Setting prices at market

One of the more interesting challenges in market farming involves deciding how to set prices. There are a lot of philosophical and practical elements that go into this, and I thought customers might have an interest about how we approach the problem. Overall, I think there are two ways to approach pricing, which I’ll call comparative and production.

In comparative pricing, you look at what at item is already going for, whether at the grocery store or at market, and decide where to set your price relative to others. So if the store has tomatoes at $2/lb, maybe you choose to go to $2.50 or $3 because you think yours are better and fresher. Or maybe you decide you want to give customers a deal and go to $1.50 and sell lots of tomatoes. Or maybe you decide that your tomatoes look better or worse than others’ at market and set your prices based on that. However the decision is reached, you’re basically setting your prices from the demand end of the economic scale: what’s the going rate customers are paying, how does my product fit into that, and how desperate am I to move that product?

Production pricing means ignoring outside prices, and looking just at what the product cost you to grow in terms of time, material, loss, and profit margin, and setting the price at a point where you’re going to make the amount of money you want to make. Frankly, this is a lot riskier, because often the production price isn’t particularly relevant to the comparative price. This is one reason why local foods are often perceived to be more expensive, because most of us aren’t getting the steep cuts in production cost granted by things like irrigation subsidies, cheap migrant labor, industrial efficiencies of scale, or unsustainable use of resources. Production pricing means paying pretty close attention to all the time and inputs you use on each product, and trying to back-calculate from that what it’s actually worth to you.

Frankly, I think far more growers need to keep production pricing in mind, especially hobby or non-full-time growers. If you’re just doing this for fun, or side income, you’re far more likely to go the comparative route and unload product at whatever the going rate is because it’s not really a business. I know one person who has proudly proclaimed that their prices are cheaper than Wal-Mart’s, despite the near-impossibility of achieving that with any kind of reasonable profit margin (this person has a spouse with a full-time job and benefits). I’ve seen many people selling produce at prices that simply don’t work in an economic sense (like garlic for $.50/head) for an actual business, though maybe they’re breaking even on their fun hobby. Basically, production pricing works from the supply end of the economic scale: this is what I produce, this is how much it costs to produce, and this is the income I need to make on it regardless of demand.

Although the reality is obviously not that black-and-white, on our farm, we are working very hard to rely more on production pricing than comparative, especially because we do intend to make a full living on this business, not just supplement other income. That means that like a garage or a restaurant, we have to not just cover costs, but actually make a reasonable income that allows us to cover things like health insurance and retirement planning which hobby growers don’t have to rely on their vegetables for. We have actively chosen not to grow certain popular products like slicer tomatoes and sweet corn, for which we don’t think we can get a price that makes it worthwhile to grow, regardless of the demand for them. We see no point in having a popular but unprofitable business.

Obviously this consideration is going to be different for every farm, and customer reaction to prices partly depends on their opinion and knowledge of the farm in question. Are you looking for a good deal on tomatoes, or trying to support a certain method of farming? Does it matter that we’re a self-sufficient organic farm, or should we have to find ways to meet the best-deal price regardless of other factors? Certainly our choice of no-till, deeply organic methods raises the cost of our produce somewhat compared to a highly chemicalized, highly mechanized local farm (of which there are plenty), but we believe there is long-term value in our methods and ask our customers to consider all factors of their economic choices, just as we do in our personal lives.

We believe that the strongest votes are cast by wallets, not ballots, and people who buy from us are very much voicing their support for the way we’re choosing to farm and to live. This is especially true given that we’re very open about our practices and willing to have customers out to see what we do. Really, I see it as equivalent to any other values-driven economic choice, like the concept of a “Christian family business” or “American-made”. We’re grateful to those who choose to support what we do, and hope they’ll tell us if we ever let them down.

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