Table of results:
I produced a table of results using a spreadsheet because this made it easier for me to produce graphs from the data I collected. I asked twenty people to complete the questionnaire and the raw data results can be seen in my table above.
Twelve females completed the questionnaire and eight males. Representatives from all age groups were captures. Therefore there is a relative good spread of respondents. This means that my results are likely to be representative of the general public in Retford.
This graph shows the type of eggs purchased by customers. It shows that battery produced eggs are the most popular. Free range is second, whereas barn raised chicken eggs are least popular.
The public in the Retford area support hen welfare. Most people agree or strongly agree that hens should not be kept indoors and agreed that battery hen forming is cruel (13/20 = 65%) and would prefer if hens could express their natural behaviour (12/20 = 60%). Only 20% of people think that battery hen farming is cruel and only 15% do not agree that hens should be kept outdoors. Looking at these figures along with the fact that many (70% shown on later graph) would also be prepared to pay more for free-range eggs then this shows that a free-range egg business is likely to be valued in the local community.
This is also supported by the number of people who feel that an ‘enriched cage’ system would be more welfare friendly to hens. 16/20 = 85% of respondents clearly feel that ‘enriched cages’ are more welfare friendly. Therefore locals are likely to support a welfare friendly free-range egg production unit being set up in the area.
Opinions are confirmed here showing that 18/20 = 90% of people in the Retford area would not be opposed to a free-range hen farm setting up in the Retford area. This means that when applying for planning permission for a temporary farm building structure to house the hens there is not likely to be any opposition in response.
14/20 =70% of respondents also agree or strongly agree that a free-range system is more preferable to battery and ‘enriched caged’ systems. Therefore the free-range system that I am proposing is likely to be accepted by the locals.
70% of respondents would also be prepared to pay more for free range eggs.
This graph shows how much more people will pay for free range eggs than normal eggs. As you can see, 40p per dozen seems to be the most popular price increase for people. This may not appear a lot more that people are willing to pay compared to the current different pricings between egg types. However because animal welfare legislation will soon make battery eggs illegal then there will be no real ‘cheaper’ alternative and therefore there will be no competition from battery egg producers. This means that if I enter the market early then I am likely to be successful.
This graph shows where people buy their eggs from. The supermarket is the most popular location; this is possibly because people can buy the eggs with the rest of their weekly shopping. Because of this it would be best If I were able to sell free-range eggs to a packaging company. This would ensure that I had a buyer for my eggs since I would have a contract to supply a given number of eggs to the packaging company. However it would also mean that I would not get as much money per dozen as if selling directly to a supermarket or at a local farmers market. Direct to a supermarket would be unrealistic to my business because it would mean that I would have additional set up costs and labour costs associated with grading and packaging the eggs. Potentially I could still sell some of the eggs produced at a local farmers market but this would not be guaranteed and sales would be variable.
This graph shows whether people prefer to buy their eggs locally or not. More people prefer to buy their eggs locally. So having the business in Retford area would be good because more people would like that. Therefore there is possibly an opportunity to sell at the ‘farm gate’ but again this would not be guaranteed and sales are likely to be very low and unjustified in terms of profit. Therefore selling directly to a packaging company is most likely to be the most profitable, stable and productive.
Location
There isn’t much land for sale in the Retford area and therefore the price of agricultural land is above the national average. I need to consider if purchasing land is preferable to renting agricultural land. Because of the high land prices in the area I think that I would be initially better off renting land. This would keep my borrowing costs down and I could always look at purchasing land once the business was well established. I have researched 3 sites for potential suitability. The land would need to be relatively level so that it would be easy to erect the temporary building. The land would need to be free draining so that the land stays relatively dry to avoid foot problems with the free range hens. The land would need to have a good access road for the collection of eggs and delivery of feed and materials. The land should not be too close to woodland where predators such as foxes may live.
Site 1: Owner: Nottinghamshire County Council
Description : Approximately 5.52 acres of permanent pasture located approximately 4 miles west of Retford. The site has access via a main road A638.
Location : Travelling from Retford west take the A634 to Barnby Moore. Turn right onto the North Road towards Ranskill.
Tenure: The land will be let on a Farm Business Tenancy for agricultural purposes.
Term: To commence spring 2010 terminating on the third anniversary.
Rent: The rent will be payable, sixth months in advance by standing order. Value £500 per year.
Rights of: There are no public rights of way, or Wayleaves or easements Way across the land.
Other conditions:
- To maintain all gates, hedges, fences, water supplies and troughs.
