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Strategies for Pricing Your Hort Crops: The Dollars Are in the Details
204 Plays3 years ago
In this episode of Hort Culture, we talk about how to set prices for your horticulture crops. No matter what horticulture crops you are growing, pricing is a key factor in your profitability and sustainability. We discuss some of the factors that influence pricing, such as supply and demand, production costs, market trends, and customer preferences. We also share some tips and tools to help you calculate your break-even point, compare different pricing strategies, and communicate your value to your customers. Tune in to learn how to price your horticulture crops with confidence and success!
USDA Agricultural Marketing Service
Center For Crop Diversification Price Reports
Center For Crop Diversification Budgets
Questions/Comments/Feedback/Suggestions for Topics: hortculturepodcast@l.uky.edu
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Transcript
Introduction and Listener Interaction
00:00:02
Speaker
Welcome to Hort Culture, where a group of extension professionals and plant people talk about the business, production, and joy of planting seeds and helping them grow. Join us as we explore the culture of horticulture. All right. Welcome, everybody, to another episode. Hey, hey. Thank you. Glad to be here.
00:00:24
Speaker
So we are going to start this one off a little bit different just because we have some fan mail. A listener of ours, we have listeners, hello listeners, has actually sent in an email. And so I'm excited to read this to you all and it is the basis.
Naming the Fan Base
00:00:41
Speaker
Before you jump in there Alexis, we do want to put out a plug to say if you have a good idea for what you, the ample fan base would like to be called,
00:00:52
Speaker
Growing fan base. Growing fan base. Maybe we call you the true leaves. We'll call you the... The true leaves. Listen the first time you're a cotyledon and then... Anyway, no. Now you're true leaves. Now you're true leaves. Yeah, if you're a plant, plant nerds get that. Anyway, we want to let us know what you think and how should they reach out to us, Alexis?
00:01:15
Speaker
They can reach out to us on Instagram or they can grab one of our emails from, uh, you know, the page hort culture podcast. Is that right? Yeah. Yes. Yes. That is the that's Instagram. So you can reach out direct message.
00:01:31
Speaker
you'll get me, hey, or you can hit the email on there and email one of us, or you can find a picture, find one of the, as we're fondly calling them now, bald boys, and their emails are also on those pictures.
Listener's Gardening Journey
00:01:47
Speaker
So what the heck did this person want to know about, Alexis?
00:01:50
Speaker
Yeah, so I'm really excited. So I won't say this person's name, but you know who you are and thank you for sending this out because I don't have permission to necessarily say their name. But I'm going to read this to you really quick. So it says, I am a backyard gardener and I tinker in crafts.
00:02:06
Speaker
Family members often say you could sell this or that whether it be crafts or veggies, I have no inclination or intention to sell for some of the reasons you all have discussed. I do enjoy giving my extra veggies to the local food bank. I am, however, fascinated by looking at price versus quality in craft fairs and farmer's markets. And I recognize how much time, effort, inputs, and overhead goes into production.
Pricing Challenges in Craft and Veggie Sales
00:02:28
Speaker
How do you estimate, balance, and or take a wag? And that's a wild, bleep guess.
00:02:35
Speaker
That was hysterical and I love you for that. At setting a price per item. It's a wild assessment guest. A wild assessment guest, yes. Thank you. I like that. I'm going to use WAG now in all of my professional emails. It's like swag. It's a great question. I wanted to know about how do you price something. We talked about how to decide if something is new, a new enterprise is good for you.
00:03:05
Speaker
So how do you do that for a new crop or just new farming in general? How do we come up with, this is what I'm going to sell this for. I talk about this stuff all the time. So I'm curious to hear what Ray and Josh have to say about this.
00:03:18
Speaker
Oh, I see you're turning over to us early, I see. Well, that question had multiple parts in it. The encouraging thing about the question, it was a great question, was that they're already considering what they have into the product that's coming out. That's, I don't know, Brett, Josh, Alexis, is that a good place to start? Is you first kind of know what you have in a product before you can
00:03:44
Speaker
think much further into the process of processing. I mean, is that a one way to think about it? That tends to be how I think about it. At least it gives you some place to start so you can estimate whether or not you are doing this for fun or you're actually generating some income doing this.
00:04:05
Speaker
Yeah because there's a lot of different ways to go about pricing and we were joking before we got started here today recording you know the cost plus method which is you know you'll still hear that thrown out every now and again but it's just simply the cost of the actual cost of what you have into production and then anything above that.
00:04:27
Speaker
is what you take a hard look at as far as profitability. I say that, Brett, and just figuring out accurately what you actually have in a product is an accomplishment in and of itself because a lot of times I work with folks that are producing something. There's fundamental things that we get into discussions about that we have to come to an agreement such as paying yourself labor.
00:04:55
Speaker
So getting the total cost of things is, I mean, that's a big undertaking in and of itself. Yeah. The way that I think about pricing, I think there's three big broad stroke ideas that I would want to see addressed really before you even put anything, any seed in the ground or anything else would be one is what is special, what is unique, what is different about your product that makes it worth a premium maybe, or maybe it's worth, it's more attractive to customers, whatever. That's the first thing.
