The document discusses the economics of high tunnel farming. It outlines several advantages of high tunnels such as earlier and later harvest seasons compared to field farming. It also discusses costs associated with high tunnel construction and operation. Profitability analyses are presented comparing scenarios with different yield and pricing levels. The key factors that influence profitability are yield per plant, selling price per pound, and total costs of production. The document emphasizes the importance of setting prices that are profitable yet perceived as fair value by customers.

1. Basics of High Tunnel
Economics
Statewide High Tunnel Conference
December 2, 2010
Karl Foord
University of Minnesota Extension
Statewid High Tunnel Conference 12/2/10 - Karl 1
Foord

2. Today’s presentation
 Advantages of high tunnels
reviewed
 Business strategy
discussion
 Concerns reconsidered
 Financial picture
Statewid High Tunnel Conference 12/2/10 - Karl 2
Foord

3. Advantages of High
Tunnels
 4-8 weeks earlier spring
production
 2-5 weeks later possible fall
production
 Very high yield per plant
 Reduce cull fruit
 Very cost effective
 Guarantee a crop
Statewid High Tunnel Conference 12/2/10 - Karl
Foord
3

4. Advantages of High Tunnels
cont.
 Crop mix
 Grow crops not usually grown in
the area
 Natural disease control
 Usually no pesticides needed
 Insect control
 Organic production
 Control water
Statewid High Tunnel Conference 12/2/10 - Karl 4
Foord

5. The Trump of Advantages
4 – 8 weeks earlier spring
production
 New niche
 Customer behavior
 Competitive Quality with field
product
 Price and margin continuation into
field season
Statewid High Tunnel Conference 12/2/10 - Karl 5
Foord

6. The Trump of Advantages –
cont.
 Fresh produce in high demand
after long winter
 Selling early crops much-needed
spring income
 Produce for the first markets –
advantage
 Customers in the habit of coming to
your booth first, and continuing for
whole season
Statewid High Tunnel Conference 12/2/10 - Karl
Foord
6

7. Business Strategy
Discussion
 If you are in the fresh
vegetable business how will
you respond to High Tunnel
Competitors?
 How will you address the
key features of the 4 – 8
week earlier produce?
Statewid High Tunnel Conference 12/2/10 - Karl 7
Foord

8. Concerns of High Tunnels
 Cost involved
 Education
 Planning
 Management
 Time
Statewid High Tunnel Conference 12/2/10 - Karl 8
Foord

9. The Trump of Concerns
 Costs
 Pricing
 Margins
 Let’s look at each in turn
Statewid High Tunnel Conference 12/2/10 - Karl 9
Foord

10. Costs
 Capital costs
 Buying and erecting a High
Tunnel
 Establishing maintenance
systems to monitor irrigation and
temperature
 Operation costs
 Tomato budget and assumptions
Statewid High Tunnel Conference 12/2/10 - Karl Foord 10

11. Capital costs
 Buyingand erecting a
High Tunnel
Statewid High Tunnel Conference 12/2/10 - Karl 11
Foord

12. High Tunnel Construction Costs (24' x 96')
Cost Range
Item
Low High
Site Prep. Site specific
Base Upgrade Options Ship-
Distributor
Gothic Kit Door ping
Frame Kit
J.R. Johnson $5,535 $196 $5,535 $5,731
man- Where on the learning
Local Labor 114 $15 per hr. $1,710
hours curve?
Const-
Professional
ruction Per sq. ft. basis Cost per tunnel 2304 sq. ft.
Construction
Estimate $0.50 to $1.00 $1,152 to $2,304 $ $2,304
Non-kit Materials obtained locally for: baseboards, hipboards, rope (may want extra
$300 $500
Materials screws and metal banding)
Irrigation Includes: set up, headers, drip tape $200 $400
Misc. Miscellaneous items not anticipated $100 $200
Totals Construction cost range based on above estimates $7,845 $9,135
J.R. Johnson http://www.hightunnelhub.com/Hightunnel; http://www.farmtek.com;
Note http://www.ledgewoodfarm.com
Statewide High Tunnel Conference, December 2, 2010 - Karl Foord
Statewid High Tunnel Conference 12/2/10 - Karl 12
Foord