- To undertake to cut the hedges to all boundaries between 1 January and 29 February each year.
- Pay all rates and taxes in respect of the property (Water rates etc.)
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Site 2:
Owner: Goacher
Description : Approximately 7.02 acres of free draining arable or grassland; outskirt of village location; North Wheatley, close to woodland. Approximately 5 miles North East of Retford close to the A620
Location : Travelling from Retford west take the A620 Wellham Road North Wheatley
Tenure: The land will be let on a Farm Business Tenancy for agricultural purposes.
Term: To commence asap. 3 year.
Rent: The rent will be payable annually in advance by standing order. Value £780 per year.
Rights of: There is a public right of way which crosses the land; used primarily by ramblers.
Other conditions: The Tenant will during the Tenancy undertake the following: - conditions
- To maintain all boundaries
- To maintain the public right as defined by the local authority
- Pay all rates and taxes in respect of the property
(Drewery & Wheeldon Estates)
Site 3 (lot 1):
Owner: Not known: Details via agent Savills of Lincoln.
Description: 8.65 acres (lot 1) at Girton; free draining sand land suitable for grassland / arable land available to purchase or let.
Location: Approximately 12miles South East of Retford. Travelling north bound on the A1133 take the turning signposted for Girton. The site is situated on the side of the river Trent just off Trent Lane.
Tenure: Purchase freehold or let on a farm business tenancy 5 year period.
Cost: Purchase price £35,000. Or Rental; annual £700 per year.
Rights of: The property is crossed by a footpath running north west from the village of Girton
Other conditions: Specifically, the Vendors propose that a clause be inserted in the Contract restricting the use of the land to activities which do not involve the processing and production of aggregates and related materials or the recycling of demolition waste or secondary aggregates.
(http://www.primelocation.com/farms-estates-and-land-for-sale/details/id/SALN_264560)
Possible Site Locations:
(http://maps.google.co.uk)
Comparison and Choice of Land
Sites 1 and 2 are both close to the A1 for transport. This would provide easy access for egg collection and delivery of feed and other materials. Site 2 is not as close the A1. All three sites are relatively close and within travelling distance to the town of Retford. The tenancy agreements at sites one and two are both 3 year tenancy agreements. Site 3 has a 5 year tenancy agreement. It would be better to have a three year farm business tenancy agreement because if the business folded or was successful enough to consider purchasing land then payments would not need to continue for a further two years. It also allows for a renegotiation of rental rates. Site 3 is also situated on the banks of the river Trent and is prone to flooding. The land is also largest in size (8.68 acres) and also the most expensive to rent. Site 3 also has a footpath running over the land which is not idea because people would walk their dogs along the path which would pose a threat and frighten hens. It would also pose a problem for ensuring the perimeter fencing is secure. Given that the land is currently for rent or sale the owner may choose to sell after the initial rental period and therefore there is a higher risk that a business set up here may have to move on in future. For these reasons site 3 is the least favourable for my free-range egg production business. Site 2 also has a footpath running across the land and also there is some woodland situated close to the land which would provide an ideal habitat for predatory foxes. Therefore site 2 is also not as suitable as site 1. Site one does not have any public rights of way across the land. There is no woodland close by and the land is a suitable size of 5.52 acres which is just over the 2 hectares I have already established (from research and farmer interview) as a suitable start up size for 4000 birds. The rent on this land is payable 6 monthly in advance. This is more advantageous than the other two annually rentals because it spreads the costs. Overall therefore the rental of land situated at site 1 is the most suitable for my business.
Business Ownership
Sole Trader
A sole trader is an example of an unincorporated business. The owners have unlimited liability for their business debts and as such may have to pay their business debts off with their personal assets. The owner of these types of businesses can have legal action taken against them rather than the business’s name. Floyd (2009) identifies some advantages and disadvantages of a sole trader which I have shown in the table below
Sole traders usually supply local demand for goods and products. Such businesses include hairdressers, ‘corner shops’ and include crafts people such as electricians and plumbers.
Partnership
A partnership business is a business that has been formally agreed between two or more partners. The agreement between partners takes into consideration the amount of capital has been invested by each person and this is usually reflected in how the profits and losses are shared between the partners. The agreement also covers such things as the contributions that each partner will make to the business clearly identifying individual rights and responsibilities. Floyd (2009) makes some comparisons between partnerships and sole traders; stating that
“Compared with sole traders, a partnership means:
- Partners can share decision making, although this can mean disputes between the partners
- Responsibility is shared, allowing individual partners more free time
- Partners specialise in different areas
- More capital can usually be invested
- ‘sleeping’ partners can supply capital but take no part in running the business”
Private Limited Companies & Public Limited Companies
A limited company is a corporation with shareholders whose liability is limited by shares.
