This document provides information from a workshop on getting started with high tunnel tomato production, including economic considerations. It discusses calculating costs and revenues to determine profitability. Sample budgets show variable and fixed costs, and breakeven prices and yields are calculated. Sensitivity analyses show the impact of different price and yield scenarios on net present value over 10 years. Higher prices and yields result in higher profits, with scenarios ranging from losses to over $100,000 in net present value. The conclusion emphasizes considering costs, prices, and marketing from both a business and customer perspective when making pricing decisions.

1. High Tunnel
Economics
Beginning Grower Workshop:
Getting Started in High Tunnel Production
Wednesday, February 17, 2015
Brainerd, Minnesota
Karl Foord

2. Basics
• Production
• Pest Management
• Irrigation
• Fertility
• Economics

3. Economic Question
• Can I make “enough” money
with this enterprise?
• “Life is at the Margin!”

4. Margins & Market Channels
Consider the margins
•Wholesale
•Retail

5. Costs & price affect margin - I
Cost side
• Tomato budget
–Breakeven analysis
• Cost of construction of high tunnel
–Profitability analysis (Net Present
Value)
• Critical factor– People Skills
–Labor – Managing other people

6. Costs & price affect margin - II
Revenue side
• Gross Revenue = price x yield
• Critical factors – People Skills
–Managing the customer’s
perception of value

7. THE COST SIDE

8. Yield (lbs. per plant) 7 10 14 17 20
Yield (lbs. per tunnel) 3,136 4,480 6,272 7,616 8,960
VARIABLECOSTS
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 $157 $157 $157 $157 $157
Packaging - Boxes (@$1.50) $147 $210 $294 $357 $420
Marketing (3% of ave. revenue) $50 $75 $100 $150 $200
LABOR
Bed making & laying plastic $225 $225 $225 $225 $225
Transplanting $150 $150 $150 $150 $150
Trellis - 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 $300 $600 $900 $1,200 $1,500
Grading/Packing $68 $81 $90 $113 $135
Seasonal Cleanup $55 $55 $55 $55 $55
Land Preparation* $55 $55 $55 $55 $55
Interest Expense $80 $96 $112 $128 $145
TOTAL VARIABLE COSTS $2,216 $2,643 $3,087 $3,550 $4,012
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 $2,946 $3,373 $3,817 $4,280 $4,742
BREAKEVEN PRICE
32# box $30.07 $24.10 $19.48 $17.98 $16.94
per pound $0.94 $0.75 $0.61 $0.56 $0.53
TUNNEL CROP BUDGET - TOMATOES
$/Tunnel (30' x 96' - 7 rows - 448 plts/tunnel)

9. 3,136 $2,136
4,480 $2,548
6,272 $2,976
7,616 $3,421
8,960 $3,867
Labor @ $15 per hour; Transplants @ $.35 ea
* assigned a land preparation charge in lieu of machinery and equipment
Yield at 15 lbs. per plant =
Yield at 20 lbs. per plant =
Yield at 25 lbs. per plant =
Yield at 30 lbs. per plant =
Land area = 1.2 x area of tunnel
Interest expense = 5% loan 9 month term on: variable expenses
Planting rate - 64 plants per 96 ft. row Yield
(lbs./tu
nnel)
Variable
expenses -
interest
Tunnel dimensions: 96' by 30'
96 ft x 30 x 7 rows = 448 plants per tunnel
Yield at 10 lbs. per plant =
TUNNEL CROP BUDGET - TOMATOES
Assumptions

10. Low High
Site Prep.
Kit $6,239 $7,579
120
man-
hours
$15 per hr. $1,800
2,880 sq.ft.
$0.50 to $1.00 $1,440 to $2,880 $2,880
Non-kit
Materials
$300 $500
Irrigation $300 $500
Misc. $150 $300
Totals $8,789 $11,759
High Tunnel Conference - 2/17/2015, Karl Foord
Obtained locally: baseboards, hipboards, rope, extra screws, metal banding
set up, headers, drip tape
Miscellaneouse items not anticipated
Construction cost range based on above estimates
Cost per tunnelConstruction
Cost Range
High Tunnel Construction Costs (30' x 96') excluding site preparation and shipping
per sq. ft. basisProfessional
Construction
Estimate
Note: www.farmtek.com; one of a number of suppliers
Item
site specific
FarmTek - Economy vs. Premium Round Style High
Local Labor

11. REVENUE SIDE

12. Projected Gross
Revenue
lbs./plant lbs./tunnel $1.50 $2.00 $2.50 $3.00 $3.50 $4.00
7 3136 1,758 3,326 4,894 6,462 8,030 9,598
10 4480 3,347 5,587 7,827 10,067 12,307 14,547
14 6272 5,591 8,727 11,863 14,999 18,135 21,271
17 7616 7,144 10,952 14,760 18,568 22,376 26,184
20 8960 8,698 13,178 17,658 22,138 26,618 31,098
Price per lb. ($)Yield
Price Yield Matrix - Net Revenue

13. Evaluate the enterprise
• Is your money best spent in this
way?
• Projected profits vs. cost of entry
• Sensitivity analysis
–Optimistic, pessimistic, average
scenarios

