Transitioning Dairy, Minnesota
(Prepared Spring 2013)
Business Plan: Nate and Angie Walter
Executive Summary
Walter Dairy is located in Villard, Minn., on 240 acres of good grazing and cropping land. We are entering our final year of transition for crops and livestock. Our dairy herd of 103 cows has been grazed since 2002 when we purchased the farm from family. This has made our transition to organic a fairly easy one. We are on track to begin shipping milk to Organic Valley in the fall of 2013. Financial projections indicated that we will be able to substantially improve our net worth and increase net farm income once we become certified and begin receiving organic milk prices. Our business plan includes a capital request of $150,000 to finance feed and equipment purchases.
Mission Statement
Our mission at Walter Dairy is to produce and promote organic food while retaining our family values, honoring our history and generating a sustainable profit so that this farm can be viable for generations to come.
Goals
Our short-term goals for the farm business are to:
- Locate organic feed suppliers by October 2012
- Hire one part-time helper by 2013
- Secure an Organic Valley Cooperative contract by 2013
- Continue to learn about and develop organic crop management, especially fertility
- Purchase grain mixing/grinding equipment in 2013
- Raise replacement heifers to sell or expand the herd by 2014
- Increase milk production average and components by 2015
Our intermediate goals for the farm are to:
- Buy a new tractor
- Improve perimeter fencing
- Tile land
- Purchase additional land to eventually supply all feed needs on-farm
Our long-term goals for the farm are to:
- Help our kids transition into the farm
- Acquire more land and expand the herd to support all family members
Transition Plan Summary
We are in our second year of organic transition for cropland and will begin our transition of the dairy herd this fall. We expect cropland and livestock to be certified organic in October 2013. Our transition plan is to feed all crops to the herd (supplying approximately 60 per-cent of feed needs through grazing) and to supplement with purchased organic feed. Once becoming members of Organic Valley Cooperative, where we plan to market our milk, we will receive a slight transition premium while transitioning the herd. This premium, howev-er, will not be enough to offset the cost of purchased organic feed. Therefore, our transition strategy is dependent on borrowing enough money during our third year of transition to pay for the needed feed and other items outlined in our transition capital request.
Transition Capital Request
We are requesting a total of $150,000 in 2012 from Farm Service Agency (FSA) to pay off existing debt (at a lower interest rate), purchase needed equipment and establish a line of credit for organic feed purchases.
Organic feed is required during livestock transition, according to National Organic Program rules. As we do not have enough land to supply all of our feed needs, we will need to purchase 3,000 bushels of organic corn at $10 per bushel ($30,000) and 2,000 bushels of organic peas/barley at $12 per bushel ($24,000). Certified organic feed suppliers have already been lined up. Along with the organic feed, we will need to purchase 200 bales of straw at $35 per bale ($7,000). We would like to finance these items through a direct line of credit.
Additionally, we are requesting an intermediate loan to purchase a grinder/mixer at an approximate price of $10,000. Currently, we have our grain custom ground but can save some money by grinding and mixing our own ration on the farm. We also are going to need to purchase a bale shredder at an approximate cost of $10,000. This will save on future straw costs and reduce manure hauling.
Farm History
In 1935, Nathan’s grandparents moved to this farm with six Guernsey cows. They also had pigs, chickens and horses. They raised 14 children and farmed through many ups and downs.
Nathan was born in 1975. His grandpa died in the field in August of that year. Nathan’s father, Fred, took over the farm and built a new barn in November. Nathan and Fred farmed together until 2002, when we purchased the farm at fair market value. At that time the farm consisted of 160 acres with two houses. We milked 80 cows in the stanchion barn and switched the cows from the free stalls to stanchions during milking. There were 40 stanchions and 40 free stalls. The feeding was all done with wheelbarrows in the barn and a skid loader in the free stall area. The situation required two people in the barn during milking.
Since then, we have gradually made improvements through new buildings, equipment and production management. In 2005, the barn was remodeled and a swing 10 New Zealand-style parlor was put in, allowing much of the labor to be done alone by Nate (Angie’s time was limited as she cared for our daughter, born in 2004). We also started housing the cattle outside year-round in 2005 because of the cost associated with building a bigger barn and because we believed it was better for the general health of the animals. The cows were fed using a total mixed ration instead of wheelbarrows. In 2006, we installed a manure pit and a drive-by feeding system. During this time, the herd was expanded to 100 cows. In 2007, Levi was born. In 2010, we bought 80 additional acres, bringing our total land base to 240 acres.
Land and Other Resources
Land: The main farm consists of 160 acres, of which 141 acres are tillable. There is also an adjacent 78 acres, of which 72 acres are tillable.
Dairy facilities: The barn was built in 1975 with an addition built in 2000. It is 55 feet by 148 feet. In 2005, a swing 10 New Zealand-style parlor and a holding area for the cattle were put in. There is also a breeding and calving pen in the barn. In 2011, a 2,700 gallon bulk tank and new milk house were installed. There is a 1.1 million gallon manure lagoon and 400 feet of drive-by feeding. There are two calf sheds and a machine shed.
Houses: The farm has two houses on the property. Each is on its own one-acre parcel. The main dwelling is 24 feet by 48 feet. The other house is 28 feet by 28 feet.
Land and buildings are valued at $XXX,XXX (removed for confidentiality) as of Jan. 1, 2012.
Ownership Structure
Walter Dairy is owned and operated by Nate and Angie Walter. This business is operated as a sole proprietorship. In the future, we plan to structure the business as a limited liability corporation (LLC).
Operations
Current Operations
We currently milk 103 cows. We have been breeding all of our replacements, using a three-way cross (Norwegian Red, Guernsey and Red Holstein) to create genetics suitable for grazing.
We averaged 15,658 pounds of milk per cow in 2011, which is fairly consistent with our five-year historical average (Table 1).
| Table 1: Milk Production History, 2007-2011 | |||||
| 2007 | 2008 | 2009 | 2010 | 2011 | |
| Number of cows | 103 | 102 | 98 | 105 | 103 |
| Milk pounds per cow | 15,981 | 16,605 | 16,775 | 15,439 | 15,658 |
Cows are fed and grazed on 140 acres of corn silage, hay alfalfa and pasture. Corn silage yields have been variable throughout 2007-2011 while hay/alfalfa yields have been improving (Table 2). Additional conventional livestock feed is purchased to supplement what is needed. Feed is custom ground and mixed off farm.
| Table 2: Crop Production History, 2007-2011 | |||||
| 2007 | 2008 | 2009 | 2010 | 2011 | |
| Corn, ear (bushels per acre) | 153 | 174 | |||
| Corn, silage | 62 | 46 | 35 | 41 | 64 |
| Barley silage yield | 16 | 27 | |||
| Hay/alfalfa yield | 3.0 | 3.6 | 3.6 | 4.1 | |
As part of our organic transition plan, we implemented a five-year rotation beginning in spring 2012 that includes two years of corn followed by hay and small grains. We use a 12-row cultivator and flame burner for organic weed control. We have been able to rent out this equipment to other farmers to partially cover ownership costs.