Private limited companies do not have to disclose their business affairs to the public unlike public limited companies. They are also less likely than public limited companies to be subject to takeover bids because, unlike the public limited company, their shares can’t be bought over the Stock Exchange. Public limited companies are usually bigger than private limited companies and therefore gain from economies of scale. It is easy for Public limited companies such as Tescos to raise capital from the public through advertising their shares for sale; thus their size and ability to influence the public is very powerful.
Company shareholders have little say in how the company is run; especially in the case of the public limited companies. Company directors, elected by shareholders, usually have the say in how the company is run through identification of company policies and procedures. One problem that may arise is that the company directors and share holders have different view points on how the company should be run or share profits.
Franchise
When a person or small business sells a named product supplied by an existing business or large corporation a franchise is formed. Examples of franchising companies include McDonald’s, Pizza Hut and The Body Shop.
“The person taking out the franchise is the franchisee. The franchisee supplies to capital, and in return receives training, the product, marketing expertise and general support from the franchisor” (Floyd 2009). Benefits of a franchise is that the franchisor has a franchisee who is likely to be successful because of the support and training provided to them. The franchisor does not have to find capital to gain outlets but in providing capital the franchisee is gaining a well known product, reputation and trading name and therefore does not need to trade for several years in order to gain a good reputation.
Co-operatives
When people join together to make a product the term producer co-operative applies. General manufacturing, food and printing manufacture are popular worker co-operatives. Retail co-operatives are formed by customers coming together to buy in bulk. Such co-operatives may include travel, banking and pharmacy chains. Some farmers now form co-operatives to share the heavy cost of such things as machinery.
Type of Business Ownership for Free-Range Egg Production
The free-range egg production business proposed will be a sole trader business; owned and operated by one individual. This is because the company will start off on a small scale basis; to secure initial financial support, whilst establishing a proven track record. This financial will be relatively small. My predictions, identified in the financial predictions section later, show initial capital required to be £100.000; which is a relatively small risk. As a sole trader the business will start small scale initially without the need to employ other staff. Any decisions to changes in the business (which can be made quickly in response to market changes) and how profits will be spent or invested will be down to the owner. There would also be very little advantage to trying to develop a larger organisation initially since additional costs, associate with employing others or installing packaging machinery, would mean that initial set up costs are not likely to be financially backed by the bank as the risks would be too high. The advantage to the hen production business is that profits can quickly be returned. It is possible that such a free-range egg production business would be set up initially in partnership with another person. However there would not be sufficient returns to support two or more full time wages based on an initial small / low risk investment. The choice of business ownership is therefore that of sole trader.
Marketing
Marketing is the process of advertising a product or goods to potential customers. There is a variety of ways in which marketing can occur but all have the same intent; to capture customers, create and maintain customer relationships and maintain customer satisfaction. Many large organisations will have a marketing department who’s one of many jobs is to make sure that the demands of its customers are met. Product price, distribution and promotion are factors that drive the principles of marketing. Marketing is therefore about:-.
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Researching the demand for the product:- My initial secondary research findings show that there will be a legal requirement to produce eggs that are in keeping with the E.U. 2012 directives. This means that cages bird systems will be banned. Therefore there is a need for free-range egg producers to meet demand. The demand for free-rang egg production is predicted to increase by at least 15% by 2011. Results from my primary research farmer interviewed shows that as a newly established (18mths) free-range egg produces there are a demand for free-range eggs that can be sold directly to a packaging company. There are also other ways to sell eggs that can be considered. For example they could be sold directly to a supermarket chain. However in doing this the eggs would need packing and grading which would incur expensive machinery and labour costs which is not likely to be covered by the small additional cost per dozen likely to be received. Farm gate/local farmer’s market sales are a possibility. My research shows that local people would prefer to purchase locally available foods and they would also be willing to pay on average up to 40p more than supermarket prices for free range eggs. However this would produce only small demand /sales figures and is not likely to be financially viable; although it could be considered in addition to selling direct to a packaging company. Doing both in not likely to be possible since selling directly to a packaging company would normally mean that the sales contract may prevent you selling to others.
