Freedom Farm

Organic Farm Business Plan

Freedom Farm
Submitted for Commerce 492.3, University of Saskatchewan
2001
osa!ind "a!!
#eather #ack
$urray %e!son
$y!es &hor'e

Freedom Farm
Freedom Farm
Executive summary
Introduction
Organic farming in Canada, and Saskatchewan in particular, has steadily
increased especially in recent years. Reasons for the increase in organic food production
are: market premiums of 2 to 2.5 times the conentional market price! an e"pansion in the
consumer sector willing to pay the higher prices demanded #y organic food! an e"pansion
of markets in the deeloped world where Saskatchewan farm e"ports traditionally are
targeted! and lower input prices due to organic production.
$his document is a proposed #usiness plan, with a financial model, for setting up
and operating an organic grain farm in Saskatchewan. $he #usiness is new, and is
named Freedom Farm. Financial performance is pro%ected for a ten&year period from
2''2 to 2'(2. $o sell organic produce at premium, Freedom Farm will o#tain organic
creditation from the Organic Crop )mproement *ssociation +OC)*,. $he mission
statement of Freedom farm is:
$o proide -uality organic produce to suit customer demand while maintaining
soil fertility and crop productiity.
Operations Plan
$he proposal is for the esta#lishment of a new organic grain production #usiness
in .ipling, South /ast Saskatchewan. $he proposed #usiness is a sole proprietorship that
o#tains financing from two sources: the owner putting 015',''' and a loan for 015','''.

