Financial Benchmarks for Horse-Powered Vegetable Farms
by Eric and Anne Nordell of Trout Run, PA
Thanks to teamsters David Fisher, Paul Hauser and Stephen Leslie, we were able to put together the first ever economic analysis of farms using work horses for vegetable production. “Portraits of Four Horse-Powered Vegetable Farms,” in the Summer 2012 SFJ, included the gross revenues and net income for each farm, the number of horse hours for each field operation, a tally of teamster hours devoted to horse maintenance, a complete list of work horse expenses, and a detailed description of each farm’s history and management.
This article is a follow-up, featuring two horse-powered operations participating in the Pasa Diversified Vegetable Financial Benchmark Study. Limited to a couple of farms which use different methods of work horse accounting, the numbers may have little value. However, we consider this an important first step, and hope that as more horse farmers join this research project we can provide more realistic and helpful benchmarks.
Pasa Sustainable Agriculture initiated the benchmarking study in 2017 due to a lack of “information to help diversified vegetable farmers understand how their businesses compare to their peers and industry-wide trends.” The Pasa Financial Benchmark Reports have been used by growers to set sales goals, allocate expenses, and make decisions about capital investments.
Thirty-four farms participated in the study in 2018 and 2019. Vegetable production ranged in scale from 1/3 acre to 90 acres, and farming experience spanned two to forty years. The farms were located in Pennsylvania, Maryland, New York, North Carolina, Virginia, and West Virginia, and sold at least a portion of their produce through direct-market outlets.
Typical of the Mid-Atlantic region, many growers juggled other enterprises, including cut flowers, fruit, livestock, and resale of products from other farms. Consequently, Pasa collected information about each farm’s vegetable enterprise and farm business as a whole. To prevent information overload, we will focus on the economics of vegetable production in this article.
We are so thankful that Tom Paduano and Sarah Rider of Flying Plow Farm were willing to share their 2018 Financial Benchmark Report with us and the SFJ community because their farm is much more representative of today’s reality than our Beech Grove Farm started in 1983. For instance, they established their business on rented land. In order to purchase their 56 acre farm outside of Rising Sun, MD, they took on a $575,000 mortgage and about $100,000 additional debt for equipment and infrastructure improvement. They are also raising three young children. By contrast, our farm in north-central Pennsylvania cost $64,000, we do not have children, and, in our mid-60s, our financial needs are minimal.
Sarah and Tom grow certified organic produce on eight acres rotated with seven acres of cover crops. In 2018, they grossed $243,000 from the vegetables, the sixth highest gross revenues in the Pasa study. Their net income, $38,749, was the seventh highest.
Like many animal-powered operations, Flying Plow complements their four work horses with a couple of tractors. The tractors provide back-up when inclement weather delays fieldwork or a horse is unable to work. They also utilize the tractors for loading manure and making compost, moving round bales, and baling hay.
Table 1 – Vegetable Enterprise Benchmarks
|Financial Indicator||Flying Plow 2018||Beech Grove 2018||Beech Grove 2019||Pasa Median 2018||Pasa Median 2019|
|Gross Revenues ($)||243,000||76,382||84,433||88,226||95,561|
|Gross Revenues per Acre ($)||30,375||23,146||25,586||23,146||27,589|
|Net Income ($)||38,749||26,931||34,127||9,999||11,008|
|Net Income per Acre ($)||4,844||8,161||10,341||2,595||2,633|
|Return to Farm Farm Family Labor ($ per FTE)||22,793||14,962||17,961||6,035||8,736|
True to the SFJ ideal, Flying Plow is a diversified farm. In addition to vegetables, Tom and Sarah raise livestock, selling meat and eggs. They also have multiple market outlets, with 45% going to CSA, 45% to farmer’s markets, and 10% divided between direct and intermediate wholesale accounts. A diversity of composted animal manures are used to fertilize the vegetable fields, as well as organic-approved mushroom soil free for the hauling from a nearby mushroom house.
For a farm of this size and complexity, labor can be a major expense. Payroll and benefits at Flying Plow amounted to $93,966 in 2018. The payroll-to-gross-revenues ratio was 32.5%, well within the ideal range of 25-35%.
In 2018, Sarah and Tom’s employees contributed 3.3 full-time equivalents to the vegetable enterprise. A full-time equivalent (FTE) is 2,080 hours/year. Tom and Sarah estimated they devoted 1.7 FTEs to the vegetable enterprise, bringing the total FTEs to 5, or 1.6 FTE per acre in produce. Flying Plow grossed $48,600 per FTE. Not including payroll and benefits, they netted $26,543 per FTE or $12.76/hour. These numbers are sometimes used for comparing the productivity and profitability of farms.
Flying Plow utilizes 48 acres for its overall farm business, which includes pasture and a small amount of hay production for the work horses. They purchase approximately 95% of the hay for the horses and all of their grain. Given the diversified nature of the farm, work horse expenses and labor for their care fall under overhead for the farm business, and are not accounted for in the vegetable enterprise benchmarks and expense tables.
Certified organic vegetables are the sole enterprise on our farm, where we rotate 3.25 acres of produce with 3.25 acres of cover crops. Consequently, costs and labor for work horse maintenance are included in our vegetable expenses and benchmarks, giving us the distinction of being the only Pasa farm with feed and veterinary costs for vegetable production. These expenses were much higher than in the past due to our current team of Suffolks having a condition called insect hypersensitivity. This ailment limits pasturing during fly season and requires special supplementation, medication and supplies.
