NCAT Agriculture Specialist
Published June 2014
Transplanter. Photo: by NCAT
This publication helps farmers decide if they are ready to expand their operations to serve wholesale markets or produce more for direct markets. It describes how organization and planning can help a producer meet the challenges involved in scaling up. This publication addresses important considerations such as land, labor, food safety, marketing, and insurance.
Table of Contents
- Introduction: Scaling up – Is It Right for You?
- Profile: Johnson's Backyard Garden
- Organizing Your Farm
- Planning and Managing a Scaled-Up Operation
- Food-Safety Planning
- Further Resources
Local foods purchasing has moved beyond farmers markets to mainstream grocery stores. As consumers become more interested in purchasing local foods, chain grocery stores from Walmart to Safeway tout their support of local farmers. At the same time, many established farmers want to move out of time-consuming farmers markets into wholesale markets. A University of Wisconsin study points out that with the interest in local foods, "local food systems have the potential to borrow some of the economic and logistical efficiencies of the industrial food system while retaining social and environmental priorities" (Day-Farnsworth et al., 2009).
It is important to plan for the expansion of your farm. Every time you increase the scale of your operation, you will experience growing pains. Planning for improvements and growth within your operation can help alleviate these. Questions you might ask when you consider increasing your production:
- Do you have the ability to move more product through your washing and packing facility?
- Do you have enough space in your cooler, delivery truck, etc.?
- How many more people will you have to hire, and do you have the management skills to handle a larger crew?
- Do you have a good farm administration system? As your farm increases in size, this will likely become more complex, including more taxes and stricter insurance requirements (Courtens, 2006).
This publication addresses these planning considerations, as well as providing some resources and worksheets to determine whether or not your operation is ready to scale up.
What is Scaling Up?
Scaling up can mean many things to a farm. It can mean simply producing more because your market demand is greater. In the context of this publication it means expanding production capacity and business to produce for wholesale markets or significantly expanding your farm to meet direct-market demands. It is important to keep in mind that there is not a one-size-fits-all approach to expanding your farm. This publication will include some strategies, but your approach will depend on your existing resources and markets, as well as how much risk you are comfortable with.
Photo: by NCAT
Why do you want to scale up?
When economic prosperity is measured in economic growth, it is hard to question the expansion your farm. However, before considering expanding your farm, it is important to ask yourself why you want to do it. What are your farm and lifestyle goals? Is it going to significantly affect your quality of life—for better or for worse? Consider revisiting your goals. If you have not developed goals for your farm or written your goals down, see the ATTRA publication Evaluating a Farming Enterprise. The online tutorial titled "Goal Setting" can help you think through your goals with worksheets on this topic.
Before expanding your operation, it is important to consider your return on investment. In other words, will you make more money based on your investment if you expand? The Leopold Center for Sustainable Agriculture has a return-on-investment calculator for produce operations.
This calculator, developed by the Iowa State University Hotel, Restaurant, and Institution Management Extension program, helps produce growers weigh their options when planning production for the coming year. The calculator can compare two production scenarios at one time and any number of variables: current and expanded production levels, increased acreage in produce, existing and modified marketing plans, or changes in pricing structures.
To most effectively use the features of the calculator, growers need to have data about their current and projected production levels, income, production-related expenses, and operation-related expenses based on current markets, or at least on educated assumptions. A manual has been developed to help growers collect the necessary information available at:
Typically, a farm that expands to sell through wholesale markets moves from a very diverse operation to one that is more specialized. Nationally, there are several regional CSAs that have scaled up to serve more than 1,000 members. Managing 50 + crops at that scale can be very difficult, but there are some farmers that have successfully pulled it off, such as the 160-acre Johnson's Backyard Garden profiled in this publication.
Generally, however, most farmers that scale up decrease the diversity of their crops. While you may grow fewer crops, these crops should be available for a longer period of time to satisfy your markets. If you choose to grow fewer crops, it is also important to manage soil quality on your farm through crop rotations, cover cropping, and other measures.
