Market Channel Assessments: Understanding Farm Profitability by Market

Transcription

1 Market Channel Assessments: Understanding Farm Profitability by Market Becca Jablonski Assistant Professor and Food Systems Extension Economist Department of Agricultural and Resource Economics Colorado State University Fall 2016 Colorado Ag Lenders Tour 1

2 U.S. organic food sales est. ~$37B in Organic food products still gaining ground in conventional supermarkets as well as at natural foods markets now accounting for 15% of total U.S. food sales. Fresh fruits and vegetables are the top selling organic category followed by dairy products. Organic farmers often earn a substantial price premium. Colorado as leader in organic sales CO farmers, ranchers and food processors ~$2.5B in organic sales ~10% of U.S. sales of organic products 2

3 Trends in local and regional food systems Est. $12B in sales in % annual growth expected at least through 2018 Most sales through intermediated (not direct to consumer) markets One example of growth, in 2014, 4,322 school districts (42% of total) now have farm toschool programs Substantial investments being made by USDA (Farm Bill): >$1Billion >40,000 local and regional food business infrastructure projects 2014 Farm Bill tripled funding for marketing and promotion of local foods 3

4 Trends in local and regional food systems Growth in farmers markets appears to be waning Annual growth 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 US Western Region State Wyoming 20% 0% Alaska 18% 6% Idaho 14% 3% Colorado 14% 0% Nevada 14% 7% Montana 13% 3% Oregon 12% 3% US 12% 3% Arizona 11% 7% Utah 9% 0% Washington 9% 3% West 8% 0% California 6% 0% N. Mexico 6% 6% Hawaii 2% 5% Source: USDA Agricultural Marketing Service,

5 Farmers Markets in Colorado, concentrated in metro areas Denver Mayor Michael Hancock set the city s 2020 sustainability goals: Acquiring at least 25 percent of food purchases through Denver s municipal government supply chain from sources produced entirely within Colorado. 5

6 New pricing reports Led by Martha Sullins, Partner with Glenda Mostek Newly funded by USDA AMS Direct market price reporting Farmers markets ( ): 12+ markets weekly reporting around the state using trained enumerators 100+ products F&V, meats (2 cuts each species), eggs, cut flowers, honey Goals: CSU: price discovery for business planning (reduce costs for growers to obtain data) For USDA: information to support specialty crop programs (farm loan applications, whole farm revenue insurance) Sullins et al

7 Price reporting locations, 2015 Sullins et al Tomatoes certifications command higher prices (mean price/unit, all markets) $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 USDA Organic Other cert. No certification Small, cherry (pt) Slicer, plum (lb) Heirloom (lb) Small, cherry Slicer, plum Heirloom USDA Organic $4.50 $3.23 $5.05 Other certification $4.26 $3.73 $5.05 No certification $4.08 $2.92 $4.46 Across practices $4.26 $3.18 $4.84 Denotes mean prices by product that are significant at 0.05 by production practice Sullins et al

8 Greens certification not always a differentiator (mean price/unit, all markets) $6.00 $5.00 USDA Organic Other certification No certification $4.00 $3.00 $2.00 $1.00 $0.00 Kale/bunch Arugula/bag Lettuce/head Mixed greens/bag Kale/bunch Arugula/bag Lettuce/head Mixed greens/bag USDA Organic $3.20 $5.07 $3.58 $5.33 Other certification $3.46 $4.05 $3.39 $3.79 No certification $2.81 $4.29 $2.78 $4.47 Denotes mean prices by product that are significant at 0.05 by production practice Sullins et al $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Ground beef Beef, mean price/pound 10% USDA Organic 70% other cert. 20% no cert. Market Ribeye Ground beef Price/lb CV Price/lb CV $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Ribeye Golden $ % $ % Highland $ % $ % South Pearl $ % $ % Old Town $ % $8.39 9% Alamosa $ % $7.07 3% Boulder $ % $7.46 2% Longmont $ % $7.50 0% Drake $ % $8.00 0% Palisade NA $7.00 0% Grand Junction NA $7.00 0% All markets $ % $ % Sullins et al

9 Ground beef prices little variation in response to retail market prices Price/lb $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 Retail ground beef Boulder Old Town Golden $0.00 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/ /1/ /1/2015 Non significant, but negative relationship between USDA retail ground beef prices and Larimer (Old Town) market prices; r (20) =.415, p<.05 Note: Weekly average retail ground beef prices from Sullins et al What is the average weekly value of this CSA share basket: Product Units Quantity Green Beans lb Carrots bunch 1 Garlic each 1.5 Kale bunch 1 Head Lettuce per/ head 1 Onion each 2 Summer Squash each 2 Cherry Tomatoes pint 1 In different parts of Colorado? Sullins et al

10 Benchmarking USDA ARMS sample of Local Food Farmers and Ranchers, 2013 Mountain region n = 51 Population size = 12,528 No. of observations Population size Market Channel D2C ,186 Intermediated ,703 D2CIntermediated ,012 Alllocalfood 1, ,901 Nonlocalfood 16,416 1,935,568 Local food producers by farm scale (GCFI) 1kto75k ,563 75kto350k , to1Million 104 3,922 Million and higher 107 3,607 Source: USDA ARMS 2013; analysis by Jablonski, Bauman, and Thilmany McFadden Summary Statistics for Local Food Farmers and Ranchers, by Gross Cash Farm Income All sales categories $1 to $75,000 $75 to $350,000 $350,000 and (1013) (n=534) (n=213) above (n=211) Variable Mean Std. Dev. Mean Std. Dev.Mean Std. Dev. Mean Std. Dev. Return on Assets Share of Variable Costs Attributed to... Feed Fertilizer Labor Fuel Utilities Other Taxes & Insurance Interest Rent Ratio Off farm to Cash Farm Income

