Setting Up a Mixed Fruit and Vegetable Operation

 
 
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 Getting into mixed fruit and vegetables | What are the opportunities? | Economic feasibility of this type of operation | Planning for success: what will I need to start? | Economic planning and forecasting for your operation | Closing the loop: final steps in business planning

Is a farm-direct mixed fruit and vegetable operation in Alberta right for you?

For someone interested in getting into farming in Alberta, several questions come up very quickly:

  • What type of farming do you want to get into?
  • What type of product do you want to grow?
  • What are the resources you will need?
In some Alberta farm sectors, barriers to entry for new participants can be substantial. You may need a lot of land, expensive equipment, production quota or specialized technology.

Getting into Mixed Fruit and Vegetables

One of the most accessible farm sectors in Alberta for new entrants is farm-direct mixed fruit and vegetable operations. This type of operation can be put together with a relatively limited land base and a reasonable portfolio of equipment. That is why many people who are new to the industry choose this sector to begin their farming enterprise.

Having said that, there are many variables that go into the success – or failure – of a farm-direct mixed fruit and vegetable operation. These factors include production, pricing, marketing, transportation, labour, regulations, insurance and more.

The purpose of this factsheet is to provide an overview of the economics, market factors and business processes behind a farm-direct mixed fruit and vegetable operation in Alberta. Armed with this information, you can decide if this type of enterprise is right for you.

What are the Opportunities?

Direct market sales have been steadily increasing in the fruit and vegetable sectors for the past several years, with many new operations and expansions across the province. One of the most popular channels of distribution is the farmers’ market.

The fresh vegetable sector consists of a diverse range of crops, with operations ranging from very small (under 1 acre) to larger operations (over 50 acres). The value of the industry is difficult to capture; however it is estimated to contribute millions of dollars to the economy each year.

Alberta’s fruit industry is estimated to be worth about $5 million annually, but growth in this sector has been increasing, with new crops and reasonably strong demand for product.

The vast majority of fruit produced in Alberta is marketed directly to consumers. The market for strawberries is perhaps the strongest, with roughly 300 acres in Alberta and even more acres needed to meet a very strong demand for this fruit.

Raspberry acres in Alberta are about 200 to 250 acres. Although they bring good returns, raspberries can be slightly more challenging to market outside of farmers’ markets.

Saskatoon berries are a large and well established industry, with about 1,650 acres in Alberta. This crop is marketed in a number of ways, but sales are fairly stable, with new market opportunities opening up.

Economic Feasibility of This Type of Operation

Making money in the farm-direct fruit and vegetable sector depends on many factors including crop prices, what you pay for inputs and expenses, transportation and more.

The size of your operation will depend on what your expectations are, how you plan to market your crops and what is economically feasible for your enterprise. Starting small is fine, but the expected revenue that comes from a small-scale operation may be limited.

As you scale up, you will add more costs, but as you spread these costs over more acres, the result will likely be higher profits.

Consider the following advantages and disadvantages when deciding on a mixed operation over a vegetable-only or fruit-only operation:

Advantages of a mixed operation:
  • multiple crops allow you to spread out risk
  • many crop types provide a diverse offering for your customers and may attract a wider audience
  • the selling season can be extended
  • different harvest times can result in more manageable labour needs
  • workers can be employed for longer stretches of time
  • bundling different products can help increase sales
  • equipment costs can be spread over more enterprises
  • you may be able to change your product offering year-to-year, resulting in a more flexible business
Disadvantages of a mixed operation:
  • more crops to juggle throughout the season
  • different agronomic requirements can make it challenging to manage pests, fertilizer, etc.
  • understanding production and marketing requirements for multiple crops can add to the complexity of your business
  • multiple crops may require a wider variety of equipment
  • you may need a larger land base to allow you to rotate crops properly or produce enough crop to meet the demand
What is best for your operation will be an individual decision. While Alberta data shows that healthy profits in the farm-direct mixed fruit and vegetable sector are possible, pricing and costs can also be such that you can put in a lot of effort without adequate returns.

The Farm Summary table below illustrates revenue and expenses for a mixed fruit and vegetable farm direct marketing operation. This information is an example only, and the data does not represent all situations. It is important that you use your own numbers when determining your Cost of Production.

