Walter lecturing north field pigs about economics and social systems…
Two days ago in comments Christian said…
Greetings to a fellow pasture-raising-heritage-breed-pig farm! My wife and I love following your blog. It looks like you have your work cut out for you with all of that snow. I recently saw your website and an am amazed at the pork prices you have posted. I was wondering if you would mind sharing how you justify your prices to your customers. I raise pasture raised berkshires and can’t get the prices your ask for. Any info you can share would be greatly appreciated!
Asking “How you justify your prices” is interesting wording. I will assume that you are asking in a genuine manner. If I knew your location I could be of more help but unfortunately your blogger profile is set to private. Without knowing more about your area and situation I can only give you general answers and guesses. Here goes…
I sell our pork based on quality – a free sample to chef’s does wonders – not on price. They rave about the taste, texture, color and quality of the meat. The fact that we produce it free-ranging, sustainably and humanely on pasture are bonus points. I’ve never been asked to justify our prices. Rather, I’ve been repeatedly told by buyers that our prices are great, too low, that we should charge more, that our competition charges more. I try to pick a price point that retains our customers in the long run, covers all of our costs and gives us a living – farming and pastured pork is our livelihood. Customers keep coming back week after week, year after year and we’re able to stay in business and expand so it is working.
You do need to educate your potential customers as to why your product is better than the low-ball supermarket special. Do you have a brochure, business cards, meat labels and other materials that explain your product? Prices of pork, and virtually everything else, vary tremendously based on what the product is, what the market is like, location and other factors. Basic Economics 101.
Conventional pork on ‘manager special’ will be the rock bottom price so don’t compare with that. People who buy that (like I used to before I raised our own) are not your customer. Do not price your pork to compete with those artificially low prices. Emphasize the quality and freshness of your product. Why should they buy fresh pastured pork from you rather than getting the el-cheapo, almost out-of-date manager’s special factory farmed pork at the mega-plex supermarket? What makes your pork different? Do you grow yours naturally, free-ranging, humanely, raised, etc? Explain to customers what makes your product special.
If you’re in an area overrun with swine Confinement Animal Feeding Operations (CAFOs a.k.a. Factory Farms) your local prices may be so depressed it makes it hard to compete and get a price that pays your costs and wage. Ask yourself though, are you really trying to compete for those same dollars? CAFOs are heavily subsidized by the government so that they can do those low prices and they still lose money. The old joke is they lose money on every pig but make up for it in volume. It doesn’t work without the subsidies. Don’t aim for that market and don’t compete for those buyers. The big guys know how to lose money like you and I can never dream of. Instead, look for people who want a better quality, tastier meat that is humanely raised without hormone additives, antibiotic feeds, etc. Those are people who will be interested in your pastured pork.
Of course, if you don’t have the local market that appreciates artisan products then it won’t sell – wrong product in the market. Not every area will support artisan products of any variety be it pottery or pork. We live in a lower income area. We sell pork cuts primarily to upscale areas where people have the money to buy a better quality, healthier meat. This concept may not be politically correct but it is market reality.
If there is oversupply of pastured meats in your area that will depress prices too. Who is your competition besides the CAFO pork in supermarkets? Are they raising their livestock on grain, pasture, a combination or other? How can you differentiate yourself in the market? What makes your product special?
Reaching the right customers is important. How do you get the word out about your product? Are you advertising? Word of mouth from satisfied customers? Are the people hearing about you the right market for your product? Are they looking for hormone-free, without the use of antibiotic feeds, naturally, humanely raised pastured pork?
The very best way to get the worst possible price for your hard effort is to sell at auction closely followed by selling wholesale at the butcher’s. The best way to increase your share of the sale price is to eliminate the middlemen and sell directly to customers. Every time someone acts as a distributor or middleman they must take a piece of the pork pie to cover their expenses and give them a wage. This means your share decreases. In addition to selling niche pork, discover how to reach your customers directly.
All of these are forces on your market price. The above is basic economics. Without knowing more about where you are and your market it’s hard for me to be more specific. I do hope that gives you food for thought and helps.
I set our prices by surveying the local and national prices for both artisan and commodity pork. Then I picked a price point that put us slightly above the the highest commodity pork and at the 75th percentile of the artisan pork. This covers our costs and gives us a living without driving down the local market for other producers or overpricing to buyers. Customers like our product and prices so they return for repeat sales.
There is also a large difference between commercial cuts pricing vs whole pig pricing. From live weight to hanging weight you lose about 30%. Then there is also a significant loss, about another 33%, from hanging weight to final commercial cuts weight that people typically see in the stores. From live weight to cuts is a loss of about 52%. Thus, for example, a pig that sells for $2/lb live weight needs to cost about $4/lb for cuts plus the cost of getting it from farm to fork – all the processing, transport, etc. The butcher charges a lot to do his work and that accounts for about another $2/lb. The stores have rent, utility bills, labor, etc adding about 50% more or about another $3 to the price per pound. If wholesale distributors came into play they add another 25% or so to the cost, or take it out of the farmer’s cut. Someone pays for every step in the process.
