1 PM 1887 April 2002

Iowa State University Horticulture Guide

Home Gardening

Selling fruitsand vegetablesby Eldon Everhart and Barbara Lovitt

Growing and selling fresh produce can be a profitableand satisfying family business; however, risks areinvolved. Before investing money, time, and energy intoany new business venture, it is advisable to first evaluatepersonal skills, market conditions, financial resources,and overall project feasibility.

Assistance for evaluating risk from both technical andmanagement aspects is available from a variety ofsources, including Iowa State University Extension,local and regional organizations that focus on economicdevelopment issues, small business development centers,state departments of agriculture, economic developmentagencies, banks, tourism agencies, universities, andcommunity colleges.

What are some of the risks?■ Fruits and vegetables are highly perishable.Careful and continual care is needed during productionand marketing. The loss of even one crop to poorculture, insects, or disease can be devastating.

■ Labor is the major expense.Growing fruit and vegetable crops requires hard workand long hours. Dependable help must be availablewhen needed.

■ Undesirable weather can upset the best plans.Providing quality produce that consistently meetsmarket demands and returns a profit requires accurateplanning and scheduling that allows for potentialweather variations.

What is needed to be successful?People who have successful fruit and vegetablebusinesses provide quality products in a clean andcustomer-friendly environment that encourages repeatsales. They know their markets and what their custom-ers want. They also manage money, people, and naturalresources effectively. Growing and selling fruits andvegetables can be a satisfying family business.

Beginning fruit and vegetable growers need to

■evaluate their level of experience in production,marketing, and management;

■ learn about regulations for business operations andpesticide use; and

■develop a business plan.

Success requires expertise in all phases of crop produc-tion and marketing plus financial and people manage-ment skills. The more experience you have, the greateryour chances for obtaining financing to start yourown business.

Working for a business that is similar to the one youwould like to start is a good way to gain practicalexperience and to observe management skills. Whileyou are growing for someone else, you can learn manythings to do and many things to avoid when you startyour own business.

Most well-established, reputable growers need full-time,part-time, and seasonal employees. Spending at leasttwo years producing and marketing the specific cropsyou hope to sell will give you the opportunity to learnhow others handle problems caused by the weather orother variables.

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Production experiences are essential but not sufficientto achieve success. All business ventures require somecapital investment to cover costs for land, equipment,buildings, supplies, and labor. To make your businesssuccessful you also will need to be able to managefinances, employees, marketing, and sales.

Deciding to start a business is the first of many decisionsthat are best made after collecting unbiased information.An organized business plan is a road map to businesssuccess. Developing a specific set of guidelines foroperating your business will improve your chances forsuccessfully arranging financing from banks, privatemoney-lending institutions, private investors, or govern-ment programs.

What are the financial considerations?Every dollar less that you need to invest personallymeans that any profits will yield a much larger returnon your investment. The cost of establishing yourbusiness will be the amount of equity (your capital)that will be required.

Start by dividing yourestimated start-up costsinto three categories:

1. land and building(s);

2. machinery, equipment,fixtures, and furniture; and

3. working capital.

Working capital is the money that keeps the businessoperating and the bills paid until sufficient businessincome is generated to do so. The recommended amountis usually equivalent to 3 to 6 months’ worth of businessoperating expenses. It is often difficult for new busi-nesses to obtain financing for working capital becausethere are few, if any, debt-free assets upon which financ-ing can be based. At the very least, you will be expectedto provide 15 to 20 percent of the business start-up costsyourself as equity. Your expected contribution is likely tobe closer to 50 percent or more.

The specific parts of overall start-up costs that can befinanced will vary from loan to loan and will depend onthe lender’s perception of your chances for success, basedon an assessment of your potential market, personalexperience, character, and other criteria. Lenders aremore likely to respond positively to a well-developedand realistic business plan.

Commercial/private financing sources—Local banksand savings institutions are one of the most commonsources for business start-up loans. Generally, banks willbe most inclined to issue business start-up loans if

■your equity equals at least 20 percent of the estimatedstart-up costs;

■collateral is posted equal to the value of the loan;

■market studies and/or industry analyses indicate a highprobability of success; and

■ the owner or owners demonstrate a proven ability torun and manage this type of business.

