• erink

How do you set your prices?

I get asked a lot about prices for farm-direct products – what is a “good” price for x,y,z? Why do some farmers charge more than others? How do you set your prices? First of all, if you’re reading this, you’re probably interested or actively supporting local and ecological agriculture. So suffice it to say that the whole concept of setting prices is totally different at the scale of a small-to-medium sized farm directly selling to consumers than it is for, say, Loblaws trying to decide how to price a pineapple. I think it’s fair to say that most local, ecological farmers are working extremely hard and trying to be as efficient as they can. They are earning enough for them to justify keeping on – whatever that means for that farm. Some earn more than others, but by and large the prices that they charge are their best attempt to bring a quality product to market at the best price they can. If you’re curious, ask! Don’t be shy – a good way of asking is to say, “How do you set your prices?” If asked with respect and curiosity it will not be an offensive question. Why is local, organic food so much more expensive than grocery store prices? So here are some things that you already know about supporting local, organic agriculture, but I’m going to remind you: There are so many reasons to pay for local, sustainable agricultural products: food quality, variety, biodiversity, pollinators, agricultural heritage, water quality, soil quality, nutrient density, animal welfare, local economic benefits, community resilience…the list can go on, and on. Yes, locally produced, ecologically produced food costs MORE than what you can get at the grocery store. But when you buy from local, sustainable farms, you are bearing the true cost of the food produced. When you see a price at the grocery store think about what you are NOT paying for – because rest assured somebody else is paying it. Somebody is paying for those fossil fuel subsidies to ship the product across an ocean; somebody is bearing the burden for exploitative wages to bring the harvest in; somebody is paying for soil depletion and water pollution when agriculture strips the soil and fills watersheds with pesticide, fertilizer and manure runoffs. When you support local, ecological agriculture the price you are paying for grassfed beef or lamb, for example, is also sequestering significant amounts of carbon back into the soil, fighting climate change. The price for organic local broccoli is also paying for a habitat for pollinators, birds, and wildlife and protecting biodiversity. When you buy locally produced pastured pork you are paying for those pigs to enjoy a quality of life that is such a far cry from what they would endure in a confinement based system. When you buy locally grown wool you are paying for local people to have good jobs raising and producing beautiful fibres, supporting our local economy. This is a pricing regime that builds in a lot of these environmental, social, and animal welfare protections. I believe that in the future, local, ecological agriculture will only become more mainstream. Either ecological farmers will be compensated for their environmental services in addition to what they can earn through sales and their prices will be able to drop somewhat. Or, industrial agriculture will be made to pay the true cost of production and their prices will become more expensive. Factoring in all of these externalities is simply an inevitability – we simply can’t be sustained on unsustainable food production. By buying local, ecological food and fibre you are ahead of the curve, already living more in balance. So, instead of asking, “is this the best price I can get?”, maybe ask “is this a price I can afford?” If you can afford the price, and the farm is doing work that you want to support and producing food that you want to eat – then the differences in price are really inconsequential. What gets factored in when setting a price? There are different ways of setting prices, I don’t think any two farms do it exactly the same way. For the most part, prices are typically based on how much it costs to produce. Keep in mind that each individual farm is different so the costs that each farmer has to factor in to the selling price also is individual. These prices include everything from whether animal feeds are purchased or home-grown, organic certification costs, whether the animals are kept year-round or just as feeders in the summer, prices for transport and slaughter/butcher, whether additional labour is hired or not, etc. Then add in all of the unforeseen things – your hay got rained on and you had to buy some in, or your best cow needed a vet visit that cost a small fortune – these things are unpredictable and may cause prices to fluctuate from farm to farm or from year to year. This is just a broad sketch of some of the cost factors. On top of that are all of the very personal factors that, at the end of the