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The CSA Method of Alternative Financing in Agriculture:

A Case Study

Sacha Francis Sabih Department o f Agricultural Economics

McGiU University October 1998

A thesis submitted to the

Faculty of Graduate Studies and Research in partial fulfillment of the requirements of the degree of

Master of Science in Agricultural Economics

@ Sacha F. Sabih 1998

1*1

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ABSTRACT The research tests the potential of the Community Supported Agriculture Financing Method (CSAFM) as a viable alternative to traditional debt financing in Agriculture. The CSAFM provides the Farmer with a source of non-farm equity capital and an element of risk reduction which are supplied by each Memberhvestor ( M . . By receiving cash up-fiont (fiom selling shares of the harvest) several months prior to seeding, costs of inputs are covered and financing costs on operating capital eliminated. Moreover, the Farmer is guaranteed a market and price for his harvested produce. M/I benefits include receiving organif produce at a discount to retail market prices. A case study of a Canadian CSA "ABC" operation is presented to show the impact

of the share price on the farm budget and M/I returns.

A detailed budget analysis

demonstrates the benefits of CSA marketing versus marketing through an organic wholesaler, and CSA financing versus line of credit or loan financing. Although it was discovered that the share price was not calculated fiom a total budget, the Farmer was still better off with the CSAFM, which increased revenues by 34.0%- eliminated fmancing costs equal to 1.1% to 3% of total revenues, and yielded a net balance between $1,875.25 to $2,057.66 more than traditional techniques. For the Mn, data were collected during the

12 week contract period to value each weekly CSA delivery against both a non-organic

market value (NOMV) and an organic market value (OMV). The M/17s(OMV) return on the $180 share price was 38.9%. Given the results of the study, the CSAFM does qualifies as an alternative financing method in agriculture, displaying a win-win relationship for both Producer and Consumer.

RlmJMlt Cette recherche a pour but de mesurer le potentiel et la viabilitC de la MPrhode de finacement de [ 'agricuZture soutenue par Z a communautP (MFASC) par cornparaison aux

methodes de fiancement par capitaux empruntk. Par cette methode, le fermier re~oitde chaque membre/investisseur (M/I) une source non-agricole de capitaux propres ainsi

qu'un Clement de reduction des risques.

En recevant les fonds qui proviennent de la vente des parts de la prochaine recolte, plusieurs mois avant la semence, les coiits des intrants sont couverts et les inter& sur les

capitaux d'exploitation sont Climin&. De plus, le fermier s'assure d'un marche a un prix prkdetermini pour sa r6colte. Les membres/investisseurs beneficient de produits biologiques rkduits aux prix du marche du dCtail. Une ktude de cas d'un projet canadien dYAgricuIturesoutenue par la communautP (ASC) est presente pour demontrer i'impact du prix de vente des parts sur le budget de la ferme et sur les taw de rendement rkalises par le MII. Une analyse budgetaire ddtaillke dkmontre les benefices financiers de cette methode (MFASC) en terme de marketing de produits agricoles decrit par la MFASC et est egalernent compmke au financement par marge de credit d'exploitation ou p&t a court terme.

MEme si 1'Ctude dtimontre que le prix de vente des parts n'a pas W calcule a partk d'un budget global, le fermier en profite car la MFASC augmente ses revenus de 34 %,

elimine les interets des captiaux empruntes qui equivalent de 1,l % a 3,4 O/c des revenus totaux, qui se traduit par

un solde net plus eleve de 1875'25 % a 2057,66$ par rapport aux

rnt5thodes traditionelles. Pour le MA, les donnees sont recueillies durant la Nriode du contrat de 12 semaines pour pouvoir accorder une valeur du marche non-bilogique (VMNB) et une valeur du march6 biologique (VMB) a chaque livraison hebdomadaire de I'ASC. Le taux de rendement realise par le MII sur le prix d'achat h

e part (180 $) a la VMB est de

38,9 %.

Selon les resultats de lY&udede cas, la MFASC peut &re considCree c o m e une rnethode alternative de financement agricole qui demontre que le producteur et le consommateur sont tous les deux gagnants.

