2,693 $2,693 $2,693 $2,693PROFIT / CASH FLOW ($8,500) $667 $667 $667 $667 $667PV OF CASH FLOW @ 7.50 % ($8,500) $620 $577 $537 $499 $465NPV @ 7.50 % $2,699 ($5,801) Statewid High Tunnel Conference 12/2/10 - Karl 18 Foord
    • HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS Profitability Scenarios ( 5 year life expectancy of tunnel) Scenario # 2 - Medium Price ($2.50) / Medium Yield (14 lbs. per plant) YEARYEAR 0 1 2 3 4 5AVERAGE YIELD (lbs. per tunnel) 4480 4480 4480 4480 4480AVERAGE PRICE (per pound) $2.50 $2.50 $2.50 $2.50 $2.50REVENUES $11,200 $11,200 $11,200 $11,200 $11,200EXPENSES $2,993 $2,993 $2,993 $2,993 $2,993PROFIT / CASH FLOW ($8,500) $8,207 $8,207 $8,207 $8,207 $8,207PV OF CASH FLOW @ 7.50 % ($8,500) $7,634 $7,102 $6,606 $6,145 $5,717NPV @ 7.50 % $33,205 $24,705 Statewid High Tunnel Conference 12/2/10 - Karl 19 Foord
    • HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS Profitability Scenarios ( 5 year life expectancy of tunnel) Scenario # 3 - High Price ($4.00) / High Yield (20 lbs. per plant) YEARYEAR 0 1 2 3 4 5AVERAGE YIELD (lbs. per tunnel) 6400 6400 6400 6400 6400AVERAGE PRICE (per pound) $4.00 $4.00 $4.00 $4.00 $4.00REVENUES $25,600 $25,600 $25,600 $25,600 $25,600EXPENSES $3,445 $3,445 $3,445 $3,445 $3,445PROFIT / CASH FLOW ($8,500) $22,155 $22,155 $22,155 $22,155 $22,155PV OF CASH FLOW @ 7.50 % ($8,500) $20,609 $19,171 $17,834 $16,590 $15,432NPV @ 7.50 % $89,637 $81,137 Statewid High Tunnel Conference 12/2/10 - Karl 20 Foord
    • Pricing Do not be afraid to ask a profitable price for your produce Customers need to be aware that it costs more to produce early crops Highest quality is the only crop you should market Statewid High Tunnel Conference 12/2/10 - Karl 21 Foord
    • Customer perceptions Exchange – Something of Value for an amount of satisfaction The perceived value > the price Largely behavioral not mathematical Usually an emotional trigger  Buy and justify Statewid High Tunnel Conference 12/2/10 - Karl 22 Foord
    • Price Sensitivity / Behavior Price ~ Quality Unique ~ Value Fairness Statewid High Tunnel Conference 12/2/10 - Karl 23 Foord
    • What Are We Really Selling? “Revlon sells chemicals Women buy glamour” Fruits and vegetables Flowers Statewid High Tunnel Conference 12/2/10 - Karl 24 Foord
    • What Are People Really Buying? Health Taste The experience of the market itself Support of local growers Statewid High Tunnel Conference 12/2/10 - Karl 25 Foord
    • Pricing Decision Chart Pricing COMPANY VIEW OUR Goal OUR COSTS - OUR GOALS ASKING ($) PRICE Profit Profitable Enterprise WIN - WIN EXCHANGE Total Costs LOSE - WIN Fixed Costs EXCHANGE Overhead Salaries, Etc… Variable Costs Direct Costs Materials Statewid High Tunnel Conference 12/2/10 - Karl 26 Foord
    • Pricing Decision Chart OUR CUSTOMER CUSTOMER VIEW ASKING VALUE SATISFY A NEED PRICE DETERMINATION Customers Pricing Goal Perceived Value > Price NO EXCHANGE PERCEIVED VALUE WIN - WIN FOCUS OF MARKETING EFFORTS EXCHANGE Perception Factors LOSE - WIN EMOTIONAL Convenience EXCHANGE BENEFIT Reference Prices Other Key Perception Factors: FUNCTIONALITY Quality - Freshness Access - hours Choice / Uniqueness Method of production Employee Attitude Exceptionally Low Prices can Generate a Low Perceived Value Statewid High Tunnel Conference 12/2/10 - Karl 27 Foord
    • PRICING DECISION CHART COMPANY VIEW Customer CUSTOMER VIEW Our Asking Value Satisfy a Want Price Our Costs - Our Goals Determination Perceived Value > PricePricingGoal ($) No Exchange Line of Perceived Value Profit Profitable Enterprise WIN - WIN Exchange Focus of Marketing Efforts LOSE - WIN WIN - LOSE Total Costs Perception Factors Exchange Exchange Fixed Costs Convenience Reference Prices Overhead Salaries, Etc… Context - Urgency Emotional Health Benefits Benefit Selection - Uniqueness Variable Costs Confidence: no frustrations or headaches Quality - Reputation - Dependability Direct Costs Materials Philosophical Match - Ecological Functionality Low Perceived Value J.R. Johnson - September 9, 2010, Karl Foord Statewid High Tunnel Conference 12/2/10 - Karl 28 Foord
    • Improving customer experience Parking & Access Ease of movement within market Stall Presentation Comfort in all weather 5 Sense your market  Taste, touch, smell, sight, sound Statewid High Tunnel Conference 12/2/10 - Karl 29 Foord
    • Understand Key customer perception factors Product use & impact of attributes on value Value varies among buyers Manage customer perception proactively Expand gap between value received and price paid Statewid High Tunnel Conference 12/2/10 - Karl 30 Foord
    • References http://plasticulture.cas.psu.edu http://www.plasticulture.org Minnesota High Tunnel Web Site  http://hightunnels.cfans.umn.edu/  http://hightunnels.org Statewid High Tunnel Conference 12/2/10 - Karl 31 Foord
    • High Tunnel Manual on the Web www.extension.umn.edu Click on garden See “ Whats new on the Web” Or go direct www.extension.umn.edu/distribution/horti culture/M1218.html Statewid High Tunnel Conference 12/2/10 - Karl 32 Foord
    • Other High Tunnel Suppliers Farmtek http://www.farmtek.com 1440 Field of Dreams Way, Dyersville, IA 52040 Ledgewood Farm http://www.ledgewoodfarm.com 132 Old Mountain RD, Moultonborough, NH 03254 Statewid High Tunnel Conference 12/2/10 - Karl 33 Foord
    • Author Karl Foord Ph.D. MBA Regional Educator, Horticulture foord001@umn.edu (651) 558-1218 Statewid High Tunnel Conference 12/2/10 - Karl 34 Foord
    • Handouts Tomato Budget (2 sided assumptions on back) Tomato Sensitivity Analysis (financial) High Tunnel Construction Budget MN High Tunnel Season Extension 12/5/08 - 35 Karl Foord