That is based on all cuts averaging, it gets more expensive when we look at the fact that some cuts are in high demands and others aren’t. All this must be covered in the pricing of the prime cuts. Virtually everyone wants loin, bacon, smoked hams and butt shoulder but that still leaves half a pig of meat to sell, cuts that go at a significantly lower price. Do you have a market for the oddments, the ears, tail, head, trotters, hocks, jowls, liver, kidneys, heart, lard, rind, bones, etc. When pricing cuts you’ll need to take that into account. This is why the prime cuts sell for prime prices. Unfortunately, we can’t produce eight hammed pigs with ten foot long loins and bacons. Would that I could! But pigs also need to have feet, heads, picnic shoulders, bones organs and other associated support systems to be viable life forms. Reality can be messy. This is true whether you’re raising beets, pumpkins or pigs. I do continue to work at breeding longer pigs which does make for more loin.
When figuring out your cuts pricing, be sure to account for the costs of processing. The transport, slaughter, butchering, smoking, storage and delivery cost us about a half of our income. We have to pay the processor when we pickup the meat before we start our delivery route. That right there is a large portion of the price and it doesn’t stay in our pocket.
Be very careful and complete with your cost analysis – it’s a business plan. Don’t forget your infra-structure, buildings, land, taxes, fencing, insurance, marketing and more. After a few years experience you start realizing there are more things on that list than you guessed. Allow a margin of error. If you underprice yourself, like with any product, you will be your own worst enemy, driving yourself into the ground and out of business. Farming is a business. Small farmers like us, unlike Big Ag, don’t get government handouts or subsidies. We must make enough money to pay all costs, taxes and have enough left over to pay ourselves.
Remember that you need to earn something beyond that so that you can improve your farm. A classic business pricing error is to fail to do this. If you can’t charge enough then it isn’t the right product in the right market despite how marketers would like to claim they can sell anything to anyone.
So how do the commodity pork producers, the CAFOs, produce pork chops at such low prices that we see in the supermarket? In a word, subsidies. The government subsidizes the cost of fuel, fertilizer, grains, feed and more. They further lower their prices by using illegal immigrant labor, paying minimum wage or less, not paying their share of the social taxes, benefits and such. Then there are the environmental costs of the pollution from the factory farms. In the end, consumers pay for this one way or another, either through their taxes or at the checkout and through degradation of society and the environment. That is the cost of cheap food. But then you already know that since you are choosing to go for the alternative. The good news is there are a growing number of consumers who understand this and are looking for high quality food.
When doing your pricing, remember, you’re producing a premium product, I would hope, so don’t underprice it. You should be charging more than factory farmed pork because your pork is better. There are people who appreciate that quality and are willing to pay the price to get it. Educate them as to why your pork is better. This makes sure that you are there next year and the year after to continue suppling them. Don’t try to compete with the commodity markets on price. They’ll win and both of you will lose money on every sale. Focus on quality and sell to customers who appreciate the artisan pastured pork you produce.
By the way, in the photo above I wasn’t lecturing the pigs on pastured pork prices. We were discussing Leninism vs Marxism vs Stalinism, both the social and economic systems. I don’t think the pigs bought it. They are devout capitalists with self-interest libertarian leanings. Still, they were polite enough to listen so long as I was providing free eats. Keep this in mind when attending sponsored lectures…
Update 20140227: The photo from this article appeared on a magazine cover in February of 2014 as mentioned on the post Walter’s Lectures in Economics Makes Magazine Cover. A bit of fun and fleeting fame…
Addendum 20160418: There is a certain amount of comparative pricing between cuts and levels of sales categories (whole pig, retail, wholesale, etc). Not the absolute number, the dollars and cents, but rather the relative price points. I’ve done a lot of work on the mathematics of pricing and surveys over the decades of pricing from various types of vendors in our state and nationally. You can see the results of this in the price sheets on my literature page. The set point for someone in a different region will be different – e.g., the dollars per pound for whole pig, processing costs, delivery cost – but after you find that set point the rest of it flows in a very comparable manner.
We have: (in pricing order)
- Retail cuts pricing.
- Box prices that offer a small discount.
- CSAs boxes – multiple boxes over a season or year.
- Half pig pricing which is again better.
- Wholesale pricing for stores and restaurants with weekly standing orders. That weekly standing order for resale is key. That is 25% to 50% off of the retail price.
- Whole pig pricing which is the best price and the same for retail or wholesale. This gives the floor pricing based on $4/lb Hanging Weight + Processing + Delivery in 2016
Oddments tend to be exceptions to the rules.
Outdoors: 15°F/4°F Sunny and windy
Farm House: 43°F/37°F
Tiny Cottage: 63°F/60°F