Tuesday, December 17, 2013

Open Season for Farm Revenue Insurance

by John Berry, Extension Educator, Lehigh County

Crop insurance has become the risk-management tool of choice for many farmers, because it works. The program was created to ensure that the private sector would help shoulder part of agriculture’s risk.

Crop insurance not only prevents taxpayers from shouldering the full burden of a farm disaster, but also gets payments to farmers relatively quickly. Mother Nature does not just strike large crop farms and a crop-insurance indemnity does not make a farmer or rancher ‘whole’ any more than a check from an insurance company replaces a house lost in a tornado. However, the AGR and AGR-Lite insurance products are intended to benefit the diverse and sometimes modest sized farms on the east coast.

Crop insurance is a public-private partnership, designed to ensure that when disaster strikes, the private sector – crop insurance companies – are there to help shoulder the risk and the financial burden of rebuilding.  Crop insurance policies are purchased by the farmer and suited to the farmer’s needs, comfort with risk and financial situation.

USDA’s Risk Management Agency (RMA) recently announced the Adjusted Gross Revenue (AGR) insurance for farmers and ranchers is again being offered for 2014. The application deadline is January 31, 2014.  Current AGR policyholders also have until January 31, 2014, to make any changes to existing contracts.  AGR provides whole farm income protection under an umbrella-type policy that covers income from all crops and some livestock, provided the income from livestock and livestock products does not exceed 35 percent of total farm income.

Unlike traditional crop insurance guarantees based on yields, AGR provides a guarantee against a significant decline in overall farm income from the average of the most recent five years (2008 – 2012).  As a result of substantial premium subsidies provided by the USDA, AGR can be a very affordable way to guarantee an income flow from your farm operation.

In addition, a similar product called AGR-Lite, which crops and covers livestock and has a limitation of $1,000,000 in coverage.  AGR-Lite is available in almost all counties for the states listed above for 2014.  The sales closing date for new AGR-Lite contracts is March 15, 2014.  Current AGR-Lite policyholders also have until January 31, 2014, to make any changes to existing contracts. 

Farmers are strongly urged to contact a local crop insurance agent, as soon as possible, for more information and premium quotes for both products.  For a list of crop insurance agents, farmers may contact their local USDA Farm Service Agency office or log on to the following Risk Management Agency web site:

Monday, December 9, 2013

Learning from Consumers: Examples of Easy and Insightful Questions to Ask

In last week’s blog, I encouraged you to learn about your customers’ needs, wants, and likes.  This week I wanted to provide you with examples of questions that you might ask them and that could provide you with a great deal of valuable data. 

No matter what survey format you choose or the type of retail operation you own or manage, consider asking:
  • Why do you shop at our store?
  • How frequently do you visit our business?
  • What additional goods do you think we should stock and that you would be interested in purchasing from us? 
  • What other businesses are you visiting today?
  • What events and activities do they attend/participate and how do they learn about these events/activities? 
A good bit of information could be gleaned from asking these questions, which includes identifying businesses that you could cross promote with and further build your customer base.  Responses also help you learn about festivals or celebrations where you could have a presence.  Asking customers how they learn about these events and activities is one way to identify avenues through which you could promote your products.
On-farm markets or farmers’ market venders might be interested in selling produce items that they have never sold before.  If you fit this description, ask consumers the following questions to learn if the product has potential:
  • If we offered ‘x,’ would you be interested in purchasing it?  Why or why not?
  • Do you already purchase ‘x?’  How often do you purchase ‘x’ and how do you use it in meals and snacks?
  • Do you serve ‘x’ to family and friends when entertaining?  If yes, what other food items or beverages do you serve with ‘x?’ (This question can help you with cross merchandising the potential product with existing goods, or help you learn about other items you could stock.)
  • How many adults and children live in your household? Of these household members, how many already eat ‘x?’
Would customers buy canning supplies from you? Don't guess, ask them.
What if a group of your customers share a similar heritage and you would like to provide them with products they could use to create authentic meals?  Consider asking questions that will help you determine the following:
  • Products that are in greater demand during specific periods such as holidays, seasons, or for festivals and special occasions.
  • If there is a preference for a particular variety, size, condition, type of package, or partially/fully cooked product.
  • What foods, cooking tools, or particular brands they have difficulty finding locally. 
Additionally, think about what other products you could sell, even those that might be a little more “nontraditional.” For example, ask consumers about their other interests.  How many of your customers are pet owners?  Traditional garden centers have been successful selling pet products and pet foods, as there are consumers who spend a significant amount of money on their pet’s care and well being.  Pet food is also a product category that pet owners need to purchase on a frequent basis, thus they may return again and again to restock their supply.  You may also find that these goods bring new consumers to your business.