13. Operation costs
 Tomatobudget and
assumptions
Statewid High Tunnel Conference 12/2/10 - Karl 13
Foord

14. TUNNEL CROP BUDGET - TOMATOES
$/Tunnel (20' x 96' - 5 rows - 320 plts/tunnel)
Yield (lbs. per plant) 7 10 14 17 20
Yield (lbs. per tunnel) 2,240 3,200 4,480 5,440 6,400
VARIABLE COSTS
Fertilizer $40 $50 $60 $70 $80
Pest Control $50 $50 $50 $50 $50
Black Plastic Mulch $20 $20 $20 $20 $20
IRRIGATION
Dripline $25 $25 $25 $25 $25
Drip Irrigation Operation $25 $25 $25 $25 $25
Plant Maintenance (Stakes, Twine) $30 $30 $30 $30 $30
Bees for Pollination $100 $100 $100 $100 $100
Fuel (Tractor & Propane) $75 $75 $75 $75 $75
Transplant Materials $160 $160 $160 $160 $160
Packaging - Boxes (@$1.50) $105 $150 $210 $255 $300
Marketing (3% of ave. revenue) $50 $75 $100 $150 $200
LABOR
Bed making & laying plastic $50 $50 $50 $50 $50
Transplanting $70 $70 $70 $70 $70
Initial staking $60 $60 $60 $60 $60
Trellis - Staking, Training $200 $200 $200 $200 $200
Weeding $30 $30 $30 $30 $30
Ventilation & Monitoring $300 $300 $300 $300 $300
Machinery Operation $35 $35 $35 $35 $35
Harvest $263 $315 $350 $438 $525
Grading/Packing $68 $81 $90 $113 $135
Seasonal Cleanup $55 $55 $55 $55 $55
Land Preparation* $55 $55 $55 $55 $55
Interest Expense $98 $106 $113 $124 $135
TOTAL VARIABLE COSTS $1,963 $2,117 $2,263 $2,489 $2,715
FIXED COSTS
Land (rent of .2 ac at $150 per acre) $30 $30 $30 $30 $30
Depreciation $700 $700 $700 $700 $700
TOTAL FIXED COSTS $730 $730 $730 $730 $730
TOTAL COSTS $2,693 $2,847 $2,993 $3,219 $3,445
Statewid High Tunnel Conference 12/2/10 - Karl 14
Foord

15. TUNNEL CROP BUDGET - TOMATOES
Assumptions
Planting rate - 64 plants per 96 ft Variable
Yield
Tunnel dimensions: 96' by 20' expenses -
(lbs./tunnel)
96 ft x 20 x 5 rows = 320 plants per tunnel interest
Yield at 7 lbs. per plant = 2,240 $1,865
Yield at 10 lbs. per plant = 3,200 $2,011
Yield at 14 lbs. per plant = 4,480 $2,150
Yield at 17 lbs. per plant = 5,440 $2,365
Yield at 20 lbs. per plant = 6,400 $2,580
Land area = 1.2 x area of tunnel
Interest expense = 7% loan 9 month term on: variable expenses
Labor @ $10 per hour; Transplants @ $.50 ea
* assigned a land preparation charge in lieu of machinery and equipment expenses
Statewid High Tunnel Conference 12/2/10 - Karl 15
Foord

16. HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS
Yield Cost Breakeven
YIELD (lbs. per plant) 7 10 14 17 20
YIELD (lbs. per tunnel) 2,240 3,200 4,480 5,440 6,400
TOTAL VARIABLE COSTS $1,497 $1,651 $1,798 $2,025 $2,252
TOTAL FIXED COSTS $730 $730 $730 $730 $730
TOTAL COSTS $2,693 $2,847 $2,993 $3,219 $3,445
BREAKEVEN PRICE
32# box $38.47 $28.47 $21.38 $18.94 $17.23
per pound $1.20 $0.89 $0.67 $0.59 $0.54
Statewid High Tunnel Conference 12/2/10 - Karl 16
Foord

