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Meat Goat Economic$ GEOFF BENSON, Ph. D Extension Economist Dept. of Ag. & Resource Meat Goat Economic$ GEOFF BENSON, Ph. D Extension Economist Dept. of Ag. & Resource Economics N. C. State University August, 2009

Outline Ø Why do you want to have goats? Ø Who will buy your Outline Ø Why do you want to have goats? Ø Who will buy your goats or goat meat? Ø How will you produce your goats or goat meat? Ø Are goats a good fit for your farm and family? Ø Will it be profitable? -- Running the numbers G. A. BENSON, ARE-NCSU 2

WHAT IS SUCCESS? “WHEN THE MOST IMPORTANT FAMILY AND BUSINESS GOALS ARE BEING MET” WHAT IS SUCCESS? “WHEN THE MOST IMPORTANT FAMILY AND BUSINESS GOALS ARE BEING MET” How will meat goats contribute to your definition of success? G. A. BENSON, ARE-NCSU 3

1. Why Have Goats? OR FUN OR MONEY? G. A. BENSON, ARE-NCSU 4 1. Why Have Goats? OR FUN OR MONEY? G. A. BENSON, ARE-NCSU 4

Why Have Goats? Are Goats a Good Fit With: Ø Your Personal Goals Ø Why Have Goats? Are Goats a Good Fit With: Ø Your Personal Goals Ø Your Business Goals Ø Goals of other family members G. A. BENSON, ARE-NCSU 5

Why Have Goats? Ø How much money do you want to make from selling Why Have Goats? Ø How much money do you want to make from selling live goats or goat meat? Ø How much time and money are you willing to invest? Ø Write it down! Ø Your answer helps determine the size and type of enterprise GEOFF BENSON, ARE, NCSU 6

Income Potential Ø There is little published information from actual meat goat operations u Income Potential Ø There is little published information from actual meat goat operations u To base planning decisions on u To use as benchmarks for evaluating farm performance Ø Several Universities have developed goat enterprise budgets G. A. BENSON, ARE-NCSU 7

Meat Goat Enterprise Budgets, $ per Doe per year Does Rev. Cost Neta Head Meat Goat Enterprise Budgets, $ per Doe per year Does Rev. Cost Neta Head 50 $ 91 $ 116 $ -25 Ohio: 1. 5 X 130% kid 25 123 132 -9 Ohio: 1. 5 X 170% kid 25 165 135 30 Ohio: 1. 5 X 210% kid 25 207 138 69 Kentucky-Low Int. -- 77 75 2 Kentucky-Med Int. -- 95 98 -3 Kentucky-High Int. -- 111 124 -13 S. Carolina 180% a. Net = Returns to Land, Management, Risk, & Farm Overhead G. A. BENSON, ARE-NCSU 8

Why the differences? Ø Based on different production systems Ø Differences in animal performance Why the differences? Ø Based on different production systems Ø Differences in animal performance Ø Differences in the cost categories included Ø There is no standard budget methodology – user beware! G. A. BENSON, ARE-NCSU 9

Farm Financial Performance Varies from Farm to Farm Ø Net Returns over Total Expense, Farm Financial Performance Varies from Farm to Farm Ø Net Returns over Total Expense, Minnesota FINBIN data u Cow-Calf, per cow, 2008: Top 20% = +$46, Bottom 20% = -$688 u Stockers, per head, 2007: Top 20% = +$65, Bottom 20% = -$223 Ø Dairy Net Farm Income per cow, Cornell University, 2007 u Top 10% = $1, 985, Bottom 10% = $67 GEOFF BENSON, ARE, NCSU 10

Size & Income Ø Larger farm operations may be truly profitable Ø Smaller operations Size & Income Ø Larger farm operations may be truly profitable Ø Smaller operations can Depend on non-farm income – either from choice of lifestyle or financial necessity u Get bigger l. More of the same l. Develop “value added” activities u Ø All sizes -- Manage for profitability if net income is the primary motivation, especially cost control G. A. BENSON, ARE-NCSU 11