Monday, December 2, 2013

Survey Customers to Learn about Their Wants, Likes, and Needs

Over the past couple of months, I’ve spoken to audiences of small business owners and during my presentations I’ve stressed the importance of learning about their customers’ needs, wants, interests, etc.

Certainly, I understand the number of responsibilities that a small business owner has and that sometimes the staff is overwhelmed, but how will you know what products to continue to offer, which new product categories to investigate, and whether consumers like your store’s layout and design if you don’t ask them?

I would encourage you, even during this busy time of the retail year, to start learning about your customers, or reacquaint yourself with their preferences and behaviors, by asking them certain questions.  Most likely you have a standard set of questions that you ask to help build a rapport with visitors, but also consider creating a survey that could capture their responses and that you can refer to from time to time.   Begin the process by involving customers on your mail and email lists and those enrolled in your loyalty program.  If you own a tasting room, include questions on your wine club enrollment form or offer to wave the tasting fee if customers fill out a short survey.

             Before stocking something new, ask customers if they would be interested in buying the products.
In a previous post, Learning Directly From Your Customers, I described some techniques for conducting focus group session, but don’t forget that you will want responses from a larger group of consumers to make actual business decisions.  Therefore, consider collecting survey responses via the Internet.  Aside from posting questions on your website and on your Facebook business page, you could conduct an online survey using one of the many tools available:,, and 

These and other online survey programs allow users to collect a limited number of responses for free with more features available when an annual subscription is purchased.  Don’t forget to direct customers to the survey by sending links to it in emails, incorporating the link into your webpage, or posting and promoting it on your Facebook business page and in tweets. 

In next week’s post I will provide some examples of questions that you might ask your customers.

Tuesday, November 26, 2013

Farm$en$e: Farm Management tools for Financial Success

Are you looking for a farm business management class to help brush up your financial and production planning skills?  Penn State Extension’s Agricultural Entrepreneurship Team will offer Farm$en$e across the state at various locations starting in December and running through early April.

Farm$en$e is a finance and production education class for Pennsylvania farm businesses.  Farming is a complex business.  The key to running a successful farm business is the ability to manage scarce financial resources and plan farm production accordingly.  This short course teaches participants how to organize and use financial records; develop and analyze financial statements; and make informed decisions regarding finances and production. The concepts covered promote better internal decisions for farm management and stronger relationships with external partners, such as lenders.  The adoption of farm records and the use of financial statements, such as the balance sheet, cash flow, and income statement significantly impact farm financial performance.  This course satisfies the requirements for borrowers of the Farm Service Agency, but is also available to borrowers and lenders of any private agricultural bank.

Farm$en$e will be offered in the following locations:

December 12th, 17th, 19th
The use of financial statements can significantly
impact a farm's financial performance. 
9:30 am to 2:30 pm

January 7th, 21st, 28th
9:30 am to 2:30 pm

January 9th, 16th, 23rd, 30th
10:00 am to 2:00 pm

January 31st, February 7th, 21st, 28th
10:00 am – 2:00 pm

February 3rd, 10th, 24th
9:30 am – 2:30 pm

February 4th, 11th, 18th
9:30 am – 2:30 pm
March 3rd, 10th, 17th
9:30 am – 2:30 pm

March 7th, 14th, 21st, 28th
10:00 am – 2:00 pm

March 21st, 28th, April 3rd
9:30 am – 2:30 pm

Register online for the session in your area by clicking on the link above or by phone by calling Kathy Shaffer at 814-445-8911, ext. 7.  The cost of the program is $225 per participant, pre-registration is required for all those attending.  For more information contact Miguel Saviroff, or 814-445-8911, ext. 144.