00:05:25
Speaker
The second thing is what is the going cost, the going rate for that type of product?
Competitive Pricing Strategies
00:05:31
Speaker
So just if you grow a fresh vine ripened tomato, that is a fundamentally different product from the Hothouse green ethylene gas tomato that you can get at the grocery store.
00:05:44
Speaker
And those two things, they're just different products. And so what's the going rate for the product that you're selling? And the one that you touched on Ray here is this cost issue. And we talk about it a lot because it's the one that I think people want to think about the least because it's like the worst part. That's where the money's going out of your pocket and somewhere else.
00:06:05
Speaker
You're going to be a downer in this conversation. Not me. I can feel it. I can feel it. It's me. I will be the downer. Or maybe a better word for downer is realist. I'm the broadest me. Maybe it's realist. Realist pessimist. Yeah, that's the broad strokes. And so we could talk about some of the ways to get at each of those. But Alexis, what do you think? Does that summarize it pretty good? And anything else, sweetie?
00:06:26
Speaker
Yeah. So the, the, the costs of goods. So you'll say this, you know, any of you out there who have attended any, any sessions on learning how to price a product or tried YouTubing or whatever, they're, they're most likely calling this like an enterprise budget, right? Which is
Enterprise Budgets and Cost Assessment
00:06:41
Speaker
a very scary thing. Like, you know, you start throwing all these weird words around cost of goods, you know, what are your cogs? What are your all of these things? And it gets a little intimidating, but essentially what it comes down to is what does it cost you to make this just
00:06:56
Speaker
in exactly what the guys have said. What does it cost you to produce this? Then add your labor on top of that or your expertise on top of that. And so you got to look at those things. And so there's just no way. And that's, I think, what determines whether or not you're going to, to me, in my brain, whether or not you're a hobbyist or a business person. And that's what this person said in the email, like, I don't want to sell this. And maybe that's just because they enjoy it. There's something else that they're getting out of this experience, which is
00:07:26
Speaker
wonderful, but if you want to be a business, you need to know what things cost you to grow. I get this question a lot where I deal a lot with cut flowers and people are saying, what do I charge for this bouquet? There's two things I ask them. What is the going rate?
00:07:43
Speaker
In comparison, so are you looking at a farmer's market list? Are you looking at another local CSA? And what did it cost you to produce that crop? And so sometimes it's really intimidating because you might be buying compost for 10 different crops. You're not buying it for that one crop, so it's hard to tell.
00:08:02
Speaker
using your best judgment on that and dividing that by 10 is perfectly acceptable. It does not have to be, at least as you get started, does not have to be anything crazy in detail. As I think a lot of business people do over time, they fine tune those things down because I want to know exactly how much at this point, but you don't start out
Geographical Influence on Pricing
00:08:25
Speaker
that way. It's okay to just almost rough up some numbers. It's better than nothing. I think I describe it as that a
00:08:32
Speaker
An educated guess is better than a shot in the dark and an exact figure is better than an educated guess, but we're trying to kind of move toward that over time and refining it the same way we do with our production techniques and with our other marketing techniques. It's very rare that you nail it right off the bat, but if you're not trying to do it in the first place and then giving yourself a place to improve upon, it can be kind of difficult.
00:08:58
Speaker
You know some of these things are very interesting to me because you know even things like geography come into play.
00:09:03
Speaker
and it was a real eye opener for me. In my previous station, I was in the eastern part of the state, the eastern, far eastern foothills of Kentucky. And we had a very nice farmer's market there, but day in and day out, we were constantly, our vendors at the market, their prices were compared to whatever was at the local box store, grocery store, because our market was not a, I don't know how else to say it, but our market was really not a destination type market. It was where people went to,
00:09:33
Speaker
went to purchase food. And when I came to the central part of the state, the measuring stick was much different. And all of that was outside of just cold hard numbers. It was based on geography. It was based on the type of market.
00:09:48
Speaker
And the top of consumers that come to that market. So even things like that, they don't really cloud the water. But I guess what I'm trying to get out here is you have to know your region. You have to know your area and what people are willing to spend. And man, that has stuck with me from the far east. How different it has been from the far eastern part of the state.
00:10:09
Speaker
And now the community that I'm in and even beyond the community I am in right down the road there's a large population center center in Lexington Kentucky and even 15 miles difference is a completely different market so all of those things matter that to me is it's like that's an important caveat or or.
Avoiding Underpricing Pitfalls
00:10:28
Speaker
expansion on the knowing what the going rate is, is that there isn't necessarily this national going rate for that product or even a statewide going rate for that product. It is intensely local. One of the things that I would caution is people in general, I deal with a lot of folks across the state selling local products and in general, my experience has been that those people tend to underprice their products relative to even relative to what people will pay because sometimes
00:10:59
Speaker
I think the producer, the person selling the vendor preemptively under prices in anticipation of what they think their customer is expecting or is going to complain about. But give your customer the chance to tell you that you're charging too much for your product.
