Transcript Goat Economics - Nc State University

Meat Goat
Economic$
GEOFF BENSON, PhD
Extension Economist
Dept. of Ag. & Resource
Economics
N.C. State University
August, 2009
Outline
Why do you want to have goats?
Who will buy your goats or goat
meat?
How will you produce your goats or
goat meat?
Are goats a good fit for your farm
and family?
Will it be profitable? -- Running the
numbers
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WHAT IS SUCCESS?
“WHEN THE MOST IMPORTANT
FAMILY AND BUSINESS GOALS
ARE BEING MET”
How will meat goats contribute to
your definition of success?
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1. Why Have Goats?
OR
FUN
OR
MONEY?
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Why Have Goats?
Are Goats a Good Fit
With:
Your Personal
Goals
Your Business
Goals
Goals of other
family members
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Why Have Goats?
How much money do you want to
make from selling live goats or goat
meat?
How much time and money are you
willing to invest?
Write it down!
Your answer helps determine the
size and type of enterprise
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Income Potential
There is little published information
from actual meat goat operations
 To
base planning decisions on
 To use as benchmarks for evaluating
farm performance
Several Universities have developed
goat enterprise budgets
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Meat Goat Enterprise Budgets,
$ per Doe per year
Does
Rev.
Cost
Neta
Head
50
$
91
$
116
$
-25
Ohio:1.5 X 130% kid
25
123
132
-9
Ohio:1.5 X 170% kid
25
165
135
30
Ohio:1.5 X 210% kid
25
207
138
69
Kentucky-Low Int.
--
77
75
2
Kentucky-Med Int.
--
95
98
-3
Kentucky-High Int.
--
111
124
-13
S. Carolina 180%
aNet
= Returns to Land, Management, Risk, & Farm Overhead
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Why the differences?
Based on different production
systems
Differences in animal performance
Differences in the cost categories
included
There is no standard budget
methodology – user beware!
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Farm Financial Performance
Varies from Farm to Farm
Net Returns over Total Expense,
Minnesota FINBIN data
 Cow-Calf,
per cow, 2008:
Top 20% = +$46, Bottom 20% = -$688
 Stockers, per head, 2007:
Top 20% = +$65, Bottom 20% = -$223
Dairy Net Farm Income per cow,
Cornell University, 2007

Top 10% = $1,985, Bottom 10% = $67
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Size & Income
 Larger farm operations may be truly
profitable
 Smaller operations can
Depend on non-farm income – either from
choice of lifestyle or financial necessity
 Get bigger
More of the same
Develop “value added” activities

 All sizes -- Manage for profitability if net
income is the primary motivation,
especially cost control
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Economies of Size
 If you double the size of your goat herd
It doesn’t take twice as much time to feed or
move goats from one field to the next, time and
expense to take your goats to market, fencing,
equipment, facilities, etc.
 You spread your fixed costs & overhead
 You might get volume discounts on purchases
 But there can be diseconomies too, especially
in marketing your product(s)

Prediction – Meat goats will become
more like other commercial farm
enterprises
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Value-added?
Sell meat or meat products instead
of the live goat
 Wholesale
 Restaurants
 Direct
to consumer
Farmers Markets
On-farm sales
Event Catering
CSAs, etc.
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Value-added
 There are also Added Costs!
Processing
 Wrapping, packaging, labeling
 Storage
 Sales and distribution costs
 Record keeping, office, etc.
 Cost of complying with regulations
 More of your time or cost of extra hired
help

 An opportunity, not a magic bullet!
 Run the numbers!
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Other Financial Benefits
Tax advantages for farmers
 Preferential
sales tax rates
 “Agricultural Use” property tax rates
 Farm income tax rules
All farming tax advantages have
qualification requirements
 Do
you qualify as a farm/farmer
(acreage, gross income)?
 Are you farming for profit?
 Do you “materially participate”?
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2. Lots of Market Opportunities
 People: NC = 9.2 million, VA = 7.8 mil.
 Personal Income: NC = $318 bil., VA = $333 bil.
 Consumer trends:



Buy less on price, more on convenience
Care how food is produced – no GMOs, no added
hormones, no antibiotics, organic, “natural,”
Value special characteristics –locally produced,
sold direct, “fresh”, type or variety,
“heritage”/nostalgia, etc.
 Demographic trends: Changing racial & ethnic
mix, population growth, aging, more two-wage
earner families, single head of households, etc.
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Who Are Your Customers?
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Know Your Customers
 When planning a new enterprise:
Helps you identify opportunities and
challenges more clearly
 Helps you develop your product & a
marketing strategy to sell your product to
the consumer
 Helps you develop a farm production plan

 For an existing business:

Helps you see new opportunities, see if your
operation is meeting, exceeding or falling
short of your customers’ expectations, helps
you fine tune your marketing efforts
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Know Your Customers
Live Sales
 Where
will you sell your animals?
 What kind of animals does this market
want? What premiums are available for
certain characteristics – frame size,
weight, fleshiness, breed, sex, kosher or
halal, number of head, etc.
 When does the market want them – is
there a seasonal pattern to prices? Are
their ethnic holiday opportunities?
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Selling Meat –
Who are Your Customers
 Four Characteristics:
 They want or need your
type of product
 They have the ability to
buy what you are selling
 They have decision
making power over
purchases
 They have ready access
to your product or
service
Selling meat –
Some Key Questions
1. What type of person will buy my
product?
Race or ethnicity
Attitudes towards food, health,
production methods and animal
welfare
Income
Age
Marital Status
Education
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Selling meat –
Some Key Questions
2. What are their buying habits?
 Who
makes the purchasing
decisions?
 Where do they make their purchases?
 How often do they buy?
 How much do they buy?
 What form of product do they prefer—
live, meat package size, type?
3. How much can or will they pay?
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How many potential customers
are there in my market area?
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More Marketing Questions
5. Who is my competition?
 Operations
selling the same product
 Sellers with a similar product in a
different market channel
 Sellers of a competing product that is
a substitute
6. How will I compete?
 Price
 Product
 Service
Quantity X Price = Your revenue
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Competitor Analysis
“If you don’t have
a competitive
advantage,
don’t compete”
Jack Welch
Former CEO of
General Electric
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3. How will you produce goats, meat?
Revenue
 Type
and number of animals
 Sale weight and form
 Time(s) of year
Operating expenses
– forages and supplements
 Health care
 Labor
 Processing &/or Marketing
 Other – utilities, repairs, services
 Feed
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How will you produce goats, meat?
 What will you invest?
Animals – does, bucks, kids
 Buildings and facilities – feeding, shelter &
handling, storage
 Fencing, water, lanes

 Cash flow – is it feasible?
Operating income and expenses
 New investments and asset sales
 Borrowing and debt repayment
 Non-farm income and family living needs
 New operations -- Make quarterly estimates
through the start-up phase

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Fitting the pieces together
Customers
& Markets
Resources
$$$
Marketing,
Distribution
Production
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Planning for Success
 “Suck it and see”
 This can work if the
business venture is
small in scope and the
cost of failure is not
significant…if not,
then more effort is
required
“Experience is the name everyone gives
to their mistakes” -- Oscar Wilde
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Planning for Success
=
“If you can’t make a profit with a pencil,
you can’t make a profit with a plow”
Anonymous
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Revenue Sources & Amounts
Kids sold live and/or as meat
Kids sold for breeding
Cull does & bucks
Does & bucks sold as breeding
stock
Value of inventory changes, +/-
Calculate revenue per doe based on
number of does exposed to the buck
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Goat Enterprise Expenses
Operating or Variable Costs (Vary
with scale of production)
 Feed
Costs -- Pasture & hay,
Supplements -- (Number of head X days
fed X lb./day X cost/lb.)
 Health care -- (No of head X no. of
treatments X cost per treatment)
 Hired
labor -- (hours per day X 365)
 Processing &/or Marketing -- (time,
travel, advertizing, etc.)
– utilities, repairs, office,
professional services
 Other
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More Expenses
Fixed or ownership costs – annual
charges to recoup your investments in
your goat enterprise, including
buildings, equipment, facilities,
fencing, pasture improvements, and
breeding livestock
Depreciation,
 Interest
 Property taxes
 Insurance

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Fixed or Ownership Costs
 Average annual depreciation charge =
[New Cost - Salvage Value]
Years of life
 Average annual interest charge =
[New Cost + Salvage] X Interest rate
2
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More Expenses
 Overhead Expenses
Specific to goats, e.g., goat association
memberships and subscriptions
 Farm overhead -- general to farming, e.g.,
accounting and tax preparation, legal, land
cost (ownership cost or rent), etc.

 Value of your and your family members
contributions (opportunity cost)
Chore labor time
 Management time
 Money you invested in the goat enterprise

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Expenses & Decision Making
 Fixed or ownership costs to be recouped


Will these be new investments?
If you have existing equipment & facilities, do
they have alternative uses or value?
 Land cost – who pays?



Lifestyle farm – your cost
Land as an investment – your cost
Farming for profit – farm enterprises must justify
the land investment or land rent
 Profit v. Cash Flow

Budgets do not consider cash flow issues, such
as how to finance new investments, make debt
principal payments and family living withdrawals
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Consider Risk
Probability or chance of an event
Exposure – financial impact if an
event occurs
Sources:
 Production
 Prices
and market risk
 Financial
 Legal, Business, regulatory, etc.
 Human, including the 5Ds
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What Are Your Figures?
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Are Goats a Good Fit?
 Lifestyle or
 Income Goals
supplementary farm
 Gain tax advantages
enterprise



Fitting and showing,
pleasure
Controlling brush and
weeds
Using underutilized
pasture species, e.g., with
cattle


Cover Cash costs
Make a true profit
 Farm Income


Breeding stock production
Commercial meat
production – live or meat
sales
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Once your are in production,
Is it working?
“Controlling” -- Evaluating the
results
Set standards or targets
Measure performance – keep
records!
Compare actual performance to
target or benchmark
Take corrective action promptly if
performance is below target
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Summary
Why have goats – what are your
family business and personal
goals?
Who are your customers, Where will
you sell, what do they want, how
much do they want, what will they
pay?
Develop a farm production and
marketing plan geared to your
market
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Summary
Develop projections based on
realistic expectations of farm and
financial performance
 Profitability
 Cash
flow
Are goats a good fit for your
operation?
Monitor and evaluate how your farm
and business plan is working
 Production
performance
 Financial performance
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Summary
“If it’s easy, fun or can be done
from the seat of a tractor,
there ain’t no money in it”
Anonymous Cowboy
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Remember the Economic$
$
$
$ $
$
$
Photo courtesy of the Department of Animal Science,
Oklahoma State University, Stillwater, Oklahoma.
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Geoff Benson
Phone: 919.515.5184
Fax: 919.515.6268
E-mail: [email protected]
Web page:
http://www.ag-econ.ncsu.edu/
faculty/benson/benson.html
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