14. YEAR 0 1 2 3 4 5 6 7 8 9 10
AVERAGE YIELD (lbs. per tunnel) 3136 3136 3136 3136 3136 3136 3136 3136 3136 3136
AVERAGE PRICE (per pound) $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50
REVENUES $4,704 $4,704 $4,704 $4,704 $4,704 $4,704 $4,704 $4,704 $4,704 $4,704
EXPENSES $2,946 $2,946 $2,946 $2,946 $2,946 $2,946 $2,946 $2,946 $2,946 $2,946
PROFIT / CASH FLOW ($11,000) $1,758 $1,758 $1,758 $1,758 $1,758 $1,758 $1,758 $1,758 $1,758 $1,758
Depreciation (straight line) $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100
Taxible income $658 $658 $658 $658 $658 $658 $658 $658 $658 $658
Determine tax 30% $197 $197 $197 $197 $197 $197 $197 $197 $197 $197
Subtract tax $460 $460 $460 $460 $460 $460 $460 $460 $460 $460
Add depreciation back $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100
Net revenue after tax $1,560 $1,560 $1,560 $1,560 $1,560 $1,560 $1,560 $1,560 $1,560 $1,560
PV OF CASH FLOW @ 5.0 % ($11,000) $1,486 $1,415 $1,348 $1,284 $1,223 $1,164 $1,109 $1,056 $1,006 $958
NPV @ 5.0 % $11,302 ($1,000)
$302
HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS - TOMATOES
Profitability Scenarios (10 year life expectancy of tunnel)
Scenario # 1 - Low Price ($1.50) / Low Yield (7 lbs. per plant)
YEAR
*Note: $1000 of expenses added in year 6 to replace plastic and account for other repairs needed for 10 year life of tunnel

15. YEAR 0 1 2 3 4 5 6 7 8 9 10
AVERAGE YIELD (lbs. per tunnel) 6272 6272 6272 6272 6272 6272 6272 6272 6272 6272
AVERAGE PRICE (per pound) $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50
REVENUES $15,680 $15,680 $15,680 $15,680 $15,680 $15,680 $15,680 $15,680 $15,680 $15,680
EXPENSES $3,817 $3,817 $3,817 $3,817 $3,817 $3,817 $3,817 $3,817 $3,817 $3,817
PROFIT / CASH FLOW ($11,000) $11,863 $11,863 $11,863 $11,863 $11,863 $11,863 $11,863 $11,863 $11,863 $11,863
Depreciation (straight line) $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100
Taxible income $10,763 $10,763 $10,763 $10,763 $10,763 $10,763 $10,763 $10,763 $10,763 $10,763
Determine tax 30% $3,229 $3,229 $3,229 $3,229 $3,229 $3,229 $3,229 $3,229 $3,229 $3,229
Subtract tax $7,534 $7,534 $7,534 $7,534 $7,534 $7,534 $7,534 $7,534 $7,534 $7,534
Add depreciation back $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100
Net revenue after tax $8,634 $8,634 $8,634 $8,634 $8,634 $8,634 $8,634 $8,634 $8,634 $8,634
PV OF CASH FLOW @ 5.0 % ($11,000) $8,223 $7,831 $7,458 $7,103 $6,765 $6,443 $6,136 $5,844 $5,565 $5,300
NPV @ 5.0 % $65,922 ($1,000)
$54,922
HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS - TOMATOES
Profitability Scenarios (10 year life expectancy of tunnel)
Scenario # 2 - Medium Price ($2.50) / Medium Yield (14 lbs. per plant)
YEAR
*Note: $1000 of expenses added in year 6 to replace plastic and account for other repairs needed for 10 year life of tunnel

16. YEAR 0 1 2 3 4 5 6 7 8 9 10
AVERAGE YIELD (lbs. per tunnel) 8960 8960 8960 8960 8960 8960 8960 8960 8960 8960
AVERAGE PRICE (per pound) $3.50 $3.50 $3.50 $3.50 $3.50 $3.50 $3.50 $3.50 $3.50 $3.50
REVENUES $31,360 $31,360 $31,360 $31,360 $31,360 $31,360 $31,360 $31,360 $31,360 $31,360
EXPENSES $4,742 $4,742 $4,742 $4,742 $4,742 $4,742 $4,742 $4,742 $4,742 $4,742
PROFIT / CASH FLOW ($11,000) $26,618 $26,618 $26,618 $26,618 $26,618 $26,618 $26,618 $26,618 $26,618 $26,618
Depreciation (straight line) $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100
Taxible income $25,518 $25,518 $25,518 $25,518 $25,518 $25,518 $25,518 $25,518 $25,518 $25,518
Determine tax 30% $7,655 $7,655 $7,655 $7,655 $7,655 $7,655 $7,655 $7,655 $7,655 $7,655
Subtract tax $17,863 $17,863 $17,863 $17,863 $17,863 $17,863 $17,863 $17,863 $17,863 $17,863
Add depreciation back $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100
Net revenue after tax $18,963 $18,963 $18,963 $18,963 $18,963 $18,963 $18,963 $18,963 $18,963 $18,963
PV OF CASH FLOW @ 5.0 % ($11,000) $18,060 $17,200 $16,381 $15,601 $14,858 $14,150 $13,476 $12,835 $12,224 $11,641
NPV @ 5.0 % $145,679 ($1,000)
$134,679
YEAR
*Note: $1000 of expenses added in year 6 to replace plastic and account for other repairs needed for 10 year life of tunnel
HIGH TUNNEL PRODUCTION SYSTEM - SENSITIVITY ANALYSIS - TOMATOES
Profitability Scenarios (10 year life expectancy of tunnel)
Scenario # 3 - High Price ($3.50) / High Yield (20 lbs. per plant)

