Organic Farming

Freedom Farm

Commerce
Commerce 492
492 Business
Business Plan
Plan

Rosalind
Rosalind Ball
Ball
Heather
Heather Hack
Hack
Murray
Murray Nelson
Nelson
Myles
Myles Thorpe
Thorpe
 Mission statement
Goal:
Goal:
To
To build
build aa viable
viable organic
organic farm
farm business
business in
in ten
ten years.
years.
•• To
To establish
establish the
the first
first three
three years
years of
of organic
organic farming
farming
practice
practice while
while selling
selling onon the
the conventional
conventional market
market until
until
OCIA
OCIA certification.
certification.

•• To
To have
have all
all land
land in
in organic
organic production
production within
within four
four years
years
and
and sell
sell on
on the
the organic
organic market
market by
by the
the fourth
fourth year.
year.
 Mission statement
•• To
To increase
increase cash
cash flow
flow over
over the
the next
next seven
seven years
years through
through
organic
organic practice
practice while
while selling
selling on
on the
the organic
organic market.
market.

•• To
To replace
replace and
and improve
improve farm
farm power
power machinery
machinery in
in ten
ten
years.
years.

•• To
To maintain
maintain soil
soil fertility
fertility while
while maintaining
maintaining yield
yield
productivity
productivity and
and year
year to
to year
year stability.
stability.
 Outline…
•• Industry
Industry overview
overview
•• Operations
Operations
•• Human
Human Resources
Resources
•• Marketing
Marketing
•• Financial
Financial
•• Feasibility
Feasibility Analysis
Analysis
 Industry Overview
•• $20
$20 billion
billion US
US
•• Majority
Majority ofof industry
industry -- Europe,
Europe, USA
USA and
and
Japan
Japan
•• Increasing
Increasing health
health and
and environmental
environmental
concerns
concerns
•• Aggressive
Aggressive promotion
promotion
•• Supportive
Supportive government
government policies
policies
 Canada...
•• $1
$1 billion
billion in
in annual
annual sales
sales
•• Annual
Annual growth
growth ofof 20%
20% per per year
year
•• Predicted
Predicted increase
increase ofof 55 to
to 10%
10% of
of global
global
market
market byby 2010
2010
•• Net
Net exporter
exporter ofof bulk
bulk organic
organic grains
grains and
and
oilseeds
oilseeds
•• Significant
Significant production
production of of raw
raw products
products
-- 80%
80% store
store products
products imported
imported fromfrom USA
USA
 Saskatchewan...
•• Over
Over 1000
1000 certified
certified producers
producers
•• 70%
70% of
of western
western Canada
Canada producers
producers
•• $30
$30 million
million industry
industry
•• 30
30 organic
organic processors
processors
–– flour,
flour, flax
flax oil,
oil, oatmeal,
oatmeal, bread,
bread, cereal
cereal
 About Kipling:
•• LLD
LLD –– SE
SE 5-8-3
5-8-3 W2
W2
•• Precipitation
Precipitation (427mm)
(427mm)
•• Temperature
Temperature (GDD)
(GDD)
1600
1600 >> 55 C
C
•• Soil
Soil Classification
Classification
Black
Black soil
soil
•• Frost
Frost Free
Free Days
Days 120
120
KIPLING
 Kipling cont’d
• Southeast transportation committee
• Transportation: Near Trans Canada Highway
#1
 Capital Outlay

2002 2005 2006 2008 2009 2011

Land (1680 acres) 432,177 - - - -
Buildings:
Shop - 34,239 - - -
Grain Storage 26,000 - - - - -
Powered Equipment 136,000 30,000 - 50,000 - 50,000
Non-Powered Equipment 29,350 - 15,000 - 15,000 -
Total Capital Outlay 623,527 30,000 49,239 50,000 15,000 50,000
 Challenges – rotation choice

•• OCIA
OCIA Organic
Organic Crop
Crop Improvement
Improvement association
association
•• 33 years
years to
to get
get organic
organic certification
certification
•• Crop
Crop rotation
rotation &
& tillage
tillage for
for weed
weed control,
control, fertility
fertility
•• DIVERSITY
DIVERSITY

•• Seed,
Seed, fertilizer
fertilizer and
and variable
variable machinery
machinery costs
costs
•• Are
Are the
the highest
highest yearly
yearly inputs
inputs
 Rotation order

Block 1 2 3 4 5 6 7
Year

1 Oat+A Alfalfa Fallow Flax Barley Pea Wheat

2 Canola Fallow C/flax Barley Pea Wheat Oat+A
3 Flax Flax Barley Pea Wheat Oat+A A

4 Flax Canola Pea Wheat Oat+A A Fallow

5 Wheat Pea Wheat Oat+A A Fallow C/flax

6 Pea Wheat Oat+A A Fallow C/flax Barley
7 Wheat Oat+A A Fallow C/flax Barley Pea
 Human Resources
•• Sole
Sole Proprietorship
Proprietorship
• Owner/Operator
•farm equipment and mechanical expertise
•proven interest in organic food production
•management/decision making skills
•bookkeeping - overseeing paperwork - accreditation