Venture capital—Another possible source of start-upfunding is through private firms or individuals who earntheir money by obtaining a healthy return on investmentfrom loans they make to finance new businesses andbusiness expansion. Most look for favorable growthprospects, a carefully formulated business plan, andproven managerial talent.

Venture capital firms usually look for some guaranteeof a profitable payback. Investors might include “silentpartners” who are willing to invest money with thepromise of good returns, but who do not get involved inmaking the day-by-day decisions of business operation.Relatives also might be a source of financial support.It is advisable to have a lawyer prepare a formal, legalagreement between the lender and the borrower so thatall parties understand the terms of the loan.

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Business ChecklistMoneylenders think in terms of the six C’s of credit:Capital, Collateral, Capabilities, Character,Coverage, and Circumstances. Remember thatlenders are loaning funds in order to make moneyon their investment. They are far more likely to makemoney and, therefore, lend money if borrowers canbe counted on to repay the money loaned to themincluding interest. Use the following checklist to startpreparing an organized, comprehensive business plan.

✭ Size of operation

✭ Location

✭ Type of operation (products to be offered)

✭ Assets

✭ Cost of equipment and employees (number and type)

✭ Market (source and dependability)

✭ Estimated returns

✭ References (from business and community leaders)

■ Linked Investments for Horticultureand Alternative CropsThis state program is designed specifically to helpdiversify and strengthen Iowa’s economy. Funds aremade available from the state treasury to local lendinginstitutions for loans with interest rates that are belowmarket rate to qualifying borrowers. Individuals,corporations, or cooperatives may apply for up to$500,000. Contact local lenders or call the state office(515-281-3287). Also, the state treasurer’s office main-tains lists of lenders who have made Linked Investmentloans for horticulture businesses as well as lists ofborrowers who have received these types of loans inspecific geographic areas. You may request this publicinformation to help you determine which lenders haveexperience with these types of loans and which busi-nesses in your area have received them.

■ AG ConnectThis nonprofit corporation has its main office andexecutive director in Lenox, Iowa. Regional coordinatorsprovide statewide services. Their goals include matchingestablished farmers nearing retirement with young ormiddle-aged people who want their own enterprise butlack financial resources, negotiating and/or mediation,developing business plans, and cash flow/enterpriseanalysis. AG Connect services are provided at no cost toparticipants. For more information, call 515-333-4656or send e-mail to agconnect@lenox.heartland.net.

■ U.S. Small Business Administration (SBA)The SBA is an independent federal agency established toassist, counsel, support, and protect the interest of smallbusiness concerns and to assist them in their start-upand growth. The Targeted Small Business program offerstechnical assistance and special services to woman- andminority-owned businesses throughout Iowa. SBAprovides free and low-cost counseling and training at16 regional offices. To find a regional office, contacteither of the two district offices.

Cedar Rapids District215 4th Ave. SE, Suite 200Cedar Rapids, IA 52401-1806Telephone: 319-362-6405

Des Moines District210 Walnut St., Room 749Des Moines, IA 50309-2186Telephone: 515-284-4422

What sources of professional help

are available?A successful business operation is flexible enough tochange as the situation demands. Several sources ofprofessional help are available to help you learn aboutand evaluate your options.

■ Organizing the Farm Business (PM 878)Information on the type of business organization—soleproprietorship, partnership, corporation—that bestfits your circumstances is included in this publication.To order, contact your local Iowa State UniversityExtension county office or the Extension DistributionCenter by telephone at 515-294-5247 or e-mail atpubdist@iastate.edu.

■ Iowa Resource Conservation andDevelopment (RC&D)Offices around the state are assigned to specificgeographic areas. This agency also has a revolvingloan program for financing new or expanding smallbusinesses. To find the office closest to you, contactthe Iowa Natural Resources Conservation Service(NRCS), 210 Walnut St., Federal Building,Des Moines, IA 50309; telephone, 515-284-4260;fax, 515-284-4394; e-mail, leroy.brown@ia.usda.gov.