00:11:22
Speaker
It's easier to lower a price than raise it. Don't negotiate with yourself before that. Yeah. And so I think maybe we could just start as far as a little bit of the resource highlight thing and just give some strategies for assessing that
00:11:36
Speaker
going rate thing. You don't want to start there maybe. I think that's the most concrete and it's the one that people are most excited about usually.
Market Research and Pricing Resources
00:11:45
Speaker
So we at the Center for Crop Diversification through the University of Kentucky, we have price reports from farmers markets and from produce auctions. That's one of the key things I think a lot of folks use from our resource bank.
00:11:57
Speaker
But there's also some various pricing and other information available from places like the USDA Ag Marketing Service. So you can see some summarized retail prices from across the country and they're broken down by region just to give you a little more of a broad snapshot of what that retail price looks like beyond just your local Kroger or local
00:12:24
Speaker
Piggly Wiggly. I'll say Piggly Wiggly to branch out. I really like the marketing reports that you are referring to, Brett. I know that our vendors use those all the time and I always stress those at our annual market meeting. And this year, I know that they've been up for a while, but
00:12:42
Speaker
We had a couple of vendors discover the combined report, I think it was 2016 through 2018, that did sort of a cross section of what, and that really kind of displayed price trends. And they just discussed at our annual meeting how much they love that. I'm like, yeah, it's really good stuff because it was a broader snapshot that really did highlight pricing trends. Right here in Kentucky, you know, markets across the state and they just loved it. They went on and on about how they like that.
00:13:10
Speaker
that particularly that one report. Is there a newer one, Brett? If I could get a few hours put together in front of a computer screen, we'll have a new one that reflects the crazy COVID price swings and everything else. But as of right now, now we don't. Even now, it's a great reference. And they talked about how much they appreciated that. Not only the individual reports per market, which was great because then they could pick the ones closest
00:13:40
Speaker
and that applied most closely to their situation, but those reports, the bigger reports... Yeah, these are all on the Center for Crop Diversification website that Ray's talking about, those reports. Okay, so you go and check those things out. Let's say, hypothetically, you're selling something that you don't find good information from those places. Cut flowers, for instance.
00:14:05
Speaker
We have some information about that, but overall, what do you all think? Are there ways to get some sort of a snapshot or a sense of what pricing looks like in your area for products like that?
00:14:18
Speaker
besides driving by people's roadside stands and shaking their prices? Yeah, I think that's the main part of it. Or is that a valid way? I don't know. I was kind of joking, but maybe not. I don't know. I think a lot of farms now are on social media. And so it is an easy way of essentially doing the roadside stand drive-by, but from your phone on your couch. And so you can look. And I do this. I know people who do this all the time. Just look. I'm going to use CSA as an example.
00:14:48
Speaker
If you're going to put out a CSA, same amount of weeks, flowers, whatever, look to see what somebody local is selling theirs for and take that into consideration and maybe you raise or lower, hopefully not lower by a ton because that hurts all of us when somebody is undercut.
00:15:08
Speaker
I think that there's enough info out there socially, and that's what we're looking at right now. It's kind of a social aspect of how much things are selling for in your area. I say CSA because usually they're local, so it's kind of the same idea of that local farmer's market.
00:15:27
Speaker
With flowers, farmers markets can be kind of crazy because they're an, you know, an added thing, you know, that somebody has to have more money. So typically they go to areas that have a lot more people, a lot, you know, people that have more expendable income, those types of things. But a CSA is usually typically pretty local. And so you can find an area that's similar to yours. Uh, you know, even if they're across the state, you know, you can look to see, okay, well, they're,
00:15:52
Speaker
County population is about the same as mine looks like they're delivering within you know, 30 or 40 miles of them and Look, you know You can pull up just those numbers on county population and median income is what I have looked at before and then finding a farm one way to find a farm if you're in Kentucky is again on the CCD webpage there is a map of What we're over we're about at a hundred cut flower farms Josh Josh manages that
00:16:20
Speaker
I think it's like 98 or something like that. Close enough, but you can find those who's locally to you, find them on a map and then go to their website and stuff. I feel like sometimes people feel that's kind of like a weird, almost shady thing to do, but I don't look at it that way. You are trying to make sure that
00:16:40
Speaker
you know, you're not undercutting somebody else. And if anything, you may find after you look at your enterprise budget, which may be the next step, that somebody is underpricing themselves. And so by you selling at a higher price, everybody can then sell at a higher price is kind of the theory, right?
Market Price vs. Correct Price
00:16:58
Speaker
Yeah, the big caveat that I try to give everyone all the time when we talk about price reports, when we talk about going and doing your own
00:17:07
Speaker
market and pricing research like this is that just because the going price is the going price currently does not mean that is the correct price in the marketplace. So what I mean by that is if you take a look at the reports and you see that everybody's selling this product for three dollars a pound, well if it costs you three dollars just a pound just to produce it,
00:17:31
Speaker
It could be either you don't need to grow that product or it could be that those people are massively underpricing the product in the first place and you need to be the one who's going to up the price and figure out how to do that. And it's a still a huge issue consistently an issue across the state from many markets that I've seen because people will look at the price report and they'll think that that is like the statement of what the price should be.