Salary: $40,000 in year 1,

increasing to $50,000 by year 10
 Human Resources cont..
•• Position
Position #2
#2 -- Seasonal
Seasonal Labor
Labor (seeding-
(seeding-
harvest)
harvest)
•• knowledge
knowledge of
of farm
farm equipment
equipment
•• mechanical
mechanical knowledge
knowledge
Wages:
Wages: $9.52/hour
$9.52/hour
 Product/Service Features
•• Product
Product within
within OCIA
OCIA regulations
regulations
–– Certified
Certified “organic”
“organic”
•• “Beneficial
“Beneficial Products”
Products”
•• Serving
Serving the
the buyers
buyers needs
needs
 Competition
•• Over
Over 1000
1000 certified
certified producers
producers in
in Sask.
Sask.
–– Beneficial
Beneficial globally?
globally?
–– Detrimental
Detrimental locally?
locally?
•• Competition
Competition minimal
minimal due
due to
to infancy
infancy of
of
industry
industry
 Distribution/Pricing
•• “Price
“Price Taker”
Taker”
–– price
price depends
depends on
on world
world markets
markets and
and demand
demand
–– price
price dependent
dependent on
on quality
quality and
and volume
volume
–– research
research different
different buyers
buyers frequently
frequently
•• Distribution
Distribution cost
cost responsibility
responsibility of
of
buyer
buyer
 Strengths
•• Educated
Educated farmer/businessman
farmer/businessman
•• Knowledgeable
Knowledgeable hired
hired help
help
•• Production
Production diversity
diversity
•• Producing
Producing aa “Healthy
“Healthy product”
product”
•• Location-
Location- soil,
soil, climate,
climate, moisture
moisture
 Weaknesses
•• Marketing
Marketing
–– getting
getting the
the best
best price
price at
at the
the right
right time
time
–– “Price
“Price Taker”
Taker”
•• Marketing
Marketing unfinished
unfinished product
product
•• Starting
Starting from
from scratch
scratch
–– inexperience
inexperience inin the
the agriculture
agriculture industry
industry
–– cost:
cost: significant
significant capital
capital needed
needed
•• Limited
Limited database
database on
on production
production practices
practices and
and
outcomes
outcomes
 Opportunities
•• Organic
Organic industry
industry 15-25%/year
15-25%/year
•• Emerging
Emerging markets
markets –– Australia,
Australia, New
New Zealand
Zealand
•• Organic
Organic processors
processors expanding
expanding
•• Premiums
Premiums forfor production
production
•• OCIA
OCIA most
most recognized
recognized –– high
high visibility
visibility products
products
•• Low
Low land
land cost
cost and
and pest
pest populations
populations inin Saskatchewan
Saskatchewan
•• Health
Health and
and environmental
environmental problems
problems related
related to
to
pesticides
pesticides decreased
decreased
 Threats
•• Infancy
Infancy of
of the
the industry
industry
•• Expansion
Expansion of of producers
producers inin Sask.
Sask. -- Opportunity?
Opportunity?
•• Government
Government regulation
regulation
•• Transportation
Transportation (exporting
(exporting -- union
union strikes)
strikes)
•• GMO
GMO crops
crops (canola,
(canola, wheat,
wheat, etc.)
etc.)
•• At
At the
the mercy
mercy of of nature
nature
•• Mining
Mining ofof the
the soil-
soil- minimal
minimal nutrient
nutrient amendment
amendment
•• Lack
Lack of
of global
global quality
quality standardization
standardization
–– NOP
NOP -- National
National Organic
Organic Program
Program
 Processors/Customers

• Popowich Milling, Yorkton

– Oat processing (oatmeal, flour, etc)
• Bioriginal Food & Science Corp,
Melville
– edible oils and flax seed
• CSP Foods - bakery mixes
• Proven Organics, Gravelbourg
– whole and split peas, flax and hulled barley
 Customers – Summary
•• Grower
Grower controls
controls decision
decision to
to sell
sell
•• Expect
Expect competition
competition from
from other
other growers,
growers,
prefer
prefer broad
broad base
base of
of supply
supply
•• QUALITY
QUALITY –– and and price
price
•• Market
Market is
is growing,
growing, buyers
buyers have
have sourcing
sourcing
problems
problems
 Financial Plan

2002 2004 2005 2006 2010 2011

Total Revenue 155,341 124,467 296,805 302,741 327,697 334,251
Total Expenses 139,527 103,489 113,855 113,263 109,160 107,617
Net Income 15,814 20,978 182,950 189,478 218,537 226,634
 Financial Analysis
400
400
350
350
(thousands)
Dollars (thousands)

300
300
250
250
200
200
150
150
Dollars

100
100
50
50
00
-50
-50 2002
2002 2003
2003 2004
2004 2005
2005 2006
2006 2007
2007 2008
2008 2009
2009 2010
2010 2011
2011
Year
Year

Total
Total Revenue
Revenue Total
Total Expenses
Expenses Net
NetIncome
Income
 IRR and NPV
Base Case
Net Present Value of Equity Investment (72,049)
Internal Rate of Return on Equity Investment 12.2%

Without 2% growth in price:

Net Present Value of Equity Investment (114,221)
Internal Rate of Return on Equity Investment 10.4%
 Yield and Price
Fluctuations

Yield (% of Expected Average)

60% 75% 90% 100% 110% 125%
40% -100% -100% -100% -100% -100% -10
60% -100% -100% -100% -4.3% -1.2% 3.
80% -100% -4.3% 1.7% 5.1% 8.2% 12.
OrganicPrice

100% -4.3% 3.0% 8.9% 12.2% 15.2% 19.

Percent of
Expected

120% 1.7% 8.9% 14.6% 17.9% 20.8% 24.

140% 6.7% 13.8% 19.4% 22.6% 25.5% 29.
Conclusion and Summary
Any Questions?