In addition, over half of the fertilizer for vegetable production goes to purchase bedding for the horses and fertilizer for their pasture. We also estimate that 1,000 hours a year (half a FTE) of our vegetable enterprise labor are devoted to horse care, pasture maintenance and manual manure/compost management, which has become much more labor-intensive since we stopped composting with pigs. We do not have a tractor and we purchase all of the hay and grain for the team.
Our net income is also lower than in the past due to extra labor costs while Eric recovers from a debilitating illness. Despite these added horse and human expenses, our net income for 2018 and 2019 averaged $30,000, three times the Pasa median. Like many vegetable farms in the Mid-Atlantic region, our gross and net income in 2018 suffered from unusually wet weather.
We were surprised that our gross revenues per acre in produce (averaging $24,000) were not that far off the median. With the exception of high tunnel production (which generates 22-25% of our total sales), we grow only one vegetable crop per year, planted in widely-spaced rows, and do not irrigate.
Table 2 – 2018 Vegetable Enterprise Expenses (Dollars and Percentage of Total Vegetable Expenses)
|Expense Category||Flying Plow||Beech Grove||Pasa Median|
|Payroll||$79,050 (38.7%)||$20,365 (41.2%)||32.4%|
|Depreciation||$8,524 (4.2%)||$2,124 (4.5%)||4.5%|
|Soil Amendments||$1,364 (0.7%)||$3,856 (7.8%)||1.9%|
|Gas/Fuel||$3,516 (1.7%)||$1,112 (2.2%)||2.4%|
|Insurance||$5,428 (2.7%)||$1,800 (3.6%)||2.7%|
|Mortgage Interest||$17,850 (8.7%)||0||–|
|Other Interest||$15,674 (7.7%)||0||–|
|Repairs||$7,916 (3.9%)||$2,276 (4.6%)||2.9%|
|Seeds||$8,407 (4.1%)||$4,237 (8.6%)||6.9%|
|Supplies||$15,636 (7.7%)||$4,207 (8.5%)||6.9%|
|Taxes||$8,637 (4.2%)||$1,196 (2.4%)||2.6%|
|Utilities||$6,333 (3.1%)||$826 (1.7%)||2.7%|
|Other Expenses||$10,995 (5.4%)||$3,144 (6.4%)||9.3%|
Between our time (an estimated 1.8 FTE) and employee hours (.8 FTE), our farm used 2.6 FTEs for vegetable production, or .8 FTE per produce acre. Averaged over the two years, Beech Grove grossed $33,077 per FTE, and, without payroll, netted $20,769 per FTE, or $9.98/hour.
Our farm had the fourth highest profit potential in 2018 and 2019 as measured by the net-income-to-gross-revenues ratio. We also had the fourth lowest operating-expenses-to-revenues ratio. We attribute this outcome to bio-extensive management, direct marketing mid-May through mid-November (85% farmers market and 15% restaurants), and not having a farm mortgage or other debt.
Banks use these ratios to evaluate the financial health of an enterprise. An operating-expenses-to-revenues ratio well below 75% is usually considered necessary to provide adequate compensation to farm family labor. Likewise, a net-income-to-gross-revenues ratio above 20% is desirable. A large majority of the Pasa vegetable enterprises did not meet these criteria.
Our labor-payroll-to-gross-revenues ratio of 25% is at the low end of the ideal range. Much under 25% may suggest the farm family is working too hard and at risk of burn-out, although we farmed for many years without any help and enjoyed it immensely. 35% is generally considered the upper limit, 45% if farm family salaries are included in payroll. Grower salaries were not included in the Pasa study in order to fairly compare the return on farm family labor.
Flying Plow had the fifth highest return on farm family labor in 2018, $22,793 per FTE. The return (net income) on our labor averaged $16,462 for the two years, not as good as Sarah and Tom’s, but well above the Pasa median averaging $7,386/ FTE. To put these numbers in everyday terms, Tom and Sarah earned $10.96/hour, we averaged $7.91, and the Pasa median was $3.54/hour. Only a handful of the Pasa vegetable enterprises had a net income surpassing the Pasa median household income of $57,000. Just as many had negative incomes with the majority netting between 0 and $20,000.
During a conference call for the benchmark study, Pasa Education Director, Dr. Franklin Egan, explained that a few of the vegetable enterprises were associated with non-profit organizations or intentionally took losses to offset profit from other farm ventures. However, he noted that even after excluding these unique arrangements, the Pasa median net income for vegetable enterprises was still very low, suggesting that many growers were struggling financially.
To help remedy this situation, Pasa has organized conference calls, workshops and webinars to provide opportunities for vegetable farmers to learn from each other and discuss insights from the study. Sharing numbers, and the stories behind them, has helped us to see where we can cut costs and crops. While many growers increased production in 2020 to meet the demand caused by the pandemic, we decided to drop a few labor-intensive crops and rein in our horse-related expenses. At the same time, Eric was feeling well enough to take on more work and our on-farm employee requested fewer hours, reducing payroll. Despite a $6,000 reduction in sales from 2019, we were able to maintain net income just shy of our $35,000 target. We give the benchmark discussions part of the credit for this favorable result.
If interested in joining the Pasa Diversified Vegetable Financial Benchmark Study, contact Pasa Research Coordinator, Sarah Bay Nawa, firstname.lastname@example.org, 814-349-9856. More information about this project and other Pasa research can be found at www.pasafarming.org/resources.