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Organic Farming
    Freedom Farm

Commerce 492 Business Plan

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

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

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

• To maintain soil fertility while maintaining yield
  productivity and year to year stability.
Outline…
•   Industry overview
•   Operations
•   Human Resources
•   Marketing
•   Financial
•   Feasibility Analysis
Industry Overview
• $20 billion US
• Majority of industry - Europe, USA
  and Japan
• Increasing health and environmental
  concerns
• Aggressive promotion
• Supportive government policies
Canada...
• $1 billion in annual sales
• Annual growth of 20% per year
• Predicted increase of 5 to 10% of global
  market by 2010
• Net exporter of bulk organic grains and
  oilseeds
• Significant production of raw products
 - 80% store products imported from USA
Saskatchewan...
•   Over 1000 certified producers
•   70% of western Canada producers
•   $30 million industry
•   30 organic processors
    – flour, flax oil, oatmeal, bread, cereal
About Kipling:
• LLD – SE 5-8-3 W2
• Precipitation (427mm)
• Temperature (GDD)
  1600 > 5 C
• Soil Classification
  Black soil
• Frost Free Days 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 Organic Crop Improvement association
   OCIA Organic Crop Improvement association
•• 3 years to get organic certification
   3 years to get organic certification
•• Crop rotation & tillage for weed control, fertility
   Crop rotation & tillage for weed control, fertility
•• DIVERSITY
   DIVERSITY


•• Seed, fertilizer and variable machinery costs
   Seed, fertilizer and variable machinery costs
•• Are the highest yearly inputs
   Are the highest yearly 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 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 #2 - Seasonal Labor (seeding-
  harvest)
    • knowledge of farm equipment
    • mechanical knowledge
    Wages: $9.52/hour
Product/Service Features
• Product within OCIA regulations
  – Certified “organic”
• “Beneficial Products”
• Serving the buyers needs
Competition
• Over 1000 certified producers in Sask.
  – Beneficial globally?
  – Detrimental locally?
• Competition minimal due to infancy of
  industry
Distribution/Pricing
• “Price Taker”
  – price depends on world markets and demand
  – price dependent on quality and volume
  – research different buyers frequently
• Distribution cost responsibility of
  buyer
Strengths
•   Educated farmer/businessman
•   Knowledgeable hired help
•   Production diversity
•   Producing a “Healthy product”
•   Location- soil, climate, moisture
Weaknesses
• Marketing
  – getting the best price at the right time
  – “Price Taker”
• Marketing unfinished product
• Starting from scratch
  – inexperience in the agriculture industry
  – cost: significant capital needed
• Limited database on production practices
  and outcomes
Opportunities
• Organic industry 15-25%/year
• Emerging markets – Australia, New Zealand
• Organic processors expanding
• Premiums for production
• OCIA most recognized – high visibility products
• Low land cost and pest populations in
  Saskatchewan
• Health and environmental problems related to
  pesticides decreased
Threats
•   Infancy of the industry
•   Expansion of producers in Sask. - Opportunity?
•   Government regulation
•   Transportation (exporting - union strikes)
•   GMO crops (canola, wheat, etc.)
•   At the mercy of nature
•   Mining of the soil- minimal nutrient amendment
•   Lack of global quality standardization
    – NOP - National Organic 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 controls decision to sell
• Expect competition from other growers,
  prefer broad base of supply
• QUALITY – and price
• Market is growing, buyers have sourcing
  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
                      350
Dollars (thousands)




                      300
                      250
                      200
                      150
                      100
                       50
                        0
                      -50   2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
                                                    Year

                                   Total Revenue   Total Expenses   Net 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.
Organic Price




                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?