Total Farm Summary (Example Only)
Alberta Agriculture
Fruit and Vegetable Farm Direct Marketing Analysis (4.7 acres)

Table 1. Revenue
Revenue
Vegetables
Fruits
Total
$76,616.19
$7,779.23
$84,395.42
Total Revenue
$76,616.19
$7,779.23
$84,395.42

Table 2. Variable Expenses
Production Expenses
Vegetable
Fruits
Total
Seed
$2,291.51
$704.00
$2,995.51
Chemical
$13.17
$13.17
Fertilizer
$402.65
$36.49
$439.14
Packaging
$790.43
$292.64
$1,083.07
Custom Work
$119.92
$119.92
Irrigation
$315.16
$74.19
$389.35
Other
$2,471.96
$168.99
$2,640.95
Total Production Expenses
$6,404.80
$1,276.31
$7,681.11
Operating Expenses
Vegetable
Fruits
Total
Trucking
$872.40
$31.04
$903.44
R&M Buildings
$475.14
$48.81
$523.95
R&M Machinery
$1,200.01
$241.49
$1,441.50
Fuel, Oil & Lube
$1,311.89
$137.72
$1,499.61
Advertising
$529.20
$50.35
$579.55
Travel
$223.13
$60.14
$283.27
Farmers' Market Booth Fees
$6,404.80
$23.44
$6,512.47
Total Operating Expenses
$11,100.80
$592.99
$11,693.79
Labour Expenses
Vegetable
Fruits
Total
Paid Labour
$16,689.82
$3,791.49
$20,481.31
Unpaid Labour
$10,659.41
$2,190.29
$12,481.31
Total Labour Expenses
$27,349.23
$5,981.78
$33,331.01
Total Variable Expenses
$44,854.83
$7,851.08
$52,705.91
Contribution Margin
$31,761.36
$-71.85
$31,689.51

Table 3. Fixed Expenses
Vegetable
Fruits
Total
Operating Interest
$1,756.70
$205.32
$1,962.02
Depreciation - Buildings
$4,138.96
$90.93
$4,229.89
Depreciation - Machinery
$3,022.03
$112.81
$3,134.84
Small Tools
$1,212.45
$209.74
$1,422.19
Land Taxes
$245.67
$64.31
$309.98
Insurance
$1,272.40
$127.00
$1,399.40
Office Supplies
$568.44
$97.59
$666.03
Utilities - Heating
$658.66
$78.35
$737.01
Utilities - Power
$666.23
$40.52
$706.75
Utilities - Phone
$599.92
$70.24
$670.16
Professional Fees
$506.77
$84.28
$591.05
Total Fixed Expenses
$14,648.23
$ 181.09
$15,829.32
Gross Margin
$24,274.12
$-1,049.20
$23,224.92

Planning for Success: What Will I Need to Start?
Creating a successful farm-direct mixed fruit and vegetable operation will require research and planning to anticipate the many factors that could affect your enterprise. These factors include your personal resources, site selection, crop and variety selection, access to water, pest management, your potential market and your management capabilities.

This overview explains these key considerations, with links to more detailed information.

Resources
Reviewing your resources – such as land, equipment, labour and capital – is a great place to start when deciding on the right enterprise for you. The Alberta Agriculture and Forestry factsheet, Assess Your Resources: Examining Production Requirements, Agdex 811-11, can help you evaluate the different resources you may need when setting up a farm enterprise.

Site selection
Determining the best site for your operation requires assessing your production needs and how close you are to your potential markets. Some examples of production requirements are soil type, the micro-climate (frost-free days, sun exposure, moisture), access to irrigation and more. Market requirements include your location’s proximity to urban centers (customers), proximity to transportation corridors for distribution and ease of access to your location if customers are coming to your farm.

Crop and variety selection
Deciding which crop(s) to grow will be based on market research and your production capabilities. Crops and varieties can be selected based on your previous experience, recommendations from seed companies or other producers as well as variety trials research. Annual and perennial crops will have different requirements for rotations, maintenance and management decisions.

Access to quality water
Every fruit and vegetable operation needs access to a consistent supply of quality water. Water is used in production, but also for washing and preparing the produce for sale. Even with an ideal farm location, inconsistent water throughout the growing season can jeopardize the consistency of yields and the quality of your product. Access to irrigation is likely required for a successful horticulture operation.

Pest management
One of the biggest challenges of running any fruit and vegetable operation is the management of diseases, insect pests and weeds – both before you plant and as the crop grows. Successful management of these challenges will be key. A guide to pesticides and pest management can be found on the Health Canada website – search for the title “Pesticides and Pest Management.”

Market channels
Knowing who will buy your product is another important consideration of the planning process. There are several ways to sell your products directly to the consumer, including farmers’ markets, u-picks, community shared agriculture (CSA) and more. See the section Closing the loop: final steps in business planning for more information on this important topic, or visit the Alberta Agriculture Explore Local website for ideas.

Management skills
Business owners and operators in the mixed fruit and vegetable sector need a certain set of skills to be successful. Whether you manage the operation yourself or hire someone else to do it for you, here are some management requirements that will set you up for success:
  • time to monitor crop performance daily
  • ability to juggle several activities at once
  • comfort with working intensely busy periods
  • skills to train and manage employees
  • aptitude for sales and customer service
  • financial awareness to oversee business and production operations
  • understanding of markets to determine best ways to meet consumer demand.
Economic Planning and Forecasting for Your Operation

Now that you have a broad picture of the mixed fruit and vegetable industry in Alberta, it is time to crunch some numbers. Here are three important areas to review:
  • cost of production
  • price setting
  • estimating sales
Cost of production (COP)
Costs are incurred by a business when producing a product and include a variety of expenses such as labour, raw materials, input costs, general overhead and more. Knowing your exact COP is perhaps the single most important factor that will influence your business’s profitability. When you understand your COP in detail, you can make more informed decisions.