Often, one of the limiting factors in farm expansion is access to land. This section will discuss different options for accessing land.
Leasing land can be a great option if financing a land purchase is not possible. It also gives you the opportunity to try farming at a larger scale without committing to a piece of land through purchasing. When renting, however, it is important to have a lease that is fair and legal. Research the market price of land rentals in your region. Your county Cooperative Extension office or farmland preservation organizations may have local land-lease rates. The Drake University Agricultural Law Center, in collaboration with the Iowa-based Leopold Center for Sustainable Agriculture, has developed an in-depth Land Tenure Tool Box to help you understand the considerations of leasing farm land.
Another consideration when leasing land is the quality of the land and the existing infrastructure. If you are leasing, it is important to use land that will not take a lot of time and resources to improve. If the land is excessively weedy or has poor soil, it is likely not worth investing time because you will not get any equity out of your land improvements. It is also important to consider access to the land, as well as to water and electricity.
The ATTRA publication Tips for Farm Leases and Contracts: Creating Smart, Effective Documents can help you understand the considerations in developing an effective and fair farm lease.
Gardens of Eagan in Minnesota. Photo: by NCAT
If expanding your farm has been a part of your long-term goals, buying land may be a better option than leasing. Purchasing can be costly, especially if you live in an area that has high land prices. Financing the purchase of land can be difficult. The USDA Farm Service Agency (FSA) can be a great option for obtaining a low-interest loan for the purchase of land or equipment for your expansion if you do not qualify for a conventional loan. Any financer will expect you to have a projected cash-flow statement to demonstrate that your expansion will be profitable.
The ATTRA publication Finding Land to Farm includes important considerations as well as helpful resources on leasing or purchasing land.
Infrastructure and Equipment
Expanding your farm will require expansion of your infrastructure. If your current farm's infrastructure consists of a rototiller and hand tools, your required investment will likely be extensive. Table 1 provides a list of typical equipment, adapted from Vern Grubinger's Sustainable Vegetable Production from Start-Up to Market.
|Table 1: Equipment options for a 20-acre vegetable farm|
|Item||Cost new||Cost used|
|50-75 horsepower tillage tractor with loader||$25,000 and up||$5,000-$10,000|
|15-20 horsepower cultivating tractor||$20,000 and up||$3,000-$8,000|
|Pickup truck||$16,000 and up||$3,000-$10,000|
|Three-bottom plow OR||$3,000||$500-$750|
|Three-shank chisel plow OR||$1,500||$500-$750|
|Rotavator||$3,000 and up||$1,500-$2,000|
|Bed former or mulch layer||$1,400||$500-$750|
|6- to 8-foot seed drill (for cover crops)||$2,000 and up||$250-$500|
|Two-row tractor mounted plate or drill seeder||$2,500 and up||$500-$750|
|Two-row tractor mechanical transplanter||$4,000 and up||$2,000|
|Two-row mechanical transplanter||$2,500 and up||$500-$750|
|Boom sprayer||$2,000 and up||$500-$1,000|
|Spring tine cultivator||$2,000||$500-$750|
|Set of cultivating sweeps, shanks, shovels, etc.||$1,250||$250|
|Flail mower (or brush hog)||$2,000||$500|
|Hand tools and wheel hoes||$1,000||$250|
|Irrigation lines, sprinklers, pumps, etc. (per acre) This could be more depending on your region and irrigation needs.||$2,500 and up||$1,000|
|Two-row gravity fertilizer side-dresser||$750||$250|
|One-row potato harvester||$2,500 and up||$500-$1,000|
|Harvest wagons||$2,000 each||$200-$500|
|Wash tanks||$100 each||$25-50|
|Washing line and sorting table||$3,000||$1,500|
|2000 cubic foot walk-in cooler||$8,000-$12,000||$1,000-$5,000|
|Refrigerated delivery truck||$40,000 and up||$15,000-$30,000|
|Shop tools (welder, drill, grinder, compressor, etc.)||$3,000||$1,000|
|Source: Adapted from Grubinger, 1999. p. 19.|
Roxbury farm bed system. Photos: Roxbury Farm
Jean Paul Courtens from Roxbury Farm in New York says, "The key to planning an efficient diversified farm is consistent bed sizes, access, and consistent tractor and irrigation wheel spacing." He advises that good record-keeping is key to planning your expansion. He suggests determining your units of measurement—length of bed, bunches, and pounds—and creating greenhouse and field planting schedules that are easy to read, easy to use, and easy to update.
