The result is that over 70% of the small family farms are unsustainable

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1 Challenges and Potential for Small Farmers Producing and Marketing Specialty Crops and Livestock: Case Studies on Practical Ways of Mitigating Elements of Agricultural Risks and Building Sustainable Small Family Farms By Samuel W. Scott, Ph.D. North-South Institute, Inc. Davie, FL September 2009

2 What we know Sustainability in the small, socially disadvantaged farming community tends to be difficult because of a number of factors. Chief of these is the fact that while these farmers are over diversified (numerous enterprises done without regards for economic of scale and size) they are under commercialized (cannot developed sound markets and supply them in volume on a consistency basis). It is the latter that begs for answers to the reasons as to why this happens.

3 What we know It tends to be due to poor business organization weak businesses planning, lack of records and the use of relevant information to make sound decisions, poor marketing planning, poor use of training and technical assistance lack of access to sufficient resources in a timely manner inability to get involved in commercial marketing networks that yield financial returns that are sustainable. The result is that over 70% of the small family farms are unsustainable

4 What We Observed - Summary Over-enterprise diversification more that 7-10 enterprises on farm in inappropriate mixes Under-enterprise commercialized most have no planned markets and experience high rate of market failures Most enterprises are extremely labor intensive Land Preparation (10% of total labor needs due to the use of equipment) Planting (10% of total labor needs due to the use of equipment) Crop Care (weeding, molding, fertilizing, irrigation, application of pesticide and fungicide 15% of total labor needs) Harvesting (55% of total labor needs) Marketing (assemble, sorting, grading, packing, loading, delivery 10% of total labor needs) Most enterprise lacks good irrigation infrastructure, only 1 in 10 or less Lack of finance in adequate amounts on a timely basis (Average $6-10K, range from $500 - $50K) Production extremely low and erratic therefore they can enter into structured marketing deals Lack of interest in Government programs designed for assistance and refusal to get involved due to past experience Inflexibility and non-innovativeness in the implementation of supportive Government programs especially those associated FSA Loan and NRCS-EQUIP programs Existing programs shows no signs of adjustment e.g., marketing assistance for program crops and non for specialty crops

5 The Tools: Business and Marketing Planning Develop appropriate farm business Organizations e.g., Agribusiness LLC (Both Partners as Managing Members) better than that of Sole Proprietorship and in some cases even poorly run cooperative; Other option could include a non profit cooperative. Evaluate your market options and determine what to produce by asking and answering the following questions: What to produce How much to produce When to produce What grades and standards are acceptable How to pack and handle the products What return can be realized When deliveries are to be made and the conditions for deliveries How to develop better arrangements with brokers and distributors What are the terms of payments What are the methods of delivery

6 The Tools Diversification and Commercialization Market Planning use data from the 10 questions to develop a production schedule for efficient market deliveries Produce specific crops for the targeted markets staggering production schedule planting and harvesting identify resources to assist you to get the product to the market execute the agreement with the distributors and brokers, or direct marketing and monitor the arrangements between the seller and the brokers/distributors.

7 The Tools Diversification and Commercialization Enterprise Selection focus only 3-4 enterprises as the major ones Where possible include livestock or some value added operation

8 The Tools Diversification and Commercialization Enterprise Mix Small Livestock (sheep, goat, pasture poultry, pasture pork, rabbit), Honey Bee, and Aquaculture Tilapia Specialty Vegetables and Herbs (select 2 or 3 greens, s/potato, callaloo, hot peppers, okra, s/peas, clabaza/pumpkin, melons, herbs,corn) Value-Added (sauces, seasoning, pies and pickles, tortilla, pies)

9 Tools Labor Planning, Placement, Supervision and Management Development of better labor planning by determining how much labor is needed once the production and marketing technology mix of the crop is known Given the enterprise, labor is needed for land preparation and planting (mainly for transplanting), Crop Care and Husbandry (mainly for weeding/herbicide application, fertilizing, irrigation, spraying for pest and disease control), harvesting, and marketing and planning (mainly for grading/sorting/packing/ storage/trucking) Farmers should address the following especially if they are using seasonal migrant workers. These are housing, onfarm transportation, financing, field sanitation, health and safety and insurance/general and product liability and worker s compensation

10 The Tools Resource Assessment and Need Planning for Production and Marketing Land (where, how much and the cost) Irrigation (what best type and the cost) Seeds (certified, local and the cost) Fertilizer (soil testing, type, quantity and cost) Chemicals (pest and disease mapping, type, cost) Equipment (must suitable and cost) Packing Material (must suitable and cost)