Production Opportunities
We have an opportunity to purchase organic feed and hay from a neighboring farmer in fall 2012, which will allow us to transition our dairy herd and qualify for certification in October 2013.
Operations Strategy
Overall, our operations strategy is to certify organic land and animals by October 2013. We already satisfy most of the National Organic Program livestock rules; it will take very little for us to become certified since we already supply more than 30 percent of our animals’ feed needs through grazing. We also are well practiced in natural veterinary care and have never used the growth hormone BST.
Licenses and Organic Certification
When ready, we will certify our land and animals with the Midwest Organic Services Association, Inc. (MOSA). We have already been in contact with MOSA to obtain a certification packet and to review NOP guideline compliance.
Resource Needs and Acquisition
As stated in our capital request, our strategy relies on the purchase of organic feed during our third year of transition, as well as a grinder/mixer and bale shredder. Once certified, we will continue to purchase organic feed, as we do not have enough land to produce the feed needed for our herd, but we will be in a better financial position to do so by 2014 when receiving organic prices for our milk.
We will need the grinder/mixer to create our grain ration for the dairy cattle. We do not own this equipment because we currently have our grain custom ground. The bale shredder will save on future straw costs and reduce manure hauling, freeing up needed labor for organic crop production (which we have found to be more demanding than conventional crop production).
Operations Risk Management
Our greatest operational risks include weather and chemical drift from neighboring farms. We have taken steps to address both risks through the purchase of multi-peril crop insurance and neighbor notification, respectively. In addition, we have marked our fields with “Do Not Spray” signs.
Marketing
Current Marketing
We market all of our milk to the local creamery. Conventional milk prices have varied from approximately $13 per hundredweight to $20 per hundredweight over the past five years and have been consistent with average milk prices received by other similarly sized Minnesota dairies (Table 3)
| Table 3: Historic Average Milk Price, 2007-2011 | |||||
| 2007 | 2008 | 2009 | 2010 | 2011 | |
| Walter milk price | $18.15 | $20.03 | $13.39 | $16.42 | $20.49 |
| Minnesota milk price | $18.92 | $19.43 | $13.05 | $16.06 | $20.12 |
Marketing Opportunities
Organic Valley Cooperative offers a $2 per hundredweight premium to members for transitional milk and approximately $28 per hundredweight for certified organic milk. This mem-ber price is fairly steady and guaranteed for the volume of milk we can deliver. Marketing to Organic Valley will allow us to capture a higher price for milk and generate a stable income.
Marketing Strategy
Our marketing strategy includes becoming members of Organic Valley in 2013. Member-ship is achieved through the purchase of shares. As members, we will market transitional milk for a $2 per hundredweight premium above conventional milk prices during our last year of transition. In October 2013, once certified, we will begin shipping organic milk to Organic Valley at the membership rate of approximately $28 per hundredweight. We have confirmed that our farm is located on the Organic Valley milk pick-up route and expect to market 1,612,775 pounds of milk in 2014 (based on an average production of 15,658 pounds per cow).
Human Resources
Current Human Resources
We (Nate and Angie) provide almost 100 percent of the farm labor and management. Nate is responsible for all cropping enterprises, pasture management, herd management, some milking and marketing. Angie manages all calving, some milking and accounting. In addition, Walter Dairy employs one part-time person to assist with milking and other chores. While we are managing with this small group, we would like to hire another part-time person to assist with cropping and feeding activities.
Planning and Management Team
In addition to some part-time help, we also rely on assistance from advisors representing the following organizations:
- Farm Business Management Program, Alexandria Technical College
- Dairy Initiatives Program, Department of Animal Science, University of Minnesota
- FSA
- Midwest Organic Services Association
Historical Performance
Walter Dairy has been slowly but steadily improving its net worth over the five-year period of 2007-2011 (Table 4, removed for confidentiality). In 2007, five years after purchasing the farm, our net worth was at $XXX,XXX (removed for confidentiality). By 2011 we showed an average gain of 10 percent per year.
Financial Strategy
Walter Dairy will not be able to complete its transition without a line of credit to finance necessary feed purchases in 2012. Without this financing, a negative cash flow is projected.
Our financial strategy relies on obtaining financing for organic feed and other capital purchases through the FSA at reduced interest rates and deferred financing. We have established a good credit relationship with FSA over the years. Once certified, our cash flow projections indicate that we will be able to comfortably repay loans.
Financial Projections
Financial projections indicate that we will be able to substantially improve our net worth (Table 5, removed for confidentiality), improve cash flow (Table 6, removed for confidentiality), and increase net farm income (Table 7, removed for confidentiality) once we become certified in the fall of 2012 and begin receiving organic milk prices. More information about these figures and accompanying farm financial standards measures are found in the 2012 FINPACK analysis (Appendix A, not included in this publication).
Recently Certified Organic Grans, Minnesota
(Prepared spring 2014)
Business Plan: Bryan and Theresa Kerkaert
Executive summary
Business Overview
The Kerkaert Organic Farm is managed by Bryan and Theresa Kerkaert. We currently own a seven-acre farm site and manage 527 acres of crops (445 acres certified organic) on rented land at several sites in southwestern Minnesota and eastern South Dakota. In addition, we own and manage a manure hauling and pumping business as well as a nursery pig barn.
This is a critical point in the history of our farming operation. In 2016 the lease will ter-minate on 134 acres of certified organic land. If we are not able to secure long-term access to good farmland that can be certified organic, we may not be able to continue farming. Reduction in acreage makes it difficult to cover overhead expenses for machinery owner-ship. The loss of leases has also disrupted the balance in our crop rotations, which results in large year-to-year swings in cash flows.
Mission Statement
Kerkaert Organic Farm will grow healthy organic grains and feed for health conscious consumers, while preserving the natural state of soils and waters. The farm will provide income to support our family and to give a competitive wage to our employees.
Goals
Our long-term goal is to own enough tillable acres to have a self-sustaining farm operation that will be a source of retirement income for us and a resource to pass down to our chil-dren for their financial security.
Transition Plan Summary
This plan focuses on the opportunity to gain stable, continuous access to land in 2016 through a five-year lease with a right of first refusal to purchase the land at the end of the lease. We assume the land we rent will have been in conventional production through 2015 and so will need to be transitioned. We have significant experience in managing certified land and in transitioning land from conventional to organic production.
By 2019 we plan to be farming 893 acres of certified organic land. After difficult early transition years in 2015 and 2016, our financial position will strengthen in 2017 through 2019, and we expect to be in a position to purchase the newly rented parcel after the 2020 crop year.
