Farming’s Biggest Expense…Shipping

Vertical rooftop farms are vertically placed on tops of buildings but that’s not why they are successful as “vertical farms”. The fact that they can add value to their end product creates greater profit potential. How they do it is through sales to local CSA groups and to restaurants located in the immediate vicinity. Vertical integration of sales means that a value is added to the finished product thereby improving the net income for the farmer.

Growing in urban settings is gaining traction primarily because there is greater value in local food but the farmer has more to gain by eliminating the cost of shipping. The cost of freight alone adds upwards of 25% to a lb of lettuce. If that cost is eliminated, the revenue can be kept on-site and increase profits due to transportation as well as reducing shrinkage. If produce can be sold quickly after harvest, there is much less waste. A more fresh flavor and personalized touch also gives urban farmers a chance to turn greens into “green”.

The comments below were taken from a recent NY Times article describing the success of Bright Farms, Gotham Farms and Lufa:

When Lufa Farms began selling produce to customers in Montreal in late April, it signaled what could be the beginning of a tantalizing new era in the gastronomic fortunes of that Canadian metropolis.

For a traditional farm, he said, it is not unusual for lettuce to travel more than 1,500 miles over five or six days to a supermarket shelf, which can cost as much as $1 for a head of lettuce that will sell for $2. By improving the energy efficiency of food production, Mr. Lightfoot contends BrightFarms can change the economics of farming.

After four years of developing the business, building the greenhouse and refining growing techniques, Lufa Farms has started delivering baskets of produce to local subscribers: $22 for a six-pound basket and $30 for a basket weighing about nine pounds.

With more than 400 customers signed up and more joining daily, Mr. Lynn, a 60-year-old technology entrepreneur who founded, ListenUP! Canada, a hearing aid chain, says Lufa Farms can enroll a thousand customers, break even this year and reap a 15 percent profit in the future.

“Unlike a lot of start-ups, we’re not trying to find a market,” Mr. Lynn said. “We know there is a demand for this.”

Improving Competitive Edge for Small Farmers

The challenge for small farmers to compete with big box grocers is similar to the challenges that small grocers have. If Wall Mart and other discount food sellers are in your area it could be a challenge. The low cost of produce from subsidized US farms and from low cost sources in Mexico and overseas makes it necessary to find a niche when it comes to making a profit.

Certainly a local farmer has an advantage when growers have high visibility, organic and when buyers are educated to food quality and importance of buying local.

There are sure other strategies a farmers can practice to improve profits. Growing a unique head of lettuce is one way. ATTRA’s Steve Diver reports:

“A good example of changes in a niche market is the salad greens industry. Fifteen years ago, leaf lettuce was almost impossible to find. When leaf lettuces were introduced to the general public, few people accepted them. When chefs in finer restaurants began using them, more affluent people began asking for them in markets. The under supply led to extremely high prices; as much as $16 per pound was not uncommon. More and more small growers began producing salad greens, but it wasn’t until large growers entered the market that the price per pound went down significantly (to $6-10 a pound). Many growers can still get $4-6 a pound for greens, but as more large growers enter the market, this price will continue to drop. Long before the market has bottomed out is when small growers need to diversify and find ways to add value to their crops, like offering pre-cut, washed and ready-to-eat mixed lettuces. “

Labor and energy are the two greatest overhead costs to a small organic farmer. If you operate a greenhouse, use a tractor or grow in an illuminated indoor garden or warehouse, the cost of fuel can be a show stopper.