17. Enterprise Profitability
 Profitability analysis (Net
Present Value )
 Combine capital costs and
operational costs
Statewid High Tunnel Conference 12/2/10 - Karl 17
Foord

18. HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS
Profitability Scenarios ( 5 year life expectancy of tunnel)
Scenario # 1 - Low Price ($1.50) / Low Yield (7 lbs. per plant)
YEAR
YEAR 0 1 2 3 4 5
AVERAGE YIELD (lbs. per tunnel) 2240 2240 2240 2240 2240
AVERAGE PRICE (per pound) $1.50 $1.50 $1.50 $1.50 $1.50
REVENUES $3,360 $3,360 $3,360 $3,360 $3,360
EXPENSES $2,693 $2,693 $2,693 $2,693 $2,693
PROFIT / CASH FLOW ($8,500) $667 $667 $667 $667 $667
PV OF CASH FLOW @ 7.50 % ($8,500) $620 $577 $537 $499 $465
NPV @ 7.50 % $2,699
($5,801)
Statewid High Tunnel Conference 12/2/10 - Karl 18
Foord

19. HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS
Profitability Scenarios ( 5 year life expectancy of tunnel)
Scenario # 2 - Medium Price ($2.50) / Medium Yield (14 lbs. per plant)
YEAR
YEAR 0 1 2 3 4 5
AVERAGE YIELD (lbs. per tunnel) 4480 4480 4480 4480 4480
AVERAGE PRICE (per pound) $2.50 $2.50 $2.50 $2.50 $2.50
REVENUES $11,200 $11,200 $11,200 $11,200 $11,200
EXPENSES $2,993 $2,993 $2,993 $2,993 $2,993
PROFIT / CASH FLOW ($8,500) $8,207 $8,207 $8,207 $8,207 $8,207
PV OF CASH FLOW @ 7.50 % ($8,500) $7,634 $7,102 $6,606 $6,145 $5,717
NPV @ 7.50 % $33,205
$24,705
Statewid High Tunnel Conference 12/2/10 - Karl 19
Foord

20. HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS
Profitability Scenarios ( 5 year life expectancy of tunnel)
Scenario # 3 - High Price ($4.00) / High Yield (20 lbs. per plant)
YEAR
YEAR 0 1 2 3 4 5
AVERAGE YIELD (lbs. per tunnel) 6400 6400 6400 6400 6400
AVERAGE PRICE (per pound) $4.00 $4.00 $4.00 $4.00 $4.00
REVENUES $25,600 $25,600 $25,600 $25,600 $25,600
EXPENSES $3,445 $3,445 $3,445 $3,445 $3,445
PROFIT / CASH FLOW ($8,500) $22,155 $22,155 $22,155 $22,155 $22,155
PV OF CASH FLOW @ 7.50 % ($8,500) $20,609 $19,171 $17,834 $16,590 $15,432
NPV @ 7.50 % $89,637
$81,137
Statewid High Tunnel Conference 12/2/10 - Karl 20
Foord

21. Pricing
 Do not be afraid to ask a
profitable price for your
produce
 Customers need to be aware
that it costs more to produce
early crops
 Highest quality is the only crop
you should market
Statewid High Tunnel Conference 12/2/10 - Karl
Foord
21

22. Customer perceptions
 Exchange – Something of
Value for an amount of
satisfaction
 The perceived value > the
price
 Largely behavioral not
mathematical
 Usually an emotional trigger
Statewid High Tunnel Conference 12/2/10 - Karl
Foord
22

23. Price Sensitivity /
Behavior
 Price ~ Quality
 Unique ~ Value
 Fairness
Statewid High Tunnel Conference 12/2/10 - Karl 23
Foord

24. What Are We Really Selling?
“Revlon sells chemicals
Women buy glamour”
 Fruits and vegetables
 Flowers
Statewid High Tunnel Conference 12/2/10 - Karl 24
Foord

25. What Are People Really
Buying?
 Health
 Taste
 The experience of the
market itself
 Support of local growers
Statewid High Tunnel Conference 12/2/10 - Karl 25
Foord