Capital and Resource Request
The key element of this plan is to identify and secure long-term access to a parcel of land that can be a stable basis for continuation of our farming operation. This plan is written for a potential landlord to demonstrate that we have the knowledge, skills, experience and equipment to successfully transition and farm more than 400 additional acres. When we have identified a specific parcel of land for the new farm, we will explore possibilities for negotiat-ing a lower land-rental rate for the transition years of 2016 and 2017. In addition, this plan is addressed to our lender, Farm Credit Services, as a request for a line of credit that will be adequate to ensure access to capital during the difficult 2015 and 2016 crop years.
Business Description
The Kerkaert Organic Farm is managed by Bryan and Theresa Kerkaert. We currently own a seven-acre farm site and manage 527 acres of crops on rented land at several sites in southwestern Minnesota and eastern South Dakota. In addition, we own and manage a manure hauling and pumping business as well as a nursery pig barn. We have four sons, ages 13 to 20.
Farm Business History
Bryan grew up farming, raising crops, cattle and hogs with his grandpa and uncle. After graduating from college, Bryan went to work for his uncle full time, managing the crops. In 1997, we built a hog nursery on our own farm site and began to raise nursery pigs on contract. In 2001, Bryan resigned his position with his uncle and we bought the custom manure hauling business. Theresa became a stay-at-home mom, taking care of the hog nursery and managing books for the pumping business.
We began farming organically in the fall of 2007 when a manure pumping customer approached us about renting his 170 acres of certified land under the condition that Bryan continue to farm it organically. At the same time, we learned about another nearby farmer who was interested in renting his 300-acre farm. We felt these rental opportunities would allow us to begin farming and to gain organic management experience.
During our first year as organic managers we entered into a partnership with an experienced organic grower. This gave us an opportunity to pool knowledge, equipment and other resources. Our first year farming was a struggle as the rented land had high weed pressure and low fertility, but we managed and learned a lot in the process. In the years that followed, we picked up another 700 acres of certified organic cropland, much of it coming out of the Conservation Reserve Program (CRP). This brought our total rental acreage to approximately 1,200 acres. Eventually, our organic partner decided to end the partnership and focus his time on his own organic farm.
Our crop acreage remained nearly stable—between 1,100 and 1,200 acres—through 2013. Hail hit one site hard in 2010 and bad weather prevented planting on another field in 2011. In 2012, due to increasing rents on short-term leases, we shifted 626 acres out of organic production to help manage financial risks. In 2014 we suffered a major setback when we lost leases on 732 acres—mostly land that was under conventional management. Of the remaining acreage that we currently manage, 445 acres are certified organic and 82 acres are under conventional management.
Bryan has operated the custom manure hauling business continuously since 2001, and it has proved to be highly complementary with the farming operation. Theresa continues to manage and operate the hog nursery on the home farm.
This is a critical point in the history of our farming operation. In 2016 the lease will ter-minate on 134 acres of certified organic land. If we are not able to secure long-term access to good farmland that can be certified organic, we may not be able to continue farming. Reduction in acreage makes it difficult to cover overhead expenses for machinery owner-ship. The loss of leases has also disrupted the balance in our crop rotations, which results in large year-to-year swings in cash flows.
Land and Other Resources
Our seven-acre home farm site is located in Clifton Township, in Lyon County, Minneso-ta. In 2014 we are farming 170 certified organic acres in Lincoln County, Minnesota; 134 certified organic acres in Brookings County, South Dakota; and 143 certified organic acres and 82 conventional acres in Deuel County, South Dakota. All of this land is rented. Our lease on the Brookings County land will terminate after the 2015 crop year. We have a hog nursery building on our home farm. We also own 28,000 bushels of bin storage capacity and buildings to house farm equipment. Our farm buildings have a market value of $XXX,XXX (removed for confidentiality).
Our equipment includes:
- 16-row 22-inch John Deere vacuum planter
- 28-foot 6200 International grain drill with 6-inch spacing
- 30-foot Kovar drag, 30-foot John Deere rotary hoe
- 16-row 22-inch row cultivator, a 7920 John Deere tractor
- STX 425 CIH 4x4 tractor
- 44-foot feed cultivator
- 12 bottom plow
- 730 DMI
- 2188 CIH combine
- 1022 corn head
- 30-foot bean head
- 40-foot summers super coulter
- 60-foot flamer
- 4440 John Deere tractor
Our machinery and equipment has a market value of $XXX,XXX (removed for confidentiality).
Ownership Structure
Kerkaert Organic Farm is a sole proprietorship owned by Bryan and Theresa Kerkaert.
Operations
Current Operations
Our standard organic rotation is corn, then oats or flax under-seeded with alfalfa, then alfalfa for another one or two years. The longevity of the alfalfa is dependent upon the stand and winter kill. The conventional rotation is corn on corn followed by soybeans. We purchase certified organic hybrid seed corn for our organic corn and certified organic seed for our alfalfa and brown flax. We use seed from the prior year’s organic production for oats. For the conventional corn on corn we use triple-stacked GMO seed corn.
Table 1 shows crops, acreages and yields for 2012 and 2013, as well as planted acreage and projected yields for 2014. In 2012 all our hay was in the establishment year and was under-seeded in oats. We failed to harvest oats or alfalfa on one 38-acre field that is included in the 184-acre total. In 2013 we under-seeded alfalfa in 103 acres of oats and 71 acres of brown flax. We did not harvest any alfalfa on those establishment fields.
Before planting we dig all of the fields twice, then plant the crop. Three to five days after planting organic corn we drag the field, then seven days later we rotary hoe the corn. We cultivate the corn about three weeks after planting, and at the five-leaf stage or larger we flame it. We do a final cultivation pass two days after flaming. We use RTK auto steer for all planting and cultivating, which helps for accuracy. For conventional corn we hire the co-op to do the spraying and fertilizer applications. For the oat and flax crops we walk for weeds after planting and after harvest; it is under-seeded with alfalfa so we do not do any fall tillage. We sell alfalfa under contract, and it is custom harvested.
Production Opportunities
This plan focuses on the opportunity to gain stable, continuous access to land in 2016 through a five-year lease with a right of first refusal to purchase the land at the end of the lease. We assume the land we rent will have been in conventional production through 2015 and so will need to be transitioned. We have significant experience in managing certified land and in transitioning land from conventional to organic production.
| Table 1. Crops, Acreages and Yields, 2012-2014 | ||||||
| Crop | 2012 | 2013 | 2014 | |||
| Yield | Acres | Yield | Acres | Yield | ||
| Organic corn | 316 | 113.9 | ||||
| Organic blue corn | 87.6 | 73 | 53.4 | 311 | 80 | |
| Organic oats | 184 | 48.9 | 103 | 84 | ||
| Organic brown oats | 71 | 15.8 | ||||
| Organic alfalfa hay (establishment) | 184 | 2.9 tons | 174 | 0 tons | ||
| Organic alfalfa hay (established) | 180 | 2.4 tons | 134 | 3.5 tons | ||
| Conventional corn | 82 | 178.8 | 540 | 146.3 | ||
| Conventional soybeans | 82 | 40 | ||||
| Land rented out | 170 | NA | ||||
Operations Strategy
This plan assumes that in 2015 we will initiate transition on the 82 acres currently under conventional production and rent an additional 20 acres of adjacent land that is coming out of CRP and can be certified immediately. In 2016 we will rent a farm with 480 acres of tillable land that has been under conventional management. Also in 2016, our lease on 134 acres of certified organic land that we have farmed for several years will terminate.
a. Production System. Our standard organic rotation is blue corn, followed by oats under-seeded with alfalfa, followed by alfalfa. In some situations we will substitute wheat or flax for oats, and we have the flexibility to extend the rotation to four years if the alfalfa stand is in good condition.