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Size of product sold:- A regular continuous supply of eggs to a wholesale packaging company would be needed. I aim to produce and supply 25 dozen eggs per bird ungraded (but on average medium sized eggs) x 4,000 birds; giving a total of 100,000 dozen eggs per year. Monthly this equates to approximately 8,300 eggs
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Ensuring the product has competitive prices:- This would not really be a factor if sold directly to a packaging company. Farmer’s market sales would need to be regularly checked for other competitive prices and if lowering prices to compete, costs would have to be cut elsewhere (e.g. searching for better deals of feed prices etc) in order to prevent a negative effect on profitability. My research shows that the majority of people would be prepared to pay up to 40p more per dozen for free-range eggs. Therefore by selling free-range eggs at 30p or less per dozen would further increase the numbers of people likely to purchase free-range.
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Pricing Strategy:- There are many different pricing strategies but the two most applicable to my business are: Geographical pricing; this is where variations in price are occurs due to location. Locating my business close to the A1, the closest packaging company is at Mansfield approximately 20 miles away. Supplying to this local company would allow me to negotiate a higher price since their transport costs would be kept to a minimum. Value pricing is used where external factors such as a recession or increased competition force the production of ‘value’ products. If other local suppliers to the wholesale packaging company were to set up then this would provide competition and my business sale prices would be lowered.
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Actual Price:- 90pence per dozen (based on Nix’s and British free range egg producers guides)
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Location:- Barnby Moore. Just off the A634, less than 2 miles from the A1. The nearest egg packaging company is D&B Egg Packaging Enterprises, New Farm, Mansfield Road, Mansfield, NG21 0LS.
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Making sure that eggs available through efficient distribution:- Selling eggs directly to a packaging company would mean that they take on the responsibility for finding the end outlets and distributing. Establishing my business close to a main transport route means that the packaging company can quickly and efficiently access my business; thus ensuring that the egg production process supplies freshly produced eggs; a marketing point for my business.
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Promotional Methods:- The method most suitable to my business would be that of “Frequent user / Loyalty incentives”. Contacting egg packaging companies directly I would be in a position to offer a “tie in” contract period for supplying a set amount of eggs; ensuring sales and potentially negotiating a higher price as part of this deal.
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Promoting the product to customers:- Selling directly to a packaging company would mean that the product would not need to be promoted by my business. Customers would be influenced by promotion in-store; my research shows that customers would generally prefer to purchase locally produced goods.
Market segmentation occurs when a market is divided into different parts. This occurs when a business may want to focus of one or all of the different divisional segments. If a business focuses on one aspect this is called it’s niche market. Niche’s usually provide for specialist or limited demand items. Each product of segmentation usually has a unique selling point (USP) which will form part of its advertising and promotional campaign. Markets can be segmented in different ways e.g. by age, location, ethnicity etc. In the case of my business the free range eggs produced could be segmented according to size; small, medium and large. This is a typical structure and different size eggs will command different prices. However the start up costs incurred when implementing machinery to grade egg would be make the capital outlay too large and hence less likely to be supported by financially by the bank. Grading eggs by hand is a possibility but is likely to be too labour intensive. However implementing a grading and / or packaging system, once the business is well established, is one way in which profits could be re-invested at a later date.
Sources of Finance
There are three main reasons why businesses need finance. These are:-
- To start up a business – for purchasing assets
- To continue to work effectively – a business cash inflow and outflow but be balanced sufficiently to pay debts.
- To grow – profit can be re-invested to purchase more assets and meet additional expenses associated with increased productivity.
Source of finance for the private sector: There are many sources of external finances that can be considered. Loans are available from banks which offer long term repayments. Banks can also provide short-term borrowing in the form of overdrafts and bridging loans. The benefit of using banks for finance is that cheaper interest rates may be negotiated depending upon the type of business and risk posed.
Overdrafts and bridging loans will have a much higher interest rate than long-term loans and therefore should not be considered unless there is no fear that the total repayment can be met in full as initially planned when taken such loan out. A long-term loan backed by the bank would be more suitable to my business plan with a small overdraft facility initially to assist cash flow due to rental payments being in advanced.
Government grants are sometimes offered to assist business developments in regions that have for example poor employment rates. Grants have been offered to farmers in the past; eg to restock following foot and mouth disease. My secondary research did not identify any current financial assistance from the government to assist new farming businesses. Therefore this is not a consideration at the moment. However this could change in response to the implementation of the E.U regulations in 2012; if when battery cages are banned there is a resulting national shortage of eggs.
Higher purchase and leasing are possible source of extra finance. My business proposal does not lend itself to this. As a sole trader personal savings and borrowing from family is possible but given that the initial capital is relatively and the risks are low I think it would be best to apply for a loan from the bank. This would allow an personal savings to be available for contingence plans in the case of any unexpected costs.
