making cents of greenhouse production cost ben beale extension educator-mce st. mary’s county
TRANSCRIPT
Making Cents of Greenhouse Production Cost
Ben Beale
Extension Educator-MCE
St. Mary’s County
Why do we care?
• Rising population base of affluent suburbanites in reach of Maryland growers
Source: Census 2000 analyzed by the Social Science Data Analysis Network (SSDAN).
1953-Agricultural land
1982
1992
Greenhouse and nursery crops: Wholesale cash receipts
0.0 5.0 10.0 15.0 20.0
1992
1994
1996
1998
2000
2002
Billion dollars
Nursery and other greenhouse Floriculture
Production trends of floriculture crops
0
1,000
2,000
3,000
4,000
5,000
6,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Mill
ion
$
bedding and garden plants potted flowering plants
foliage plants cut flowers
propagative material and cut greens
Floriculture crops: Average sales per grower
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Do
llar
s
West South Midwest Northeast
Maryland
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Maryland
ERS Data. $ in 1000. Greenhouse and Nursery Crops
Now for the Bad News!
• The majority of small businesses fail within the first 2 years.
• Most folks starting a greenhouse do so because they enjoy growing, not the business side.
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Net Income: Net income is the money left after subtracting variable and fixed cost. This is the bottom line.NET INCOME = Revenue – (Variable + Fixed Costs)
Variable Cost: Cost items that vary with production volume. Examples of such items include fertilizer, seed, fuel, electricity, piece-work labor charges, pesticides, packaging cost, and custom charges.
Fixed Cost: Those cost that you will incur regardless of whether you produce any output.. These cost are determined using the DIRTI 5 method which includes Depreciation, Interest, Repairs, Taxes, and Insurance. Often a piece of equipment or building will be used for more than one enterprise. In these cases it is important to estimate the percentage of use for each enterprise and allocate the cost accordingly.
Gross Revenue: The total sales of product or services from the enterprises. Revenue can be calculated with the following formula: Price x Units Sold= Gross Revenue
Example Budget
GREENHOUSE BEDDING PLANTS (30'X100' DOUBLE LAYER PLASTIC)PER ACRE FOR YEAR 2008
ITEM UNIT QUANTITY PRICE TOTAL
GROSS INCOMEBEDDING PLANTS FLATS 3040 $12.00 36,480.00$ -$ TOTAL GROSS INCOME 36,480.00$
VARIABLE COSTSSOIL MIX 3.8 cu ft bags 58 $19.35 1,122.30$ PLUGS FLATS 3040 $3.25 9,880.00$ FLATS FLATS 3040 $0.51 1,550.40$ INSERTS FLATS 3040 $0.27 820.80$ PLASTIC COLOR TAGS PACK 16,500 $0.02 330.00$ 20-20-20 All Purpose 25# BAG 11 $21.00 231.00$ LIQUID FEED NUTRIENTS POUND 50 $1.00 50.00$ PLASTIC COVER (40'X100'-2LAYERS-$640/3YRS)YEAR 1 $213.00 $213.00BANROT POUND 4 $31.00 124.00$ INSECTICIDES, MITICIDES n/a 1 $182.57 $182.57HEATING FUEL GALLON 800 $3.15 $2,520.00UTILITIES (ELEC. ) MONTH 4 $100.00 $400.00HAULING FLATS 2100 $0.20 $420.00LABOR HOURS 600 $9.50 5,700.00$
-$
INTEREST ON OPERATING CAPITAL 1 6.5% 765.18$ TOTAL VARIABLE COSTS LISTED ABOVE 24,309.25$ NET INCOME OVER VARIABLE COSTS LISTED ABOVE 12,170.75$
FIXED/OVERHEAD COSTS - METHOD: CUSTOM RATE X DIRTI-5(DO NOT DUPLICATE COSTS LISTED ABOVE)Derreciation 1,600.00$ Interest on Fixed Cost 1,400.00$ Insurance 600.00$ Repairs 1,800.00$ Taxes $400.00
$0.00$0.00
LAND CHARGE ACRE 1 $50.00 $50.00TOTAL FIXED COST LISTED ABOVE $5,850.00
TOTAL VARIABLE AND FIXED COST LISTED ABOVE $30,159.25NET INCOME OVER VARIABLE & FIXED COSTS LISTED ABOVE $6,320.75
PRICESNET INCOME ABOVE VARIABLE AND YIELDS 9.00$ 12.00$ 15.00$ FIXED COSTS LISTED ABOVE FOR 2280 (9,639)$ (2,799)$ 4,041$ VARIOUS YIELDS AND PRICES 2700 (5,859)$ 2,241$ 10,341$
3040 (2,799)$ 6,321$ 15,441$
Typical Cost Example
• 30ft. X 100ft. Poly house
• Raise bedding plants by the flat
• House filled in February and empty by June 10.
• 2 rounds of typical plants on 6 week schedule
Space per House3 ft isle down center.2 ft isle on ends7 walkways 1 ft. wide
30
100
12
13.5
Space Utilization/Flats per House
• 30ft. * 100ft: 3000 sq. ft.