Economies of Size Ø If you double the size of your goat herd It Economies of Size Ø If you double the size of your goat herd It doesn’t take twice as much time to feed or move goats from one field to the next, time and expense to take your goats to market, fencing, equipment, facilities, etc. u You spread your fixed costs & overhead u You might get volume discounts on purchases u But there can be diseconomies too, especially in marketing your product(s) u v Prediction – Meat goats will become more like other commercial farm enterprises G. A. BENSON, ARE-NCSU 12

Value-added? Ø Sell meat or meat products instead of the live goat u Wholesale Value-added? Ø Sell meat or meat products instead of the live goat u Wholesale u Restaurants u Direct to consumer l. Farmers Markets l. On-farm sales l. Event Catering l. CSAs, etc. G. A. BENSON, ARE-NCSU 13

Value-added Ø There also Added Costs! Processing u Wrapping, packaging, labeling u Storage u Value-added Ø There also Added Costs! Processing u Wrapping, packaging, labeling u Storage u Sales and distribution costs u Record keeping, office, etc. u Cost of complying with regulations u More of your time or cost of extra hired help u Ø An opportunity, not a magic bullet! Ø Run the numbers! G. A. BENSON, ARE-NCSU 14

Other Financial Benefits Ø Tax advantages for farmers u Preferential sales tax rates u Other Financial Benefits Ø Tax advantages for farmers u Preferential sales tax rates u “Agricultural Use” property tax rates u Farm income tax rules Ø All farming tax advantages have qualification requirements u Do you qualify as a farm/farmer (acreage, gross income)? u Are you farming for profit? u Do you “materially participate”? G. A. BENSON, ARE-NCSU 15

2. Lots of Market Opportunities Ø People: NC = 9. 2 million, VA = 2. Lots of Market Opportunities Ø People: NC = 9. 2 million, VA = 7. 8 mil. Ø Personal Income: NC = $318 bil. , VA = $333 bil. Ø Consumer trends: u u u Buy less on price, more on convenience Care how food is produced – no GMOs, no added hormones, no antibiotics, organic, “natural, ” Value special characteristics –locally produced, sold direct, “fresh”, type or variety, “heritage”/nostalgia, etc. Ø Demographic trends: Changing racial & ethnic mix, population growth, aging, more two-wage earner families, single head of households, etc. GEOFF BENSON, ARE, NCSU 16

Who Are Your Customers? GEOFF BENSON, ARE, NCSU 17 Who Are Your Customers? GEOFF BENSON, ARE, NCSU 17

Know Your Customers Ø When planning a new enterprise: Helps you identify opportunities and Know Your Customers Ø When planning a new enterprise: Helps you identify opportunities and challenges more clearly u Helps you develop your product & a marketing strategy to sell your product to the consumer u Helps you develop a farm production plan u Ø For an existing business: u Helps you see new opportunities, see if your operation is meeting, exceeding or falling short of your customers’ expectations, helps you fine tune your marketing efforts GEOFF BENSON, ARE, NCSU 18

Know Your Customers Ø Live Sales u Where will you sell your animals? u Know Your Customers Ø Live Sales u Where will you sell your animals? u What kind of animals does this market want? What premiums are available for certain characteristics – frame size, weight, fleshiness, breed, sex, kosher or halal, number of head, etc. u When does the market want them – is there a seasonal pattern to prices? Are their ethnic holiday opportunities? G. A. BENSON, ARE-NCSU 19

Selling Meat – Who are Your Customers Ø Four Characteristics: u They want or Selling Meat – Who are Your Customers Ø Four Characteristics: u They want or need your type of product u They have the ability to buy what you are selling u They have decision making power over purchases u They have ready access to your product or service

Selling meat – Some Key Questions Ø 1. What type of person will buy Selling meat – Some Key Questions Ø 1. What type of person will buy my product? ØRace or ethnicity ØAttitudes towards food, health, production methods and animal welfare ØIncome ØAge ØMarital Status ØEducation GEOFF BENSON, ARE, NCSU 21