Thursday, November 21, 2013

What's Trending in Restaurants for 2014?

No matter what type of retail you are in (agricultural or otherwise), it is very important to stay ahead of trends if you want to keep up with your customers' evolving wants.  It's not necessary to embrace every trend or change your business model entirely, but it is crucial to know what is trending and how these trends will affect your business.  In a recent report by Technomic (a foodservice research and consulting firm), the top 10 trends for restaurants in 2014 are listed.  Below are a few of those trends.  If you are a restauranteur, take some time to ask yourself some of the following questions as to how this trend would affect your business.

  • More information.  Listing ingredients, where they came from, and how they were prepared are all pieces of information consumers are looking for.  
    • Things to thing about: Do you need to redo your menus so they are more descriptive?
    • When looking at other restaurants' menus, what cooking terms make you want to order a certain meal (for example, chargrilled, fire roasted, caramelized, vine ripened, etc)?  Use these descriptors to develop your menu and entice your customers.   
    • Do you have a relationship with the farms you buy from?  Guests may find it interesting to know where their food is coming from.  For example, ask the farmer to write a description about the farm and the food to feature in your menu.
    • In the menu below, look at items like the Elk Creek Burger and Valley Ham + Cheddar.  Items in the dishes are described well and also list farms that source the ingredients.
Elk Creek Cafe menu.

  • Starches are back.  In previous years, carbs were put on the "naughty list" with the introduction of low carb and no carb diets, but that trend seems to be fading.  Technomic says, "Rice bowls will be big, in part because of continued fascination with Asian fare and in part because of an association with healthfulness.  Look for more in the way of flatbreads, wraps and all kinds of artisan breads including healthy whole grain varieties."
    • Things to think about: Do your dining guests  have alternatives besides bread (like wraps)
    • Do you offer healthier options like whole grains in your bread and pasta selections?  
    • Spotlight these healthier options in your menu somehow (for example place them in a special section in the menu, use an icon to highlight the healthier options, etc).
Artisan whole grain breads.

  • Eating on-the-go.  Customers want foods that are easy to eat on-the-go, including handheld foods and car-friendly packaging.  
    • Do you currently have any items that are convenient to eat on the run or are there any menu items that can be modified to fit this need?
    • What kind of packaging will you need to purchase to make your foods grab-and-go?
KFC chicken fingers and fries served in packaging that fits in a car cup holder.

As always, do your research BEFORE embracing a new trend.  What works for one restaurant may not work for you or your customers.

Friday, November 15, 2013

Using Sampling as a Marketing Tool

by Juliette Enfield, Extension Educator, Warren County

The market place is continually changing. The needs and wants of a new generation of consumers can be surprising and unintuitive. Farmers market customers want samples of fresh fruit and vegetables, and kids are more likely to eat fresh apples if they are pre-sliced.

A consumer survey conducted by the University of Kentucky found that farmers market shoppers desired samples of food more than other possible services that a farmers market could offer, including debit card acceptance and expanded market hours. The study also found that fifty five percent of the customers who tried a sample purchased the sampled product that day and another  17% planned to buy the product in the future. Fruits and vegetables products were the top items that people were willing to sample. If you are a vendor of fresh produce, you may want to consider this marketing opportunity. Incorporating sampling into your business routine may sound daunting, especially since samples should be prepared in an approved, inspected facility or prepared at the market with an approved washing facility. However, if you are able to attract new customers or stimulate sales by offering samples, it might be worth the effort.

Also along the lines of cutting up fresh fruits and vegetables, a study in Wayne County, New York found that kids are more likely to eat apples if they are sliced. Cornell Cooperative Extension launched a study to determine effective ways to boost local food consumption in middle schools. By working with school Food Service Distributors, different techniques for serving apples were tested. It was found that slicing the apples instead of offering them whole resulted in a 73% increase in apple consumption. Food Service Distributors reported that single serving packages were the most convenient way to display the apple slices in lunch lines and in vending machines. One of the researchers spoke at a conference recently about this study and a tool that she discovered during her work in Wayne County. She recommended a kitchen tool called a sectionizer, which cores and slices fresh fruit in one swift motion.
A variety of peaches to sample at a farm retail store. 