This thesis has shown me the value of patience and enabled me to witness

firsthand the benefits of perseverance. 1 would like to recognize the distinguished qualities of my thesis advisor, Dr. Laurie Baker, whose constant vigilance, encouragement, and expertise were key to this accomplishment I would also like to acknowledge the professionalism and dedication of Dr. Paul Thomassin, Chair of the Department of Agricdtural Economics.

I express my sincere gratitude to Mrs. Pat

Atkinson, whose untiring help and empathy for students is an invaluable gift. I would like to thank Ken and Lorraine, for without their love of the land and dedication to their

community, this project would not have been possible. I would like to thank my dear parents for their love and commitment to my life's endeavors. To Gigi and Yvan, without your hospitality and faith in me, the pace of my research could not have been maintained. I am indebted to my entire family and friends, whose love and loyalty I treasure. Finally, I thank my dear wife Danya for her love and abundant patience while supporting us during the course of my studies.

TABLE OF CONTENTS

PAGE

Resumi de these

-.- lIl.

Acknowledegments

iv.

Table of Contents

v.

List of Tables and Charts

w 1 1 .

Thesis Abstract

11.

.**

Chapter 1. Introduction 1. I Current Research on CSA 1.2 Outline of the Thesis Chapter 2. CSA in Context 2.1 What is Community Supported Agriculture (CSA) ? 2.2 The History of CSA 2.3 The Characteristics of Canadian CSA 2.4 The Case Study CSA "ABC" compared to the Average of Canadian CSAs Chapter 3. Agriculture in Canada 3.1 Farm Financial Conditions 3.2 The Canadian "Family Farm" 3.3 Attracting Non-Farm Equity Capital into Agriculture 3-4 The CSA Financing Model (CSAFM) as an alternative prototype Chapter 4. Research Questions and Hypotheses 4.1 The Research Logic 4.2 The Case-Specific Producer Research Question 4.3 The Case-Specific Consumer Market Research Question 4.4 The Case-Specific Consumer Investment Research Question Chapter 5. CSA Contracts 5.1 The CSA Member as an "Lavestof' 5.2 The General CSA Contract 5.3 Contract 1 (the "Debt" contract) 5.4 Contract 2 (the "Equity" contract)

5 5 5

6 8

Chapter 6. The Consumer Market Analysis 6.1 Restatement of the Consumer Market Research Question and Hypothesis 6.2 Experimental Scope 6.2.1 Procedure 6.2.2 The Data Tables 6.2.3 The Market Values and Rates of Return 6.2.3.1 The NOMV and Rate of Return 6.2.3.2 The OMV and Rate of Return 6.2.3 -3 Stating the Results 6.2.4 Possible Data Biases 6.3 Conclusions f?om the Consumer Market Analysis

Chapter 7. The Consumer Investment Analysis 7.1 Comparing the CSAIT to other Financial Instruments 7.2 Dehition of a Financial Instnunent 7.3 Definition of a Contract 7.4 Definition of Investment and Annuity 7.5 Conclusions given the Financial Definitions 7.6 The CSAIT of Contract 1 (the "Debt" contract) 7.6.1 Restatement of Contract 1 7.6.2 Financial Definitions required to analyze the CSAIT of Contract 1 7.6.3 What is meant by "Debt" in Contract 1 7.6.4 Other Possible Representations of the CSAIT of Contract 1 7.6.4.1 Put Option on Stock 7.6.4.2 VariabIe Coupon Bond 7.7 The Discount Rate 7.8 The CSAIT of Contract 1:The Delayed Variable Rate Annuity 7.9 Restatement of Consumer Investment Research Question and Hypothesis 7.10 Assumptions for the Consumer Investment Analysis of Contract 1 7.10.1 Explanation of the Non-Organic Market Valuation (NOMV) 7.10.2 Explanation of the Organic Market Valuation (OMV) 7.1 1 Comparing the CSAIT (OMV) of Contract 1 to other Financial Investments 7.11.1 The CSAXT (OMV)versus a risk-equivalent Financial Investment 7.11.2 The CSAIT (OMV) compared to other Financial Investments 7.12 NPV (OMV) results &om the CSA "ABC" 12 Week Contract Period 7.13 The IRR Analysis 7.14 Manipulation of NPV (OMV) to show Delayed Variable Rate Annuity 7.15 Representation of the NPV (OMV)Weekly Gain in Disposable Income 7.16 The CSAIT of Contract 2 (the 'Equity" contract) 7.16.1 Restatement of Contract 2 (the "Equity"contract) 7.16.2 General Representation o f Contract 2 (the ''Equity" contract) 7.16.3 The Added Risk to the Memberhvestor under Contract 2 7.16.4 Assumptions for the Consumer Investment Analysis of Contract 2 7.16.5 Financial Definitions required to analyze the CSAIT of Contract 2 7.16.6 Interpretations of the CSAIT of Contract 2 (the 'Tquity" contract)