The main internal source of day to day finances comes from sales. Developing my business with profit from sales is one consideration; eg renting more land and purchasing more point of lay hens to increase egg production. Trade credit can be negotiated and in the case of my business delayed payment for feed etc could be negotiated with the suppliers.
It is important in any business to ensure cash flow is good. However in the event of problems occurring in cash flow businesses can reduce stock levels to free cash tied up in stock. The stock (eggs) from my business will need fast sales since eggs are perishable items (although not as perishable as other foods). It is essential therefore that a contract is negotiated with the egg packaging company to ensure timely collection. Factors that are likely to affect this are likely to be those beyond control such as poor weather conditions preventing transportation. Businesses could also sell any surplus assets no longer needed to free cash flow. My business is not likely to have any surplus assets initially.
Source of finance for the public sector: Public sector organisations get grants from the government to support them financially. This is in the form of taxes collected and income from local people and businesses.
Shares: These are the main source of income for limited companies. Shareholders will invest for a return and a say in how a company is organised and run. Shareholders will receive dividends, which are usually dependent upon profits, after debts have been paid. If a company stops trading a shareholder is the last person to have their capital re-paid. The business I am proposing does not fit the financial funding requirements from the government because it will be a sole trader company.
Financial Choice: I have chosen to finance my business by a long-term bank loan with a small overdraft facility for up to the first four to sixth months. This will ensure that initial cash flow is not compromised because of initial capital cost outlay. Also it will take one month for income from egg sales to show within the cash flow and for this reason the initial overdraft facility will be valuable.
Making Financial Predictions
Cash Flow Forecast:
Below shows that I use a spreadsheet with formula to produce my financial forecasts. Full page prints is shown on following pages.
In the first month of operation the net cash flow of the business will be -£100,910. The opening balance will be £100,000 borrowed from the AMC.
There will be no revenue from egg sales during January, as they will be paid for one month in arrears.
The majority of the start-up costs occur during this month, leading to a requirement of an overdraft facility of no more than £1000. There should only be a need to use this facility during January and March
From February onwards there will be regular revenue from egg sales. Vet and medicines/ miscellaneous costs will remain fairly constant, apart from the need for occasionally worming the livestock, as illustrated during March and July. Some costs will be incurred every six months e.g. rent and water and some quarterly e.g. electricity.
Apart from March the cash flow remains in the black. The closing balance from April then appears to grow positively. Six months from start-up, the cash flow is positive and the closing balance is 1,878 clearly showing a trend towards rising profitability.
Business costs
Start-up costs
Building- Haygrove- Halo maxi ranger, portable poultry house 48000
Fixtures and fittings- Jansen- nesting boxes, automated feeders, drinkers, portable generator, automated egg collection conveyor 37000
Point of lay hens- 4000 @ 3.10/ bird 12400
Total 97400
Variable costs (change with output)
Feed- 47.4 Kg/ bird @ 210/tonne 9.95/bird 39816
Miscellaneous/vet & med 1.72/bird 6880
TOTAL 11.67/bird 46696
Fixed costs (don’t change with output)
Rent- @ 100/acre 5 acres 500
Electricity @ 60p/bird 2400
Water @ 9.1p/bird 364
Insurance 1500
Telephone/Office 420
Labour 19200
Loan repayments 12000
TOTAL 36384
The costs above are manageable, but as Nix suggests, many of these can vary. Feed costs can vary with breed, housing, environmental conditions, type of ration and quantity purchased. Output of eggs may also vary, Nix suggests 25 dozen per bird is the average. However with close management possibly a further 2 dozen saleable eggs per bird is achievable, as free range birds need close supervision in early setup. They often need encouragement to use the nesting area initially. This helps to reduce losses of damaged eggs.
Profit & Loss Account
Income
Egg sales 90000
90000
Variable Costs
Feed- 189.6 tonnes @ 210/t 39816
Misc 6880
46696
Gross Profit 43304
Fixed Costs
Rent 500
Electricity 2400
Water 364
Insurance 1500
Telephone 420
Personal Drawings 19200
Capital & Interest 12000
36384
Net Profit 6920
The above profit and loss account shows a gross profit of 43304 and a net profit of 6920. Overall the business made a reasonable profit.