00:17:55
Speaker
It's just a description of what's there. It's like taking a picture of a tree and saying, that's how tall that tree is supposed to be. Well, no, that's how tall that tree is. That's how high those prices are right now. And I have a number of experienced producers who have told me, no offense Brett, we don't even use those price reports because the prices are way too low.
00:18:15
Speaker
And then I have other people who are shocked and they act like the prices that are on there are so high. And it's a crazy thing to even suggest that in the first place. So in general, it is a good idea to get a sense of what those prices are and what the going price is. But that doesn't mean that that's the price that it needs to be. And I'll give you one quick, very short anecdote about that exact concept.
00:18:38
Speaker
So we work with these farmer's markets and collect these prices every week, and I try to maintain a little bit of a relationship with all the reporters just to see how things are going. And one of our reporters, because it's been a couple of years ago now, told us that she was concerned about their green onion prices. She saw the green onion prices at their market was a dollar a bunch for a little bunch of six to eight green onions.
00:19:02
Speaker
everywhere else in the state is selling them for $2 a bunch. And she's addressed this before, and this is a true story. She's addressed this before and people are just hesitant to bringing up the price, to raising their prices at the market. And she's like, look, I'm just telling you, everywhere in the state, this is going for $2 a bunch. So in a coup for profitability, they decided, okay, we're going to charge $2 a bunch for our green onions.
00:19:29
Speaker
Every vendor at their market still sold out and they made twice as much money on the green onions that week. I'm not a big mathematician, but I think going from $1 to $2 means you made twice as much revenue off of those that week. It was just an example of we were underpricing ourselves and nobody even complained or balked about that. It was just a matter of us anticipating that.
00:19:52
Speaker
Again, I talk about this a lot and so I'll take a beat here in a second, but look around because things like gas, inputs, labor, no prices have gone down anywhere else.
Local Pricing Sensitivity
00:20:06
Speaker
How is it that you're still keeping this artificially low price for yourself that's only hurting you and your long-term ability to do that?
00:20:16
Speaker
Yeah, so does that feel like we covered the kind of just general snapshot of how to assess prices and what the going rate is? Yeah, the social aspect of kind of, that's probably not a proper description, but that's how I think of it is kind of the social aspect of pricing. I almost think of it like price sensitivity or price tolerance for the consumer in your area and the other piece of that puzzle is, and to me it's the initial piece is what do you have in it? What do you have in a crop?
00:20:44
Speaker
all of your input cost total. And then you decide when you do the social aspect, you look at a snapshot of 10 different producers in the area. And if the average price is above what you have in it, you make the decision of profitability and either go forward or don't. If somebody was coming to you, Ray, and they were in that first stage of trying to figure out what they've got in it, what do you know, I'm sitting in your office and saying, I'm trying to figure out if this is a good idea. How would you encourage me to start out?
00:21:14
Speaker
You know, we just take a, we basically make lists of fixed and variable costs, you know, and as Alexa said, then you consider your labor input and just work our way up from there and be very, and it's great if you have, and UK does have, I know you guys have worked on those and we have a,
00:21:31
Speaker
several at the University of Kentucky to look at. You're real lucky if you have an enterprise budget that already has a baseline and what that basically does, even if it's a few years old pre-COVID and the prices may not be completely up to date, it's still an awesome tool because it gives me a thinking tool
00:21:47
Speaker
and a summary of what I should be thinking about as far as what a cost is, because so many times we forget things to include in the cost. So even if you think they're out of date, use them and look at the categories and then assign your own cost by doing your own research. And that's usually where I start out with people. We don't talk about pricing first. We talk about what is it going to take on your farm and your operation? Which equipment do you have to buy?
00:22:13
Speaker
How much labor, is it family labor, is it outside labor? We make all those considerations and then take a deep breath and then we look at processing in the area versus the exact product that you can bring to the market and whether you can add value to it to bump the price up a little bit.
00:22:28
Speaker
And then we look at timing and all the other factors. Yeah. If you're not familiar with the enterprise budgets, there's some from UK, we have the Center for Crop Diversification, but there's one other places too. And if you search, you know, cut flower enterprise budget and look for results from trusted sources,
00:22:46
Speaker
It'll kinda give you a breakdown and say things like fertilizer, if you're gonna do plastic, if you're gonna do irrigation, if you're gonna have hired labor, if you're gonna have boxes or packing supplies. And I really do agree with you, Ray, on the idea that it's...
00:23:01
Speaker
It's kind of like almost a shopping list of sorts for the costs that you need to make sure you remembered, because if it's crumpled receipts on the dash of the truck is your filing system, it's a good way to at least make sure you got a good handle on it. And a lot of the enterprise budgets will have some pre-filled information as sort of a suggestion or a guess, but they're built to be edited.