Given the new research showing that children and adults alike are looking for those freshly sliced fruits and vegetables, you may want to consider a sectionizer for your marketing and packaging.

Produce samples should be kept at 41⁰F and covered. Speak to your local food inspector about your set up in order to provide safe, fresh samples of your fruit and vegetables. Your market may be interested in trying pooled sampling, in which several samples from different vendors are prepared and offered at one table in the market. 

Sources for this blog:

Timothy Woods and Miranda Hileman, Best Practicesfor Sampling at Farmers Markets: A Practical Guide for Farmers Market Vendors, Extension Publication 2012-19 (Department of Agricultural Economics, University of Kentucky, 2012) accessed Nov 12, 2013 

Tuesday, November 5, 2013

Count Foot Traffic When Hosting an Event at Your Business

The number of shopping days until the fall and winter holidays are dwindling; and most likely you will host an open house or event to draw consumers to your retail outlet to do some holiday shopping.  In the past, we have offered some insight into hosting events (Events – Know When and How to Host Them and Cross Promotion: Partnering With Other Business to Better Serve Your Customers, Part III), and as a result a question you might be asking, “How will I know if the event was a success?” 

Certainly calculating gross and net sales is important but it is also important to document foot traffic – the number of people who attended the event.  It is key to know your customer counts so that you can determine if the event encouraged more consumers to visit than during an average day, or if the event needs to be redesigned to be more appealing.  Foot traffic counts also help retailers understand whether the event attracted more consumers than past events held during the same period. 

Obtaining foot traffic counts can be accomplished by: 

  • Distributing invitations that attendees bring to the event to be admitted or requiring attendees to RSVP
  • Counting attendees as they arrive at the event by either assigning an employee to manually count customers or installing an electronic sensor that tabulates the number of customers who pass through a particular doorway
  • Asking customers to sign up for a mailing list or loyalty program
  • Giving each attendee a raffle ticket and keeping track of the number handed out  

Each system has its advantages and disadvantage. 

  • If invitations or RSVPs are expected you will also need decide if “walk-ins” will be admitted and how to capture this number
  • Not all customers will sign up for your mailing list or loyalty program, or they may already be members unless you are launching these programs during the event 
  • If attendees are counted as they enter a doorway—it is possible that they could be counted more than once if they exit the store and then reenter.  It is also possible that the person counting attendees could be distracted if others ask questions or for assistance.  You will also need to determine how you will “count” attendees.  Will you count all adults or will you count families (with two or more adults) and couples as one attendee?  It will also be important to “subtract” any employees, who enter the store through the same entrance, from these counts.  

Foot traffic can also help with planning for next year’s event.  Consider counting the number of customers who visit based on the time of the day and, if it is a multi-day event, the day they visit. These numbers can help with scheduling staff as well as adjusting the hours that the event could be held in future years. Additionally, if you invite other vendors to showcase their goods and services or schedule a special entertainer to perform, use these counts to schedule their appearances when foot traffic is favorable for all involved.  
Having entertainment at your event is a great idea to set the tone.
Just be certain to schedule performers during periods when you expect high foot traffic counts

Record not only foot traffic but also the number of visitors who access your website during and after the event. Also, ask customers to participate in an online survey and ask them if they are interested in attending the event (or if they did attend), what additional vendors or attractions they would be like to see, and how they heard about the event or if they first learned about it when visiting your site.

Tuesday, October 29, 2013

What Does Health Care Reform Mean for Pennsylvania Agricultural Producers?

by Walt Whitmer, M.S., Senior Extension Associate and Cathy Bowen, Ph.D., Professor of Agricultural & Extension Education Consumer Issues

Regardless of whether you are the sole-proprietor of a farm with no employees, have a few employees, hire seasonal farm workers, or are a large operation with a number of full and/or part-time employees, you need to understand your options under The Patient Protection and Affordable Care Act (ACA). Choosing which options provided for under the ACA is best for you and/or your family and employees will depend on a number of considerations you need to take into account.