Break Even
Total Fixed costs = Break Even
Contribution (per dozen)
36384/0.43304 = 84,019(dozen)
Business Plan
S Goulding
Happy Chicks
Corner Acres
Barnby Moor
Retford
07722360827
Table of Contents
Executive Summary
General Company Description
Marketing Plan
Management & Operational Plan
Financial Forcasts
Executive Summary
The business product, free-range eggs will be produced and sold directly to a packaging company. The business will be owned by the sole trader who aims to enter a growing market in free-range egg production. The business is based around the changing needs of the consumer and in response to the changes proposed in legislation that govern the welfare of animals during the food production processes. The business will require an initial loan of £100,000 to cover set up costs; including the purchase building, fixtures, fittings and stock.
General Company Description
Free-rang egg production business. Buying hens at point of lay and selling eggs to a wholesale packaging company.
Mission Statement: To produce high quality, welfare friendly, free-range eggs in a natural environment.
Goals and Objectives: To successfully enter a growing market where quality of produce and animal welfare are of equal priority. To establish a viable business within twelve months with a view to paying off the capital loan by the end of a ten year period. To achieve an annual sales target of £90,000 (4000 birds x 25 dozen eggs per bird @ 90p per dozen) within the first year.
Business Philosophy: Ethical food production is a priority
The Industry: The eggs will be sold to a wholesale packing company.
Free-range egg production is a growth industry and will continue to take more of the egg production market share as E.U. legislation is enforced from 2012. In the short term the general public are becoming more aware of how their food is produced and factory farming methods will become a thing of the past; replaced by more ethical practices. Long term the business can be developed into packing and marketing its own product therefore increasing the profit margin. This would require further capital investment in equipment and labour.
The company strengths are that within four months of trading the business will be in the black with a rising balance month on month. The business will succeed quickly due to reasonable start up costs and low personal drawings in the first year. Originally from a farming background the business has ready access to expert knowledge and skills.
The business will be that of a Sole proprietor.
Marketing Plan
Market research
To establish through the triangulation of both primary and secondary research the need for a free-range egg production business. Conduct secondary research into the legislative requirements of free-range egg production and the current market including pricing. To carry out primary research to establish how a free-range egg producer has already set up. This will be achieved by carrying out an interview with a newly established free-range egg producer. Also to undertake market research in the Redford area by designing and carrying out a questionnaire survey. All findings will be considered together.
After considering several options including selling at the farm gate, at farmers markets or directly to a supermarket chain; it was decided that sales should be directly to a packaging company. This is because the volume of eggs, required to be profitable, would not have guaranteed sales at farmers markets or farm gate sales. Selling directly to a supermarket chain would not be realistic initially because of the need for grading and packing.
Economics
Facts about the industry:
- Total size of the free-range egg market is 796 million eggs which is currently around 36% of the total market share.
- Estimated to rise to 55% in 2011 with further growth in 2012 following E.U requirements
- Trends in target market—end consumers are becoming more aware of how food is produced. My initial research shows that 65% of respondents would prefer hens to be able to express their natural behavior. 70% of customers would pay more for free range eggs.
- Growth potential and opportunity: Self grading, packaging and marketing as the business expands.
- Potential barriers to entering the market
- Initial Capital set up cost – Not supported by bank
- Finding a suitable location – land availability and cost around the Retford area.
- Limited number of packaging companies will determine price eggs sold at.
These barriers could be overcome by a clear business plan with sound financial predictions.
Financial Costing: Financial costings have been produced using the John Nix Farm Management Pocket Book 40th Edition 2010. This book is intended for farmers, advisors and financial institutions to be used as a benchmark for agricultural business data. Other data has been collected via the British Free Rang Egg Producers Association web-site and also from building and equipment manufacturers.
Proposed Location: Within a 50 miles radius of Retford with close proximity to major road networks. Land should be relatively level, free draining, at low risk of flooding and away from woodland which may harbor predators.
Sales Forecast:
Management and Operational Plan
The business will be set up based around a one man operational unit. Operations will meet with the R.S.P.C.As. Freedom Food standards and E. U regulations. The building will be of temporary structure built on skids. This will require less planning requirements. Selling direct to a packing company means the Lion Egg quality kite-mark will be endorsed during grading and packaging.
Inventory
- Stock movement records
- Feed records – volumes and monthly stock control records
- Vet and medicines records
- Sales records
- Financial accounting records
- Records of contract agreements – e.g. feed merchant and sales agreements
The day to day running of the business and records will be maintained by the sole proprietor of the business. Some specialist advice will be sought. For example nutritional and occasional veterinary advice. A review of the business in five years should allow for expansion and employment of additional staff at which point the management and operation plan would be reviewed.