00:23:26
Speaker
You're supposed to delete. Oh, wait. No, that's way cheaper. We can get that way cheaper or this is way more expensive. And there is a portion on there where you talk about you at the bottom. You can usually enter what you think your suggested price and yields might be. And then you can kind of do a profitability comparison there. And sometimes it makes sense to go forward. And other times it really doesn't, depending on a lot of different things on the other side of that equation. Yeah.
00:23:55
Speaker
And so you can use those, you know, prices that you have found from the area to kind of plug in and see the profit. Yeah. And what you might find is you're like, wow, it's not paying me enough to be able, you might be making a profit, but are you making enough to make it worth your time to be out in July and the hot sun, you know, getting eaten up by mosquitoes, harvesting something.
Profitability Evaluation for Crops
00:24:15
Speaker
And you may find that that's not worth it to you. You know, or you say, I'd have to, you know, I have to charge you this much to make it worth it to me.
00:24:23
Speaker
to be able to do that. So, Alexis, what you're saying is you have to ask yourself, is it worth it? Let me work it. Can I work it? And then download the enterprise budget, then flip it and reverse it.
00:24:38
Speaker
Exactly. You can work backwards. Thank you for bringing that up so beautifully, but you can actually work backwards if you're trying to find something. You're saying, you know, I want to make, I want to be a full-time farmer. I need to make this amount of money growing these crops. You can actually work that backward and figure out how much you need to grow.
00:24:56
Speaker
based on these price points. Uh, I think the hardest part for most people is really once they start doing the enterprise budget, like they said, it's just a shopping list. You're just price checking. Uh, so it's not that hard. It's figuring out the yield, especially if it's a crop you've never grown before. And so like, how do I know how much, you know, how many pounds of tomatoes one plant is going to give me, but I know this one plant is going to cost me this amount of dollars. I think that can be a hard one. So one approach to that.
00:25:25
Speaker
is to do a variation on what you might describe as a sensitivity analysis. That's not exactly, it's more of, I think of it as a optimist, cynic and neutral. So like with tomatoes, for instance, let's say that in your area you talk to people and they think,
00:25:44
Speaker
20 pounds per plant of tomatoes is like pretty good and like 10 pounds, not so good. Now you can go higher than that if you've got the engineered system, you know, whatever, but you can do a little bit of like, what if things go badly 10 pounds per plant? What if things go okay, 15 pounds per plant? What if things go well, 20 pounds per plant and do some math that way?
00:26:04
Speaker
One thing I just want to emphasize that both Ray and Alexis have said and kind of said in their own way that I'll say a little more bluntly is that as you look at the costs and you do the math, a totally valid, reasonable and sometimes the only responsible response to that is to say, I'm not going to grow this.
00:26:26
Speaker
I'm not going to do this. Like I just can't. I can't. I've tried selling it for more. People won't accept a higher price. They won't pay a higher price for it. I just can't grow that. There's other strategies that are more advanced. Maybe we'll talk about some time down the line, things like loss leaders, thinking about your product mix as a whole, et cetera. But for in general, it's okay to say this isn't going to work for me and you're going to save yourself some heartache and probably some money in the meantime.
00:26:55
Speaker
I'm waiting to find out if something's going to work for me because I just said, if I can't overwinter dahlias, I'm not going to grow them anymore because it's really miserable to dig them in the mud and in the cold. And to me, my time is very, very valuable. So I can't pay myself enough to dig them every year to make them worth it for me, even though my customers, I can sell them all day long, but I can't sell them at a high enough price to make it warrant that.
00:27:22
Speaker
I'm waiting to see, I've been peeking underneath the tarp and like, are you alive in there? Because you're going to determine your future here. No pressure. Sometimes you got to be a little bit ruthless. Cut the fat, baby, cut the fat. You can't dilly-dally with dahlias too much. That's what you did there. That's what you did there. You wouldn't want to do that.
00:27:45
Speaker
I'm about to cut tulips out of my thing as well, so, you know. You've hit a nerve. You've done it, Brett. Don't bring up the tulips this year, okay? We didn't have enough cold, they're short, it's a problem, they're not...
00:28:00
Speaker
I hope you based your enterprise budget on the low end of the spectrum, Alexis. Yeah, I don't buy tulip over a certain price. See, I did my budgets and I know I can't afford to grow tulip. That's over 45 cents a couple. These tulips are too short. That cost analysis, including the labor too, it seems like it's crucial when you're doing some diversified operation because there's that
00:28:24
Speaker
opportunity cost.
Opportunity Cost in Farming Decisions
00:28:25
Speaker
If you continue to do this one crop, it prevents you from doing more of another crop. Yeah, that seems critical for that kind of operation. If you're a small operation, it could be just even the opportunity cost of your time, but also your space. If I'm putting dahlias there that really aren't making me that much money, I could be putting herbs there or something that I know make me a lot of money or whatever that is.