In 2015 we will sign a long-term lease for the 82 acres that we currently manage conventionally plus an additional 20 acres that will be coming out of CRP. We will start transition on the 82 acres in 2015 and will be able to certify the 20 acres immediately. The 82 acres will certify in August or September 2017. We will plant oats under-seeded with alfalfa on all this land in 2015, leave it in alfalfa in 2016 and plant the entire 102 acres in organic blue corn in 2017.
We plan to initiate transition on the new farm immediately, in 2016, and we should be certified in August or September of 2018. We plan to harvest an organic blue corn crop in 2018, but oats and hay harvested that year will be sold as conventional. We will divide the new farm into three approximately equal-sized blocks. In 2016 all the land will be planted in oats under-seeded with alfalfa. In 2017 all this land will be kept in hay in order to reduce weed pressure and build soil fertility. In 2018 the block (160 acres) with the least weed pressure will be planted in blue corn and the other two blocks (320 acres) will be left in hay; the blue corn will be harvested after certification and so will be certified organic. In 2019 all land will be certified. The land previously in blue corn will be planted to oats under-seeded with alfalfa. One of the blocks previously in hay will be planted to corn, and the other block will be left in hay. This establishes the rotation for subsequent years.
b. Resource Needs Acquisition. We are assuming that the rent on the new farm will be $200 per acre. This is currently a competitive rate for good farmland in Lyon County. With recent declines in conventional commodity prices, land rental rates could decline. Having a long-term lease with an option to purchase the land at the end of the lease is important enough to justify a relatively high rental rate. We have adequate machinery and equipment to farm the new parcel along with the land we currently rent.
c. Production Estimates. Table 2 presents planning assumptions for crop yields, acre-age and total production over the next five years under the assumption that we are able to retain all our rented organic acreage and the new 480-acre farm. The organic corn is food grade blue corn grown under contract. Note that both oats and alfalfa are planted in years when oats are under-seeded with alfalfa, but we assume no alfalfa production in that first year.
d. Inventory Management and Quality Control. We own 28,000 bushels of certified organic bin storage and we can rent up to an additional 50,000 bushels of storage. Hav-ing farmed organically since 2007, we have demonstrated experience with the management practices and record keeping procedures required for organic certification.
Licenses, Permits and Certification
Our organic certifier is the Minnesota Crop Improvement Association (MCIA). We have a good working relationship with them. As we currently have on our rented organic land, we will establish 50-foot buffer strips around the outer borders of fields on the purchased land in order to reduce the risk of cross contamination with neighboring non-organic fields. Crops harvested from the buffer strips will be sold as conventional commodities at the local elevator.
Operations Risk Management
We will continue to insure all crops except alfalfa hay with crop insurance purchased through Farm Credit. We currently take out revenue insurance for corn at the 75 percent level and will continue to do so if it makes sense. We currently take out production insurance at the 65 percent level for small grain.
marketing
Current Marketing
We obtain forward contracts at profitable prices to help lock in our current year cash flow and to assure the bank of the value of the products we produce. We are in regular contact with eight wholesale commodity brokers to research and finalize our contracts.
Marketing Opportunities
Market trends have been consistently positive for organic crops compared to conventional crops. The demand for organic products has grown significantly over the past 20 years, and it continues to grow at a double-digit rate. USDA reporting suggests that the conversion of land to organic production has slowed over the past few years, especially for the field crops we produce. We believe there will continue to be significant organic price premiums in the future as supply continues to lag behind demand. Nevertheless, we assume some reductions in organic prices in the coming years.
| Table 2. Crop Yield, Acreage and Output Projections 2015-2019 | |||||||||||
| Crop | Projected Yield per Acre | 2015 | 2016 | 2017 | 2018 | 2019 | |||||
| Acres | Output | Acres | Output | Acres | Output | Acres | Output | Acres | Output | ||
| Previously Certified | |||||||||||
| Corn-O2 | 80 bu | 134 | 10,720 | 155 | 12,400 | 156 | 12,480 | 155 | 12,400 | ||
| Oat-O | 70 bu | 311 | 21,770 | 155 | 10,850 | 156 | 10,920 | ||||
| Hay-O-e | 0 ton | 331 | 0 | 155 | 0 | 156 | 0 | ||||
| Hay-O | 3.5 ton | 156 | 546 | 155 | 542.5 | 176 | 616 | ||||
| Nearby 102 Acres | |||||||||||
| Oat-T | 70 bu | 82 | 5,740 | ||||||||
| Hay-T-e | 0 ton | 82 | 0 | ||||||||
| Hay-T | 3.5 ton | 82 | 287 | ||||||||
| Corn-O | 80 bu | 102 | 8,160 | ||||||||
| Oat-O | 70 bu | 20 | 1,400 | 102 | 7,140 | ||||||
| Hay-O-e | 0 ton | 20 | 0 | 102 | 0 | ||||||
| Hay-O | 3.5 | 20 | 70 | 102 | 357 | ||||||
| New Farm | |||||||||||
| Oat-T | 70 bu | 480 | 33,600 | ||||||||
| Hay-T-e | 0 ton | 480 | 0 | ||||||||
| Hay-T | 5 ton | 480 | 2,400 | 320 | 1,600 | ||||||
| Corn-O | 80 bu | 160 | 12,800 | 160 | 12,800 | ||||||
| Oat-O | 70 bu | 160 | 11,200 | ||||||||
| Hay-O-e | 0 ton | 160 | 0 | ||||||||
| Hay-O | 5 ton | 160 | 800 | ||||||||
Marketing Strategy
We will continue to market our organic crops under forward contract arrangements. This gives us access to attractive pricing opportunities and reduces price risk. The blue corn contracts are based on acres of production rather than on a specific quantity. The contract-ing company will purchase everything we produce at the agreed upon price.
a. Pricing. For planning purposes we assume prices of $14.50 per bushel for organic blue corn, $6.50 per bushel for organic oats and $240 per ton for organic alfalfa hay in 2014. We reduce planning prices for organic blue corn to $13 per bushel in 2015 and to$12.50 per bushel thereafter. The planning price of organic oats falls to $6 per bushel in 2015 and $5.50 per bushel thereafter, and the planning price for organic hay is set at $200 per ton starting in 2015. Planning prices for transition oats and hay are $3 per bushel and $150 per ton, respectively. Finally, we assume one ton of straw production per acre of organic and transition oats, with a value of $100 per ton. These are conservative price estimates relative to prices received in 2012 and 2013.
b. Sales Revenue Projections. Table 3 presents annual revenue projections based on the production estimates in Table 2 and the planning prices just presented. Note that revenue declines significantly during the initial transition years of 2015 and 2016. Revenue increases to above the 2014 revenue level in 2017-2019 as newly transitioned land is certified.