Financial Forecasts
Start up Expenses:
Initial capital borrowing of £100,000 sourced from the Agricultural Mortgage Corporation @ 3.5% APR. Use to purchase buildings, equipment and stock.
Variable Costs:
Total variable costs of £46696 which includes feed, vet and medicines costs
Fixed Costs:
Total fixed costs of £36384 which includes rent, services charges, labour and loan repayment costs.
Income:
Total income estimated to be £90,000
Gross Profit:
£43,304
Net Profit:
£6,920
Break Even Point:
84,019 dozen eggs.
Evaluation and Conclusion
My original aim for my coursework was to establish if it would be feasible and cost effective to start up a free range egg production unit in the Retford area and identify a suitable market for the product; taking into consideration legal requirements for animal welfare. My choice of business was informed by the changing regulations about animal welfare and the changing views of end consumer’s about animal welfare during food production processed.
Firstly, I wanted to identify a gap in the market for my business. I did this by establishing the impact of the changes to regulatory requirements would have on the egg production market. I was able to establish through secondary research that by 2010 the free-range egg production was estimated to grow by around 15% and that this growth would continue as regulations were enforced in 2012. I married this information with my primary research which showed that end consumers are generally concerned about animal welfare and that they would pay a higher cost for free-range eggs. I did however establish through interviewing a current free range producer that, in order to be profitable, the business would need to be on quite a large scale by comparison to my initial thinking. This ruled out self marketing to end consumers and informed my choice to sell directly to an egg packaging company.
I was able to gather relevant and up to date secondary information from reliable sources including the internet and books. I also feel that my primary research was well planned. I used a variety of question types on my questionnaire and my semi-structured interview questions were pre-planned. To improve my initial research I could have got more of my questionnaires completed and returned. This would have made my results more reliable and valid. Having a bigger sample size would mean that any abnormally high or low values would not really affect the overall results, especially when calculating averages.
Market Research
I explained the advantages and disadvantages of market research and why it is used in business. For my primary research I asked twenty people questions using a questionnaire. I decided this was the best way for me because it allowed me to gather opinions relatively quickly. I also interviewed a current free-range egg producer using a sem-structured questionnaire. This allowed me to structure questions to get specific information at the same time it allowed me to ask follow up questions if he gave a response that I needed to clarify or thought was a point worth exploring more. Interviewing the farmer allowed me to establish that portable buildings can be used for the hens and that planning permission for such was easier to obtain. Finding out information like this prompted further research. For example I went on to phone Bassettlaw council and asked about planning permissions required based on temporary structures. If I were to carry out an interview again I would try and do it face to face rather than over the phone. This is because non-verbal communication is lost when speaking over the phone and I thinks that more time could have been spent on this interview if it were face to face.
My questionnaire results showed that the end consumer were generally concerned about animal welfare as part of the food production process and that they would be willing to pay more money to purchase free-range eggs. It also showed that they were not opposed to a free-range egg production unit being set up in the Retford area.
I then presented my results as a table and in graphs; analysing the information and referencing to its relevance to my proposed business.
For secondary research, I looked at Nixs Farm Management Pocketbook 40th Edition 2010. This book is current so financial information obtained from this source is accurate. This book is used by farm managers, consultants and banks to provide details for costings for agricultural business. Using this book helped me to accurately establish costs such as price per tonne of feed and the amount of feed required.
I also looked on the internet for costs of portable buildings etc. Other information relevant to by business was obtained from reliable internet sources including such as the British Free Range Egg Producers website. Using information from the internet helped me to establish different suppliers and costs. It also helped me to identify the changes and requirements in legislative requirements for egg production.
From my market research, I think my business will be a sole trader because initial start up costs need to be kept small to help secure initial financial support. To improve my business I could develop and grow to possibly include grading and packaging on site. This would support the employment of others.
Competition
I investigated the competition for my business in Retford. They are currently no other free-range egg producers within the area; although there are battery hen producers. With the changes in legislation battery hen producers in the area would need to purchase or rent more land to comply with R.S.P.C.A freedom food requirements.
The level of threat from the competition is low in the area. However supplying to a packaging company I would need to consider competition that is more regional which I haven’t established as part of this project.
Location
I have looked at the theory of my location and reviewed the advantages and disadvantages of 3 potential locations of land. My final choice was site one near Barnby Moor. I chose this site because its size was close to my requirements (5 acres), it is also close to the A1 for distribution and delivery access. It is also a site that is relatively flat, not prone to flooding or close to woodland. It also has a 3 yearly rental review which means I am not tied in too long; because if things went wrong, as a sole trader I would be liable to pay the rent from my personal finances.