11 TheTools Farm Record Keeping Simplified Record Keeping for Small Farmers and Rural Small Businesses Expenses Revenue Farm Business Planning Summary of Business FSA 2039 IRS Schedule F IRS Schedule K (1065 for LLCs)

12 Simplified Record Keeping for Small Farmers and Rural Small Businesses Expenses DATE TASKS/ACTIVITIES/MATERIALS QUANTITY PRICE PER UNIT TOTAL AMOUNT TOTAL Source: North-South Institute, Inc. and Global Strategy Group, LLC, Florida

13 Simplified Record Keeping for Small Farmers and Rural Small Businesses Revenue DATE TASK/ACTIVITIES/MATERIALS QUANTITY PRICE PER UNIT TOTAL AMOUNT TOTAL Source: North-South Institute, Inc. and Global Strategy Group, LLC, Florida

14 Farm Business Planning Summary of Business Year FARM BUSINESS PLAN WORKSHEET ---- SUMMARY OF YEARS BUSINESS AMOUNT 1. Total Farm Income 2. Purchase of Livestock and other Commodities for Resale 3.Gross Margin (item 1 minus item 2) 4.Total Operating Income (item 3 minus item 4) 5.Net Operating Income (item 3 minus item 4) 6.Non-Farm Income 7.Total Net Operating Income and Non-farm Income 8.Owners Withdrawals, Income Taxes, and Non-Farm Expense 9.Net Cash Income (item 7 minus item 8) 10.Term Loan Principal Payments 11.Margin After Debt Service (item 9 minus item 10) 12.Loan Advances 13.Capital Sales and Capital Contributions 14.Beginning Cash/Cash Carryover from Previous Year's Operation 14.Beginning Cash/Cash Carryover from Previous Year's Operation 15.Total Margin After Debt Services, Loan Advances, Capital Sales, Capital Contributions and Beginning Cash/Cash Carryover from Previous Year's Operation (Total of items 11,12,13 & Operating Loan Principal Payments and Debts Refinanced 17.Capital Expenditures and Capital Withdrawals 18.Total Operating Loan Principal Payments, Debts Refinanced, Capital Expenditures and Capital Withdrawals (item 16 plus item 17) 19.Ending Cash on Hand (item 15 minus item 18) Source: North-South Institute, Inc. and Global Strategy Group, LLC, Florida - Material Adopted from USDA/FSA 2039

15 IRS Schedule F (1040) SCHEDULE F OMB No Profit or Loss From Farming (Form 1040) Attach to Form 1040, Form 1040NR, Form 1041, Form 1065, or Form 1065-B. Department of the Treasury Internal Revenue Service

16 IRS Schedule K (LLC) Schedule K-1 (Form 1065) Information About the Partnership Partner s Share of Income, Deductions, Credits, etc.

17 Consistent Education -Training Production know-how Marketing know-how Farm management Farm financial literacy Cashflow management Simplified farm record keeping Farm computer literacy

18 Game Changers: Policy and Access to Financial Resources Balancing Technical Assistance and Training with Financial Resources In the proposing A New Civil/Silver Rights ERA for USDA the following is suggested that could be offered through the Office of Outreach and Diversity

19 Game Changers: Policy and Access to Financial Resources Short Term: Creation of a national Quick Response Innovation Credit Fund for these Groups, this would be similar to these set up for SME in several Countries TA tied to operating loan and finance, ranging from $500 $50,000 per applicant. The institute can help to provide information for structuring and developing and guidelines as to how to administer such a fund. Mini Producer Marketing Working Capital Grants for these groups. Here farmers can receive a one time grant of up to $10,000 to assist production and marketing expenses of specialty crops, livestock or honey or value-added products. Terms --- farmers must develop a simplified business plan, keep farm records, and can only access this fund once every three years

20 Game Changers: Policy and Access to Financial Resources Long Term: Revisit the administrative laws, guidelines, and procedures in existing programs, especially those in FSA, NRCS, RD, CSREES, FAS and create languages to establish rules that are more client friendly to these groups especially in loan requirements and/ or as well in the Consolidated Farm and Rural Act (CFR) adjust or modify the language to allow for RFP to provide Technical Assistance in the Grant or Cooperative Agreement, to allow CBO s to establish within the application to include on the SF424 line item up to 10-20% of the amount requested to be used to provide direct financial assistance through Innovating MICRO Loan or Working Capital grant assistance to producers so that they have access to capital to cover operating costs and expenses.

21 Dr. Samuel Scott, Ph.D September 2009