00:28:49
Speaker
This just from a kind of the 20,000 feet view of this conversation. It's an interesting conversation and we may have listeners very well. We do have listeners outside of the state because we've gotten some feedback and questions from out of the state. There you go, Missouri. There's folks in Missouri listening, but here in Kentucky, you know,
00:29:11
Speaker
This conversation might be different if we were in the Carolinas or even Tennessee where they had more of a established co-op system or terminal system. This would be a completely different discussion, but this discussion centers today around a direct to market, direct to consumer, and that's why it's such an important discussion
00:29:30
Speaker
for us here in Kentucky, because we spend a lot of time thinking about this. That may not be the case if you're the next scale up, maybe in the wholesale, where you're not so much a price maker, but a taker. And that's not said in a negative way. It's just the reality of the components of the system. But here in Kentucky, this is a different discussion for us. It's near and dear to us. Yeah, that's a great point, Ray. This is very, we kind of jumped in assuming,
00:29:55
Speaker
If you're not in a, it could be that if you're in certain markets, the price, you don't have any say over what the price is. You just have a say over whether or not that's going to work for you as a price. Production cost is what you're working with. And it becomes a little bit simpler math. Yeah, those budgets are necessary. That's a great point.
00:30:14
Speaker
And, you know, we're also, it's becoming way more common and it's a direct to consumer endeavor here in Kentucky. That's, you know, it seems like it got started in the Northern part of the US, but like CSA's that's blown up in a good big way in my County, whether we have a lot of CSA's, the farmer's market acts as a accumulation point CSA.
CSA Pricing Complexities
00:30:35
Speaker
So, you know, and price is important in those now.
00:30:38
Speaker
It gets even more complicated when we talk about CSAs to me because then it's not a what, it's not a single product, but it's a value added. I mean, our CSAs, they may contain meat, eggs, pies, all sorts of things. And boy, how do you price those? Anybody have any thoughts on that? I mean, I know that, I mean, this discussion applies there as well.
00:31:00
Speaker
Yeah, I don't think it matters what your product is, your cost to raise a hog, the feed, you know, any medicines, any, I don't know, I've never raised a pig before, but there's the same, there's input costs, just like there are to grow a radish, there's an input cost.
00:31:16
Speaker
There should be some premium if you put all that together. And some of our CSA's includes flowers and all of these things. And I think about this, sometimes I'm like, wow, that's a complicated eclectic mix of things that are beautiful together. But there's also got to be that, you know, speaking of pricing, that's and they usually fetch a premium price. But they should, because you have this complex mix of local goods. And then it takes time to put that together, put it in a basket and then contact people weekly.
00:31:45
Speaker
And all of that is, I guess, the value add portion. Josh, you or Brett mentioned, you know, kind of touched on it just for a second. That value add that also plays into processing. Yeah. I think, I mean, with CSA that we should do a whole episode or series of episodes on CSA and you get some, get some fun guests in. Let us know on Insta, drop into the, slide into the DMs and let us know if you want to hear episodes on CSA or anything else, really. It's at,
00:32:12
Speaker
at Hort Culture podcast on Instagram. You can also email us and get in contact with us and let us know. I think, you know, with CSA it's interesting because on some level you're kind of have your product sold before you grow it, which is pretty awesome. I mean, obviously you're committed, but I think in some cases there you're working maybe even starting with a price and then working backward to figure out what you can do, like what's the highest quality share you can deliver with that sort of price. But
00:32:42
Speaker
hopefully managing your risk a little bit. It can be a really great system. It can be very difficult on the people producing it and just like a lot of other horticulture enterprises. I think, you know, CSA and other direct markets, as you mentioned, Ray, some markets, you're not getting to name
Justifying Premium Prices
00:33:00
Speaker
your price. The places where you are, those direct markets, the last little bit of, I think, considering what your price is, is how and why is your product special?
00:33:10
Speaker
So we talked about the context of the market determining some people in bigger markets or more urban markets. There might be more willingness to pay for more or for certain attributes or whatever. But I think that the understanding what makes your product special and being able to explain what that is in some ways can drive a premium. And so I'm curious as you all think about like
00:33:35
Speaker
with the direct marketer people that you all support and work with. What are the things about their products that their customers or that your, you know, your product, your customers, particularly value or think is it the localness? Is it the transparency? Is it a little bit of that kind of goes back to the geography I mentioned earlier. And when I was in a
00:33:56
Speaker
a county far removed from a population center for whatever reason. It was not a destination market. It was not a social outing destination market. It seemed to be more of a market where people actually came to shop as if it were a grocery store. It seems like when those markets magically get to that destination, what I call a destination status,
00:34:17
Speaker
They're buying the story as much as they are purchasing the raw goods. And if that's the case, you better well bet that I'm going to have some pictures. I'm going to have a description if it's an heirloom bean that's unique to my family and it's been in my family for 50 years.
00:34:33
Speaker
I am going to tell a story as part of the value add for my product. And I see that a lot in the central part of the state where people want to hear the story. They want to see the pictures of the family and how they work together and bringing crops to harvest and things.