[Table 3. Sales Revenue Projection 2015-2019]
Marketing Risk Management
As already noted, our marketing risk management strategy is based on forward contract-ing. This helps us maintain stable, long-term relationships with key customers and allows us to project revenues, subject to yield uncertainty. In the future, as the market for organic commodities grows and becomes more liquid, we may explore the use of revenue insurance products, which are just being made available for organic crops.
human resources
Current Human Resources
We have been farming organically since 2007. In addition, Bryan has managed a success-ful manure hauling business since 2001 and Theresa has raised contract nursery pigs since 1997. In our current farming operation, Bryan provides some labor for crop production activities and supervises five other employees who provide labor for both the farming oper-ation and the manure hauling business. Bryan also does marketing and monitors financial performance of the farm business. Theresa maintains production and financial records for the business and advises Bryan on management decisions in addition to providing the labor and management for the nursery pig operation.
Human Resource Opportunities
Loss of a significant portion of our rented land represents a significant challenge and an opportunity for our farm business. We currently have excess labor and management ca-pacity. Acquisition of more land through a long-term lease with an option to buy will give us an opportunity to better use our labor and management resources. Even with the added land, we will be farming fewer acres than we farmed from 2007 through 2013. This means we will be able to more intensively manage the land we will have.
Planning and Management Team
In addition to Bryan and Theresa, the management team for Kerkaert Organic Farm includes:
- Paul Lanoue, Farm Business Management advisor
- Dale Paluch, bank loan officer
- Rod DeGraff, FSA loan officer
- Centrol Crop Consultants
- MCIA, organic certifier
- Jon Olson, organic farmer, friend and mentor
We have all been working together for several years and believe we will continue to be a strong team as we grow our business.
Human Resource Strategy
Our human resource strategy will remain unchanged as we expand our farming operation through a land purchase. We have already demonstrated the ability to manage a large, complex cropping operation that conforms to organic standards. The complementarity between our manure hauling business and our farm operation has been and will continue to be one of our keys to success. Required skills for employees are similar in the two businesses and, with effective management, the combination of the two businesses makes it possible for us to more fully use our employees’ skills. We also plan to continue using the planning and management advisory team we have formed over the past several years.
Human Resource Risk Management
Bryan and Theresa both make essential contributions to the success of the business. We have life insurance policies for both that will cover liabilities in case either of us passes away.
Finances
Current Financial Position and Historical Performance
Table 4 summarizes historical balance sheet data for our farm operation for 2012-2014, and Table 5 summarizes historical income statement data for 2012 and 2013. These report data for the years we have been enrolled in the Farm Business Management program. More detailed statements are included in Appendix 1 (removed for confidentiality).
As the income statement data show, 2013 was a difficult year for us. As reported in Appendix 1, we had land rent expenses of more than $206,000. We also had low yields, especial-ly for alfalfa hay, due to dry weather conditions for much of the growing season. Finally, conventional corn prices dropped significantly, from over $6.40 per bushel in 2012 to less than $4.15 per bushel in 2013. Nevertheless, our net worth remained relatively stable, falling by less than 10 percent despite a net farm income loss of $XX,XXX (removed for confidentiality).
[Table 4. Historical Balance Sheet Data, 2012-2014 (Market Valuation of Assets) (Removed for confidentiality)]
[Table 5. Historical Income Statement Data, 2012 and 2013 (Removed for confidentiality)]
Transition/Certification Strategy
FINPACK financial projections are presented in Appendix 2 (removed for confidentiality) for our farming operation under the assumption that we transition the 82 acres we cur-rently farm conventionally and certify an added 20 acres of land coming out of CRP. We project a positive net farm income and net cash flow for 2014, but cash flows are consis-tently negative in the years that follow. This is not sustainable.
FINPACK financial projections are presented in Appendix 3 (removed for confidentiality) for our farming operation under the assumption that we rent 480 acres of land in Lyon County starting in 2016 with a five-year lease and a right of first refusal on land purchase at the end of the lease. The assumed rent is $200 per acre. As noted earlier, we will initiate transition to organic production in 2016 and will have all the land certified in August or September 2018. We will continue to farm rented land in Deuel County, South Dakota and Lincoln County, Minnesota.
a. Asset Management. Under this plan our total crop acreage will increase to 893 acres in 2016. We have adequate machinery to farm this much land and we do not expect to make any major capital purchases through the 2020 crop year. The newly rented 480 acres will be available for purchase at the end of the 2020 crop year.
b. Financial Projections. Key financial indicators from the more comprehensive financial projections in Appendix 3 (removed for confidentiality) are presented in Table 6. The early transition years of 2015 and 2016 will be challenging, with negative cash flows, net farm income near zero and significant declines in net worth. However, working capital remains above $XXX,XXX (removed for confidentiality) even in these difficult years. Performance recovers quickly in 2017 and by 2019 we will have built up working capital to more than $XXX,XXX (removed for confidentiality) and increased our term debt coverage ratio to 2.17. With another strong year expected in 2020, which is beyond our planning horizon, we should be in a strong financial position to make a land purchase.
Capital and Resource Request
The key element of this plan is to identify and secure long-term access to a parcel of land that can be a stable basis for continuation of our farming operation. This plan is written for a potential landlord to demonstrate that we have the knowledge, skills, experience and equipment to successfully transition and farm more than 400 additional acres. When we have identified a specific parcel of land for the new farm, we will explore possibilities for negotiating a lower land rental rate for the transition years of 2016 and 2017. In addition, this plan is addressed to our lender, Farm Credit Services, as a request for a line of credit that will be adequate to ensure access to capital during the difficult 2015 and 2016 crop years.
Risk Management
Our cash flow projections point to difficult years in 2015 and 2016 for our farm business. Our most important tool for managing these challenges and other risks associated with the plan is the additional income we receive from our manure hauling and hog nursery busi-nesses. This income is not included in the cash flow projections presented here. The right of first refusal to purchase the land we rent in Lyon County is also a form of risk management, since this will give us the right but not the obligation to purchase the land after the 2020 crop year. If our farming operation has been successful and that success is projected to continue given land prices and profitability expectations, we will purchase the land. If our farming operation has not been as successful as expected or if the outlook for future profitability is unfavorable, we will not be committed to continue farming that land.