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Freedom Farm
$he land will #e purchased near .ipling, S., #uildings and storage facilities will #e
constructed. Farm machinery will #e purchased as used. $he owner will hire seasonal
help at peak times of the year. $he farm will run a seen&part rotation on a total of (32'
seeded acres, with cropping from fie parts to gie a total of 16! cultivated acres each
year. )n the first three years the #usiness will sell grain on the conentional market. )n
the fourth year, the farm will sell under the OC)* certification in the organic market.
6uyers of the grain will #e grain processors.
"arketing Plan
*ll products +wheat, #arley, oats, fla", peas, alfalfa and canola, will #e marketed
under the OC)* #rand. Selling under OC)* creditation has the ma%or #enefit of #eing the
most recogni7ed organic #ody in the 8nited States, /urope and Canada. $he first three
years of production will #e sold with conentional prices #ecause it takes three years to
gain accreditation under the OC)*. $he grower controls the decision of when and to
whom to sell, #ut most of the product will #e sold primarily to processors. $here may #e
competition from other growers #ecause the organic market is still at an infancy stage.
9oweer, the markets are e"panding at a greater rate than growers entering organic
production +OC)*, 2''(,. $he ma%ority of the #uying and production comes from
/urope, :apan and 8S*. $he organic market is growing, #ut organic #uyers hae
pro#lems sourcing sufficient product. Canada is a net e"porter of #ulk organic grains and
oilseeds, #ut at this time ;'< of food products are #rought in from the 8S*. $his market
could potentially #e taken oer #y Canadian produced foods.
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Freedom Farm
Freedom Farm will e"tensiely research potential customers to ensure the
ma"imum organic price premium is o#tained. $he target market is situated all oer the
world starting with the market in Saskatchewan. $here are target markets such as
=opowich 5illing, 6ioriginal Food > Science Corp, CS= Foods and =roen Organic.
Other target markets that will #e focussed on include, marketing to the 8nited States or to
/uropean countries. $he marketing will #e completed #y contacting #uyers and selling to
the highest #idder. Crops that are grown on the farm will #e sold straight from the
farmyard to the #uyer, which is our target market.
$he 5arketing plan #udget consists of using the phone, )nternet, occasional trips
to processors and trade shows or conferences. =hone marketing will #e ery important
when it comes time to sell our grain #ecause all the #uyers will #e located #y phone.
*nother way of marketing is through the )nternet. $he internet gies us the means of
locating prices and #uyers all oer the world. $he prices may ary from country to
country #ut the highest price may #e o#tained this way. ?ew #uyers that are adertising
on the )nternet will #e discoered and contacted if need #e. Occasional trips to
processors will keep us in contact with the #uyers, and will help it keep in contact with
what is occurring with the #usiness and also what the market is doing.
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Freedom Farm
$a#le (. S@O$ *nalysis
Strengths @eaknesses Opportunities $hreats
&knowledgea#le sole
proprietor
&marketing
price taker
&market e"pansion (5&
25< per year, emerging
markets oerseas
&industry infancy
&hire e"perienced farm
la#or
&marketing unfinished
product
#organic processors
e"panding
&goernment regulation
&production diersity &starting from scratch
&significant capital
re-uirement
&premiums:$ to $%&
times higher than
conventional price
&potential
contamination from
A5O crops
&healthy product &limited data#ase on
production practices,
outcomes
& OC)* high isi#ility &at the mercy of nature
&superior location for
climate, moisture
&low land cost &mining the soil for
nutrients
&health >
enironmental
pro#lems minimi7ed
&lack of glo#al -uality
standardi7ation
'uman (esources
Freedom Farm will #e run as a sole proprietorship. $he owner will #e the
operator with education, and management e"perience. $he %o# description re-uires
familiarity with farm e-uipment and machinery, a proen interest in organic food
production, decision&making skills, #ookkeeping, and the oerseeing of the organic
creditation process. Compensation for owner la#our and management of 02(,B'' will #e
paid in the fifth year of production and increase at a rate of 2< per year. ?o
compensation will #e gien in the first four years as the owner will hae to rely on
additional income for personal use.
Freedom Farm will re-uire additional seasonal la#or. 9ired part&time help will
consist of one employee for appro"imately 2'' hours in the spring and 2'' hours in the
fall. $his person will #e an educated student from the 8niersity of Saskatchewan, either
in the agriculture degree or diploma program or person with farming e"perience from the
Comm 232 College of Commerce, *gri#usiness 4enture 5anagement i
Freedom Farm
.ipling area. $his person will carry out the seeding duties! remoe weeds from the fields
if needed +rouging,, summerfallowing, haresting and any other duties. $he hourly wage
will #e 03.5(Chr and will work an aerage of 2'&B' hours a week +Schoney,(335,. $he
part&time la#or will #e paid as custom la#or. $herefore, no deductions will #e paid and it
is their responsi#ility to coer their income ta" calculations.
Financial Plan
Funding for start&up of the organic farm will come from two sources in e-ual
amounts. $he owner will #e entering the #usiness with 01D5,''' of owner e-uity
inestment. $he other 015',''' will #e #orrowed from Farm Credit Canada at an interest
rate of ;<, with a constant annual payment amorti7ed oer (' years.
$he year ( and year (' #alance sheets ary in a num#er of different categories.
)a*le $+ ,ear 1 and year 1! *alance sheet as of -ecem*er .1
Assets Liabilities
Current Assets: 2002 2011 Current Liabilities: 2002 2011
Cash 23,206 573,426 Accounts Payable 13,404 14,478
Accounts Receivable 5,958 12,821
Inventoy 77,670 203,336 !on" #e$ %ebt 325,840 0
Total Current Assets 106,835 789,583 Total Liabilities 339,243 14,478
Fixed Assets Shareholders' Equity
!an&, '(ui)$ent, *uil&in"s 623,527 817,766 +hae Ca)ital 375,000 375,000
Accu$ulate& C,C,A, -23,855. -266,385. Retaine& 'anin"s -7,737. 951,486
/et Plant an& '(ui)$ent 599,672 551,381 Total Shareholder's Equity 367,263 1,326,486
Total Assets 706,507 1,340,963 Total Liabilities and 706,507 1,340,963
Shareholder's Equity
$he )RR of (5.'< is the same as the re-uired return on e-uity that was set at
(5<. Risk in this #usiness is ery high, and the possi#ility of trending to worse case
scenarios is greater than the possi#ility of haing #est case scenarios oer the long run.
)a*le .+ /ase case 0P1 and I(( on E2uity Investment
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Freedom Farm
Net Present alue o! Equity "n#est$ent -72,049.
"nternal %ate o! %eturn on Equity "n#est$ent 12,20
$he two most important determining factors that affect the reenue of the
#usiness are factors #eyond managementEs control & commodity price and crop yield. )f
these factors ary in the long run the )RR will also change .
)a*le 3% I(( as a result of varying expected yield and price
&0' ()' *0' 100' 110' 12)'
+0' 11000 11000 11000 11000 11000 11000
&0' 11000 11000 11000 14,30 11,20 3,00
,0' 11000 14,30 1,70 5,10 8,20 12,20
100' 14,30 3,00 8,90 12,20 15,20 19,20
120' 1,70 8,90 14,60 17,90 20,80 24,70
1+0' 6,70 13,80 19,40 22,60 25,50 29,30
-ield .' o! Ex/e0ted A#era1e2
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4onclusions
$he success of Freedom Farm as outlined in the #usiness plan would depend
largely on a few factors. Such factors would include the successful organic certification
for the fourth year of production, maintaining the industry aerage yields for organic
crops and receiing the premium prices e"pected. Failure of one or a com#ination of
these factors would mean certain failure for the #usiness. *n angle that was not
addressed in this #usiness plan would #e to diersify an e"isting traditional grain farm
into organic production oer a num#er of years. $his approach would seem more logical
as the owner would hae preious e"perience in the farming industry. 9oweer, if the
indiidual that is inesting their e-uity is confident that all the criteria can #e met and
continually achieed, Freedom Farm would #e a successful endeaor when started up on
its own.
Comm 232 College of Commerce, *gri#usiness 4enture 5anagement i
Freedom Farm
"ain (eport
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