7.17 Canadian CSAs with Contract 2 specifications 7.18 Conclusions fiom the Consumer Investment Analysis Chapter 8. The Producer Anakysis 8.1 Restatement of Producer Research Question and Hypothesis 8.1 -1 Procedure 8.2 The CSA "ABC' Farm Budgets 8.2.1 Results of the Budget Analysis 8.3 Share Prices and CSA Economic Viability 8-3.1 Share Price Calculation Methods 8.3.2 Economic Viability of CSA 8.4 Calculation of Wholesale Prices 8.4.1 Procedure 8.4.2 Data Collection of Wholesale Prices 8.4.3 Results 8.5 Simulations: The "ABC" Operation as a CSA versus a Non-CSA 8.5.1 Simulation I:Wholesaler Marketing with Line of Credit Financing 8.5.2 Results of Simulation I 8.5.3 Simulation II: Wholesaler Marketing with Loan Financing 8-5-4 Results fiom Simulation II 8.5 -5 Simulations: Conclusion 8 -6The NPV Analysis 8-7 Conclusions fiom the Producer Analysis

Chapter 9: Conclusion 102 102 9.1 The Risk Reduction and Financing Benefits of the CSAFM 9.2 CSA Contracts 102 102 9.3 The Consumer Market and Investment Analyses 103 9.4 The Producer Analysis 104 9.5 The General CSA Research Question 105 9-6 Recommendations for Further Research 105 9.6.1 Testing the Model with other CSAs 106 9.6.2 Applying the Model outside of CSA 107 9.7 The Emergence of CSA 107 9.7.1 The CSA Target Farm Size 107 9.7.2 CSA Potential in Quebec 9.7.3 Making Government and Private Lending Institutions Aware of CSA 108 References

109

Appendices

116

Appendix A Appendix B Appendix C

LIST OF TABLES

PAGE

Table 1. Ranking of reasons why Fanners began CSAs Table 2. Ranking of reasons why Members joined CSAs Table 3. Characteristics of CSA "ABC" compared to the Average of Canadian CSAs Table 4. NOMV and OMV Results during the 12 Week CSA "ABC" Contract Period Table 5. Comparison of Net Returns between the CSAIT of Contract 1 (OMV) and X Y Z Bank Financial Investments Table 6-Discounted Weekly "ABC" Member/Investor (OMV) Savings Table 7. Summary Budget 1 TabIe 8. Summary Budget 2 Table 9. Summary Budget 3 Table 10. Summary Budget 4 Table 1 1. Summary Budget 5 Table 12. Summary Budget 6 Table 13. Results of Sununary Budgets 1 to 6 Table 14. Results of Non-CSA Revenue by Selling to Organic Wholesaler Table 15. Simulation I :Selling Produce to Organic Wholesaler and Financing by Line of Credit Table 16. Simulation II : Selling Produce to Organic Wholesaler and Financing by 1 Year Fixed Rate Personal Loan Table 17. Simulation Resdts Table 18. NPV Results

LIST OF CHARTS

PAGE

Chart 1. The Research Logic Chart 2. Graphical Comparison of Gains fiom Initial Investment between the CSAIT of Contract 1 (OMV) and XYZ Bank Financial Investments Chart 3. Graphical Representation of Net Returns between the CSAIT of Contract 1 (OMV) and XYZ Bank Financial Investments Chart 4. Discounted Weekly (OMV) Savings or Gains in disposable income for "ABC" Memberhvestor Chart 5. Net Income Results fiom Summary Budgets 1 to 6 Chart 6. Corresponding Break-even Share Prices Chart 7. Simulation Results Chart 8. NPV Results

viii

Chapter 1.