Beginning Organic Processor, New Jersey
(Prepared fall 2014)
Business Plan: Vitaly Brunkhman
Business description
Bubbly Jen’s Farm (BJF) is a small, start-up agricultural business that plans to produce naturally fermented, certified organic, ethnic foods such as sauerkraut, pickles, tomatoes and specialty beverages. BJF is located in Middlesex County, New Jersey on 1.75 acres and is owned and operated by Vitaly Brukhman, a Moldovan-American first-generation immi-grant. BJF will launch its commercial processing enterprise in 2015 and gradually scale up production as demand grows and capital becomes available.
Mission
The BJF mission is to serve people living in the New York/New Jersey region who are interested in eating diverse, nutritious, organically grown and prepared foods to improve their health and quality of life.
Goals
BJF goals are modest to begin with, but grow significantly by year six. Short-term goals include the development and testing of recipes, the identification of a cost-efficient pro-cessing facility, the certification of the home farm and neighboring acreage, and breaking even on processed products. Longer-term goals include the acquisition of more land for vegetable production, expansion of the processing enterprise and the generation of income to exceed all living expenses from the farm and processing business.
Operations
BJF is a micro-farm of 1.75 acres located in Middlesex county New Jersey (the larger rectangle in Figure 1). Adjacent to BJF is another half-acre of neighboring land available to rent (the smaller rectangle in Figure 1).
Production and Transition Opportunities
The half-acre of neighboring land has been idle for the past 12 years and might qualify immediately for organic certification per informal consultation with a staff member from the Northeast Organic Farming Association (NOFA) who visited the site in the spring of 2014. This is a tremendous opportunity, potentially allowing BJF to immediately begin growing herbs needed for processing while transitioning its own fields for future use in vegetable and herb production. The owners of the neighboring land have given BJF verbal approval to farm the half-acre parcel in 2015.
Additional growing facilities are available at another location—up to 9,000 square feet of heated greenhouse space and up to 6,700 square feet of non-heated hoop house space. Both facilities are about 10 miles away from the BJF farmstead and offer future opportunities to extend the growing and processing seasons. The terms of use associated with these additional facilities are currently under discussion with the owner.
Operations Strategy
BJF will start small, growing high-value organic herbs on rented land in years one and two while transitioning 1.75 acres of owned land and, eventually, at leased facilities. With the exception of home-grown herbs, BJF will purchase all remaining inputs needed to initially process three naturally fermented products: sauerkraut, pickled cucumbers and tomatoes. Natural fermentation is one of the oldest forms of preserving food.22 It is a method of preser-vation that produces lactic acids in sour foods through the cultivation of desirable micro- organisms. Fermentation is also a method used for pickling vegetables and other foods.
| Years 1-2 | Years 3-5 | Years 6+ |
| Transition home farm and raise high-value certified organic herbs on neighboring land. Process fermented sauerkraut, dill pickles and tomatoes. | Certify 1.75-acre home farm, begin produce production and scale up processing. | Expand product offerings and continue to scale up processing. |
Processing begins with the purchase of raw ingredients and ends with the distribution or sale of final products.
Over time, as BJF owner Vitaly Brukhman hones his production skills on transitioning land, he hopes to become competitive with other commercial produce growers and process organic produce from his own fields. In the meantime, BJF does not anticipate any difficulty sourcing organic produce locally. According to the National Organic Program website, New Jersey has 62 organic produce growers.
Processing will occur in a certified commercial kitchen. There are several commercial kitchens in New Jersey available for hourly and daily rental. Most of the available commercial kitchens, however, are not certified organic. The closest certified organic commercial kitchen, The Food Innovation Center North, is located about 10 miles away in Piscataway, N.J., and is currently cost prohibitive. Therefore, during years one and two (2015-2016), BJF will develop hands-on processing skills and sample product at a restaurant kitchen. A temporary lease agreement has been negotiated with Tre Piani Restaurant in Princeton, N.J., for weekly use of their space. At the same time, BJF will explore the construction of an on-farm cold-storage facility to minimize dependency on external facilities for stor-ing final products. By year three, BJF hopes to either have identified a long-term, bud-get-friendly processing solution within 10 miles of the farm through strategic partnerships or to have acquired a mobile, certified kitchen-truck.
Processing, based on sales potential, will begin with 2,200 pints of product per year in 2015 and grow to 10,000 pints by 2020 (Table 1: Estimated Processing Capacity).
| Table 1: Estimated Processing Capacity | |
| Year | Units of Pickled Vegetables |
| 1 | 2,200 |
| 2 | 2,200 |
| 3 | 3,200 |
| 4 | 4,200 |
| 5 | 5,500 |
| 6+ | 10,000 |
Processing will occur 20 weeks per year during the produce harvest and post-harvest sea-sons (July-November). BJF will use one person to process one day per week, 10 hours per day during years one and two. Processing capacity will grow in subsequent years through an increase in the number of days or processing staff, or both.
Licenses and Organic Certification
BJF will require several licenses and forms of certification related to production and processing of fermented organic products (handling and retailing licenses are discussed in the marketing section of this plan).
Organic certification (regulated by the USDA) is required for the rented and owned land on which herbs will be grown. The rented land is not currently certified but Brukhman has been in touch with the New Jersey Department of Agriculture and NOFA New Jersey (NOFA-NJ) to explore certification potential and to develop an organic plan for owned land.
In addition to organic certification for the rented land, BJF will pursue organic certification for the value-added processing enterprise with a New Jersey certifier and the New Jersey Department of Agriculture. Also, BJF will explore the need for a wholesale food processor license (available through the Middlesex County Department of Health) and handling licenses (available from township health departments) required by the farmers’ markets where BJF intends to sell its processed products.
BJF is not required to register the business with FDA unless initial test batches indicate a pH level above 4.6 or recipes include the addition of acid, in which case those BJF products will be subject to the acidified foods regulations.23 Initial product development results suggest that BJF products will all have a pH level well under 4.0. Most of the products have shown a pH level of 3.2-3.8.
Operations Risk Management
Our business will face three significant risks:
a. Success as an organic produce grower. We are beginning farmers and expect our learning curve to be steep during the first few years. We have done our best to educate ourselves on produce growing practices (see Human Resources), but realize that noth-ing substitutes for hands-on experience.
b. Access to a certified kitchen space. Perhaps our greatest challenge/risk will be the identification of a certified organic commercial kitchen within close proximity to the farm for long-term use. We are confident that cost-effective processing opportunities will emerge, as there has been a surge in the creation of shared-use and commercial kitchens over the past few years. We do not require specialized equipment for processing—simply a stove, space to pack and store jars during fermentation, and space for cold-storage of the final packed product (which could occur at BJF if available).
c. Quality control and food safety. Only the freshest ingredients will be purchased for processing, and will be inspected before processing to ensure that they are free of rot and mold. Once processed, all products will be tested for safe consumption (pH levels not to exceed those recommended by the US Department of Health and Human Ser-vices Center for Food Safety and Applied Nutrition) and inspected for signs of spoilage. Spoilage most commonly occurs during the initial ferment and during cold storage. Spoilage guidelines are available for fermented products. If spoilage is detected, BJF will review and document any known causes and adjust its quality control procedures as appropriate.