00:34:53
Speaker
And is that kind of some of the things you're kind of getting at, Brett? Because I think all of that matters that if quality is equal, then story matters. And and then the local aspect of that product matters and the source of that product matters even more if it's more on a fluent market that's commanding the price premium. Yeah, I think that the the Q word that you threw out to me is the big one of the biggest
00:35:21
Speaker
Factors and things to consider is quality and product quality can mean a lot of different things So if I'm a if I'm managing a large wholesale distribution Produce distribution network quality to me is that it holds up in the boxes and it gets to the place that it needs to get and is in a condition that is acceptable or exceeds the expectations of the end user and
00:35:44
Speaker
Quality in a farmer's market might be the sweetest, most delicious vine ripened red tomato. It was soft when it came off the plant, and it's gonna be mush by the end of the day. But if you can make that BLT at lunch today, you're gonna have the best experience of your life. And it's proven with a taste test, maybe. Exactly. And I think quality is one of those things, along with the localness and the transparency. Alexis, what do you think? What are some of the things that, just to connect us back to pricing really explicitly,
00:36:13
Speaker
In general, if you're offering a product that is more difficult or that is impossible for large systems of distribution to provide, then your product is unique and it's special. In some level, it probably deserves a premium. It's going to cost more. You need to charge your customer more for that product. The magic happens when the customer agrees that the product is worth that extra money and they give you that money in exchange for it.
00:36:39
Speaker
When you think about price premiums and things that people value and are willing to pay for Alexis, what things come to mind for you either in the cut flower world or in the vegetable world or anywhere else? If they can't get it somewhere else, right? So like if you've got something somebody else doesn't have, like a really weird, I think an example of it is there's some really cool Asian vegetables that usually traditionally use in Asian cooking.
00:37:06
Speaker
So if you are at a market with a population that has a lot of people that are Asian and they'll come to you and you're the only one that has that and you can have a premium for that because they're getting it fresh. If they're getting it from a store, if they can at all, it's probably not as good at a box store because it's shipped really far. So if they can't get it anywhere else in the flower world, there's some flowers that just do not ship. You cannot ship them. So our local grower or our local
00:37:35
Speaker
florists are looking for those and will pay a premium and use it in special wedding designs and things like that. Growing those items and pricing appropriately, if they just can't get it somewhere else. You always hear about organic, things like that. You're going to charge more for organic usually because you have a lot more labor.
00:37:57
Speaker
Inputs are going to be more expensive, not always, but sometimes, but usually it comes down to more labor, things along those lines. You have the story, but it's also like, can they just get it anywhere? If everybody at the market has tomatoes and the cost of tomatoes goes down, but if you're the only one that has an heirloom tomato,
00:38:17
Speaker
then you're gonna get all of those buyers who want that heirloom tomato. Something that relates to Alexa, it just made me think about it. You mentioned heirloom tomatoes, but I've worked with markets and see if you guys have had any experience with this.
Price Competition and Market Dynamics
00:38:30
Speaker
It's neither good nor bad, it just is what it is. Work with markets that set the prices up front and vendors cannot veer from those prices. I don't think it's as common anymore, but I know there's a few markets out there that'll set a price max, a cap.
00:38:45
Speaker
And I always thought that was interesting because everyone's, you know, production situation. I've seen a minimum. I've not seen a minimum. Yeah. Like a minimum makes more sense to me. And I do not understand the logic of a maximum price. Yeah. I forget you guys, Brad, you guys see a good crosshatch across the state, but so yeah, what do you think about that? I think having, in general, I think having discussions about price and I think if you, if you're, what you're trying to do is prevent undercutting.
00:39:11
Speaker
And yeah, it's an important conversation to have. I personally, if I'm imagining a scenario where I sell tomatoes for 250 a pound and some crazy upstart person from the big city just moved in and they're trying to sell their tomatoes for 350 a pound, I don't really see what good I get in keeping them from trying to do that. Because if they price it that way and it's too rich for the,
00:39:39
Speaker
for the shopper, if it's too expensive for the shoppers at our market, then they're gonna come to me and buy stuff. You get more business. If they do great and they sell for 350 a pound, you can bet I'm raising my prices to 350 a pound next year or next week or whenever. And so I don't really understand the upper limit, but I do understand the trying to combat undercutting. The lower limit. You know, I get it's a little like the price fixing stuff. It's a little ambiguous. People are gonna do what they're gonna do, but I can at least understand having a conversation about undercutting for sure.
00:40:11
Speaker
Yeah. And that's the classic example is let's say someone's a new farmer. They've not done the background research or new producer. They've not done the background work. They're not for sure what they have in it, or they may just be doing it. We hear this a lot. They're just doing it for fun. They come in and, you know, they way undercut everyone else at the market. And what you usually have there when working with producers is a bunch of upset producers that are like, well, they're not going to be there in two years, but they skew people's perceptions of value.
00:40:41
Speaker
And that's a big topic of discussion. So please, this is, this is my desperate plea to all of you out there who are farming, whether or not you're doing this more as a business and this is the only job you have, or it's a side hustle, or you just like to go to the farmer's market and sell some stuff out of your garden. Totally fine. Right. But please know what it costs you to do that. Like, like please, because they're, if not for yourself and your own, like,
00:41:08
Speaker
taxes and all that information because I monetize everything. I'm a numbers person. When my husband and I were looking at places to buy, we assigned numbers to things instead of feelings. We were like, this is a seven. That's how my brain works. But even if you're not and you're just doing this because you enjoy it or you want to make people's day or something like that, think about the people who are doing this because they're making a living off of it.