For most agricultural producers and other small businesses, the best place to begin your search is to visit the Small Business Health Options Program (SHOP) Marketplace, Businesses with fewer than 50 full-time employees can also call the SHOP Marketplace at 1-800-706-7893 (TTY users: 1-800-706-7915). Health insurance coverage through SHOP starts as soon as January 1, 2014. Open enrollment began October 1, 2013. You can enroll and begin offering insurance any time during the year – although waiting beyond the March 31, 2014 open enrollment closing date may have implications and costs for you and/or your employees.

While small employers, those with less than 50 full time equivalent (FTEs) employees are currently not required to offer health coverage, there are a number of important options and provisions in the new law that farmers, farm families and farm employees will want to consider. Among these are:

  • Sole proprietors are considered “individuals” and are subject to the ACA’s individual mandate. This mandate requires you to have health insurance or pay a penalty. 
  • Farmers and farm families who don’t currently have health insurance, can explore options and compare prices and services on  (the health insurance marketplace) or with private companies.  Note, however, that premium tax credits will only be available for insurance that is purchased on  Premium tax credits are subsidies, or assistance from federal funds that help pay for premiums. They are comparable to the subsidy farmers get when they purchase crop insurance.  In short, farmers or consumers pay for part of their insurance premium and money from federal funds collected from taxes pay for the remaining part of their premiums.
  • If you currently have an insurance policy, you can compare the costs of your current policy to policies available on
  • For 2014, the SHOP Marketplace is open to employers with 50 or fewer full-time-equivalent employees (FTEs). Starting in 2014, businesses with 50 or fewer full-time equivalent (FTE) employees can use SHOP to offer coverage to their employees. As the employer, you control the coverage offered and how much you pay toward premium costs. With one online application, on your own or with the help of an agent, broker, or other assists, you can compare price, coverage, and quality of plans in a way that's easy to understand. 
  • Any farm operation with close to 50 full-time equivalent (FTE) employees should consult with their professional advisor after learning the basics about their options from  Do the math and develop a plan with your professional advisor that optimizes the mandate requirements within your business model.  A full-time employee is one who works on average 30 hours per week or 130 hours per month. Full-time equivalents are determined by dividing the total hours worked by part-time employees by 120.
  • If you have fewer than 25 employees and provide health insurance to them through the SHOP Marketplace you may qualify for a 35% small business tax credit.  In 2014, this credit will increase to 50% and you can still deduct from your taxes the rest of your premium costs not covered by the tax credit. To qualify for the Small Business Health Care Tax Credit, you must pay at least 50% of your full-time employees' premium costs. You don’t need to offer coverage to your part-time employees or to dependents.
  • Choosing the coverage that’s right for your business. There are four categories of plans in the SHOP Marketplace:  Bronze, Silver, Gold, and Platinum.  They offer similar benefits, but differ based on how much enrollees share in the costs. In 2014, SHOP is open to employers with 50 or fewer full-time equivalent (FTE) employees. All plans offered through the SHOP must provide a set of essential health benefits. What your employees pay for deductibles and copayments – and the total amount they spend out-of-pocket for the year – depends on which plan category you choose. 

The Kaiser Family Foundation has developed a video
"Health Reform Hits Main Street."  Checkout the video on
Penn State Extension "Health Insurance and You" website.

Penn State Extension’s website “Health Insurance and You” provides additional information about health care topics for individuals, families, and businesses. There is also a wealth of information for farmers and small business available on HealthCare.Gov and many other sites. In light of the fast-approaching deadlines for enrollment, it will be important for all farm operations (and other small businesses) to begin to prepare now.  Consult with your current insurance provider or other professionals. Learn about the options and mandates that are part of the ACA and what they mean for your business. Finally, develop a plan that represents the best path forward for you and your operation.

Monday, October 21, 2013

Adding Value to Farm Food Production

by John Berry, Extension Educator, Lehigh County

Most farmers are on the lookout for ways to generate more net revenue. The question is something close to “What can we do to utilize our resources to their best advantage?” Many opportunities exist, but in order to be feasible they must match the values of the farm family. One common method is the move to identify farm crops as being sustainable. The challenge is how to verify claims and meet the documentation requirements to satisfy buyers. There are several competing verification systems in place that are trying to address this very concern. Some are driven by a singular philosophical mission and others are more inclusive of all those businesses along the chain from farm to fork.