INTRODUCTION 1.1 Current Research on CSA

Much of the current literature on Community Supported Agriculture (CSA) has mainly been in the form of small articles and individual farm case studies.'

For this

reason, detailed research found in three theses: Suput (1992), Laird (1995), and Salm (1997) have been helpll in providing CSA iaformation to this study. Salm (1997)

provides an extremely informative survey of 46 Canadian CSAs. Survey results fiom Suput (1992), Laird (19 9 9 , and SaIm (1997) as well as fiom a

study by Kane (1997) are presented in Table 1 and Table 2. Table 1 ranks Farmers' reasons for beginning a CSAy while Table 2 ranks Members' priorities for joining a CSA. For the Farmer, financial benefits from starting a CSA (i-e. "guaranteed marketyy;"money

up-kont)'; "income stability", etc.) were usually the number one or two priority in the US surveys.

In the Canadian survey, financial considerations were third following

"sustainability/enviromental impact" and "education-raising awareness" characteristics of CSA farming. For the Member, although financial considerations (i-e. cbsupponlocal farmer") are not the number one reasons why consumers join a CSA, they immediately follow the priorities of "getting organic produce" and getting '%esh f o o d in all surveys. Given, the priority rankings of CSA Farmers and Members, it can be conciuded that there is merit in assessing the financial benefits of CSA for both Producer and Consumer. This thesis will provide a rigorous assessment of the financial component and the "community/educational" components of rather than the cbecological/sustainable" the cohesive CSA h e w o r k .

This is confirmed by Salm (1997,s).

r a m j ia11aq 8 aq 01 awy aioM -b# uo!lelos! j o asuas rr wog jayax * C# r(l!unwwoo s i o j ai!sap JO uo!s!~*z#

@ n r u w o ~aleam dlay o~ % u ! w j uo ay~i1uamo?01 maw ~ o l l *E# y )uo~~=dn rCaaow *z#

ssaqs 8u!)aq1em ssaq *I#

)ayruur paquarun3 *I#

(Lams

sn)

(8 a14V :266 1 lndn~)

(Lams

sn>

(8 1 a l 9 U X66 1 PJY)

-

(Lams

UB!PBUQ)

( ~ a1l 9 U I 6 6 1 UPS)

.

Table 2. Ranking of reasons why Members joined CSAs

(Salm 1997: Table 20) (Canadian survey) # 1. Get fresh food directly

1

(Kane 1997,7) (US survey) #I. Desire for organic produce #2. Get organic food supply #2. Desire for fresh produce

I

(Laird 1995: Table 3) (US survey) # 1. Organic food #2. Fresh food

#3, Taste #4. Support sustainable

#3. Locally grown produce #4. Support local farmer

#3. Support local agriculture #4. Know who grows their f d

I. Support a local farmer

#5. Healthlnutrition

#5. Social interaction/senseof

community

#6. Concern for the

#6. Variety

-

environment

#7. Community participate I #7. Support small farmer in a f m #8. Know howlwhere food is #8, Convenience produced #9. Eat-in-season 119. Get cheaper food supph' # 10. Land stewardship # 10. Education learn about famine

I

-

# Indicates the priority, with # 1 being the most important consideration.

Financial elements are in bold type.

# 1.-safeand high quality food

#2. Food provided by a local source #3 Community/social aspects

1.2 Outline of the Thesis

This thesis is divided into nine chapters. Chapter one provides a brief outline of the research.

Chapter two defines CSA as well as provides the necessary historical

background information on CSA, as well as places the case study CSA "ABC" within the Canadian CSA setting. Chapter three provides on overview of the financial conditions of Canadian Agriculture and describes the Canadian "Family Farm" and the many policies developed for its survival. Also included in Chapter three are some dternatives to traditional debt financing in agriculture, which prepare the stage for the CSA Financing Method (CSAFM). Chapter four explains the logical framework of the study, which describes the general and case-specific research questions as well as their corresponding hypotheses.