• Isle ways are: 408 sq. ft.
• Usable space is: 2592 sq. ft
• 86% space efficiency ratio
Flats per House
• Standard 1020 flats are 11 x 22 inches, or 1.7 sq. feet
• 2592 available sq. ft. divided by 1.7 sq. ft. per flat = 1520 flats
• Considering a plan for 2 rounds of plants, we will estimate total production at 3040 flats
Gross Income Potential
Price9.00$ 12.00$ 15.00$
% Sold # Flats75% 2280 20,520.00$ 27,360.00$ 34,200.00$ 90% 2700 24,300.00$ 32,400.00$ 40,500.00$
100% 3040 27,360.00$ 36,480.00$ 45,600.00$
Gross Income Potential
Plant Material
• Wide variety of plant material available• Assuming annual plug plants grown from seed
and transplanted to flats• Impatiens: 490 tray : $33.20
490 tray 275 tray per piece cost
Begonia 34.32$ 0.0700$ Celosia 27.64$ 0.0564$ Impatiens 33.20$ 0.0678$ Marigold 31.21$ 0.0637$ Petunia 27.64$ 0.0564$ Snapdragon 31.21$ 0.0637$ Zinnia 38.72$ 0.1408$
Sample Annual Plug Prices
Plant Material
• Impatiens: 490 tray : $33.20• 490 plugs will fill how many flats?• 490 tray will fill 10 flats• 33.20 per tray / 10 flats = 3.32
Flat Type Cell per Flat Flats per 490606 36 13.6806 48 10.2
1204 48 10.21206 72 6.8
Flats and Inserts
• Standard 1020 flats– Sold by case of 100– $51.00 per case or 51 cents a piece
• Inserts:– Available in multiple size combinations– Size description: 606, 806, 1206-
• First #: # of trays; Second #: Cells per tray
– $27.20 per case or 27 cents a piece
Substrate
• High quality soil-less substrate is critical• Using peat base potting soil with Bacillus subtilis
for increased root rot protection• Bedding Plant type potting soil will contain:
– Peat Moss– Perlite– Vermiculite– Wetting Agent– Bacillus subtilis– Macro and micro nutrients– Lime
Determining Amount of Potting Soil Needed
• Using the chart, 3.8 cu ft bag will fill 53 806 flats
• 3040 flats will require 58 bags (3040 / 53 = 57.3 bags)
Container Type SizePer Cubic
FootPer 3.8
cubic ft bag
Flats 804 5.9 44806 7.1 53
1203 5.9 441204 6.7 50
Container per Bag Potting Soil
Fertilizer Cost
• Using a constant feed 100 ppm N program
• Will use a standard 20-20-20 at rate of 6.7 ozs. per 100 gallons water
• Estimate 4 applications per week over 12 weeks
• Estimate water use at ½ gallon water per square foot
Fertilizer Cost
• ½ gallon per sq ft times 2600 sq ft = 1300 gallons per watering
• 1300 gallons applied 4 times a week for 12 weeks is (1300x4x12) 62,400 gallons
• At a rate of 6.7 ozs per 100 gallons, you will need 4180 ozs. (62,400/100 x 6.7) or 261 lbs or 11 bags of 20-20-20 fertilizer
Greenhouse Plastic
• Assuming 4 year plastic replacement value.
• Using Tufflite IV 6 mil fro top
• Using Tufflite IV 6 mil infrared for bottom
• 30 ft wide house will need 40 wide foot plastic
• Total cost $640.00 over 3 years=213.00 year
Crop Management Products
• Will vary for each operation, depending upon season, management, climate, luck, etc…
• Estimates provided are for an average season with average problems.
Crop Management Products
• Disease Control– Clearys 3336– Heritage– Daconil
• Insect Control– Marathon
Product#
Applications
Rate per 100
gallons
Ounces needed for 2500 sq ft
houseCost per ounce Total Cost
Clearys 3336 2 16 ozs 8 1.75 28.00$ Heritage 2 2 oz 1 43.25 86.50$ Daconil W. Stik 2 22 ozs 11 0.585 12.87$
Marathon II 2 1.7 oz 0.85 32.47 55.20$
Total 182.57$
Crop Protection Program
Heating Expenses
• Most accurate estimates are from past experience in each house.
• Seasonal variation will change fuel usage dramatically
• Example uses LP gas through 1 heater
• Assume seasonal use of 800 gallons total
Fixed Cost
• Those items that do not change with level of production
• Often Calculated with DIRTI-5 Method– Depreciation– Interest– Repairs– Taxes– Insurance
Depreciation
• $18,000 greenhouse construction cost
• Expected life of 10 years
• Value at 10 years: 2,000
• 16,000 / 10 = $1600
• $600.00 for general liability and hazard policy for equipment
Insurance
Taxes
• Includes property tax rate of $300 and license fee of $100 for total of $400
Repairs
• Can be significant, especially in an emergency
• Plan for at least 10% construction cost each year
• $1800 per year
Interest
• Include interest on total money invested
• In this example, assume an interest payment of 7% times $20,000 investment= $1400
Enterprise Budgets:
• Determine profitability of one enterprise versus another.
