Distance, time and markets

Got this in email today:

"G'day Bruce,

I'm a long time follower of your blog and I've got a question that I'd be be ever so grateful for your opinion on.

For a number of years I've been planning to start a farm of my own raising cattle / pigs / poultry for meat here in Australia, selling direct to the consumer. I feel that the environment in my country is on-the-whole fairly similar to that in the US for small-scale farmers.

My question is this: If you were going to buy some farm land to do something like this, which of these two options would you go for?

1. I can buy land 1.5 hours drive/50 miles from a city of 2 million people.

2. For much the same money I could buy similar land 20 minutes from a city of 30,000 people, that number increasing to 100,000 if you include all the people scattered within a 45 minute drive/40 miles of the property (in a number of towns and villages).

Both have access meat processing facilities within 30 minutes drive.

Many thanks in advance!

Cheers,

James"

 

When I was deciding where to put my farm I decided that I'd be within a 60 minute drive from the largest market that I could find, which in my case was Seattle.  So I took a map and drew a one-hour circle around the city.  It wasn't really a circle -- seattle has ocean and lakes which compress it, and the big interstate freeways stretch it out, but you get the idea. 

 

Within that area I looked, in my case for two years, for land that was suitable for what I wanted to do.  I was looking during the height of the housing boom, and it took a while.  I ended up on a parcel of land that I overpaid $6k an acre for.  I say overpaid relative to the land price now, but it was relatively cheap.  I paid $72k for 12 acres, of which about 9 acres was usable.   I wouldn't fully grasp the joys of flood-plain farming for a couple of years. 

 

Being close to the population center for me has been important for the very small percentage of people who actually want to visit the farm.  But that small percentage are also people who tend to be very influential about... in my case, bloggers and authors and folks involved in the local media.  I attribute most of my early sales to my location... but not so much to the location within 60 miles of Seattle, but my location next to a major freeway.   The 55,000 cars that pass over my farm every day actually meant that for me I didn't need to have much, if any, advertising budget.  I think I spent $300 a year, but then found that most of my business came off the farm-and-garden classification of  craigslist or various media coverage that I got by thinking up odd things to do -- like the kill your own turkey class.   In the last 3 years I  haven't spent anything on marketing, unless you count the time I spend on this blog, which is mostly a labor of love, and, sometimes, doesn't help me sell products.  That article I wrote about horses made people mad and I'm pretty sure that some of those folks will never, ever, buy a pig from me.   

 

A lot of people think that the hard part of farming is the farming, and I can tell you it's not.  The hard part is finding a market and selling your production, particularly if you are good at producing quantities.  If I were in a more remote area, or not located next to a highway I would have had to work much harder at finding my customer base and selling my production. 

 

Another thing that I am still struggling with is that my farm and my house are not at the same place; I have to drive for 20 minutes to get to my farm, and 20 minutes back, and I cannot tell you the number of times that I've been almost home and gotten a call that my cows or sheep or pigs or whatever were out, and had to turn around and fix that.  If I were to do this again, particularly with an animal-based endeavor, I would not have a farm that was more than a few minutes from my house, and ideally, I would have my house at the farm.  Having a commute takes 40 minutes minimum out of my work day, every day, 7 days a week.  So I lose what amounts to a whole work day every week, 52 weeks a year. 

 

The problem with smaller rural areas, at least around here, is that many of them raise small quantities of whatever it is that they prefer to eat.  Not uncommon for people in rural areas to own a pig or two, or chickens, or geese or whatever the locals like.  Cities tend to be a place where people who want what you produce cannot produce it and, from a sales point of view, are a better bet.   1.5 hours drive is bigger than the circle that I drew when I was looking, but Australia is a big place, like the USA, and "local" gets stretched a lot.  "local" around here is 250 miles, when you consider the distances that farmers drive to sell at one of the urban markets in Seattle.    It's the ability to produce things that the city folks desired but could not produce themselves that really drove my decision. 

 

You may have quality-of-life issues at one location, vs the other, or the quality of schools, or other reasons that make one location more attractive.   Figure out what you want to sell, and see if you can sell it before you even buy your first animal in the areas you're looking at.  Here's a question and my answer from another forum, from a guy who was thinking about raising 40 pigs: 

 

"pigs.... any money to be made?

---

Let me preface this by saying I have no experience with pigs other than helping the neighbor cut his and move them around when I was a kid.

Over the last couple of months I have been considering buying a pig and turning it into sausage/pork burger. During this time I have seen young (10-20lb) pigs sell for what i consider decent money. We have an old feeder floor on the farm that I have looked over a couple times and seems to be in good shape and from conversations I"ve had with my father in law its big enough to feed out roughly 40head.

Now... Here is my question. Roughly what is the cost to feed a pig out to 200-250lbs? How long should it take to get them there? 6mos?

Is there enough money to be made on 40 head to justify that it would cost to raise them? Im am in a position where I have all the time in the world during the summer months and Im more or less looking for another project. Any thoughts?

Jim "

 

My answer: 

 

"Sell them before you buy them.

