Setting Wholesale Prices for Your Vegetables

Shared From MOTHER EARTH NEWS  Written By: Lynn Byczynski

Setting prices for restaurants and grocery stores is a tricky business. There is no open venue where you can compare prices. Other vendors and buyers usually keep pricing information a secret. And that keeps growers off-balance because they never know if they are asking too much and will thereby lose the sale or asking too little and not making the margin they deserve.

Part of your pricing strategy must include an emphasis on value, while still getting the best price possible.

So how do experienced growers determine how much to charge? Here are the most common options:

1. Go with the market. Find out what the wholesale distributor is charging for produce of a similar type and charge the same amount or slightly more for better quality. But how do you know what the wholesaler is charging? Your most important tool in this area is the US Department of Agriculture’s Market News Service. The USDA collects and publishes pricing information for all kinds of produce on a weekly basis. Two of the most useful reports available online are the National Fruit and Vegetable Retail Report, which lists supermarket prices for commodities, and the National Fruit and Vegetable Organic Summary, which lists bulk pricing of organic produce at terminal markets. You can create your own custom report for conventional terminal market prices. Start atMarket Newsand choose “Fruits and Vegetables” to see what’s available. Bear in mind that terminal market prices reflect what is paid by “first receivers,” which can include distributors, so those prices may be marked up by 20 percent or more before being sold to restaurants and grocery stores.
2. Check prices at local grocery stores. This is not a great way to find out the going price, because supermarkets and natural foods stores vary in the amount of their markup. Sometimes produce is much cheaper than you might expect because the store is using the low price to attract customers. Other times, particularly with the natural foods superstores, the markup is much higher than a regular supermarket. All those caveats aside, a general rule of thumb is that supermarkets mark up produce 130 to 140 percent. (Multiply your price by 1.3 to 1.4 to see what the expected retail price might be.) But the best way to find out current prices may be the way you would least expect:
3. Ask the chef or produce buyer to tell you prices. No kidding; many growers really do depend on their customers to tell them the going rate for their produce. This works only if you have a good relationship with the buyer and feel you can trust him or her to be straight with you. You might, of course, tactfully point out to the chef that your operation can remain financially viable only if you can get a fair price. Chefs who are happy with your quality and service have an interest in your success and will no doubt see the logic in helping you get your best price.

One strategy is to sit down with a chef before the growing season and ask what he or she would have to pay for a particular item from a wholesaler. If you think the price seems reasonable and you can produce the item for that price, offer to grow it for the chef and keep your price constant throughout the season. That’s a great help to the chef, who can put the item on the menu and know exactly how much it’s going to cost. The same is true of grocery stores; buyers like a consistent price because it helps with planning. If you are sure you can make a profit from a certain price, everyone wins.

Still, it wouldn’t hurt to have access to current prices from a market report just as a backup. Keep in mind that produce is a tiny percentage of chefs’ total costs. Substantially higher prices to you will affect their per-plate price very little. Chefs who try to cut corners by shorting you are headed for trouble anyway, and you should be looking for new places to sell.

For some specialty produce, you are not going to find wholesale prices from Market News because the quantities are insufficient for them to be included on the report. When that happens, you can ask the buyer. But most likely, you’re going to have to depend on the fourth method of setting prices:

4. Determine your costs of production, and set prices to make a profit. This is the most logical yet least common method of setting prices. Some growers who do it say their prices often come in much different from the wholesale price — sometimes more, sometimes less. Chefs get accustomed to working on a different system and, if they’re happy with the produce, will not complain.

Still, keeping track of production costs is a difficult thing for most new growers to do because it involves keeping records about all inputs and all sales and then analyzing the data to determine where prices should be. It’s a headache in the midst of a busy season to keep count of every beet you pull or tomato you throw in the compost pile. But those kinds of records will be invaluable to you in the future to help you decide what to grow, as well as how much to charge, so you should start your business on the right foot by keeping good records. (I know I have said this frequently throughout this book, but I don’t think you will find a veteran grower who would disagree. Good records = success!)

To continue reading about Lynn Byczynski home based business, check out Pricing Strategies for Selling Your Produce on MOTHER EARTH NEWS.

Read more: For more tips from Market Farming Success, read Earning Potential of Market Gardening.

Reprinted with permission from Market Farming Success: The Business of Growing and Selling Local Food by Lynn Byczynski and published by Chelsea Green Publishing, 2013. Buy this book from our store: Market Farming Success.