Marketing
BJF products will be marketed at culturally well-matched farmers’ markets, farm stores, food cooperatives, small specialty retailers and via e-commerce websites. BJF will target educated, health-conscious consumers over the age of 20 living in the Northeast region (and businesses who supply them), with a special emphasis on the estimated 17,000 Russian-speaking and Japanese-speaking households who are traditional consumers of fermented products and who, according to U.S. Census data, report significantly higher annual incomes than average New Jersey consumers.
Marketing Opportunities
BJF is located near a densely populated area exhibiting strong demand for good food purveyors and opportunities to market local, organic, naturally-fermented ethnic products. Our research suggests that demand for these types of products has been growing. Nation-ally, 79 percent of consumers would like to buy more local food and, when buying, almost six in 10 consumers say that it is important that their food be locally sourced, grown or made.25 The National Restaurant Association’s 2014 Culinary Forecast lists locally grown and organic produce, farm/estate branded products, fermented products, pickled vegetables and regional ethnic cuisine on their “Top Trends” list.26 Regionally, Real Pickles (a leading producer in the Northeast market) states in their annual report: “For several years now, demand for our products has continued to increase year-to-year beyond our expectations. Raw fermented pickles have long been an obscure category even in natural foods markets, but now it seems that they’re really starting to catch on!”
Marketing Strategy
BJF has a three-pronged marketing strategy that parallels its production strategy.
Naturally fermented product samples—processed in a commercial restaurant kitchen—will be provided at no cost to neighbors, friends and church/synagogue groups through taste tests. The purpose of the taste tests is to generate feedback on recipes and to test our marketing message: “Sharing naturally fermented goodness with the people of Central Jersey, their neighbors, and guests!” Planned taste test events include:
- Friends and family BBQ. Four-pint jars of product will be provided to each family, couple or individual. Everyone who receives samples will be asked to complete a questionnaire about product taste and price. They will also be asked to share sever-al of the gifted jars and surveys with friends (to expand the taste test circle).
- Retail manager sampling. We will present one to three jars of product(s) and questionnaires to decision-makers at retail stores, including farm stores, food cooperatives and specialty stores.
- County fair taste test. We will taste test BJF products at county fair events, collect-ing direct feedback on recipes from fair goers. There are four county fairs within Middlesex County and Monmouth, Mercer and Bergen counties.
Beginning in 2015, BJF will begin marketing up to 2,200 pints to neighbors, friends, church/synagogue groups, farmers’ market and fair goers, and independent specialty/ethnic retailers. BJF will identify one to three farmers’ markets that are open throughout the winter, allowing year-round income generation. There are seven such farmers’ markets in Middlesex County—six of which are located within 20 miles of BJF.
| Year 1-2 | Year 3-5 | Years 6+ |
| Begin taste testing products processed in a commercial restaurant kitchen immediately. Sell at various direct-to-con-sumer markets in 2015. | Scale up marketing to reach retailers within 50 miles of farm. | Expand product offerings according to customer demand and perceived opportunities. |
Eventually, in years three through six, BJF will expand its customer base to include larger retailers such as food cooperatives and restaurants in addition to the specialty stores. There are many opportunities for expansion. New Jersey is home to 11 food cooperatives, 21 specialty food stores and 19 restaurants representing Japanese or Eastern European and American cuisine. BJF will also target Russian- and Japanese-speaking consumers who live in Middlesex, Mercer and Monmouth counties (approximately 15,400 people) via community websites, ethnic food stores and ethnic, third-party yellow pages websites.
Processed products can be priced profitably at $7 retail and $4 wholesale. Market research suggests that these prices are very competitive. Table 2 lists BJF prices by market channel (retail versus wholesale) alongside a range of current prices for fermented products. Prices represent products with a variety of quality attributes, which explains the large spread in value. Some products, for example, are naturally fermented, some are certified organic and some are fermented using vinegar (lowest quality). BJF products will be differentiated from these products and perceived as a high-quality, gourmet product.
| Table 2: Prices for Fermented Products | |||
| Fermented product | BJF price ($) | BJF price ($) | Market price - high |
| Pint (16 oz) - retail | $7 | $2 | $8.29 |
| Pint (16 ox) - wholesale | $4 | $1.25 | $4 |
| Beverages (16oz) - retail | $2.50 | ||
| Beverages (16oz) - wholesale | $2 | ||
Using the prices in Table 2, BJF estimates that wholesale and retail sales from its three main product lines—sauerkraut, pickles and tomatoes—will generate $10,540 during the first year. By year six, BJF modestly projects gross sales of $47,500.
BJF will also consider product expansion beyond year six (introducing Kvass and other naturally fermented beverages) as well as services such as canning courses, food-truck packaged lunch sales and farm dinners, depending on customer feedback and perceived opportunities. These product expansion opportunities have not been factored into the sales estimates above.
Competitive Advantage
There are 13 producers of fermented products who sell at BJF-targeted farmers markets and retail stores. All competitor products are either produced outside the state of New Jersey, are not organic or are not naturally fermented. There is no one in the BJF target mar-ket offering organically certified AND naturally fermented AND locally produced pickles, sauerkraut, tomatoes and specialty beverages, nor is there any other business specifically catering organic naturally fermented craft foods and drinks to the large local Russian and Japanese ethnic markets.
Licenses and Organic Certification
As noted, BJF will need to obtain organic certification for our land. In addition to this certification, BJF will need to:
- Hire or undergo training to become a certified food manager and obtain a New Jer-sey food service sanitation certificate. These are required to sell processed products according to the New Jersey Department of Health Food and Drug Safety Program. Training options are discussed in Human Resources Strategy.
- Register for a retail food handler license with the State of New Jersey and explore the need for a retail mobile food handler license (depending on inspector review and target markets).
- Apply at targeted farmers’ market(s) for stall space.
BJF products will not require additional food safety inspections according to the New Jersey Department of Agriculture, which lists naturally fermented products as “safe.” Nor will BJF require a Hazardous Analysis Critical Control Point plan (HACCP) under federal regulations due to BJF business size (less than 10 employees) and projected sales volume (less than 10,000 units of each product).
Marketing Risk Management
BJF has three general marketing risks:
- Difficulty reaching target customers and educating consumers who are unfamiliar with natural fermentation. We will work hard to establish our brand with Russian and Japanese communities through the methods outlined in our Marketing Strategy.