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■ Farming Alternatives: A Guide to Evaluating the Feasibil-ity of New Farm-based Enterprises (NRAES-32)This publication provides a step-by-step approachthrough the business planning process and offersguidance in making important financial and lifestyledecisions for a new enterprise. To order, contact thePublications Distribution Center, The Pennsylvania StateUniversity, 112 Agricultural Administration Building,University Park, PA 16802, telephone 814-865-6713.

■ Local organizationsISU Extension county offices, chambers of commerce,and other economic development groups are knowledge-able about local business requirements and opportuni-ties. Check local phone books or ask local contacts forideas and information.

ISU Extension staff in your local office can keep youinformed about educational opportunities such astechnical meetings and tours related to fruit andvegetable crop production and marketing, and alsoput you in touch with specialists on horticultural andbusiness topics.

■ Professional consultantsLawyers can help you set up the legal structure of yourbusiness. Accountants can help you set up your businessrecords. Other business consultants can work with youin creating and evaluating business plans and activities.

■ Trade associationsTrade associations provide many chances to communi-cate with others who have faced similar problems instarting a business and are a great source of continuingeducation and support. Local and state associations willemphasize different areas of concern than will nationalassociations. Membership in a local business associationis desirable for the community contacts it will provide.Another group to consider joining is the Iowa Fruit andVegetable Growers Association. (See box on page 6 forcontact information.)

What other rules and regulations

might apply?Growers also need to become familiar with businessregulations and rules governing the use of pesticides.

Business regulations

In Iowa, the State Bureau of Revenue should becontacted to receive complete information on salestax collection procedures and policies, as well as toregister a business name. Local taxing bodies, chambersof commerce, and the state departments of labor and/orcommerce also should be contacted. They can providenecessary information related to business licensing, aswell as right-to-know and employee regulations.

Pesticide use

A private pesticide applicator’s license and certification isrequired. Study materials, plus information on trainingand testing times and locations, are available from ISUExtension county offices. The pesticide division of theIowa Department of Agriculture and Land Stewardshipschedules and administers the tests.

Where is the best place to sell fruits

and vegetables?A good way to start is by establishing a reputationwith loyal, local clients. Marketing locally has severaladvantages.

■A smaller quantity of produce can be grown.

■A larger portion of the buyer’s dollar is received.

■It’s easier to learn what customers want.

■Even small profits can be slowly invested back into theoperation to reduce risks from loss.

Fresh produce is sold through a broad range of retail andwholesale outlets—including roadside stands, farmers’markets, Community-Supported Agriculture (CSA)organizations, pick-your-own businesses, restaurants,institutions, grocery stores, and wholesale cooperatives.

No license is needed to sell fresh, Iowa-grown fruitsand vegetables directly to individuals. Fresh produce is anontaxable item so no sales tax is collected or remitted,and a retail sales tax permit is not needed.

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Roadside stands are a simple way to sell directly toconsumers. Produce may be sold from the back of avehicle or on display tables, preferably in the shade oftrees or a canopy. Safe and adequate parking shouldbe available.

Roadside stands must comply with local and state rulesand regulations. The seller is responsible for advertisingthe location, times, and types of products. Prices may beindividually set and sales provide immediate cash flow.

Farmers’ markets are a low-cost way to sell freshproduce to a large number of consumers within a shorttime. Growers who can offer a variety of produce that iswanted by customers are usually most successful.However, even small-scale producers can interactdirectly with consumers, develop marketing skills,build immediate cash flow, introduce new products,and try new market areas. Markets also help growerstest product acceptance and popularity, network withother growers, and establish a wider customer base.

Farmers’ markets have specific times, locations, and daysof operation just like a regular business, but at muchlower overhead cost to the seller. The combination ofvendors can attract a large consumer base while sharingcosts for advertising and promotion. Other advantagesinclude site rental, market management, liability insur-ance, and other amenities determined by the market.

Farmers’ markets in Iowa are not regulated by the state.However, all markets must abide by the rules andregulations established by the Iowa Department ofInspections and Appeals, the Iowa Department ofRevenue and Finance, and the Bureau of Weightsand Measures.

