Apr 14, 2022
Written By: Yara Nagi, Director of Operations at Agritecture, and David Ceaser, Lead Agronomist at Agritecture
Whether you’re a farmer or an agricultural entrepreneur, planning the financials for your business is one of the hardest problems to tackle. There’s a fine line between overspending and underspending on your business. If you overspend, you risk the profitability of your business, and if you underspend, you risk losing your product quality and as a result, you risk losing customers. So, how can you cut costs without compromising on quality?
Time and time again, the Agritecture team has encountered farmers and entrepreneurs facing challenges in projecting costs for their businesses. Yara Nagi, Agritecture’s Director of Operations, states that “the biggest challenge always revolves around estimating costs for events that have not yet occurred, such as estimating the costs associated with how much crop will not make it to market or when the growing equipment will require maintenance or replacement.”
As a farmer himself, Agritecture’s Lead Agronomist, David Ceaser, adds that “there are always unexpected costs. Just like in life, everything seems to be a little more expensive, a bit more complicated, and takes more time than expected.”
When kickstarting your operation, financial challenges will follow. According to Yara, this will always be the case in your first year “as that is when you are experiencing different situations in your farm for the first time (i.e. the impact of seasonal changes on your crop growth or the times of year you need to restock your inventory).”
Here are their first few tips:
#1: Think about all the scenarios that may occur once you start operating your farm. Yara suggests speaking “to fellow farmers and to do your research in order to account for those scenarios.”
#2: Include a contingency of 10-20% regarding costs, yields, etc. David says that “while it takes more time to do this, it will provide more realistic scenarios for planning.”
#3: Track as much data as possible when starting operations. Yara adds that “this includes everything from seasonal tracking of grow cycles to the utility costs per month and year. That way, you are able to plan and manage your operational expenses better.”
According to Agritecture’s team, crop quality comes down to two major factors: having a talented grower, and consistently tracking all aspects of the evolving operation.
#4: Invest in a talented grower and team. Yara builds upon this by saying that with a good team, “you are able to consistently create the correct environment for your crops (i.e. nutrients levels, climate, pest management) and that leads to consistent crop quality at a feasible cost.”
In regards to cost-cutting and quality control, David shares his insights in working with Agritecture’s clients for over 5 years now. “I consider product quality to be of utmost importance. It is important for obtaining clients and for maintaining them. It is my experience that customers are willing to pay a premium for high-quality produce, and if product quality slips, you can lose accounts, and it is almost impossible to recover when that happens. If you need to cut costs, try to do it in areas that don’t affect product quality.”
This leads us to the next tip:
#5: When cutting costs, don’t compromise on quality. This means not reducing labor for product sorting, washing, or other post-harvest activities. This also means not compromising on crop management expenses.
So, where should you and should you not spend?
Yara says that “it’s less about the equipment itself and more about the preparation needed in deciding that equipment. For example, make sure to invest in a proper climate analysis of your site. That will inform the type of HVAC system that would be most impactful and affordable for your farm. Also, don’t jump to the most refined automation technology you see. There are different levels to that automation technology and the most expensive or complex may not be the most suitable for your space.”
#6: Don’t jump to rushed conclusions with your equipment. Conduct proper analyses and consider the range of options that are affordable and most impactful for you and your farm.
David adds that “the key to reducing costs is to identify and remove inefficiencies throughout the production and post-harvest processes. While most farmers believe they have an efficient operation, most of us get stuck in our ways.” This is why you need an extra pair of eyes.
#7: Bring in an external analyst to get a fresh perspective on what might be done differently. This can be a great way to get on the road to efficiency improvements.
Yara suggests finding “an expert as early on as you can in your planning phase.” Given that budgets differ, Agritecture offers different levels of consultation at a range of prices. Check out Ask Agritecture, Agritecture Designer, and our Feasibility Study offerings.
According to David, “Agritecture has done numerous farm optimization consultations. We’ll visit your farm and identify those areas where we believe there is room for improvement. After that, we’ll create a step by step process for allowing your operation to make those changes.” With Agritecture by your side, you can rest assured that we’ll help you and your farm be successful.
If you’re still in your planning stages, Agritecture Designer is a great tool for those just starting out in farming or considering a new crop or new production system. The team is currently in the process of updating the software to allow for users to customize their own contingencies in their financial models. Keep an eye out for Agritecture Designer’s Advanced Mode, launching in June 2021.
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