- Inability to scale up during years 3-6 to satisfy retailers who will have specific prod-uct volume and delivery expectations. BJF will develop superior service and com-munication to anticipate and address these issues should they arise. At the same time, BJF will brand itself as a gourmet, specialty product with limited distribution.
- Food safety. As described, a HACCP plan is not required for our business due to our size and scale, according to FDA regulations. However, BJF will participate in food safety training (see Human Resources Strategy), develop a plan for monitoring food safety (see Marketing Strategy) and will plan to purchase product liability insurance to protect itself against any consumer claims associated with food safety.
Human Resources
BJF is a small, family-run business with a strong support network of advisors and consul-tants. BJF will rely primarily on family labor during the first two years. Gradually, as the business grows and sales mature, BJF will offer year-round, part-time employment as well as seasonal, part-time internships.
Management and Skills
BJF will be managed by owner Vitaly Brukhman. While new to farming, Brukhman has experience as an entrepreneur and has operated a successful IT consulting business. In 2013-2014, Brukhman began cultivating his agricultural production skills, acquiring hands-on experience growing radishes and mustard greens on a half-acre while complet-ing a beginning farmer education program with NOFA-NJ. During the spring/summer of 2014, Brukhman participated in four courses as part of the Organic Processing Institute’s School for Organic Processing Entrepreneurs to gain a better understanding of organic processing and handling requirements. During that same time, he conducted food product research and began small-batch production for taste testing and marketing. In the fall of 2014, Brukhman continued skill-building coursework: farming-related classes and on-farm consultation with NOFA-NJ, a class on food and drink entrepreneurship with the Samuel Adams Brew the American Dream series, and microbiome and nutrition studies through a variety of online sources.
Additionally, Brukhman plans to enroll in the food safety manager program offered electronically by ServSafe, a nationally recognized training program. This course satisfies the Middlesex County food safety training requirements needed to obtain a New Jersey food service sanitation certificate. Training is valid for five years from date of completion.
Advisory Committee
A committed group of educators, entrepreneurs, farmers and friends have volunteered to serve and/or act as advisors to BJF. Brukhman will meet with BJF Advisory Committee members semi-annually to review progress, troubleshoot problems and identify new op-portunities. BJF’s advisory committee includes:
Spouse, Katrin K.
Daughter, Jennifer B.
Potential Investor, Dennis P.
Farming Educator, Justine C.
Organic, Non-GMO Movement Activist, Theresa L.
Food Entrepreneur, Michael S.
Restaurant Operator, Jim W.
Experienced Organic Produce Grower, Serguei E.
Food Processing Professional and Educator, Paul T.
Wild Food Foraging, Herbal Medicine and Nutritionist, Dan F. Fermentation Revivalist, Sandor K.
Herbal Medicine Practitioner, Virginia A.
Japanese Culture/Natural Sciences Educator, Seth D. Permaculture Educator, Wanda K.
Business Accounting Professional, Robert S.
Human Resource Strategy
BJF will operate full-time during the New Jersey vegetable harvest and post-harvest seasons (July-November). During this time, BJF will purchase and process a year’s worth of product. During the BJF start-up phase, marketing will occur on a part-time basis year-round and will gradually progress to a full-time job by year six. Dill production, land transition and, eventually, organic produce production will be managed on a part-time, seasonal basis. BJF has prepared a calendar of activities and estimated labor needs (re-moved for confidentiality).
As BJF owner/operator, Brukhman will perform all management, marketing, processing and production activities in years one and two. BJF will hire part-time labor and interns (from a community group interested in organic production) to assist with processing, marketing and produce production during years 3-5. Additional hired labor will be needed beginning in year five during the processing period as BJF expands its activities.
BJF will recruit part-time help through farm listservs, student groups and word-of-mouth. When hiring, BJF will seek individuals with an interest in organic management and food preparation.
Licenses and Insurance
BJF will purchase a worker’s compensation policy for hired employees to protect against liability should a staff member become ill or injured at work, as well as a commercial insurance policy. The commercial policy will include endorsements for liability related to direct-marketing sales through food services, farmers’ markets, roadside stands and on-farm tours.
Human Resource Risk Management
The greatest risk to BJF’s success will be illness or injury that prevents Brukhman from doing the work. Brukhman has adequate health insurance and plans to explore disability insurance. Upon hiring an assistant, BJF will train that person to take over marketing and processing responsibilities in the event of illness or injury to any staff member, especially Brukhman.
Finances
BJF’s short-term financial goal is to generate approximately one-quarter of family living expenses from product sales. Financial projections suggest that this is feasible by year three. In the meantime, BJF will require financing to cover expenses and start-up investments.
Financial Opportunities
BJF has been approached by a private investor who believes in the BJF mission and who is interested in supporting BJF during its start-up phase. (Loan amount and terms removed for confidentiality.)
Financial Strategies
BJF will show a positive cash flow and a sustainable profit equal to one-quarter of its oper-ator’s living expenses within three years of start-up. In the meantime, BJF will require an infusion of capital (in addition to the private investment) to finance management salary, overhead costs and start-up expenses associated supplies, equipment, labor and management.
| Years 1-2 | Years 3-5 | Years 6+ |
| Finance salary, overhead costs, and start-up expenses through private savings, investor financing and lender financing. | Continue to finance direct and overhead expenses through investor and lender financing. | Pay down loans. Generate profit equal to annual living expenses from farm and processing business. |
Capital Request
BJF is requesting a revolving line of credit and an intermediate loan to finance its start-up and growth (values removed for confidentiality). The direct line of credit will be used to finance the majority of start-up needs in years one and two:
- Seeds
- Growing supplies
- Fermentation starter cultures
- Electronic pH meter (approximately $100)
- Certification fees
- Harvesting tools and crates
- Washing equipment
- Coolers and bags for transporting produce
- Boxes for transporting jars
In years 3-5, BJF anticipates needing to finance:
- Direct expenses listed above as well as processing fees related to commercial kitchen rent and hired labor
- A hoop house for equipment and product storage
The following items have been calculated and removed for confidentiality:
- Projected costs
- Projected net income
- Projected cash flow
Licenses and Insurance
BJF will require several food processing and handling licenses as already noted. In addition, BJF will register as a business with the State of New Jersey and apply for the following:
- New Jersey tax identification number
- Property insurance to protect again theft of products and equipment stored at the commercial kitchen, etc
Financial Risk Management
BJF has carefully researched and calculated expenses related to cost of production and processing, sales potential and income. Estimates have been reviewed by a financial advisor for accuracy and adjusted to present the most conservative financial scenario.
BJF will meet regularly with advisors to closely monitor its cost estimates, among other things, during its first three years to determine if longer-term projections are accurate. We fully expect that BJF will be able to reach its long-term financial goals but are willing to abandon our plan or modify it if the first three years do not go as anticipated. A contingency plan has been developed for investor and lender repayment should the processing business fail. (Plan removed for confidentiality.)