17. Scenario Cucumbers Grape tomatoes Peppers Strawberries Tomatoes
Low ($8,256) $26,715 ($3,705) ($8,757) $302
Med $30,561 $98,492 $30,298 $13,353 $54,922
High $91,685 $184,479 $83,654 $44,301 $134,679
Higher $135,710 $75,634
Comparison of NPV Scenarios

18. PRICING

19. Pricing - general thoughts
• Business vs. Customer
Perspective
• Behaviors and attitudes
• Strategic pricing

20. PERSPECTIVE
Business vs. customer

21. MARGIN
PRICING DECISION CHART
VariableCosts
Direct Costs Materials
Profitable Enterprise WIN - WIN
Exchange
Total Costs LOSE - WIN
Exchange
FixedCosts
Overhead Salaries, Etc…
COMPANY VIEW
Our Asking
Price
Pricing
Goal
($)
Profit
Our Costs - Our Goals
No
Exchange

22. Satisfy a Want
Perceived Value > Price
Convenience
Philosophical Match - Ecological
Health Benefits
Quality - Reputation - Dependability
Selection - Uniqueness
Confidence: no frustrations, headaches
Reference Prices
Context - Urgency
PRICING DECISION CHART
WIN - WIN
Exchange
Price
Window
Functionality
Low Perceived Value
Focus of Marketing Efforts
Emotional
Benefit
Perception Factors
Customer
Value
Determination
CUSTOMER VIEW
WIN - LOSE or
No Exchange
Line of Perceived Value

24. Exchange
• Something of Value for an amount
of satisfaction
• Largely behavioral not
mathematical
• Usually an emotional trigger
–Buy and justify
• Perceived value > price

25. What Are We Really Selling?
“Revlon sells chemicals
Women buy glamour”
• Fruits & vegetables
• Flowers

26. What Are People Really Buying?
• Health
• Taste
• Support of local growers
• The experience of the market
itself
• This experience is the future in
marketing

27. Variation among customers
• Buyers use products in different
ways
• Product attributes change
rankings
• Rankings impact value equation
• Value varies among buyers

28. Value perception equation
• Value = quality + service +
relationship + price

29. PERCEPTION FACTORS

30. Quality - internal
• Quality
• Philosophical Match
–Ecological
–Organic / Natural
• Selection – Uniqueness
• Context – Urgency
• Health Benefits

31. Service - external
• Convenience
• Confidence
–No frustrations
–No headaches
• Reputation
• Dependability
• Reference Prices

32. Improving customer experience
• Parking & Access
• Ease of movement within market
• Stall Presentation
– Cleanliness
– Culls & sorting out of sight
• Comfort in all weather
• 5 Sense your market
– Taste, touch, smell, sight, sound
• Do you provide recipes?
– Sensory extrapolation

33. Proactively manage customer
perception
• Attending to customer perceptions
increases perceived value
• Increasing perceived value minimizes the
price component of the value equation
• Keeping perceived value high permits
high (fair) prices
• High (fair) prices permit good margins &
successful businesses

34. Price
• One important factor in our plan is that
we are not afraid to ask a profitable price
for all of our produce.
• Our customers need to be aware that it
costs more to produce early crops and
we must remember that highest quality is
the only crop you should market.
• Ed Person, Ledgewood Farms

35. EQIP (Environmental Quality
Incentives Program)
• Financial assistance is limited to a
maximum size of 2,178 square feet of land
under the high tunnel per USDA identified
agricultural operation.
• The NRCS payment rate will be $1.89 per
square foot.
• $1.89 per ft. x 2178 feet = $4,116.42

36. Google NRCS funding for high
tunnels
• NRCS High Tunnel Cost Share
Update
• http://swroc.cfans.umn.edu/prod/groups/cfan
s/@pub/@cfans/@swroc/documents/asset/cf
ans_asset_330313.pdf

37. Author and References
• Karl Foord Ph.D. MBA
• Regional Educator, Horticulture
• foord001@umn.edu

38. Handouts
• Tomato Budget (2 sided assumptions on
back)
• Tomato Sensitivity Analysis (financial)
• High Tunnel Construction Budget
• Pricing Decision Chart

39. References
• http://www.ledgewoodfarm.com/
• http://www.farmtek.com/farm/supplies/home
• http://plasticulture.cas.psu.edu
• http://www.plasticulture.org
• http://www.intrinsiccoach.com/english/home/