Chapter five describes the profile of the CSA Member/Investory and

demonstrates the effect of two different CSA Contracts on the consurner/producer riskreturn relationship. Chapter six describes the procedure, analysis and conclusions fiom

the Consumer Market Analysis which uses price data in order to value the CSA "ABC" produce to both a non-organic market benchmark and an organic market benchmark. Chapter seven presents the Consumer Investment Analysis, which provides the necessary financial definitions to better describe the CSA Investment Tool (CSAIT), thereby enabling the comparison of its return with those of other financial instruments. Chapter eight provides a detailed Producer Analysis with the aid of six Summary Budgets, two Simulations, and a Net Present Value analysis. Chapter nine concludes the thesis. As a necessary condition for the use of information vital to this studj, the

ideniities of the CSA Farmer, certain private companies as well as the names of employees of public institutions will not be revealed.

Chapter 2.

CSA IN CONTEXT 2.1 What is CSA ? The acronym "CSA",

stands for Community Supported Agriculture or

Communitv-Shared ~priculture? Defining CSA is a challenge, for it represents a wide spectrum of possible contractual arrangements between Farmer and Consumer. Much literature on CSA, notably Salm (1997, l), explains that there is however at least one characteristic common to all CSA operations: the creation and maintenance of a direct

link between Producers (Farmers) and the Consumers of their food (Members). The CSA framework is best described as cbecologicallysound, socially just, and economically viable" (Laird 1995, 10). The following description provides a good picture of CSA: "CSA farming, its proponents say, is a win-win situation. Farmers gain a financial

strength that they do not have under traditional practices. Shareholders pay for the costs of farming, and the farmers are guaranteed a market. Farmers are released fiom profitability concerns and are fiee to focus their time and energy on producing a top-notch crop.... Consumers gain &om the knowledge that their food has been grown fiee from chemicals, and is as fiesh as if they had grown it in their backyards. While CSA shareholders bear the risk if the crop should fail (not all CSA contracts are as such), they enjoy the reward if the farm succeeds.... CSA farms are designed to the needs of the communities that they serve. Shareholders participate in planning sessions, make the crop requests, and can help with the farming itself. (But) in most cases, farmers have 'complete 100% control' in the day-to-day operations of the farm. Linking the farmers and shareholders is a core group, made up of the fmer(s) and some of the shareholders. This group watches over food distribution and money collection, and handles everything fiom legal issues to the farm newsletter" (Community Nutrition Lnstitute, 1992,4-5). 2.2 The History of CSA

The first CSAs began in Japan and Europe during the late 1960s and early 1970s. "Tei-kei" the Japanese model of CSA (which literally means "tie-together") began in Japan in 1965 (Laird 1995, 3) as a consumer initiated effort to purchase "clean food"

'

Both terms are synonymous. It may be that choice between the two terms depends on the level of risk being transferred through the contractual arrangements between both parties (Farmer and Member). However, no proof of this has been found in the literature.

which evolved into lasting partnerships between farmers and consumers.

Japanese

farmers agreed to convert to organic practices in exchange for guaranteed prices. By the end of the 1970s, the Japanese Organic Agriculture Association (JOAA) published the principles of Tei-kei which are as follows: "mutual assistance, accepting all produce, mutual concession in pricing decisions, deepening fkiendly relationships, self-distribution, democratic management, learning with each other, maintaining the appropriate scaIe of the group, and steady development" (Laird 1995, 17). It is important to note that "Tei-

kei" is a network of many farms, while the CSA, as it is commonly known today in Europe and North America, is usually a single farm operation. The evolution of CSA as it is known in North America began separately in

Germany and Switzerland. tn 1971, a f m e r by the name of Trauger Groh (co-author of Farm of Tomorrow: Community Supported Famts

-

Farm Supported Communities),

started a CSA called Buschberghof in a small village in East Hamburg (Suput 1992, 8). Later, a Swiss CSA, founded in 1978, called "Les Jardins de Cocagne", became an inspiration for the American Jan VanderTuin during the early 1980s (Suput 1992, 8). In 2985 Jan VanderTuin brought his acquired knowledge of CSA fiom Switzerland and

founded the first CSA in North America, on Indian Line Farm, in Great Barrington,

Massachusetts. One year later, Trauger Groh, pioneered his German experiences to North America and founded the second CSA on Temple-Wilton Community Farm in New Hampshire (Suput 1992, 7). Just over 10 years later there are over 500 CSAs in North America, with approximately 50 of these in Canada (Salm, 1997,4). 2.3 The Characteristics of Canadian CSA The majority of CSAs in Canada identify themselves as 'bureYy3CSAs, while the remainder are either cLpay-as-order"4CSAs or a combination of the former and the latter "In its 'pure' CSA form, an agreement is reached by both parties before the season begins - based on a consideration of estimated (based on past experiences) production and distribution costs on a total price to be paid by members in exchange for a weekly share of the farm's harvest, spread over the season. In this way the farmer begins the season with finances (rather than loans) to invest in seed, equipment, etc.; and members, while being aware and confident of the conditions under which their produce is cultivated and the methods used, share in taking the responsibility for seasonal fluctuations in the quality or quantity of the harvest" (Salm I997,2).

