Case Studies of Value Added Production and Marketing

The Market Niche
Table 5. 1998 Cost Structure, The Egg & I Pork Farm
Item Dollars As Share of Sales
Advertising $11,470.80 4.1%
Breeding Fees (Feeder Pigs) $40,483.00 14.2%
Labor $23,647.23 8.3%
Feed & Grain $53,505.70 18.7%
Plant Supplies $3,188.89 1.1%
Pork Casings, Pouches, Nets $2,665.45 0.9%
Slaughter $24,378.00 8.5%
Smokehouse $34,694.75 12.1%
Supplies $22,767.73 8.0%
Utilities $10,726.99 3.7%
Telephone $6,155.66 2.2%
Postage and Delivery $7,141.80 2.5%
The high cost of phone and delivery charges relate to the mail order side of the business operations.
However, this avoids the need for other distribution costs and investments. In 1998
both slaughter fees and smokehouse charges were for custom processing. As these are internalized
into the operation, Jim expects these costs to decline as a share of the value. In our
conversations, he estimated an annual savings of between $15,000 and $20,000. With the
market already well established and if these savings are realized, clearly The Egg & I will contribute
a much higher return for living expenses.
One cost advantage that The Egg& I likely has over similar operations is on mechanical engineering
and repairs. Recall that in his previous incarnation, Jim was a steam fitter. His previous
experience working with metal and mechanics has allowed him to do quite a lot of the construction
and repairs himself. He also has extensive contacts from the contracting business
which assists in acquiring materials. When possible, he has also purchased second hand
machines and materials (e.g., saws, the smoker, rails for the cooler) at reasonable prices. In his
comments about negotiation, Jim emphasizes the value of “negotiation skills which many producers
currently lack.”
Another recent addition to the operation team is Beth Arsenault. She has been instrumental in
developing the business plan and financial information for the operation expansion. Her experience
was from twenty years in the banking industry. Currently, she is the Financial Manager
for the farm and overseas day to day financial aspects and long term financial goals. As always,
knowledge is a critical component of any successful business enterprise and the combination of
Jim’s acquired production knowledge and Beth’s financial knowledge will be critical to the
future success of the operation.
When I first talked with Jim, I suggested we wanted to conduct a case study on someone selling
high-end pork products, he adamantly replied, “ these are not high-end or high safety pork
products, they are quality products which meet the customers’ demands.” As usual his feel for
the market is unassailable — maintaining the image of “high-end” products would unnecessarily
narrow his market base. High quality which matches the price value simply assures customers
they’re receiving a great value. As Jim said, “Never let your customers feel as though
their lucky to have the product, it’s you that is lucky to have them.”
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