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Organic farming final presentation

  • 1. Organic Farming Freedom Farm Commerce 492 Business Plan Rosalind Ball Heather Hack Murray Nelson Myles Thorpe
  • 2. Mission statement Goal: To build a viable organic farm business in ten years. • To establish the first three years of organic farming practice while selling on the conventional market until OCIA certification. • To have all land in organic production within four years and sell on the organic market by the fourth year.
  • 3. Mission statement • To increase cash flow over the next seven years through organic practice while selling on the organic market. • To replace and improve farm power machinery in ten years. • To maintain soil fertility while maintaining yield productivity and year to year stability.
  • 4. Outline… • Industry overview • Operations • Human Resources • Marketing • Financial • Feasibility Analysis
  • 5. Industry Overview • $20 billion US • Majority of industry - Europe, USA and Japan • Increasing health and environmental concerns • Aggressive promotion • Supportive government policies
  • 6. Canada... • $1 billion in annual sales • Annual growth of 20% per year • Predicted increase of 5 to 10% of global market by 2010 • Net exporter of bulk organic grains and oilseeds • Significant production of raw products - 80% store products imported from USA
  • 7. Saskatchewan... • Over 1000 certified producers • 70% of western Canada producers • $30 million industry • 30 organic processors – flour, flax oil, oatmeal, bread, cereal
  • 8. About Kipling: • LLD – SE 5-8-3 W2 • Precipitation (427mm) • Temperature (GDD) 1600 > 5 C • Soil Classification Black soil • Frost Free Days 120 KIPLING
  • 9. Kipling cont’d • Southeast transportation committee • Transportation: Near Trans Canada Highway #1
  • 10. 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
  • 11. Challenges – rotation choice •• OCIA Organic Crop Improvement association OCIA Organic Crop Improvement association •• 3 years to get organic certification 3 years to get organic certification •• Crop rotation & tillage for weed control, fertility Crop rotation & tillage for weed control, fertility •• DIVERSITY DIVERSITY •• Seed, fertilizer and variable machinery costs Seed, fertilizer and variable machinery costs •• Are the highest yearly inputs Are the highest yearly inputs
  • 12. 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
  • 13. Human Resources • Sole 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
  • 14. Human Resources cont.. • Position #2 - Seasonal Labor (seeding- harvest) • knowledge of farm equipment • mechanical knowledge Wages: $9.52/hour
  • 15. Product/Service Features • Product within OCIA regulations – Certified “organic” • “Beneficial Products” • Serving the buyers needs
  • 16. Competition • Over 1000 certified producers in Sask. – Beneficial globally? – Detrimental locally? • Competition minimal due to infancy of industry
  • 17. Distribution/Pricing • “Price Taker” – price depends on world markets and demand – price dependent on quality and volume – research different buyers frequently • Distribution cost responsibility of buyer
  • 18. Strengths • Educated farmer/businessman • Knowledgeable hired help • Production diversity • Producing a “Healthy product” • Location- soil, climate, moisture
  • 19. Weaknesses • Marketing – getting the best price at the right time – “Price Taker” • Marketing unfinished product • Starting from scratch – inexperience in the agriculture industry – cost: significant capital needed • Limited database on production practices and outcomes
  • 20. Opportunities • Organic industry 15-25%/year • Emerging markets – Australia, New Zealand • Organic processors expanding • Premiums for production • OCIA most recognized – high visibility products • Low land cost and pest populations in Saskatchewan • Health and environmental problems related to pesticides decreased
  • 21. Threats • Infancy of the industry • Expansion of producers in Sask. - Opportunity? • Government regulation • Transportation (exporting - union strikes) • GMO crops (canola, wheat, etc.) • At the mercy of nature • Mining of the soil- minimal nutrient amendment • Lack of global quality standardization – NOP - National Organic Program
  • 22. 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
  • 23. Customers – Summary • Grower controls decision to sell • Expect competition from other growers, prefer broad base of supply • QUALITY – and price • Market is growing, buyers have sourcing problems
  • 24. 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
  • 25. Financial Analysis 400 350 Dollars (thousands) 300 250 200 150 100 50 0 -50 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Total Revenue Total Expenses Net Income
  • 26. 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%
  • 27. 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. Organic Price 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.