-

According to her survey of 46 cross-Canada CSA Farmer respondents,

("pay-weekly'?.

Salm ( 1997) found 78% of CSAs to be "pure" form; 13% to be "pay-as-order' and hally 9% to be a combination ('cpay-weekly'')6.

The majority of CSAs produce using organic

methods (95.7%)' of which half (50%)' are certified organic. An average of 77.8% fksh vegetables, 8.4% h i t s and berries and 5.6% herbs made up the contents of CSA produce.g Some CSAs offered working shares either for reduced share price (24%)" or as a compulsory part of their contract (11%))".

Most CSAs have a community network, maintained by a core group of Members

who help to facilitate communication between the Farmer(s) and the CSA

(48%)''

Community.

The majority of CSAs (58%)" do not deliver to Members.

Of the

remaining CSAs, (36%)14 deliver to central drop-off points and (1 1%)15 directly to the Member's door. Some CSAs will offer half-shares along with their standard full shares, and others will also offer a winter season share in addition to their main season (summer) share.

Most "pure" CSAs demand a one-time lumpsum membership payment, while some offer installment plans (Salm 1997,60). Share prices and amounts per delivery in situations of underproduction and overproduction are dealt with differently for each CSA depending on its contract specifications which generally reflect the level of risk both the Farmer and Member are willing to accept. In some CSAs the community will purchase, or lease land

and hire fanners (or growers) to produce their food. Given it versatility, CSA has the 4

"In 'pay-as-order' CSAs,members are given a list of whatever produce will be available at the next delivery, &om which they can choose quantities according to their needs and prices of the produce" (Salm 1997,3).

'

In "pay-weekly" CSAs, the member can order on a weekly basis, but has no control over the amount and selection of the CSA produce. (Salm 1997: Table 9).

'(Salm 1997: Table 2).

(Salm 1997: Table 2). (Salm 1997: Table 12). 'O (Salm 1997: Table 32). (Salm 1997: TaMe 32). (Salm 1997: Table 30). l3 (Salm 1997,42). I* (Salm 1997,42). (Salm 1997,42).

'*

'

potential to transform the common notion of the "Family Farm" into a "Farm for Familiesy', and even ? h e Families' Farm" in the case of community-held land trusts (CLTS)16. 2.4 The Case Study CSA "ABC" compared to the Average of Canadian CSAs

The case study CSA operation, referred to fkom here on as "ABC" is located on a 70 acre OCIA" certified organic f m in the Greater Montreat Region. CSA "ABC"was

founded in 1995. CSA "ABC", which provided vegetabledhits for 60 families in its 1997 season, is operated on a plot of four acresTable 3 serves as a means of situating the case study CSA "ABC" within the Canadian CSA population. It can be quickly concluded that in terms of CSA "?ype", "ABC" is representative of the norm which is the c'pureyyform of CSA. The "ABC" share

price is below average, yet so is the duration of its main season. "ABC" issued more shares per season than the average, while producing on the average CSA acreage. In terms of household income, although no exact figure was available, the "ABC" farm family household income was above the average, while the proportion of Household Income (HI) attributed to "ABC" is within the average of 1-25% of HI. As with most CSAs, "ABC" did derive income fiom other farm activities and predominately fiom off-

farm employment. Perhaps 4CABC"'s greatest deviation fkom the Canadian average concerned its plan of action in the case of underproduction. According to Salm (1997 Table: 34), 5 1% of Canadian CSA will not offer any form of compensation. Of the 42% of

Canadian

CSAs

that

do

offer

various

forms

of

l6 la some cases, CSA members have actually purchased farm land and hired a farmer to grow their food Caird 1995,8 1). 17

Organic Crop Improvement Association.