Call all of the custom slaughter guys in your areas, small meat shops or other places that use pigs, and see how many you can sell to them. If you can sell all 40, get them to front you the money for the pig purchase, and possibly the feed. If you get 40, don't sell 40. Sell 37. The other three are in case you have mortality or want a few pigs for friends and family.

If you can't sell them, don't buy them. I sell pigs full time, similar sort of business to Walters. Since he doesn't feed commercial feed to his pigs, he's probably using my numbers in his estimates -- they're good. 800lbs per pig. Hog feed in this area is $540 a ton, so that ends up being about $170 a pig to bring it to market weight. If you can secure cheaper feed -- we pick up and feed 10 to 20 tons of produce a week to feed to my 500 pigs - that will really lower your costs.

You cannot raise pigs cheaper than folks sell them at the auction, you cannot beat a confinement operation on price. Don't try. Sell local, hand-raised, husbandry and quality. "

 

So why not try a market test?    I do this on craigslist from time to time.  I'll post ad that is something I'm thinking about, and collect the responses from interested parties.  If there's enough interest, I'll use that mailing list as sales leads, and then collect deposits on my new project.  I'll then use the deposit money to buy the materials, and basically, if the customer backs out of the purchase, I'm out no money.  Otherwise the items produced are pre-sold before I even buy them. 

 

I did this with guinea fowl -- I got enough interest that I was able to raise a deposit which covered the cost of buying the keets (guinea fowl chicks are called 'keets') and the feed, and I raised a batch of 150 of them and sold them to folks.  No investment of money on my part, entirely financed by the customers, who in turn received their guinea fowl when they reached maturity. 

 

You could apply this to just about anything you might produce.   If you cannot pre-sell them, could you sell them?  Generally speaking, I know people are serious when they put some money up. 

 

I hope that this discussion wasn't too long-winded, but I felt like giving you the background might help more than just saying "stick with the big city is what I'd do". 

 

You'll find the context for the 2nd question here. 

 

 

 

 

 

The curious case of Home Grow-in Grocery, Ltd.

Seattle is only a couple of hours from Vancouver, and Vancouver has as much interest in local food as we do down here.  I recently ran across a series of articles written by Colleen Kimmet about a local food venture up there that apparently went wrong. 

Picture courtesy of The Tyee

Colleen has spent the last few years writing about a variety of issues related to agriculture.  With that introduction, here's the case of the Home Grow-in Grocery, Ltd. 

The basic business idea was a market that specialized in locally grown and produced produce; that sounds pretty good.  Here's a quote from a news story in Oct, 2010. 

"What I'm trying to do with my growers," says Reynolds, "is bring a market to them, rather than them having to go to the market. I want to show there is a market for their produce seven days a week, 52 weeks of the year." Deb Reynolds, founder of Home Grow-in Grocery, Ltd. 

This is actually a problem that I'd like to have a solution to on my farm.  It's difficult for me to get to a farmers market because I'd have to staff a booth, and public-contact people can be hard to find.  And I have to justify the cost of an employee by the sales profit, which means I have to do something that is relatively high volume. 

Apparently that was the case for many farmers in BC, and a number of them invested in this venture -- both cash, $10,000 in one case -- and in product, allowing the market to recieve and sell their produce without getting paid for it, for months.   Customers also invested in this idea, paying in advance for boxes of produce, similar to the CSA system that's sprung up in many cities around America. 

It all came to a head when the market declared bankruptcy and the founder of the market also dissapeared, apparently owing hundreds of thousands of dollars to farmers and customers, as well as individuals who invested between $2,500 and $10,000 each. 

After this the market was rebranded and apparently continued operation.

The folks who got involved with this apparently handed over money and product with no written agreements, and without what I'd consider a reasonable amount of caution; farming is full of people who are personable, have great ideas, and are good at promotion, but fall short when it comes to the boots-on-the-ground grit that it takes to do the daily operations grind. 

"To make $100k a year, you'd need to produce 19lbs a month..."

Washington State voted to legalize and regulate Marijuana for recreational use in November of 2012.  The initiative split the industry into three parts, producer, distributor and retailers. 

The public comment period for the producer portion closes on February 10th, and they are soliciting comments via email or fax.  You'll find the deadlines and email addresses for comments here. 

I did a public disclosure request to get a copy of all comments received by the state liquor control board.  What follows are selected comments by the public about marijuana producers received to date by the liquor control board. 


"To whom it may concern:
  Thank you for hearing me out.  Right now, if I were to start up again, I could secretly create five pounds a week on a 20 week plant cycle.  I would have 99 plants and create pest, mold and chemical free; top quality marijuana that would sell out before any other pot that I know of.  For each additional three personal that you could provide that number doubles.  With my knowledge and ambition the number is limitless.  I'm not in it for the money.  I'm in it to help this struggling country.  Washington state has one chance to prove to the world that corruption and greed won't take hold in this industry and that it is the foundation of a new America that will be a safer place for our children to thrive long after we our gone.  I pray that we take the right steps together in getting there before time runs out.  This initiative will benefit every one of us if it works.  Please believe in what I say I can't wait to work with you - thank you, Caleb"


