By Jim Ochterski
If you are calculating your farm product prices based on what others are charging, you are making assumptions that your farm probably can’t afford.
We know it can be tough to get buyers to pay a price that provides a consistent profit for your farm. Yet, the whole idea of growing something and selling it is to earn money, while you enjoy the non-monetary perks of an agricultural life.
Consider “honest pricing.” An honest price is one that gives you the income needed for your farm to survive the season economically. It is a combination of straightforward math and a responsible attitude about your farm. Bottom line – you need to cover all of your costs and then some.
In the end, your honest price might wind up being higher than you think the market will bear. This is when you need a truthful approach in your marketing, being ready to answer some tough questions.
Here’s how one set of tough pricing questions can be answered in a hypothetical conversation between an unusually demanding customer and a market farmer:
Customer: I don’t want to sound like a cheapskate, but you do realize that your lettuce is a lot more expensive than what they have at the grocery store?
Farmer: Well, I’d say the lettuce you are seeing at the grocery store has very little in common with this freshly-harvested lettuce. Would you mind if I asked why you have come to the farm market today?
Customer: To me it just feels like the right thing to do during the summer. There are a lot of farms in the area. I do like the choices and the freshness.
Farmer: Do you think it should be a cheap way to buy your food – getting it right from the farm?
Customer: It cuts out the middleman doesn’t it? You grow the fruits and vegetables nearby and sell them right to me. We both win. It should be the cheapest food around. So no, I don’t understand why you would charge twice as much as the grocery.
Farmer: Look, I know you can always buy cheap food somewhere – go to Wal-Mart, or buy it when it’s on sale. But when you are at the farm market or at my farm, it is going to be a lot more honest. And the price I charge on everything I sell is an honest price.
Customer: I’m sure you can call it an honest price, but it’s still more than most people are willing to pay. How do you justify it?
Farmer: It’s not that hard to explain, and you need to know that this is how I have chosen to create an income for my family. I am not going to entice you on price alone – that would be a laugh and I’m not going to even try. You are getting my assurance and accountability for everything about this food – how it was grown, harvested, and handled. You are getting my expertise to grow food that you can’t or don’t have time to. Any money you spend at my farm will be money well-spent if quality matters to you. The price is probably more reasonable than you would think.
Customer: Let’s hear how you justify the price then.
Farmer: We’ll take this head of lettuce as an example. I have 250 heads growing this season in five rows. There is $38.00 worth of seed, compost, transplant trays, and irrigation water in each row, plus another 11 hours worth of work to get the seeds going, work the soil, drop in the transplants, keep it weeded, control the bugs, then harvest, wash, and store the lettuce until I get here. There’s a vendor fee to be at the market and a little gas in the tank. Also, there’s the electricity for the cooler, insurance, and my farm phone. That brings me to about $340 in expenses just for the lettuce crop and I base the final price per head on that. When you pay me for the lettuce, you are covering all those expenses I have already incurred.
Customer: What if you can’t sell the lettuce? I mean, can you afford to not sell it?
Farmer: There are a lot of reasons why the lettuce might not sell. I try to make sure that the price is reasonable for the market I am in and take that factor out of it. If it still does not sell, I’ll take a lesson from that and make a choice about growing it again.
Customer: So what kind of profit are you really getting?
Farmer: The profit is different from crop to crop but it’s there. I know what it costs me to bring any of these crops to market, and that always includes my salary and a little profit so we can take care of family and farm needs.
Customer: Wait a minute, you are getting a salary out of this?
Farmer: Anyone who grows things to sell should have a salary in their books – what they need to earn year in and year out. It’s called a fixed expense. I try to be as frugal as I can with all the other expenses, but this is income for my family, not a hobby. The profits are not huge compared to other businesses. It is the money I need to replace my barns and equipment as they get worn out. And yes, there’s some profit in everything I sell.
Customer: OK, I am feeling a little better about spending extra when I am here, but do all the farmers follow the same rules? It seems like some farmers are practically giving things away.
Farmer: There are women and men in farming who have no idea what their costs are, and it is really too bad. When you figure the time and effort they put into growing the food, I wish I could convince them to pay more attention. None of us will build wealth by undercutting our own farms. It starts with price, and like I said before, from my farm, the price will be as honest as it can be for me and for you.
Customer: How do you deal with other local farmers who sell fresh lettuce for less?
For more information, particularly about how to handle price increases with your customers and other marketing challenges, visit the Marketing School for Growers website: www.MarketingSchoolForGrowers.org
Farmer: My lettuce and their lettuce are not identical, and our prices are not identical either. I might have to charge slightly more, but you are also going to get more, and I guess it is my job to convince you of that.
Customer: You got that done today. I’ll take one of each kind. Honestly, it might just be worth it, eh.
Jim Ochterski advises hundreds of farms about business topics each year in the Finger Lakes region, based at the Cornell Cooperative Extension office in Canandaigua, NY (Ontario County). He can be reached at 585-394-3977 x402 or firstname.lastname@example.org.