All markets in Iowa develop their own rules governingthe market’s operation—including vending fees, guide-lines about what can or cannot be sold, and other details.To learn about a particular market and its rules/regula-tions, vendors must contact that market’s managerdirectly. Vendors who offer value-added products, non-produce items, or prepared foods for sale at markets arerequired by Iowa law to have special licenses and taxpermits to do business.

Marketing tips■ Emphasize quality—fresh produce, clean sales-people, and an attractive display.

■ Use distinctive signs, packaging, and clothing tohelp build customer recognition of your product.

■ Keep your ears open for new ideas about whatcustomers want to buy.

■ Protect product freshness; sell as quickly as possibleafter harvest.

■ Set prices in round figures to speed up sales andreduce problems with making change.

■ Take enough product; try to have something left forcustomers who arrive late.

■ Arrange product containers so all items are visible.

■ Clearly label items and prices.

■ Smile; be friendly; give a special greeting to repeatcustomers.

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Most farmers’ markets have some rules in regards topricing. In general, most produce at farmers’ markets ispriced somewhat higher than the same type of producesold in local grocery stores. Markets and vendors justifythe higher prices based on the freshness and quality oflocally grown produce. Most farmers’ markets try todictate quality and most usually try to prohibit sellingat reduced prices. Supply and demand also influencethe price.

Markets and vendors may participate in three govern-ment food programs that offer benefits to both producersand low-income nutritionally-at-risk individuals.

■ Women, Infants, and Children/Iowa Farmers’ MarketNutrition Program (WIC/IFMNP)—Participants are low-income, nutritionally-at-risk pregnant, postpartum, andbreastfeeding women, infants, and children up to 5 yearsof age. WIC/IFMNP vouchers allow them to purchasefresh, Iowa-grown fruits and vegetables from certifiedvendors at participating markets.

Questions? Contact these sources.■ Horticulture and Farmers’ Market BureauThe Iowa Department of Agriculture and Land Stewardship produces several growerdirectories. Click “Directories” on their Web site (http://www.agriculture.state.ia.us)or call 515-281-8232.

■ Iowa Fruit and Vegetable Growers AssociationDeb Smith, 1701 Willis Ave., Perry, IA 50220 (515-465-5992)

■ State sales tax information and business name registrationIowa Department of Revenue and Finance (800-367-3388)

■ Making and selling processed or value-added food productsIowa Department of Inspections and Appeals (515-281-6538)

■ Regulations regarding scales used at farmers’ marketsBureau of Weights and Measures, Iowa Department of Agriculture and Land Stewardship (515-281-5716)

■ Vendor applications for Food Stamp programsUSDA-FNS Retailer Application Center (877-823-4369; toll free)

■ Vendor certification for WIC/IFMNP and ISFMNPIFMNP Program Administrator at the Iowa Department of Agriculture and Land Stewardship (515-242-6239)

■ Iowa Seniors Farmers’ Market Nutrition Program(ISFMNP)—This food-benefit program targets low-income, nutritionally-at-risk seniors (individuals 60years of age or older) and provides vouchers to them forthe purchase of fresh Iowa-grown fruits and vegetablesfrom certified vendors. A single senior can have yearlyincome of no more than $15,448, while couples musthave income of $20,813 or less.

■ Food Stamps—Vendors must apply and be authorizedthrough the U.S. Department of Agriculture’s Food andNutrition Service (USDA-FNS).

Farmers’ markets have many advantages, but they alsopose a few challenges. Growers lose some flexibilityas they must abide by the market’s business rules forspecific hours, location, days, products, space, and otherconditions. Other factors, such as poor weather, compet-ing events, traffic problems, travel time, and vehiclebreakdown, can cut into earned revenues. In spite ofthese limitations, farmers’ markets can be reliablyprofitable direct marketing outlets.

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Community-Supported Agriculture (CSA) is a partner-ship between a grower and the CSA members whopurchase shares of the season’s harvest. CSA membersassume the costs, risks, and bounty of growing foodalong with the grower. Members help pay for seeds,fertilizer, water, equipment maintenance, and labor. Inreturn, the grower provides CSA members with a supplyof fresh produce throughout the growing season.