To improve I would consider looking at the location of land from a wider radius around Retford. This would give me more choice since there was very few pieces of land available for let in the area. Looking wider would give me more opportunity to negotiate rental costs because land in Retford is in high demand so commands a high price.
Ownership
I have considered the main ownership types for my business. I have looked at the advantages and disadvantages of each and made my final choice. I have chosen to be a sole trader. This is because the business could not support a partner initially without incurring additional start up costs which may not be funded financially by the bank.
The advantages of being a sole trader are that I would only need a relatively small amount of capital to set up the business. I could also set up the business quickly. I would be able to decide whether to keep any profit or invest the profit back into the business. However the disadvantages are that I would have unlimited liability for debts and all the responsibility which means I would have to work long hours with little or no time off initially.
Marketing Mix
I have looked at the theory of marketing and the marketing mix. From my research I have found out that my target market is to sell directly to a packaging company. This is because in order to make a profit I would need to produce large numbers (break even point 84,000 dozen) which would be unrealistic to sell purely at farmers markets or through farm gate sales. I had considered selling directly to a supermarket chain but this is unrealistic initially as they would require the egg grading and packaging which would inflate initial set up costs and this would be more difficult to get initial funding for from the bank.
My products are therefore ungraded free-range eggs; because my research shows that to it would be more costly to set up a grading production unit.
My prices will be 90p per dozen because my research shows that the British Free Range Egg Producers Association and John Nix both quote this figure as the current packer to producer price.
The pricing strategy is therefore current and realistic based on current market values.
To promote my business, I will contact packing companies direct to see who offers the best contract. I should be aiming to receive at least 90p per dozen based on my research finding. Anything offered above this would increase by profits.
Finance
I have looked at business finance and decided on the main sources of finance for my business. My main source of funding would be from the Agricultural Mortgage Corporation.
This is because they are a specialist financial banking service to agricultural farmers.
I have looked at business costs and calculated figures for my business.
My initial start up costs were £97,400
My fixed costs were £36,384 and
My variable costs were £46,696
My total costs annually were £83,080
Included in these annual costs were £12,00 for re-payments of capital and interest required to repay a £100,000 bank loan to cover initial start up costs.
This means that I need an annual income of over £83,000 just to cover my outgoings.
I got my figures from the John Nix Farm Management Pocketbook 40th edition 2010. These figures are only estimates but have been obtained from a reliable source that is recommended and used by farm managers, farm business consultants and specialist farming banking services as a point of reference.
I then completed a profit and loss account.
It showed Gross profit of £43,304
And Net profit of £6,920
Overall I made a profit. To improve my profit and loss account figures I could negotiate a higher price for my eggs from packaging companies based on a long term contract to supply solely to them. I could also in the long term invest further so as to increase sock and production. I could also invest in grading and packaging equipment as a long term investment to enable me to sell directly to the supermarket chains. This would result in an increase in the amount of money received per dozen eggs by cutting out the middle man.
I also completed a Cash flow forecast for twelve months. It shows from just four months of trading the closing balance is in the black with an increasing balance month on month after that.
Finally I calculated the break Even point using the formula
total fixed costs/unit contribution . My figures showed a breakeven point of 84,019 dozen eggs. This means that I need to sell 84,019 dozen eggs to cover costs before I begin to make a profit.
To summarise, from my financial figures my business will be profitable but like most agricultural businesses the return from capital investment is not high compared to other business but is still greater than just investing money through the banks.
Business Plan
The final part of my coursework was to create a business plan. I included the theory of business plan and then I created my own using a template from Microsoft Office online
Final Conclusion
The strengths of my business are:
- Relatively easy to set up
- Relatively low initial investment
- Relatively low risk
- Responsive to legislative changes
- Entering into a growth sector
The weaknesses of my business are:
- Possible reduction in production because of potential predatory threat
- High breakeven point
- Sole trader liable to debts
- Reliant of initial investment from the bank
To improve I would:-
- Take steps to try and lower the break even point. For example, negotiate a higher price for the eggs from the packaging company in return for long term contract.
- Seek alternative sources of initial investment; personal finances and financial support from family
- Reduce the risk of debts by lowering initial borrowing as above point
I think my business will be a success because my business will be entering a growth market very early on in the growth period. My financial predictions have been put together from a reliable source and my cash flow forecast is in the black with the initial four months of trading. Profit made can be put back into the business, providing more capital to aid expansion; through egg grading and packaging onsite which would in turn increase profitability.
I can support this with already undertaken research findings and further research.
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