At Roxbury Farm, their acreage is laid out in 49-foot sections with 11-foot driving lanes. Each section is divided into eight beds. Each bed is 56 inches across, with 6-foot centers. Raised beds provide drainage during heavy rains. Farm workers never drive on top of their beds.
Roxbury Farm's irrigation traveler can cover four sections in one pull. Their one-sided boom sprayer can spray four beds at a time. They always set aside a place to drive harvest trucks and tractors. The field arrangement is such that they can access fields in all weather and the crew never has to carry a full produce box more than 20 feet. The arrangement is also easier for record keeping.
Labor is a very important consideration for scaling up your farm. Labor costs can quickly eat into gross sales on a vegetable farm of any size. Labor requires a whole new level of planning, financing, and communication. Yet, if you are scaling up your farm, you most likely will need to hire labor. It can be difficult to find labor and many farmers refrain from scaling up for this reason alone. Consider whether you enjoy working with people and feel like you have the management skills to take on employees. Check into your state's labor laws before hiring anyone. If you intend on hiring labor, at the minimum you will need to pay workers compensation tax and the state's minimum wage.
In a study about livelihoods of several different scales of market farms, the Center for Integrated Agricultural Systems found that vegetable farms over 12 acres often have crews of 10 or more people during the growing season. A 20-acre vegetable farm may require 12,500 or more total labor hours per year. The four large-scale organic operations in their study ranged from 462 to 613 total labor hours per acre and averaged 554. The farmers themselves accounted for between 17% and 45% of the total labor hours in these enterprises. Payroll expenses consumed between 19% and 41% of gross farm sales (average of 32%) (Hendrickson, 2005).
The University of Missouri publication titled Hiring and Managing Farm Labor provides helpful information on hiring, training, management, and legal considerations of employees. Table 2 is a checklist from this publication, outlining legal considerations for hiring farm labor. Labor and farm internship laws vary by state, so it is important to see what your individual state requires. You can find contact information for your state at www.dol.gov/dol/location.htm
|Table 2: Checklist of Requirements for Agricultural Employers|
|Reprinted with permission from University of Missouri Extension, G700, Hiring and Managing Farm Labor.|
|Law or regulation||Where to obtain forms||Requirements and use|
|Required for all agricultural employers|
|Employer Identification Number (EIN)||IRS Form SS-4
Obtain EIN by phone
|Required for all employees. Reporting and paying withheld taxes and employer matching for Social Security and Medicare.|
|State Tax Identification Number||www.dol.gov/dol/location.htm||Required for all employers withholding and reporting Employee State Income Tax.|
|Employment Eligibility Verification||INS Form I-9 U.S. Immigration and Naturalization Service 800-870-FORM||Required for all employees. Completed and kept on file for three years after employee leaves.|
|Employee Withholding Information||IRS form W-4 800-TAX FORM MO W-4/MO Department of Revenue 800-877-6881||Required to be completed by all employees. Used to determine withholding amounts. Missouri W-4 meets Federal New Hire Reporting Requirements.|
|Division of Employment Security||Contact Employment Security or Job Service locally.||Form 2699 Determines if unemployment tax required.|
|Annual Tax Return||Employer's Annual Tax Return for Agricultural Employees; 800-TAX FORM||Must match total of W-2's.|
|Law or regulation||Who is subject||Requirements|
|Other requirements. May or may not apply to all agricultural employees|
|Federal Unemployment Tax Act (FUTA)||Employers who paid cash wages of $20,000 in any calendar quarter, OR employed 10 or more farm workers||Deposit taxes at an authorized financial institution. Report on IRS Form 940 800-TAX FORM|
|Worker's Compensation||Not required for agricultural employers but worth considering if five or more employees. Provided by private insurance companies.||See National Map to find contact for your state: www.dol.gov/owcp/dfec/regs/compliance/wc.htm|
