Saturday, September 21, 2013

Postmortem: Soul Food farm

For those of you who haven't read one of these, it's based on a term that I ran across while working at Microsoft.  It is basically a summary of a project written after the project was completed or canceled.  A postmortem was a way for the company to capture the experiences and lessons, some costing millions of dollars, into a form that it could retain, and hopefully benefit from in the future.

I write farm postmortems as a way to help people who are interested in farming learn from what other farms have done.  I have attempted to make this as accurate as possible, but the reader should be aware that I am expressing my opinion here.   If you find this interesting, you can read my other postmortems: / TLC ranch eggs  , thundering hooves pasture finished meats, natures harmony farm

For this postmortem, I've asked Alexis Koefoed repeatedly for an interview, but she's "Not giving interviews at this time", so I've relied mostly on what she and others have said about her operation in the past, along with some interpretation of the numbers that she's put out there.

Soul Food Farm
Soul food farms was founded in the opposite way that most farms are:  The farmers fell in love with the land and purchased it, and then spent the next few years trying to figure out what to do with it.  Here's the quote:

"...Soul Food Farm got its start in the late 1990s, when the Koefoeds were living in Vallejo and raising their three children while she worked at a winery and he worked as an engineer. She often drove her kids to a plant nursery in Pleasant Valley, a picturesque spot that has been farmed since the 1850s, where they'd pass a property with an olive grove and an old redwood water tower, tucked below the ridge.
"I had always thought, 'Oh that place is so beautiful, I wish I could live there,' " Koefoed recalls.
Then one day there was a For Sale sign on the property. She remembers braking so hard she nearly gave her kids whiplash. That night she told her husband, "We're selling everything." It took her two years to convince him, but they eventually bought the land, living in trailers for another two years while they built their house.
They had no farming experience and no intention to farm the land, but Koefoed changed her mind after living there..."
That's not the path that most people who want to farm take; my own experience was that I decided that I'd like to farm, and I spent three years looking for ground where I could farm; and then after 7 years of farming experience, looking for a bigger farm that I could expand my operation with.  The Koefoeds purchased their acreage first, and then got interested in farming afterwards.  
"..."I realized I had to do more than just live on it. I had to do something with it that was useful and important and connected..." Alexis Koefoed
The land that Soul Food is farming is typical northern California land; I grew up in Red Bluff, a town a little over two hours north of this farm that shares the same weather pattern.  There's a period in spring when things are green and growing, but for the majority of the summer you've got baked earth and tinder-dry grass.  It's pretty common for farmers to have reservoirs - man-made ponds that retain some of the spring rains - or to use irrigation extensively to keep things growing, or you plant crops that are tolerant of dry, hot weather, like olives.  It's not land that I would normally associate with year-round animal production without substantial irrigation, but apparently Soul Food did just that.  
Principle farmers
Alexis Koefoed is the primary name in most of the press about this farm; while she does mention her husband from time to time, it's Alexis who is quoted in every article and interview.  From that I'd say she was the principle farmer.  
Apparently starting first with eggs, and then progressing to chickens and some prepared foods (Confit, marinated half chickens, etc)
Land and Facilities
55 acres of northern california.  Purchased land and constructed a house on it, then decided that she would like to farm.  Apparently constructed chicken houses, lost two of those houses in a fire in 2009.  It's not clear what those houses looked like; that's one of the questions I would have liked to ask Alexis.  The pictures that I've seen of their chicken housing shows hoophouses constructed of PVC pipe and clear plastic.    A donation drive raised $35,000.00 to replace the lost houses, along with labor and materials donated for free.  
Soul food sold products into the San Francisco bay area, which is one of the highest priced markets in the country.   Their final prices were $30 for each chicken, or eggs for $8/dozen.  They sold some part of their production wholesale; what percentage of their production isn't clear.  
Feed & Husbandry
It's not clear to me whether soul food was organic or not.  From the newspaper articles and pictures, it looks like they ran an outdoor chicken operation, but also clear from the pictures the areas where the chickens were housed often had bare spots.  They used chicken tractors constructed of PVC pipe for some of their birds, fixed brooder houses and laying houses for others.   There is an emphasis on pastured production -- allowing the chickens to roam freely in an area to eat any greenery and bugs available.    During the course of business they would fairly regularly lose hundreds of birds to one cause or another.  
Soul food was successful in its marketing of its products, and the many personal connections that Alexis had helped place her products into the local food scene.  One of the biggest assets to her farm was her connection to Bonnie Azab Powell, who had started a CSA in the bay area, and was instrumental in several different ways during the course of the farms life.  
The farm was not a planned business venture; it grew as it grew, and apparently there wasn't much thought about the overall business.  I get the impression that they were so busy farming that they forgot to think about their farm, or the need for year-round income, or the need for off-farm income/benefits... or even automatic waterers for their livestock.  More about these topics later.  
Stated reasons for closing 
“The reasons are so numerous I could never explain them all. The most important ones are that Eric and I are deeply tired and the rising cost of production became too much to compete with,” Alexis Koefoed said in a statement. “We have loved every moment of raising food for all of you.” 