As an example, individual farm operations within the specialty crop supply chain are experiencing increasing demands to demonstrate "sustainability" to their customers. These demands have resulted in a growing number of certification and/or supplier education programs and thus the potential for redundant or even conflicting requirements. Most of these programs focus on a niche market, a limited set of crops, and/or a specific link in the supply chain, and thus are not designed to provide the specialty crops industry as a whole with a comprehensive system for measuring sustainable performance. However, The Stewardship Index aims to provide such a system.

The StewardshipIndex for Specialty Crops project is a multi-stakeholder initiative developing a system for measuring sustainable performance throughout the specialty crop supply chain. The project offers a suite of outcomes-based metrics to enable operators at any point along the supply chain to benchmark, compare, and communicate their own performance. The Stewardship Index does not seek to provide standards, but instead provides a yardstick for measuring sustainable outcomes. In the future, the project may also provide tools and resources to help specialty crop companies advance sustainability goals.

For this project "specialty crops" is defined broadly to include fruits, vegetables, nuts, and horticulture. The founding members of the project regard sustainability as an ongoing process to advance environmental, socially responsible, and economic values. The project does not aim to identify a level of performance that is "sustainable," but instead to provide measures to help all participants implement sustainable values.

Quantitative sustainability metrics, developed collaboratively, can offer significant benefits to specialty crop industry participants, and the eventual consumer. As envisioned, this project will:

·         Help operations across the supply chain (farms, distributors, processors, retailers, etc) identify opportunities for increasing efficiency and reducing costs;
·         Provide a standardized system for measuring performance, thus reducing the potential for duplicate monitoring and reporting systems;
·         Allow individual operators to engage in the sustainability journey starting at (and regardless of) their current level of performance;
·         Address the unique needs of the specialty crop industry while demonstrably improving environmental and social impacts;
·         Enable verifiable marketing claims backed by measurable performance data;

·         Help reduce the likelihood of future industry regulation by solving problems and demonstrating improved performance to regulators.

Thursday, October 17, 2013

What is Sustainable Agriculture?

by John BerryExtension Educator, Lehigh County

We hear quite a bit about the concepts of sustainability lately. Everything from fuel to employment to housing is referred to as needing to be sustainable.  As producers, have we reconsider our food and fiber production in terms of sustainability? What are the ecological, economic, social and philosophical issues that sustainable agriculture addresses?

The long-term viability of our current food production system is being questioned for many reasons. The news media regularly presents us with the paradox of starvation a midst plenty. One time we see starving children the next we see food being thrown away. Possible adverse environmental impacts of agriculture and increased awareness of foodborne illness also demand our attention. "Farm crisis's" seem to recur with regularity.

The prevailing agricultural system, variously called "conventional farming," "modern agriculture," or "industrial farming" has delivered tremendous gains in productivity and efficiency. Food production worldwide has risen in the past 50 years; the World Bank estimates that between 70% and 90% of the recent increases in food production is the result of conventional agriculture rather than greater acreage under cultivation. Not only have consumers come to expect abundant and inexpensive food they are getting this food with ever fewer acres being farmed.

Some terms defy definition. “Sustainable agriculture” has become one of them. In such a quickly changing world, can anything be sustainable? What do we want to sustain? With the contradictions and questions has come a hard look at our present food production system and thoughtful evaluations of its future. If nothing else, the term “sustainable agriculture” has provided talking points, a sense of direction, which has sparked much excitement and innovative thinking in the agricultural world.

Actually, sustainable agriculture was addressed by Congress in the 1990 Farm Bill. Under that law, “the term sustainable agriculture means an integrated system of plant and animal production practices having a site-specific application that will, over the long term:
  • satisfy human food and fiber needs 
  • enhance environmental quality and the natural resource base upon which the agricultural economy depends 
  • make the most efficient use of nonrenewable resources and on-farm resources and integrate, where appropriate, natural biological cycles and controls 
  • sustain the economic viability of farm operations 
  • enhance the quality of life for farmers and society as a whole.” 

