University of Vermont Extension farm business specialist Mark Cannella works with maple producers on business and financial planning. Whether it’s a start-up, a 2,000-tap operation thinking about an expansion or a 15,000-tap operation interested in direct market opportunities, the fundamental business questions are the same.
“These are the ‘how’” questions,” Cannella said. “How much money is enough? How much money is needed? How much do you need at the bare minimum, and how much is possible?”
And some of Cannella’s recent projects – a start-up investment research and a benchmarking study – can help guide producers seeking to understand and answer some “how” questions.
How much to start-up or expand?
To get a sense of start-up costs for sap only and sap-to-syrup operations, Cannella worked with Rob Guay of Viewpoint AG Valuation and Consulting LLC. Guay went out and created the specifications for different maple operations at different scales. “He worked with two different equipment manufacturers and their dealers and looked at what it could cost at a bare minimum to set up a business,” Cannella said.
For the sap only enterprise, start-up costs included a tubing system, a monitoring system for leaks, vacuum pump(s), extractors, releasers, tanks, electric work and some basic site work. A shipping container was used to house the equipment.
Guay and Cannella looked at the costs for 3,000-, 5,000-, 7,000-, 10,000- and 15,000-tap operations for unowned land and owned land (valued at $2,000/acre). The cost per tap for these sap only models ranged from $31 – $34 (unowned) and $64 – $70 (owned land) with the per tap value decreasing slightly for higher total tap counts.
Cannella noted that the cost per taps figures are merely a starting point. “I wouldn’t say you could take it to the bank just like that. Build out from there,” he said.
Sap-to-syrup operations included the costs of a sugarhouse, reverse osmosis, additional tanks, evaporator, filter press, etc. Because of these additional costs, the cost per tap increases. With these models, it was assumed that the syrup would end up in bulk barrels; no retail, marketing or distribution costs were included.
For a 5,000-tap operation with unowned land, the cost was $52/tap and $87.40 for owned. For 10,000 taps it was $45/tap with unowned land and $71.30 for owned.
“What I’ve noticed with this project is that economies of scale seem to stack up a little bit better once you’re into processing. What I don’t want to tell you is that in order to save $7 per tap, you’ve got to spend $400,000 more making syrup at a processing facility,” Cannella said.
How to negotiate costs?
Whatever stage of development a sugaring operation is in, checking in on costs is critical. Cannella said with a good sense of cost, producers can more accurately set sales goals, which cover costs plus a margin for the owner. With any enterprise, Cannella recommends focusing on the low-hanging fruit – cutting costs where there is an opportunity to make change.
For example, a producer may be able to chip away at packaging costs, but it might not make sense to save a few hundred dollars spending a lot of time looking for a new liability insurance policy.
What Cannella has found in his benchmarking research is that labor (paid and unpaid) is typically one of the top costs. While it’s true that the owner/operator’s unpaid labor is theoretically a non-cash expense, Cannella doesn’t that’s sustainable.
“Unpaid owner labor, I hate to say it, but it’s starting to catch up to owner/operators that are looking at business sales, exits or transfers,” Cannella said. “It’s one thing to want to run your business for the passion and maybe sacrifice some compensation, but it’s a whole other thing to try to transfer that business entity to another person and expect them to make that same compromise.”
Another top cost, which could also be considered a non-cash expense, is depreciation – the wear and tear of equipment and its loss of value over time. If a producer isn’t going to save money for reinvestment into replacement equipment, Cannella said it’s even more important to take care of it: maintaining it, servicing it and avoiding accidents.
“Then,” he said, “we could be having potentially the biggest impact on our maple business because depreciation is one of the biggest pieces of the pie.”
How to improve labor efficiency?
Paid labor is usually a top cost for larger enterprises. According to Cannella, every effort should be made to make sure that extra labor or the focus of that labor is placed on yield and revenue enhancing activities. One suggestion for operators is to set targets on how long specific tasks should take. Another is to build strong teams and give employees incentive to perform with the business. Cannella also encouraged owner/operators to spend some time learning about leadership strategies.
Specifically, Cannella said to focus on tapping training. “Inappropriate tapping is often cited as one of the things that can really wreck the yield and really hurt a business,” Cannella said. Checking for leaks, making sure pumps are functioning properly and avoiding spills and overflows will also improve sap yield and ultimately enhance revenue.
While generalizations can be made about how much it costs per tap to get started in sugaring or how much revenue can be expected for a bulk barrel of syrup, ultimately, each maple business has its own set of “how” questions that it needs to consider.
“Profitability is not always directly linked to low production costs or scale of operation,” Cannella said. “Managers must assess the interaction of costs versus revenue for their specific business.”
by Sonja Heyck-Merlin