00:41:37
Speaker
because most of the people at a farmer's market or wherever are in the wholesale game, of course, most likely you're all trying to make a living off that, so it's fine. Please think about those people when you go to price. Know what it costs you. If you don't know what it costs you and you see that they're selling for 350 a pound, sell yours for 350 a pound because there's a reason they're doing it.
00:41:59
Speaker
So that's just my little psa for the day because it's it and if you don't if you feel bad for charging somebody as much as it's probably worth and give it to them for free and Call it a gift or go donate it to the food bank or go give it to the nursing home. Do it that way Don't undercut the people who are really struggling. Yeah Yeah, I definitely I
00:42:23
Speaker
I have a thing in one of the talks that I give where I say that I hear something along the lines of I can't charge my neighbors that much or that price. And my inverse to that is how can your neighbors expect you to sell them a product at a loss to you?
00:42:38
Speaker
You don't want to take it from them, but you're wanting them to take it from you. And there's no maliciousness here. And a lot of times the thing that's absurd is that the customers are not the ones who are overly upset about the price or that are complaining. It's like this preemptive imagined scenario. And honestly, a couple of people complaining and you making twice as much or three times as much money to me is worth it. But maybe I'm just a brusque,
00:43:05
Speaker
Also, you might not be your own customer.
Perception of Value and Fair Pricing
00:43:08
Speaker
I have had to learn that. Just because I wouldn't pay that for something doesn't mean that other people won't. I am not my own customer.
00:43:16
Speaker
especially if you have a bigger customer base and let's say a community of four hundred thousand people you have a larger sample size that may pay that upper limit dollars means a whole lot different i mean different things to certain people than to others some people without even thinking hundred bucks like nothing other people.
00:43:37
Speaker
Another way to find out is pull those customers, give them some free stuff and just give them three price points and just say, what would you pay for that or something like that? Sometimes they'll give you some good honest feedback. Maybe we could do another episode at some point about the pricing dynamics and have some people want to talk about how they approach it.
00:43:56
Speaker
and dig a little deeper. Again, let us know what you'd like to hear on this because we're doing this for you all and as much as for ourselves, though, we do have a pretty good time doing it. And so again, Alexis, if they want to get in contact with us at Hort Culture Podcast on Instagram, and then our email addresses are in the show notes or...
00:44:18
Speaker
They can be. They are now. But yeah, I should, I should have. We'll throw one of our emails in every, how about we'll throw at least one of our emails and all of the show notes. We'll give Josh's, Josh's home phone number. If you're like, gotta do not want to talk to that Brett guy. He is the worst. They're going to have their own Instagram before we know it. Cool. Well, Josh, do you have any, did we learn anything together, Josh, in the last little bit?
00:44:47
Speaker
I think so. I mean, I would say to kind of put it all together, there's kind of these three main features of pricing. There is the cost that you have into it, and that exists kind of in tension with what is the growing rate or the price that you can discover out there, what are people willing to pay. And then maybe you can sort of reduce some of that tension by articulating what is different or premium about your product, if there is a distinction there.
00:45:17
Speaker
And yeah, that's how I'd kind of put
Skills for Small Producers and Conclusion
00:45:19
Speaker
it together as three things. And there's resources associated with each of those. You know, you can do price discovery by looking at price reports from our auctions or farmer's markets, those USDA retail prices, as well as kind of local research or spying as Alexis might call it when you see what other people are charging. And then as far as determining your costs, you know, there's enterprise budgets and
00:45:42
Speaker
Don't forget to include your own labor and your own management as a cost because you're not out there doing it for free. And if you are, you should, you know, donate. Yeah. I think that that, to me, the core, the core of a lot of issues that I see people have with marketing is they haven't necessarily put in the time to fully understanding the value of their product and the uniqueness of their brand.
00:46:08
Speaker
And I think that it runs through the pricing stuff, but it runs through all kinds of other things too. And that's that we're not trying, in many cases with these products, we're not trying to compete with a retail environment or we're not trying to compete with somebody selling it at scale.
00:46:22
Speaker
kudos to all the folks, all the producers out there. And I say specifically producers because we're all not marketers and it will never cease to absolutely amaze me. The skillset that the smaller operations have to have production is its own skill set. Marketing is its own marketing and price setting. All of that is a completely different skill set. And my hats off to all those that can accomplish all of that and do a good job at it.
00:46:49
Speaker
I mean, you're the complete package out there as a small producer. If you're doing a bang up, good job with all of that. So good on you.
00:46:58
Speaker
complete package. Well, thank you for joining us today. And we hope that as we grow the podcast, we hope you grow with us and join us next week, where we are going to talk about some interplanting. Is that right, guys? Interplanting? I think that's it. Awesome. Well, join us next week. Check us out at at hort culture podcast on Instagram, and we will talk soon.