|Minimum Wage Law||Employers who hire more than "500 man-days" of agricultural labor in any calendar quarter. (Man-day = at least one hour in any day). Family members exempt — Sole proprietorship only.||Meet federal minimum wage or the 90-day training wage for newly hired 16- to 19-year-old workers.|
|Child Labor Laws||Workers on other than parent's farm: Under age 16 — not during school hours. Under age 14 — only with parent's written consent. Under age 12 — may only work on parent's farm.||Restrictions for hazardous activities: Under age 14 — not permitted; under age 16 — must be trained by an agency giving certification. Hazardous activities include operating farm machinery, work with chemicals, work with breeding animals.|
|Occupational Safety and Health Act||All agricultural employers are responsible; 10 or more employees can be inspected.||Standards cover many aspects of agricultural work. Some safety training required.|
|Environmental Protection Agency (EPA)||All employees who mix, load, apply or may otherwise be exposed to pesticides.||Worker Protection Standards to protect and inform employees.|
|Earned Income Credit (EIC)||Required for employees wanting advance EIC.||IRS Form W-5. Tax payments reduced by amount of EIC.|
|Note that this table does not intend to provide legal advice. If in doubt, seek legal help either from an attorney or from legal aid. An hour's consultation will end up costing much less in the long run.|
The Food Safety Modernization Act (FSMA) is a national law that will require more stringent standards for small to mid-sized farms. Currently there is an exemption for small farmers, but if you sell to a grocery store or distributor, they may require that you follow the requirements of the FSMA.
GAP, HACCP, and Food Safety
It is important for a farm to be proactive about food safety. GAP stands for Good Agricultural Practices. It is a self-auditing process that farms can go through to insure that they are following basic food-safety protocols. Your farm can be audited independently or through the USDA Harmonized GAP program. To learn more about the USDA third-party audit program, visit www.ams.usda.gov/AMSv1.0/gapghp.
ATTRA has developed a great graphic publication on how to implement food-safety standards on your farm, An Illustrated Guide to Growing Safe Produce on Your Farm.
Farms that practice on-farm processing, livestock farms, or farms that have a lot of post-harvest handling procedures
Image: Josh Levy-Kramer, 2005, Creative Commons
Expanding your farm requires a well-thought-out marketing plan. It also requires product quality and consistency, especially for wholesale markets. It is important to consider whether or not you are able to produce a quality product consistently throughout the season. One of the best ways to make this determination is through excellent planning and record keeping. Also, it is very important to contact and secure marketing opportunities before investing in a farm expansion. This section will explore some common markets that growers pursue when expanding their farms.
Excerpted from Wholesale Success by Family Farmed
- Buyers want larger quantities—many prefer pallets. Production should yield a consistent weekly supply.
- Producers must build relationships with wholesale buyers and stay in touch regularly to communicate issues such as timing, quantity, price, quality, etc.
- Field heat must be removed with proper cooling. The "cold chain" must be maintained from the field to the customer with refrigerated storage of most fruits and vegetables.
- Products must be sorted uniformly to match USDA grades. Food-safety procedures must be followed, including necessary record keeping.
Grocery stores vary widely in their volume and food-safety requirements. Independent grocery stores and food cooperatives can be more amenable to limited volume and lack of consistency. Larger chain grocery stores may have shelving fees and regional distribution models that might make it harder to break into supplying them. The best way to find out about grocery store requirements is to contact the produce manager.
See the ATTRA Marketing Tipsheet Tips for Selling to Grocery Stores
There are several very large farms that sell through a community supported agriculture (CSA) model. CSAs are complex in that you have to manage a lot of different crops as well as deal with your customers. It is important to have experience selling through a CSA before expanding to a larger scale. It is also important to consider your goals for expansion. Is your expansion goal to specialize and simplify the number and types of crops that you grow? If so, a CSA is probably not a good marketing option.