Given this official definition, the idea of agricultural sustainability is not a new phenomenon. Historically, farming played an important role in our development and identity as a nation. From strongly agrarian roots, we have evolved into a culture with few farmers. Less than two percent of Americans now produce food for all U.S. citizens and many overseas.

World population continues to grow. According to recent United Nations population projections, the world population will grow to 9.4 billion in 2050. The rate of population increase is especially high in many developing countries. In these countries, the population factor, combined with rapid industrialization, poverty, political instability, large food imports and debt burden, make long-term food security especially urgent.

Finally, the challenge of defining and dealing with concerns associated with today's food production system is inherently laden with controversy and emotion. It is unfortunate, but true, that some in the commercial agriculture community view sustainable agriculture as a personal criticism on conventional agriculture of which they are justifiably proud, and we have all benefited.

Material from the National Ag Library was used for this article.

Cause Marketing Opportunities for your Business

By Kathy Kelley, Professor of Horticultural Marketing and Business Management    
It is October and many of us think a bit more about charities and cause marketing this month.  Over the past couple of years, Dana has written a couple of blogs about building a cause marketing program for your business: charitable activities and cause marketing products. I wanted to add a bit more to this important discussion.

It is suggested that consumers “feel good” about spending their money on goods that support a cause.  With so many local, national, and international causes already being supported by your customers’ generosity, how can you compete with them and the businesses that sponsor them?  Consider the following which could help bolster your cause marketing program:

  • Make sure that the donation process is transparent.   For each dollar that you collect you need to show how and where these funds were distributed.  Consumers who do not see any progress associated with the money they donated may very well choose not to donate anymore.  Be sure to indicate on your website, in your promotional activities, and in-store that money collected helps to do great things. 
  • Consider a cause that has a natural connection with your business.  Perhaps a member of the business has suffered from a disease that could benefit from a donation.   Or, if fruit and vegetables are your primary product why not support a cause that helps eliminate hunger?
    Here is an example of cause marketing.  This local baker will
    donate a portion of the proceeds from these cookie
    sales to Traci's Hope, an organization that provides
    financial support to breast cancer patients

Promote that you are accepting donations in addition to selling a product or two where the proceeds go directly to support the cause.  You, as the business owner, may assume that consumers would automatically understand that there is more than one way to support a cause; however, it may not occur to consumers that they can make a donation in place of making a purchase.              

Finally, involve employees in more than just the process of collecting donations or indicating to customers what purchases support the cause.  Involve them in the process of selecting the cause and associated administration needed to support events or activities.  The more employees support the effort the more likely they are to alert customers that your business is involved in collecting donations to help those in difficult situations.

Friday, October 4, 2013

Precision Fitting your Farm Bottom Line: Accrual Adjustments for the Production Based Income Statement

By Miguel Saviroff, Extension Educator, Somerset County

The Income Statement is a tool performance evaluation form a management point of view. The Accrual Income Statement offers a more accurate picture of farm business profits and financial position. It shows the farm’s net income for the production year. Usually, the production or fiscal year is made to coincide with your calendar year. The net income is defined as your farm returns from sales, minus total production expenses as they happen along the year. Any gain or loss on the sale of capital assets should be added to this amount. The following is the format for the Cash Based Income Statement:

+Total Revenue
- Total Expenses
Net farm income from operations
+ Gain (or – Loss) on sale of capital assets
Net Farm Income.

Here’s a simple example of a Cash Based Income Statement:

Table 1. Income Statement

Crop Sales
20,000 bu
Livestock Sales
2500 cwt
Gross Income

Cash Expenses

Net Cash Income


Net farm Income

* Note1: depreciation, a non-cash expense, is required by IRS to be recorded in cash-Basis and accrual basis Income Statement.

Net income can be cash-basis or accrual adjusted. Cash-based includes only cash receipts, cash expenses, and depreciation.

In farming, due to inventories of crops and livestock, accounts receivable, accounts payable and prepaid expenses, produced or incurred in one year and sold, used or received the following year, we are more interested in the accrual adjusted income statement. In this format, farm sales are accounted only in the year when a crop was harvested or livestock was finished and ready to sell, no matter if the product started growing or was being raised in the previous production cycle. Likewise, the only expenses considered are those associated with the products harvested or finished in the current production year. Year-end accrual adjustments to cash basis income statement will create your accrual income statement; all you need is a beginning and an ending balance sheet for the year.