Table 3. Characteristics of CSA "ABC" compared to the Average of Canadian CSAs

Full Share Price

CSA Type

Average of Canadian CSAS'

78% Pure Form

CSA "ABCn

1

BelowlWithidAbove

I

9% Pay-Weekly Pure Form Within

1

Duration of Main Season

(Main Season)

(Main Season) $336

16 weeks

$180

12 weeks

Below

Number of Shares

I

Below

Size

I 57 acres

4 acres

T E y -

Within

' Averages were taken from Salm (1 997) based on a cross-Canada sample of 46 (CSA) respondents from the 63 known CSAs. Especially important information highlighted is in bold type.

5% of Canadian CSAs actually offer a monetary refund. CSA "ABC"

incorporated a refimd clauseLgin its contract, is part of this 5%. Questions arising as to why "ABC" was chosen as the case study CSA despite some significant differences fiom the Canadian average, can be explained by the

following points: "ABC" was the only CSA within the feasible geographical area open to the researcher.

In order to carry out the market valuation portion of the study, the

researcher, who is also a Member had to be able to record prices fiom two samples of stores within a reasonable radius of the CSA, in order to minimize the possible price and income biases posed by too great a distance between the CSA and the market valuation samples. Previous contact with CSA "ABC" indicated that the "ABC" Farmer was not only willing to participate in the research, but also agreed to share all necessary information with the researcher.

''

It is important to note that according to Saim (1997, Table: 34). in the case of underproduction, 5 1% of Canadian CSAs will not offer any form of compensation but will simply "explain" why the underproduction occurred; 32% of CSAs will "buy" extra produce fkom other sources to compensate their members;5% of CSAs will "exchange" the prornised portion of an unsuccessfid vegetabledfhit for more of a successfir1vegetable/hit to compensate their members; 5% of CSAs (like "ABC') will offer a monetary "rehd" to compensate their members; and 7% of CSAs replied that they had no plan of action as the

situation of underproduction had "not yet" been an issue-

''

The implications of the refund clause in the "ABC" contract design will be explained in depth in Chapter 5 entitled: CSA Contracts.

Chapter 3.

AGRICULTURE IN CANADA 3.1 Farm Financial Conditions

Farming in Canada has traditionally d i e d on costly debt financing (mainly in the

form of bank and government loans) to h a n c e operations. From 1974 to 1984 total farm debt more than tripled; fkom 1984 to 1994 it increased by 13%; and fiom 1994 to 1996, total farm debt increased by 11%. Of the over $27 billion in total farm debt for 1996, 59% was with commercial lenders; 19% with the federal government; 10% with the provincial government; and 12% with private agencies (Agriculture and Agri-Food Canada 1997,33).

Many farmers are s t i l l unable to realize adequate retained earnings fkom year to year, which has perpetuated a borrowing cycle in many cases. Dependence on variable cash inflows, fiom the sale of produce based on fluctuating market prices, which usually

always lag several months behind cash outflows (depending on the type of farming), poses serious liquidity stress on the average fanner between seeding and harvesting periods. As a direct result, large operating loans to cover the costs of farm inputs, such as seed, fertilizer, hel, machinery, and labour are widely used. In 1996 interest costs on operating capital totalled $1.68 billion for all Canadian farms, the equivalent of 7.4% of the total operating expensesZoof $22.9 billion (AAFC 1997,41).

Statistics show that although net operating income per farm increased by 1.8% fiom $23,561 in 1995 to $23,977 in 1996~',net cash income (before depreciation) for all

farms, equal to $5.5 billion for 1996, was downz2 8% fiom 1995 (AAFC 1997, 19).

"

The largest portion of total operating costs were Commercial Feed (17.8%); Machinery Operating Costs (14.5%); and Wages (I 1.7%) (AAFC 1997, 41). "Fann operating expenses and depreciation charges reached record levels o f $26.6 billion in 1996, up 8% fiom 1995. The increase in operating expenses was mainly the result of increased expenses on fertilizers (+1 I%), pesticides (+4%) and feed (+32%). Depreciation charges increased 6%" (AAFC 1997,2). 21

Figure provided by (Employee, Statistics Canada, 28/05/98).