"I am very interested in become a producer via license to do so from the LCB. Some speculate that only people with large amounts of money or commercial property square footage will be considered for license approval.  I see this as the perfect opportunity to expand my small company (which I operate out of my home) by branching out into a new and lucrative industry and I know I have the ability to produce a quality product and use initial profits to be able to purchase more square footage that would allow me to grow as a producer.  To wrap it up, please don't make the initial requirements so steep that only big business will have a chance to get licensed.  let the "litte guy" have a chance to prove his ability to be an entrepreneur"
Thank you
xxxx
Eastern Washington"

"...Make absolutely certain that what ever policy is put in place will have maximum limits on producer per permit/license.  we must not allow r.j. reynolds or the like to dominate production.  Maximum plant count, maximum square footage, some method of controlling quality per license.  Many seniors in this state will supplement their retirements with the revenue derived from these permits..."

"[make sure that the property being licensed] for marijuana production and manufacturing actually exist and that the lien holders of the property actually sign off for this use, as banks will not be allowed to be involved in this type of use due to FDIC rules, they will call the outstanding balance due and payable on knowledge of use of said property..."

"...my wife and I have a small agriculture business called xxxxxxx.  We have 80 acres in the foothills of Mt. Spokane that is mostly trees with horse pasture.  We have been raising various vegetable crops but we have cut back because of health problems... [omitted] ...I would like it to be possible for people like me to be growers.  I don't like the idea of large warehouses and industrial production.  If there were a large number of small producers scattered out there in agricultural areas the ability to rob someone to get a huge score would be eliminated.  [omitted] ...I am a former boy scout leader and registered professional engineer in washington.  I can't think of a reason why people like me shouldn't be considered..."

"By my best educated guess, based on [state estimate of consumption in Washington state] your guess of 187,000 pounds needed...
187000 pounds if there are 100 growers [state estimated # of grower licenses to be issued] then we each need to make about 1870 pounds and that's 7480 plants each making 4oz so since there's about 5 crops per year that's about 1500 plants and about 25 plants each in an 8x12 so that's about 60 8x12 spaces. 
1870 pounds is 848980 grams at $3 each is $2.5 million per year for the grower.  Also 2.5 million for the processor. 
60 spaces is about 6-8 growers each spending an hour per space.  (My apologies for horrible grammar).  I'll be applying.  I have people interested in funding this move.  "

"1.  At $3 per gram [state estimate of revenue to producer] only very large scale operations could exist.  This is counter intuitive to the artisan approach that currently exists.  Currently wholesalers get a little over $5 per gram and even then *only* having 45 mature plants is just a living wage. 
 2.  an above average grower can put 4-6 ounces on a plant in 12 weeks.  if we focus on a 9 week fruiting/flowering strain and take into consideration how much cannabis you claimed Washington state wold need per year and do the math into the 100 growers your theorized would supply 328 stores we get that each grower would need over 1200 plants to supply the 1/100th the required cannabis.  This is assuming the averse yield is four ounces.  This could easily turn into low grade crud that no one wants. ..."

"based on my knowledge and research of the costs of producing the quality product intended at the estimated retail price would mean that the producer would collect roughly $3/grm gross.  After being taxed at 25% by the state the net gross drops to $2.25/gm.  Factor in the cost of production, rent, electricity, water, nutrients, labor and whatever costs the state decides to charge for testing, QC, on top of the $1,000 business license.  The producer will be lucky to net $1.00/gm.  In fact, I doubt that this is achieve able. 

if you plan on doing massive outdoor grows in eastern Washington in the summer months you have to consider a few things.  1) federal intervention 2) inferior quality 502 is lauding.  basically inferior to anything available in MMJ clinics right now. 

Assuming the producer is able to net $1/gm, the producer would need to produce 111.6lbs of cannabis annual to net $50k annual income.  In other words, roughly 20% less a typical bar tender.  If the producer wished to earn a $100k annual income which is considered a middle class income he/she would need to produce 223.3lbs annually or 18.6lbs/month.  Now we are talking a very large operation with up to 60 lights, a massive electric bill, expensive rent for a space that large, a hefty insurance policy, and alot of man power/labor cost, thousands in nutrient cost, grow media, etc.

The most important component is how is this going to be profitable?  My bet is that if this is how the state plans on moving forward it will only explode the black market.  Users will get a better product for there money.  Growers/producers will get alot more money for their efforts will producing less product

[omitted]
...the current MMJ industry is a good model to look at.  They manage to make decent profits even after collecting state sales tax [about 9%].  I bet most of them would not survive a 25% tax burden.  Ofcourse this is all before we've considered, B&O tax and IRS tax as well.  [this guy isn't used to paying any taxes at all...]
"

Here's some facts to help you consider these comments:  The average income in King county, the wealthiest county in Washington state, is less than $30k a year.   There are hundreds of thousands of people in king county alone that would be overjoyed to net $50k a year. 

$100,000 is more than 95% of the wage earners in Washington state earn, not a "middle class income".  Most college graduates will not earn $100,000 a year, ever.  The comment that says that $100k a year is not enough profit to even be worth doing is pretty representative of these guys. 

Did you make $100,000 a year on your farm last year?  Net?  $50k?