Table 2 outlines the process for adjusting cash basis income to approximate accrual income.

Table 2. Adjusting cash basis records to approximate accrual basis records
Cash basis
Adjustments to cash basis
Equals accrual basis
Cash Receipts
- Beginning inventories
+ Ending inventories
- Beginning accounts 
+ Ending accounts receivable
Gross Revenue
Cash disbursements
- Beginning accounts payable
+ Ending accounts payable
- Beginning accrued expenses
+ Ending accrued expenses
+ Beginning prepaid expenses
-  Ending prepaid expenses
+ Beginning supplies
   (fuel, chemical, seeds, etc.)
-  Ending supplies
+ Beginning investment in          growing crops
-  Ending investments in 
   growing crops

Operating expenses
Depreciation expense
No adjustment made  (see note 1)
Depreciation expense
Cash net income

Accrual adjustment net income (pre-tax)
Cash income and Social Security taxes
- Beginning income taxes and
   S.S. taxes payable 
+ Ending income taxes and
    S.S. taxes payable 
-  Beginning current portion
    of deferred tax liability  
+ Ending current portion of
   deferred tax liability  

Cash Net income (after tax)

Accrual adjusted net income (after- tax)
Source: Adapted from Financial Guidelines from Agricultural Producers, Recommendations of the Farm Financial Standard Council, 1997. 

When you make adjustments, an increase (beginning to ending) in assets, such as inventories and account receivable will have a positive impact of change on the year’s Net farm Income. In the same way, an increase in an accrual-type liability item will cause a negative impact (decrease) in Net Farm Income.

Cash to accrual income adjustment of $ 5,000 is illustrated below for crop sales:

Table 3
Cash receipts from Crop sales this year
       $ 100,000
less:   Beginning crop inventory           (produced in prior year)
plus:   Ending crop inventory (current year production)
equals: Accrual crop revenue
(approximate value of current year production)

The beginning inventory value is subtracted from cash receipts, because it is already sold or consumed by the farm livestock during the year, and the sales are included as cash receipts. The ending inventory value is added to cash receipts, because this is the current year’s production that has not yet been sold or consumed.

The process for accounts receivable is the same. Beginning accounts receivable are subtracted from cash receipts because this amount was collected during the year and recorded as cash receipts. Ending accounts receivable are added, because they represent production during the year that is ending although payment has not been received yet.
Table 4 shows an $8,000 year-end adjustment for accounts receivable.

Table 4
Cash receipts from crop sales
Less: Beginning accounts receivable
Plus: Ending accounts receivables
+$ 33,000
Equal: Accrual crop revenue

There are several adjustments to cash disbursements or expenses, including account payable and accrued expenses. They are often the largest expense adjustments, and accrued interest will be the largest accrued expense.

Table 5 shows a -$2,000 adjustment of accrued interest expenses. They are expenses that helped produce income during the accounting year but for which no cash has yet been spent.

Table 5
Cash disbursements for interest paid this year
less:   Beginning accrued interest (interest owed but not paid in prior year)
plus:   Ending accrued  interest (interest owed but not paid in current year)
Equals: Accrual interest expense (approximate cost of borrowed funds)

Once you have calculated changes in inventory ($5,000+$8,000-$2,000), you can compare Income Statements: cash basis (left) and accrual- adjusted basis (right). The farm appears to be profitable on a cash basis. However, after adjusting the cash basis income statement, it increased from $105,000 to $116,000 for the same period.

Table 1. Cash vs. Accrual Income Statement
$ Cash
$ Accrual
Crop Sales
20,000 bu
Livestock Sales
2500 cwt
Gross Income

Cash Expenses

Net Cash Income


Accrual Adjustment

Net farm Income


Many farmers leave out these adjustments from the calculation of net profit without realizing they are understating the “Bottom Line.” Using some financial tools such as FINPACK relieves you from many calculations that are done internally by the program. For any assistance in figuring out a close figure for your real profitability, contact Miguel Saviroff at Penn State Extension at 814-445-8998 Extension 144.