"Our biggest expense by far is chicken food.  Over $13,000 a month, and now with the droughts in the mid west, we will certainly see another feed price hike – it just went up a few percent last week.  Every week it becomes more and more expensive, and covering the cost without raising the price of food is just not possible. But raising the prices to you every month (with no end in sight) just doesn’t seem right to me, either.  SFF as it currently exists is just not possible with this math.  The true cost of eggs and meat is expensive and  Eric and I have  moved away from our original intent to make good food available to everyone. In that respect we failed and I’m sorry for that."
Discussion of business issues
Unlike most farmers, the Koefoeds purchased their land first, and decided to become farmers later.  Their success at selling their products was primarily a function of their ability to market their product. 
I cannot say this enough:  The hard part isn't raising your product for most farmers.  The hard part is selling your product to someone at a price that makes sense for you.  It's very easy to raise 100 pigs.  it's much more difficult to sell 100 pigs, in my experience.   Alexis was very successful at generating enough interest in her chickens and eggs, and had great success at placing her egg sales that prestigious restaurants and retail locations.  "We were in all the best restaurants, all the coolest butcher shops,", pretty much sums this up.   
Many farms cease operation when the owner cannot continue or just plain loses interest in farming, even if the underlying business is hard.  The other issue is one that every successful small business will eventually face: The skills that allowed you to build the business are different than the skills that allow you to continue to grow the business. 
 At some point if your small business is a success, you will be put in the position that you cannot do all of the work to be done.   Typically you have three choices here:  Limit the size of the business to something that you can handle by yourself, hire people to help you do the work and manage those people, or shut the business down.  if your nose is to the grindstone, you may not realize that you have reached this point, and mishandling it can often be fatal to the business.    
From what I've read about the Koefoeds, I'm not sure how many people they employed other than themselves.  The claimed production was 1,000 chickens and 600 dozen eggs a week.  That's quite a lot of production for two people.  
But lets look at their numbers again:  
1,000 chickens a week at $30/chicken is a monthly gross revenue of $120,000
600 dozen eggs a week at $8/dozen is a month gross revenue of $19,200
By the claimed production numbers they were grossing $139,200 a month.  Their stated feed costs (from their closing letter) was $13,000 a month; about 10% of their gross revenue.  So the question I have is where did the other $126,000 a month go?  
Rebecca Thistlewaite wrote a blog entry on egg pricing, based on her experience producing eggs in this same market and region.  After working out all of the costs and expenses, she estimated that you'd need to charge $4.49/dozen to break even.  So at $8/dozen, you're running a net profit of $3.51/dozen -- or $8424/month net profit.  
Yes, there are costs in packaging and washing eggs, transportation and refrigeration; and rebecca included all of those costs in her estimate.  But the bottom line is that there are a lot of egg producers out there that would sell their firstborn for that sort of business.  
So using numbers from another chicken producer,  it looks like Alexis should have been able to achieve a $10 net profit from each bird sold at her stated price of $6.50/lb, even including things like $5/bird slaughter fees and long transport times.  
At 1,000 birds a week produced, that looks like $40,000 a month net profit. 
Look, if they were making this sort of money, $48,000 a month, or $576,000/year, they wouldn't have needed to have a fundraiser to replace a couple of hoophouses.   I'm pretty skeptical about the claims, but I'm going to take them at face value for discussion purposes.
The biggest problem that this farm faced was that they really didn't apparently spend any time working out their business.  Here's a quote, Mortally Wounded:  
"“I think Soul Food is done,” she repeated.
She told me that they had no financial safety net. They had no way to run the farm–to buy feed and egg cartons, to pay workers–during those two weeks of lost income from the dead chicks, no way to replace the chicken houses, to irrigate the replacment pasture in the front for the birds, to fix the broken tractor. No way to pay the mortgage on the property.
Later, I learned that like many in this economy, the family had been in financial free fall for a year. Eric had quit his engineering job of 30 years last September, hoping to consult while helping out more with the farm. It had almost immediately become clear the family still needed his off-farm income (and benefits). He’d gotten a new full-time job, for a smaller salary, but in June had been laid off. Alexis had had to let the farm’s commercial insurance lapse, and the family’s health insurance policy, too. (A month after the fire, their property insurance paid for the lost barn and fruit trees–and the bank swiftly claimed that check for the lost collateral on their mortgage.) Alexis and Eric had put both their slim profits and their savings into capital equipment for the farm, considering it an investment in their future. They had no cash and no available line of credit. They were screwed. "

Most farmers in the united states have one or more family members that hold an off-farm job.  This off-farm income allows you a stable base from which to weather setbacks -- like fires or crop failures -- and often provides benefits like heath insurance that can be difficult to maintain. 
In this case, Soul Food raised $35,000 (which I believe was probably far in excess of the amount of actual loss) and did so via the kindness of their customers and community.  Less than 3 years later they shut their doors.  I don't think that most farmers can depend on this sort of charity to dig themselves out of a setback, and so I wouldn't recommend that this be the way that you plan to overcome hardship.  Simply put Soul Food Farm was extremely lucky to know the right person to put together this fundraiser.  