The grower, often with the assistance of a core group,draws up a budget reflecting the production costs for theyear. This includes all salaries and labor costs, distribu-tion costs, investments for seeds and tools, land pay-ments, machinery maintenance, and other expenses.A typical way to determine the cost of each share is todivide the budget by the number of CSA members.One share is usually designed to provide the weeklyvegetable needs for a family of four. Flowers, fruit,meat, honey, eggs, and dairy products also are availablethrough some CSAs.

Community members sign up and purchase their shares,either in one lump sum before the seeds are sown inearly spring, or in several installments throughout thegrowing season. The grower starts receiving income assoon as work begins.

In return for their investments, CSA members receive abag of fresh, locally grown, typically organic produceonce a week from late spring through early fall, andoccasionally throughout the winter in northern climatesand year-round in milder zones. Members often prefera variety of many different vegetables and herbs ratherthan too much of one thing. Crops often are planted insuccession in order to provide a continuous weeklysupply of mixed vegetables. As crops rotate throughoutthe season, weekly shares vary by size and types ofproduce, reflecting local growing conditions.

If provided, an extra fee typically is charged for homedelivery. Most CSAs invite members to visit the growingfields and welcome volunteer assistance. Some CSAsoffer working shares, whereby a member commits to

three or four hours a week in exchange for a discount onmembership cost. Some CSAs provide produce for localrestaurants, roadside stands, or farmers’ markets.

Publications and other material for Iowans interestedin forming a CSA are available at local ISU Extensionoffices or by calling the ISU Sustainable Agricultureprogram at 515-294-1923.

Grocery store, restaurant, and institution sales arepossible in some areas. The produce manager of somegrocery store chains and the owners of independentgrocery stores often have the authority to purchaselocally grown fruits and vegetables. Restaurants, hospi-tals, schools, nursing homes, and other institutions alsomay purchase local products.

Agreements between the buyer and the grower often arebased on a “handshake” rather than a written contract.Consequently, growers may find that an agreement witha local buyer may not be honored if the central ware-house of a chain store purchases large quantities ofproduce at low prices.

Local growers must meet the expectations and standardsof the buyer for cleanliness, quality, volume, and consis-tency. Grocery stores usually have a relatively lowmarkup (margin of profit) and seldom offer “top dollar”for produce that is purchased locally. Grocery storesand institutions are accustomed to purchasing relativelylarge quantities of produce on a weekly basis. Localrestaurants often purchase fruits and vegetables inrelatively smaller quantities. Produce must meet thegrades and standards of the fruit and vegetable industryand the purchaser.

Local buyers often want to see samples of the producebefore they make a verbal commitment to purchase fruitsand vegetables from a local grower.

CSACommunity Supported Agriculture

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Prepared by Eldon Everhart, ISU Extension, and BarbaraLovitt, Marketing Specialist, Bureau of Horticulture andFarmers’ Markets, Iowa Department of Agriculture and LandStewardship; Diane Nelson, extension communicationspecialist; and Creative Services, Instructional TechnologyCenter, Iowa State University.

File: Hort and LA 2-9

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. . . and justice for allThe U.S. Department of Agriculture (USDA) prohibits discrimination inall its programs and activities on the basis of race, color, national origin,gender, religion, age, disability, political beliefs, sexual orientation, andmarital or family status. (Not all prohibited bases apply to all pro-grams.) Many materials can be made available in alternative formats forADA clients. To file a complaint of discrimination, write USDA, Officeof Civil Rights, Room 326-W, Whitten Building, 14th and IndependenceAvenue, SW, Washington, DC 20250-9410 or call 202-720-5964.

Issued in furtherance of Cooperative Extension work, Acts of May 8and June 30, 1914, in cooperation with the U.S. Department ofAgriculture. Stanley R. Johnson, director, Cooperative ExtensionService, Iowa State University of Science and Technology, Ames, Iowa.

If you want to learn more about horticulture throughtraining and volunteer work, ask your ISU Extensionoffice for information about the ISU Extension MasterGardener program.

Visit the ISU Horticulture Web site athttp://www.hort.iastate.edu.

This publication and many others are available athttp://www.extension.iastate.edu/pubs/.