It is critical that your COP calculations include all the costs to produce your product. The more detail you provide, the better. If you are missing certain costs in your calculations, it can directly affect your management decisions because you are not basing these decisions on the full picture.

Some commonly overlooked costs you will want to include in COP:
  • depreciation or wear and tear on assets
  • fuel to drive to a farmers’ market to sell your product
  • tire and vehicle wear to drive to the market
  • vehicle insurance
  • meals when working the market
  • home office expenses
  • owners’ salaries (or a value for time they have committed to the business)
  • spoilage losses or costs for storage as a safeguard against spoilage
The link at the end of this factsheet goes to a spreadsheet that provides a detailed example of the cost of production for a mixed fruit and vegetable operation.

Price setting
Setting a price for your products can be one of the most challenging parts of running a horticulture business. The price should be low enough to be of value to your customers, but high enough for you to earn a profit.

If you set the price lower than what consumers are willing to pay, you could be leaving valuable revenue on the table. If the price is too high, you may struggle to sell your product.

Setting a price that works for you can require some research. The good news is you have a lot of flexibility in how you set your price, and your price can accommodate the factors that that are most important to your business.

The Alberta Agriculture factsheet, The Essentials of Pricing, Agdex 845-1, reviews the different ways to determine your price. The factsheet, Pricing Horticulture Products, Agdex 845-4, explores issues to consider when pricing your fresh fruit and vegetable products and includes several horticulture product scenarios.

For market prices on a variety of fruit and vegetable crops, refer to the Alberta Agriculture survey of prices based on actual farms in Alberta: go to the website agriculture.alberta.ca and search the title “Alberta Direct Market Average Fruit and Vegetable Prices”. Use these prices as a guide only – consider your own specific costs of production, as well as your target customers and market channels, when setting your product prices.

Estimating sales
Sales projections are an important part of planning for any business. Financial forecasts will help you determine the income your business will produce and will also help you develop operational and staffing plans to enable your business’s success.

Sales projections should be completed when you are setting up your business but also before each selling season. Answer the following questions to help identify your sales volume:
  • What minimum volume of product (number of units) could you sell in a poor year?
  • What production and market conditions would create this situation?
  • What maximum volume of product (number of units) could you sell in a good year?
  • What production and market conditions would create this situation?
  • What is the expected sales volume you are most likely to sell in an average future year?

Closing the Loop: Final Steps in Business Planning

Now that you may have decided to proceed with a mixed fruit and vegetable operation in Alberta, here are your next steps:
  • choosing your market channel/s
  • getting to know your target audience
  • tracking your progress
You may need to conduct informal or formal research to understand your target audiences and the best channels to reach them, as outlined in the factsheet Identify Your Market: Right Buyer, Right Price, Agdex 811-10.

Market channels
A market channel is the market stream through which you will sell or distribute your product. Here are some market-direct options for fruit and vegetable products in Alberta:
  • selling at a local farmers' market
  • harvesting and selling through a u-pick business
  • selling weekly produce boxes or shares through a community shared/supported agriculture (CSA) operation
  • selling at special events, such as fairs and festivals
  • operating a roadside farm stand or retail shop
  • selling directly to a restaurant or institution
  • joining or forming a marketing co-operative
  • selling through an online website or catalogue
Target audiences
Your target audience is the people or businesses you wish to attract. Research can help you identify specific audiences by demographics (age, income), lifestyle patterns (interests, beliefs, hobbies) and buyer expectations (quality, price).

Tracking your progress
Tracking your costs and evaluating the effectiveness of your production processes and marketing efforts are not things that are only done once. Establishing tracking methods to capture calculations related to your business income and expenses is a critical part of your business planning.

Maintaining accurate and up-to-date financial documents – and reviewing them regularly – will give you the information you need to make sound decisions about the future of your business.

Other Resources
Farm Direct Marketing for Rural Producers, Agdex 845-6
Farmers’ Market Decision Making Tool, Agdex 845-15
Beginning Berry Production, Agdex 230/20-3
Fresh Vegetable Market Gardening Industry, Agdex 250/830-1
Commercial Vegetable Production on the Prairies, $20.00 Agdex 250/13-1
Example of Mixed Farm Cost of Production

Prepared by
Alberta Agriculture and Forestry

More information
Alberta Ag-Info Centre
Call toll free: 310-FARM (3276)

Website: agriculture.alberta.ca

The development of this factsheet was supported in part by Growing Forward 2, a federal-provincial-territorial initiative.

Source: Agdex 200/830-2. October 2017.
 
 
 
 
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For more information about the content of this document, contact Ag Info Centre.
This information published to the web on October 2, 2017.
Last Reviewed/Revised on December 8, 2017.