For more information, see ATTRA's publication: Tips for Selling through CSAs
Selling to restaurants can be a great way to scale up the farm. This opportunity really depends on the restaurant and their purchasing volume, however. Some restaurants will want small quantities of very specialized products from farmers but buy larger quantity items from a wholesale distributor. Contact chefs that have expressed a desire to purchase local foods. Many local food organizations have events that connect producers with restaurant and other wholesale markets. Keep an eye out for these types of events locally.
For more information, see ATTRA's publication: Tips for Selling to Restaurants
Schools and Other Institutional Buyers
Selling to institutions such as schools, hospitals, and government agencies can be a challenge because they often have tight budgets, are locked into contracts with certain distributors, and have limited cooking capacity. Recently, however, there has been growing interest on the part of hospitals and schools in sourcing local products. It is likely that food safety requirements will be greater in these settings, and producers will need higher liability insurance. If you intend to sell to institutions, it is also important to consider whether or not you are able to provide a consistent quantity and supply. Contact the food service manager at the institution you are interested in selling to, in order to find out their requirements.
For more information, see ATTRA's publication: Tips for Selling to Institutional Markets
Image: Western Sustainability Exchange
Produce distributors are businesses that aggregate product and resell it in small or large quantities to their customers. Distributors may range in size from an individual with a van to a company with a fleet of eighteen-wheelers. Distributors primarily purchase directly from farmers, although they may also buy from brokers or packing houses. Most distributors will expect producers to follow stringent food safety requirements and use an invoicing system.
For more information, see ATTRA's publication: Tips for Selling to Produce Distributors
Aggregators and Food Hubs
If your operation is not quite large enough to reach wholesale volumes, you may need to aggregate your product with products from other growers. This can pose a challenge for product quality, consistency, and traceability. Aggregating can also have significant implications for food safety and marketing (Day-Farnsworth et al., 2009).
There are many innovations and solutions that have helped growers successfully aggregate their products to sell to larger markets. Food hubs coordinate the aggregation of products from multiple producers. Some food hubs can be Internet-based, or virtual. Others provide the physical infrastructure for packing and shipping quantities that most small-scale producers find difficult to manage on their own. In a study of scaling up to meet the demand for local foods at a wholesale level, researchers found the following innovations to be most successful:
- Pre-season planning among grower pools can help match supply to demand and give growers a better idea of what it costs to produce specific products.
- Buyers, growers, and distributors can collaboratively project product sales in advance of the season, and growers can plant according to these projections.
- Aggregators and distributors can provide buyers with product availability updates at least weekly during the growing season.
- Growers and entrepreneurs can pool their resources to improve their storage capacity, make transportation more efficient, and streamline logistics.
- Development of processing infrastructure can build markets for blemished produce that may not make the cut for fresh market sales but can serve as ingredients in processed foods (Day-Farnsworth et al., 2009).
For more information and models on aggregating, see the Good Food Network webinar on entering into an aggregation channel. Also see the ATTRA publications titled: Food Hubs: A Producer Guide, and
Tips for Selling to Aggregators/Grower Marketing Co-ops.
Not every marketing option is included in this section, but it includes markets that diversified growers typically access with the least risk.
For information on selling to wholesale distributors, terminal markets, packing houses, and produce brokers, see ATTRA's tip sheets on these topics.
As your farm size increases, so does your risk. For this reason, insurance becomes more important. This section discusses both crop and liability insurance and how expansion might affect your options.
The larger your farm, the more financial risk you take on. Two broad sources of financial risks for farmers are yield losses—caused by weather, pests, and diseases—and the often-high variability of the prices of crops and livestock. One way to prevent a significant loss in revenue is to buy crop insurance. Generally, the greater the diversity, or specialization, of the crops and livestock you grow, the more difficult it can be to obtain insurance that fully covers the value and risks of your production.