Selling meat – Some Key Questions Ø 2. What are their buying habits? u Selling meat – Some Key Questions Ø 2. What are their buying habits? u Who makes the purchasing decisions? u Where do they make their purchases? u How often do they buy? u How much do they buy? u What form of product do they prefer— live, meat package size, type? Ø 3. How much can or will they pay? GEOFF BENSON, ARE, NCSU 22

How many potential customers are there in my market area? GEOFF BENSON, ARE, NCSU How many potential customers are there in my market area? GEOFF BENSON, ARE, NCSU 23

More Marketing Questions Ø 5. Who is my competition? u Operations selling the same More Marketing Questions Ø 5. Who is my competition? u Operations selling the same product u Sellers with a similar product in a different market channel u Sellers of a competing product that is a substitute Ø 6. How will I compete? u Price u Product u Service v. Quantity X Price = Your revenue GEOFF BENSON, ARE, NCSU 24

Competitor Analysis “If you don’t have a competitive advantage, don’t compete” Jack Welch Former Competitor Analysis “If you don’t have a competitive advantage, don’t compete” Jack Welch Former CEO of General Electric GEOFF BENSON, ARE, NCSU 25

3. How will you produce goats, meat? Ø Revenue u Type and number of 3. How will you produce goats, meat? Ø Revenue u Type and number of animals u Sale weight and form u Time(s) of year Ø Operating expenses u Feed – forages and supplements u Health care u Labor u Processing &/or Marketing u Other – utilities, repairs, services GEOFF BENSON, ARE, NCSU 26

How will you produce goats, meat? Ø What will you invest? Animals – does, How will you produce goats, meat? Ø What will you invest? Animals – does, bucks, kids u Buildings and facilities – feeding, shelter & handling, storage u Fencing, water, lanes u Ø Cash flow – is it feasible? Operating income and expenses u New investments and asset sales u Borrowing and debt repayment u Non-farm income and family living needs u New operations -- Make quarterly estimates through the start-up phase u GEOFF BENSON, ARE, NCSU 27

Fitting the pieces together Customers & Markets Resources $$$ Marketing, Distribution Production GEOFF BENSON, Fitting the pieces together Customers & Markets Resources $$$ Marketing, Distribution Production GEOFF BENSON, ARE, NCSU 28

Planning for Success Ø “Suck it and see” Ø This can work if the Planning for Success Ø “Suck it and see” Ø This can work if the business venture is small in scope and the cost of failure is not significant…if not, then more effort is required “Experience is the name everyone gives to their mistakes” -- Oscar Wilde GEOFF BENSON, ARE, NCSU 29

Planning for Success = “If you can’t make a profit with a pencil, you Planning for Success = “If you can’t make a profit with a pencil, you can’t make a profit with a plow” Anonymous G. A. BENSON, ARE-NCSU 30

Revenue Sources & Amounts Ø Kids sold live and/or as meat Ø Kids sold Revenue Sources & Amounts Ø Kids sold live and/or as meat Ø Kids sold for breeding Ø Cull does & bucks Ø Does & bucks sold as breeding stock Ø Value of inventory changes, +/- Calculate revenue per doe based on number of does exposed to the buck G. A. BENSON, ARE-NCSU 31

Goat Enterprise Expenses ØOperating or Variable Costs (Vary with scale of production) v Feed Goat Enterprise Expenses ØOperating or Variable Costs (Vary with scale of production) v Feed Costs -- Pasture & hay, Supplements -- (Number of head X days fed X lb. /day X cost/lb. ) v Health care -- (No of head X no. of treatments X cost per treatment) v Hired labor -- (hours per day X 365) v Processing &/or Marketing -- (time, travel, advertizing, etc. ) v Other – utilities, repairs, office, professional services G. A. BENSON, ARE-NCSU 32

More Expenses ØFixed or ownership costs – annual charges to recoup your investments in More Expenses ØFixed or ownership costs – annual charges to recoup your investments in your goat enterprise, including buildings, equipment, facilities, fencing, pasture improvements, and breeding livestock Depreciation, u Interest u Property taxes u Insurance u G. A. BENSON, ARE-NCSU 33