day, are reflected in the price. Because the price that I charge has a very direct effect on my salary at the end of the year, my family situation also plays a bit of a role – the farm salary that a single person earns may not be considered sufficient for supporting a family, for example. Whether the farmer is in year one of their enterprise and has some hefty startup costs to cover, or has decades of equipment and experience behind them will determine a little bit how flexible they can be in pricing. I don’t think any farmers are out there saying, “I need to pay my daughter’s college tuition. Beef prices are going to have to triple this year”. But, to a certain extent, family situation and personal factors do factor in to how prices are set. But as I become more connected to my fellow farmers, those in our local area farming ecologically and selling directly to consumers, one thing is pretty consistent: each farmer I have met is striving to provide an exceptional quality product for the best price they can. So, how do we set OUR prices? On our farm, we set the price based on what we need to charge in order to hit our target revenue for the year. I calculate how much I can expect to earn with each type of production – this year it’s lamb, wool, pork, turkeys, beef, and workshops – I calculate how much I HAVE to spend to produce, and then I try to trim all of my other costs and find creative ways to earn a little bit more, until I hit my target goal. This year I was really helped by looking at some Holistic Management financial planning tools online. It has really changed the way I look at my farms’ finances but I won’t be able to tell you how well it works for awhile – it is very promising so far, though. I also take a look around at what other farms that have somewhat similar practices are charging. If my price is too high or too low, I try to figure out why. Are my estimates off? Is there a cost I haven’t factored in? Am I under- or over-estimating my yield? I know that my fellow farmers are pretty smart, and great farmers – so if my price isn’t at least in the ballpark with their prices averaged out, there’s something I’m missing. There isn’t a “best” farm out there – there is a mix of good and great farms with a variety of different practices, so, each price that you encounter when shopping for local products reflects the particular work that is happening on that farm. Hanging Weight vs. Cuts Weight: What are you paying for? I don’t know how local, ecological farmers price their cheese, fruit, vegetables, or other products, that’s not what we produce. But, when buying meat, don’t forget to consider whether you are paying for the hanging weight, or the take-home cuts weight. Both are common ways of pricing meat for local farms and both ways of pricing have advantages for the farmer and the customer. On our farm, we base all of our prices on the final, take home weight of your cuts of meat. So, if you order 10 lbs of pork, and 10 lbs of beef, I will pack you an order that includes as close as possible to 10 lbs of pork and 10 lbs of beef – it won’t be exact, but it will be +/- one pound or less, and I will charge you for the exact weight in your box of meat. Many other local farms charge based on the hanging weight. This is the weight of the carcass, without the digestive tract, head, and hide, but before it is butchered into individual cuts of meat. Final cuts weight is typically 65-75% of weight of the hanging weight and the price will be reflective of this - lower range for lamb, higher range for pork, and beef somewhere in between. The final weight can vary quite a bit between beef, pork, lamb, and based on other factors such as whether boneless or bone-in cuts are favoured, the length of aging, the amount of fat that is trimmed, and the characteristics of each individual carcass and the butcher’s practices. So, for example, if you order 100 lbs of beef hanging weight, you will probably end up with somewhere between 70-75 lbs of beef for your freezer. This is an estimate – ask the farm you are buying from as they will know what their average is at their farm. For lamb on our farm, our average hanging weight of a whole lamb is 43.5lbs, with average weight of cuts being 28 lbs (~64% of the hanging weight).  This doesn’t really apply to turkeys, since they are sold whole. For us, we find it is better to charge based on your final, cuts weight – the exact weight you go home with. But, it does make our prices “look” more expensive. Our Price per pound (final cuts weight)Equivalent hanging weight per pound Lamb$13$8.45 (65%)Pork$8.75$6.56 (75%)Beef$12$8.40 (70%)Turkey$6na There are lots of online articles about hanging weight, final weight, and liveweight, and how all of these figures correspond.

Wow, that’s a lot about pricing.  Congratulations if you’ve made it to the end Happy shopping, and happy eating, and thanks for supporting local, ecological agriculture!!

148 views0 comments

Recent Posts

See All