11 Average expense for local food market producers by scale, U.S. y1mhigh* 34% y350kto1m* 29% y75kto350k* 21% y1kto75k* 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Purchased livestock Purchased feed Other variable expense Seeds and plants Fertilizer and chemicals Labor Fuel and oil Maintenance and repair Machine hire and custom work Utilities Other livestock related Source: USDA ARMS 2013; analysis by Jablonski, Bauman, and Thilmany McFadden Summary Statistics, by Gross Cash Farm Income All sales categories $1 to $75,000 $75 to $350,000 $350,000 and (1013) (n=534) (n=213) above (n=211) Variable Mean Std. Dev. Mean Std. Dev. Mean Std. Dev. Mean Std. Dev. Age class; 1: <=34, 2: 35-44, 3:45-54, 4:55-34, 5:65+ Age Class Ratio of Owned to Leased Land Primary Market Channel and Marketed Product, 0-1 Direct to consumer Intermediated only Both Direct & Inter Fruit and Vegetable Field Crop Animal Education class of primary operator; 1: less than high school, 2: completed high school, 3:some college, 4: completed 4 years of college or more Op_Educ Urban-rural code; 0=metro, Northeast Midwest South West Source: USDA ARMS 2013; analysis by Thilmany McFadden, Bauman, and Jablonski 11

12 Average expense by local food market channel, U.S. D2CIntermediated 25% Intermediated 25% D2C 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Purchased livestock Purchased feed Other variable expense* Seeds and plants Fertilizer and chemicals* Labor* Fuel and oil* Maintenance and repair Machine hire and custom work Utilities* Other livestock related *If F value is less than 0.05 then expenses are statistically significantly different Source: USDA ARMS 2013; analysis by Jablonski, Bauman, and Thilmany McFadden Profitability by Scale Table 3: Return on assets, by gross cash farm income and quartiles Return on assets, by gross cash farm income and quartiles y1kto75k y75kto350k y350kto1m y1mtohigh All Sales Mean St Error Mean St Error Mean St Error Mean St Error Mean St Error Quartile Quartile Quartile Quartile Note: Return on asset was multiplied by 100 for interpretation and was found to be significantly different across all quartiles for all sales classes. Source: USDA ARMS 2013; analysis by Thilmany McFadden, Bauman, and Jablonski 12

13 Profitability by Marketing Channel Return on assets, by local food sales channel and quartiles Direct to Consumer Intermediated only Both Direct and Inter. All Sales Mean St Error Mean St Error Mean St Error Mean St Error Quartile Quartile Quartile Quartile Note: Return on assets was multiplied by 100 for interpretation. With the exception of Q1 & Q2 for Both channels, all quartiles were significantly different. Only Q4 was significantly different across marketing channel strategies (but Intermediated and both were the same). The one exception is that direct to consumer and both channels is significantly different in Q3. Source: USDA ARMS 2013; analysis by Thilmany McFadden, Bauman, and Jablonski $1 75,000 $75 350K $350 1 Million > $1 Million August 2016 Labor Cost % Gross Sales /Labor Share of Costs Asset Turnover Off farm income Debt to Asset Q1 7% % $ 62,818 12% Q2 8% % $ 68,718 11% Q3 7% % $ 65,099 7% Q4 8% % $ 76,291 3% Q1 18% % $ 30,914 23% Q2 22% % $ 34,744 9% Q3 23% % $ 56,246 10% Q4 22% % $ 52,203 17% Q1 32% % $ 57,087 32% Q2 25% % $ 34,850 10% Q3 26% % $ 54,567 9% Q4 34% % $ 26,232 28% Q1 35% % $ 30,010 21% Q2 30% % $ 39,773 11% Q3 32% % $ 40,095 25% Q4 42% AAEA Track Session 166% $ 54,460 30% 13

14 How do top performers differ? Farms with greater scale (over $350,000 but <$1 million in gross income) Over half of the sample is operating at a profitable level at this scale Debt use bimodal Best and worst performing farmers report relatively higher levels of debt. Potential that poorest performing operations see debt as a solution for cash flow shortfalls, compared to best performing operations see debt financing as an opportunity for faster growth. Efficiency measures among quartiles Asset turnover generally highest among best ROA farms Exception is efficiency in smallest sales class, perhaps due to low capital investments Also have high labor productivity Labor productivity important, but less so for those grossing over $1 million Perhaps this is related to transition to wholesale markets that require more capital investments 14

15 Profitability Impacts Source: Vogel and Jablonski 2015 Farm business survivability Ag Census definition: A farm business is considered to have survived if its operator reported positive sales in consecutive censuses. 15

16 Source: Low et al Source: Low et al

17 Market Channel Assessments Funding provided by: Colorado Department of Agriculture, USDA Agricultural Marketing Service Sales per labor hour percentiles, by aggregated marketing channels Source: Schmit and LeRoux 2014 Farm-level impacts Market Channel Assessments (LeRoux et al. 2010) 17

18 Help Establish Colorado Specialty Crop Benchmarks! Want to learn how your expenses and profitability measure up by market channel? Your input is needed to establish industry benchmarks that will help producers, like you, determine the most profitable market channels. Learn more: Benchmarking survey (ongoing) Looking for farms to participate in market channel assessments (compensated) July-October 2016 and focused on Western Slope and Front Range 2017 TBD Contact info: Becca Jablonski Assistant Professor and Food Systems Extension Economist Department of Agricultural and Resource Economics Colorado State University B337 Clark Hall