• Understand breakeven cost and pricing points for that enterprise
• Understand input structure such as labor inputs, shelf space pricing structure, raw material inputs, fixed equipment cost per dollar returned.
• Plan crop rotation schedules and product mix
ProfitProfit
Enterprise BudgetEnterprise Budget
Variable CostsVariable Costs
Fixed CostsFixed Costs
Price Price (Revenue)(Revenue)
Contribution
Break-even
Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and ManagementCornell University
Revenue
• Price x Units Sold= Gross Revenue
ITEM UNIT QUANTITY PRICE TOTAL
GROSS INCOMEBEDDING PLANTS FLATS 3040 $12.00 36,480.00$ -$ TOTAL GROSS INCOME 36,480.00$
Variable costsVariable costs: Cost items that vary with production volume.
ITEM UNIT QUANTITY PRICE TOTAL PER PIECEPercentGROSS INCOMEVARIABLE COSTSSOIL MIX 3.8 cu ft bags 58 $19.35 1,122.30$ 0.37$ 3.7%PLUGS FLATS 3040 $3.25 9,880.00$ 3.25$ 32.8%FLATS FLATS 3040 $0.51 1,550.40$ 0.51$ 5.1%INSERTS FLATS 3040 $0.27 820.80$ 0.27$ 2.7%PLASTIC COLOR TAGS PACK 16,500 $0.02 330.00$ 0.11$ 1.1%20-20-20 All Purpose 25# BAG 11 $21.00 231.00$ 0.08$ 0.8%LIQUID FEED NUTRIENTS POUND 50 $1.00 50.00$ 0.02$ 0.2%PLASTIC COVER (40'X100'-2LAYERS-$640/3YRS)YEAR 1 $213.00 $213.00 0.07$ 0.7%BANROT POUND 4 $31.00 124.00$ 0.04$ 0.4%INSECTICIDES, MITICIDES n/a 1 $182.57 $182.57 0.06$ 0.6%HEATING FUEL GALLON 800 $3.15 $2,520.00 0.83$ 8.4%UTILITIES (ELEC. ) MONTH 4 $100.00 $400.00 0.13$ 1.3%HAULING FLATS 2100 $0.20 $420.00 0.14$ 1.4%LABOR HOURS 600 $9.50 5,700.00$ 1.88$ 18.9%
-$
INTEREST ON OPERATING CAPITAL 1 6.5% 765.18$ 0.25$ 2.5%TOTAL VARIABLE COSTS LISTED ABOVE 24,309.25$ 8.00$ 80.6%NET INCOME OVER VARIABLE COSTS LISTED ABOVE 12,170.75$
Fixed Cost: (Overhead) Expenses that do not vary with level of production
GREENHOUSE BEDDING PLANTS PER ACRE FOR YEAR 2008ITEM UNIT QUANTITY PRICE TOTAL PER PIECEPercent Depreciation 1,600.00$ 0.53$ 5.3%Interest on Fixed Cost 1,400.00$ 0.46$ 4.6%Insurance 600.00$ 0.20$ 2.0%Repairs 1,800.00$ 0.59$ 6.0%Taxes $400.00 0.13$ 1.3%LAND CHARGE ACRE 1 $50.00 $50.00 0.02$ 0.2%TOTAL FIXED COST LISTED ABOVE $5,850.00 1.92$ 19.4%
Net Profit: Revenue-Variable Cost-Fixed Cost
NET INCOME ABOVE VARIABLE AND YIELDS 9.00$ 12.00$ 15.00$ FIXED COSTS LISTED ABOVE FOR 2280 (9,639.25)$ (2,799.25)$ 4,040.75$ VARIOUS YIELDS AND PRICES 2700 (5,859.25)$ 2,240.75$ 10,340.75$
3040 (2,799.25)$ 6,320.75$ 15,440.75$
Break Even AnalysisBreak Even Analysis
Unit Costs ($) ==Fixed Costs ($) Variable Costs ($)+
Units Produced (lbs, dozens, bag)
Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and ManagementCornell University
Breakeven AnalysisVariable Costs per Unit Sold $24,309 / 3040 = $7.99 Consider discontinue if
below this number
Overhead Costs per Unit Sold $5850 / 3040 = $1.92 Need to cover this number
Total Cost per Unit $30,159/ 3040 = 9.91
$7.99 + $1.92 = $9.91
Breakeven price
Profit per Unit Sold $ 12.00- 9.91 = $2.09 Profit factor
Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and Management Cornell University
Remember good financial management can help avoid surprises…
Remember good financial management can help avoid surprises…
http://aede.ag.ohio-state.edu/people/moore.301/index.htm
So get ready, hold on and enjoy the ride. The trying is half the fun.
And after all the hard work, you get to reap the benefit of your efforts!
The End