Summary and conclusion
Soul food farm had achieved the success that many small farms aspire to.  It is my opinion that the prices and production numbers that they put out are overstated - given the number of laying hens they either had bad production numbers, or lost a large number of eggs before sale.  I'm guessing that a large percentage of their production was to wholesale markets at a much lower margin than direct-to-consumer sales.  It's an attractive way to build volume, but it also means straining your production facilities or staff;  that's one of the things that killed Thundering Hooves.   

There was a business here that could have been salvaged, but I think that the real reason for Closure is that Alexis was tired of the grind.  Having changed careers myself a couple of times, I completely understand.  

So of the three options:  Keep the business small enough to manage, hire and manage employees to run the business, or shut the business down, Alexis chose door #3.  


grasspunk said...

Excellent post, like the previous post-mortems. (disclosure: I am ex-msft too.)

This is a weird one. Chickens are intensive - high cost of feed, buildings, lots of labor. You don't need a 55ac farm for that, so the farm property is somewhat independent of the chicken operation.

You could consider the farm a 45ac homestead with a 10ac chicken farm attached. They ran it for a while, then shut it down when it wasn't worth the effort. Presumably the reason they bought the farm and built the house in the first place is still valid and they still have their 55ac and their house.

That seems normal enough but with all this amazing publicity it seems a waste.

You gotta have courage to start up an intensive farm with no experience, but these guys got some great flagship clients and PR. They could have focused on the high-margin segment at a lower scale and been profitable with less effort and more buffer to deal with commodity grain price changes. Why they didn't choose your option 1 I don't know.

There are probably a few factors we're missing. Hopefully you'll get a reply.

Bruce King said...

I would love them to expand or correct me on any particulars.

When I was researching this what I thought over and over again was "these guys have done the hard part, the part that is most difficult for most farmers to do, and thrown it away. "

Anonymous said...

They appear to still be in business, in a stripped-down fashion, selling only on the farm and living on off-farm income in the meantime.

I have a very simple theory as to where their big bottleneck was.

I think they had more than just animal predation, besides the obvious fact that they were only hitting max production for 2-3 months of the year (and this was basically all their income).

Anonymous said...

Very interested in post-mortems and how to farm productively, sustainably and profitably. Every little bit of information directed toward that end helps.

Across The Creek Farm said...

This was interesting to me Bruce and I appreciate it. Hopefully, you'll never do one on us!

I'm doing 300-400 NGMO birds a week, and from those shoes, with their prices, things should have penciled out.

I'd be interested to see their mortgage...I'm in AR, and CA prices would be a millstone around our farm's neck.

I'm getting to the point of considering hiring someone. This was a good read.

ben said...

Although these are great analytical thoughts from a business prospective I often wonder about the emotional piece when folks quit farming. I can relate to the discouragement that they seemed to reflect after their fire. Even seemingly small things like minor crop loss or loss of a few hoop houses can be a huge discouragement and if you're on the fence already it can be enough to push someone over. I hear it all the time, at least from folks who are questioning the 'sustainability' of farming at a personal level, 'Can we keep this up?' Farming is hard work, physically AND emotionally, not to mention profits...

Bruce King said...

I don't know anyone who's started a small business and had to close it that isn't heartbroken that it didn't work out. My first business failed, and it was truly heartbreaking for me, for instance.
One thing that I tell people when they're working on their farm plan is to add wage cost to every job they do; because if you're able to make it work paying a "wage", that means that you can afford to hire someone. If you're not making minimum wage, and hence cannot pay someone to do what you are doing, isn't that a wakeup call?

Anonymous said...

Great PM. I agree that it 'seems' like she had the market side dialed in. Hard to know without checking with all the 'cool' butcher shops though. I'd guess the numbers she quoted were at peak production, not yearly average.

It reinforces the financial follow through we do with all our stuff. Without review you don't know where you are at, or where your going.

I don't mind giving food to folks either, but not unintentionally. Our break even for eggs worked out to $5 per dozen, all things considered, and our local market (that we had reached at the time) wouldn't tolerate more than $4 per dozen. So we scaled back to just enough for us. As we break into a different market however, we know what our costs are, and can decide if we want to get into that game again. Spreadsheets rock.