Fortunately, whole-farm revenue insurance is an alternative federally subsidized insurance option for highly diversified or specialty-crop farmers of varying scale. This insurance is called AGR-Lite, or Adjusted Gross Revenue insurance. It is currently only available in 38 states. Check this link for the states where it is available: http://www.rma.usda.gov/policies/agr-lite.html. Many diversified farms are resistant to purchasing insurance because they are intimidated by the process or they do not think it is worthwhile. Understanding whether AGR-Lite could be an option for your farm has been made easier by the development of an assessment tool called the AGR-Lite Wizard. This tool, developed with the support of USDA's Risk Management Agency, allows you to check your eligibility for the product, lists the level-of-coverage choices available, estimates your premium cost, and estimates what payments you would receive if you sustained eligible losses.
Product Liability Insurance
Most grocery stores and distributors will require the producers they purchase from to have product liability insurance. Product liability insurance helps protect you should the food you produce cause harm to consumers. It also helps to protect consumers, should they get sick and have to shoulder large medical costs. It is wise, regardless of your market and farm size, to have product liability insurance, but wholesale markets may require additional coverage. Rates for product liability insurance vary by how much liability coverage you purchase and by your gross sales. Many stores and distributors will require a minimum amount of coverage—usually between $500,000 and $1 million.
The Drake University Agricultural Law Center has an extensive online toolbox that addresses many legal issues associated with direct marketing, including product liability insurance. It includes a series of check sheets and a forum to ask legal questions. Find The Legal Guide for Direct Farm Marketing at: http://directmarketersforum.org
Scaling up can help you meet your farm goals and help reduce the complexity of your farm. If you decide to expand your farm, it is very important to consider how you will acquire land and equipment and manage labor. Consider the costs of these factors and how you intend to finance an expansion. Finally, before you plant that first seed, it is important to develop a marketing strategy.
Courtens, Jean Paul. 2011.
Scaling up Your Vegetable Operation [PDF]
Practical Farmers of Iowa Conference presentation.
Courtens, Jean Paul. 2006.
Roxbury Farm Equipment [PDF]
Day-Farnsworth, Lindsey, Brent McCown, Michelle Miller, and Anne Pfeiffer. 2009.
Scaling Up: Meeting the Demand for Local Food.
Center for Integrated Agricultural Systems, Madison, WI.
Grubinger, Vern. 1999.
Sustainable Vegetable Production from Start-Up to Market
Plant and Life Sciences Publishing, Ithaca, NY.
Hendrickson, John. 2005.
Grower to Grower: Creating a Livelihood on a Fresh Market Vegetable Farm [PDF]
Center for Integrated Agricultural Systems, Madison, WI.
Parcell, Joe, and Melvin Brees. 1999.
Hiring and Managing Farm Labor
G700 University of Missouri Extension
Scaling Up: Meeting the Demand for Local Food. 2009. By Lindsey Day-Farnsworth, Brent McCown, Michelle Miller, and Anne Pfeiffer. Center for Integrated Agriculture Systems, Madison, WI. This is a series of case studies of different farmers in Wisconsin that scaled up to meet wholesale markets.
Wholesale Success: A Farmer's Guide to Food Safety, Selling, Postharvest Handling, and Packing Produce, 3rd edition. 2013. Edited by Jim Slama and Atina Diffley. Family Farmed.org, Oak Park, IL. To purchase: 708-763-9920 www.familyfarmed.org/wholesalesuccess
Questions to ask yourself before you expand your farm
Think about the primary reasons why you want to expand your farm and what resources will be required to undergo an expansion. Use the spaces provided below to answer your questions.
What are your primary reasons for expanding the farm?
Re-visit your goals. Does this expansion align with your goals?
Will you need to purchase more land? If so, how much and how will this be financed?
Have you considered how you will sell your products once you expand? Write down your markets.
Scaling Up Your Vegetable Farm for Regional Markets
By Tammy Howard, NCAT Agriculture Specialist
Published June 2014 ©NCAT
Tracy Mumma, Editor
Amy Smith, Production
Diane Warthen, HTML Production
April 11, 2016201611, 2016