26. Pricing Decision Chart
Pricing COMPANY VIEW OUR
Goal OUR COSTS - OUR GOALS ASKING
($) PRICE
Profit Profitable Enterprise
WIN - WIN
EXCHANGE
Fixed Costs
Total Costs LOSE - WIN
EXCHANGE
Overhead
Salaries, Etc…
Variable Costs
Direct Costs
Materials
Statewid High Tunnel Conference 12/2/10 - Karl 26
Foord

27. Pricing Decision Chart
OUR CUSTOMER CUSTOMER VIEW
ASKING VALUE SATISFY A NEED
PRICE DETERMINATION Customer's Pricing Goal
Perceived Value > Price
NO
EXCHANGE PERCEIVED VALUE
WIN - WIN FOCUS OF MARKETING EFFORTS
EXCHANGE
Perception Factors
LOSE - WIN EMOTIONAL Convenience
EXCHANGE BENEFIT Reference Prices
Other Key Perception Factors:
FUNCTIONALITY Quality - Freshness
Access - hours
Choice / Uniqueness
Method of production
Employee Attitude
Exceptionally Low Prices can
Generate a Low Perceived Value
Statewid High Tunnel Conference 12/2/10 - Karl 27
Foord

28. PRICING DECISION CHART
COMPANY VIEW Customer CUSTOMER VIEW
Our Asking
Value Satisfy a Want
Price
Our Costs - Our Goals Determination
Perceived Value > Price
Pricing
Goal ($) No Exchange Line of Perceived Value
Profit
Profitable Enterprise WIN - WIN Exchange
Focus of Marketing Efforts
LOSE - WIN WIN - LOSE
Total Costs Exchange Exchange
Perception Factors
Convenience
Fixed Costs
Reference Prices
Overhead Salaries, Etc…
Context - Urgency
Emotional Health Benefits
Benefit
Selection - Uniqueness
Variable Costs
Confidence: no frustrations or headaches
Quality - Reputation - Dependability
Direct Costs Materials
Philosophical Match - Ecological
Functionality
Low Perceived Value
J.R. Johnson - September 9, 2010, Karl Foord
Statewid High Tunnel Conference 12/2/10 - Karl 28
Foord

29. Improving customer
experience
 Parking & Access
 Ease of movement within
market
 Stall Presentation
 Comfort in all weather
 5 Sense your market
 Taste, touch, smell, sight,
sound
Statewid High Tunnel Conference 12/2/10 - Karl 29
Foord

30. Understand
 Key customer perception factors
 Product use & impact of attributes
on value
 Value varies among buyers
 Manage customer perception
proactively
 Expand gap between value
received and price paid
Statewid High Tunnel Conference 12/2/10 - Karl 30
Foord

31. References
 http://plasticulture.cas.psu.edu
 http://www.plasticulture.org
 Minnesota High Tunnel Web Site
 http://hightunnels.cfans.umn.edu/
 http:// hightunnels.org
Statewid High Tunnel Conference 12/2/10 - Karl 31
Foord

32. High Tunnel Manual on the
Web
 www.extension.umn.edu
 Click on garden
 See “ Whats new on the Web”
 Or go direct
www.extension.umn.edu/distribution/horti
culture/M1218.html
Statewid High Tunnel Conference 12/2/10 - Karl 32
Foord

33. Other High Tunnel
Suppliers
 Farmtek
 http://www.farmtek.com
 1440 Field of Dreams Way, Dyersville, IA
52040
 Ledgewood Farm
 http://www.ledgewoodfarm.com
 132 Old Mountain RD, Moultonborough,
NH 03254 Statewid High Tunnel Conference 12/2/10 - Karl 33
Foord

34. Author
 Karl Foord Ph.D. MBA
 Regional Educator, Horticulture
 foord001@umn.edu
 (651) 558-1218
Statewid High Tunnel Conference 12/2/10 - Karl 34
Foord

35. Handouts
 Tomato Budget (2 sided assumptions on
back)
 Tomato Sensitivity Analysis (financial)
 High Tunnel Construction Budget
MN High Tunnel Season Extension 12/5/08 - 35
Karl Foord