Newborns

Newborns

Wednesday, August 25, 2010

Pricing Our Products

The Food and Wine Section of the Sacramento Bee printed an article today comparing prices at local farmers' markets with prices at the grocery store (for the full article, go to http://www.sacbee.com/2010/08/25/2979775/fresh-check-but-a-deal-lets-see.html).  While the reporter admittedly didn't conduct a scientific survey, she does compare fairly similar items.  Since one of the items is something we sell (and at the same price cited in the article), I took special notice.  According to the article, our pasture-raised chicken is too expensive at $3.99/lb. - the grocery store she visited had pastured chicken for $2.69/lb.

Leaving aside the fact that I've never seen a truly pasture-raised chicken in the grocery store (and no, free-range is not the same as pasture-raised), the article made me think about how we price our products.  It also made me wonder if there is value to my customers in their ability to ask me directly how my products were raised.  As a small farmer, I need to price my products at a level that will cover my costs of production and provide a return to our labor.  Based on our experience with pasture-raised chicken this year, we've decided to drop this enterprise next year.  Here's why:

Pastured chickens still need a grain-based feed.  While ours get some of their nutritional requirements from bugs, seeds and grass, they still need chicken feed.  Here are our costs (roughly):

Chick purchase - $2.00
Feed - $4.16/bird (4 lbs of feed = 1 lb of gain - a 4 lb chicken consumes 16 lbs of feed at $0.26/lb)
Depreciation on equipment - $0.05/lb (waterers, feeders and fencing all wear out eventually)
Processing - $2.50/bird (USDA inspection is required to sell at a farmers' market, so I drive my birds to Sacramento)
Transportation - $0.75/bird
Packaging - $0.10/bird

The cost of producing one chicken (for our farm) is $9.57 - that's before paying ourselves for our labor.  That 4 lb live bird will yield a 3.5 lb dressed bird - worth $13.97 at the market.  In other words, we have a margin of $4.40 on each bird.

A batch of 75 chicks takes 6-8 weeks to grow - 42 to 56 days.  We average 30 minutes a day taking care of them, and my processing and marketing time for each batch of 75 totals an additional 7 hours.  In other words, 75 birds require 30-35 hours (let's say each bird requires a half hour of labor total).  This means that I can pay myself a whopping $8.80/hour to raise chickens.

If we want to continue to provide chickens to our customers, we have two choices:

1. We can significantly increase our production, which will allow us to use our labor more efficiently.  We would also be able to purchase our feed in bulk, which would drop our costs.

2. We can raise our prices.

Given our other enterprises and the competition from grocery store "pasture-raised" chickens, we're opting to go out of the chicken business.  We think our time will be better spent on more profitable enterprises - grass-fed lamb and vegetation management, for example.

This points out one of the great dilemmas for small-scale farmers.  How do we stay small enough to maintain personal control over our operations and personal contact with our customers and yet grow large enough to make a living?

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