Fixed or Ownership Costs Ø Average annual depreciation charge = [New Cost - Salvage Fixed or Ownership Costs Ø Average annual depreciation charge = [New Cost - Salvage Value] Years of life Ø Average annual interest charge = [New Cost + Salvage] X Interest rate 2 G. A. BENSON, ARE-NCSU 34

More Expenses Ø Overhead Expenses Specific to goats, e. g. , goat association memberships More Expenses Ø Overhead Expenses Specific to goats, e. g. , goat association memberships and subscriptions u Farm overhead -- general to farming, e. g. , accounting and tax preparation, legal, land cost (ownership cost or rent), etc. u Ø Value of your and your family members contributions (opportunity cost) Chore labor time u Management time u Money you invested in the goat enterprise u G. A. BENSON, ARE-NCSU 35

Expenses & Decision Making Ø Fixed or ownership costs to be recouped u u Expenses & Decision Making Ø Fixed or ownership costs to be recouped u u Will these be new investments? If you have existing equipment & facilities, do they have alternative uses or value? Ø Land cost – who pays? u u u Lifestyle farm – your cost Land as an investment – your cost Farming for profit – farm enterprises must justify the land investment or land rent Ø Profit v. Cash Flow u Budgets do not consider cash flow issues, such as how to finance new investments, make debt principal payments and family living withdrawals G. A. BENSON, ARE-NCSU 36

Consider Risk Ø Probability or chance of an event Ø Exposure – financial impact Consider Risk Ø Probability or chance of an event Ø Exposure – financial impact if an event occurs Ø Sources: u Production u Prices and market risk u Financial u Legal, Business, regulatory, etc. u Human, including the 5 Ds G. A. BENSON, ARE-NCSU 37

What Are Your Figures? G. A. BENSON, ARE-NCSU 38 What Are Your Figures? G. A. BENSON, ARE-NCSU 38

Are Goats a Good Fit? Ø Lifestyle or Ø Income Goals supplementary farm u Are Goats a Good Fit? Ø Lifestyle or Ø Income Goals supplementary farm u Gain tax advantages enterprise u u u Fitting and showing, pleasure Controlling brush and weeds Using underutilized pasture species, e. g. , with cattle u u Cover Cash costs Make a true profit Ø Farm Income u u Breeding stock production Commercial meat production – live or meat sales G. A. BENSON, ARE-NCSU 39

Once your are in production, Is it working? “Controlling” -- Evaluating the results Ø Once your are in production, Is it working? “Controlling” -- Evaluating the results Ø Set standards or targets Ø Measure performance – keep records! Ø Compare actual performance to target or benchmark Ø Take corrective action promptly if performance is below target G. A. BENSON, ARE-NCSU 40

Summary n Why have goats – what are your family business and personal goals? Summary n Why have goats – what are your family business and personal goals? n Who are your customers, Where will you sell, what do they want, how much do they want, what will they pay? n Develop a farm production and marketing plan geared to your market G. A. BENSON, ARE-NCSU 41

Summary Ø Develop projections based on realistic expectations of farm and financial performance u Summary Ø Develop projections based on realistic expectations of farm and financial performance u Profitability u Cash flow Ø Are goats a good fit for your operation? Ø Monitor and evaluate how your farm and business plan is working u Production performance u Financial performance G. A. BENSON, ARE-NCSU 42

Summary Ø “If it’s easy, fun or can be done from the seat of Summary Ø “If it’s easy, fun or can be done from the seat of a tractor, there ain’t no money in it” Anonymous Cowboy G. A. BENSON, ARE-NCSU 43

Remember the Economic$ $ $ $ Photo courtesy of the Department of Animal Science, Remember the Economic$ $ $ $ Photo courtesy of the Department of Animal Science, Oklahoma State University, Stillwater, Oklahoma. G. A. BENSON, ARE-NCSU 44

Geoff Benson Ø Phone: 919. 515. 5184 Ø Fax: 919. 515. 6268 Ø E-mail: Geoff Benson Ø Phone: 919. 515. 5184 Ø Fax: 919. 515. 6268 Ø E-mail: [email protected] edu Ø Web page: http: //www. ag-econ. ncsu. edu/ faculty/benson. html G. A. BENSON, ARE-NCSU 45