" Higher operating expenses more than omet the increase in receipts on Canadian Farms in 1996 (AAFC 1997,2).

Realized net farm income was $2.0 billion in 1996,25% less than in 1995 and 19% lower than the 1991-95 five-year average level. Total net farm income dropped 14% to $2.7

billion in 1996 (AAFC 1997,2). Gilson (1992) expands on the various presently used techniques and their questionable success in alleviating long-term financial stress in agriculture:

"During more recent years, there are signs that acute tinancia1 distress may be more chronic or structural in nature for many farm familes than the periodic or cvclical stress which has occurred in earlier decades. In the past, these periods of widespread distress have been met with a variety of short-run ad hoc measures: debt restructuring and consolidation; deferment of interest and principal payments; capitalization of the interest into the mortgage; interest rate concessions financed by governments; loan set aside; partial liquidations of assets; continued support with government guarantees; quit claim and lease-back of property from the lender; debt adjustment and debt mediation programs; debt moratorium legislation. While the short-run, ad hoc measures used to deal with the widespread financial distress in the agricultural industry have been a humane and necessary way to cope with immediate issues and crises, they are not a long run answer to the more fundamental, structural changes occurring in the industry" (Gilson 1992, 10-1 1). 3 3 The Canadian 'Family Farmn

Before any assessment of whether or not the CSA Financing Method (CSAFM) displays the characteristics of an alternative financing technique in Agriculture, it is necessary to present a picture of how traditional financing in Canadian Agriculture has been perceived to date. The following is an excerpt from a talk entitled "The Family Farm in the 21st Century'' given by Dr. Clay Gilson at the 1992 Agricultural Institute of Canada (AIC) Conference: "The family fann, as it is commonly understood in Canada, is not easy to define but the following characteristics will describe, in a general way, what most fanners and politicians have in mind: (1) The farm operator and his family control and make all or most of the management decisions relating to the fanning operations; (2) The fanner and his family provide most of the labour required for the operations;

(3) All equity capital invested in the farm business should be owned and controlled by the farm family; any additional outside capital required for the business should be in the form of debt capital, outside or external equity capital which i n v o h dilution of management control; (4) The farmer should have a 'clear title' to the farm assets by the time of retirement; i.e. internal savings fiom the farm business should be sufficient to pay off all long-term debt once every generation; (5) The farm business should be of a size sufficient to provide the farm family with at least an adequate minimum standard of living and shouid be a 111-time occupation; but the farm should not be larger, as a matter of public policy, than that which can be handled by one family;

(6) f i e fann should be retained within the "family'* fiom generation to generation i.e. the intergenerational transfer of the family farm was taken for granted as a matter of policy.

In a narrower sense, the family farm, as it has been described, is really a form of sole proprietorship where labour, management and ownership are vested in the farm family which assumes all residual risk associated with the business" (Gilson 1992, 7-8)? According to Suput (1992, 3), the CSA model of alternative agriculture "was developed to codiont dissatisfaction with the dominant agricultural system and to fiction as an economically viable farm operation". As it will be discussed shortly, the CSAFM refhtes many of the commonly held assumptions concerning the financing of the Canadian "Family Farm". The ability to provide alternate working sotutions to some of

the problems addressed in Gilson (1992) will strengthen the case of CSAFM as a viable working alternative financing method. At this point, focus will be placed on relevant points concerning CSAFMYsrole in attracting non-fann equity capital into agriculture. 3.3 Attracting Non-Farm Equity Capital into Agriculture Lowenberg-DeBoer, Featherstone and Leatham (1989) explain that the ability to attract equity capital from non-farm sources may be one solution to restricting and even

'3

Bolded passages are explicitly referred to later in the text.

alleviating the high costs associated with the use of debt financing in agriculture. The authors expIain how this new process might present itself:

"Equity investors receive a share of the returns, whereas lenders receive a fixed payment. Servicing a fixed financial commitment fiom a variable cash flow creates financial risk. If the returns to the farm business are low, the compensation for the equity investors is reduced correspondingly. Thus financial risk is reduced with equity investment. The equity investor may be willing to provide more capital in riskier situations than the lender due to the opportunity to share profits when returns are higher" (Lowenberg-DeBoer et al. l989,92).

The authors also encourage the development and testing of a new "non-farm equity financial instrument ...on a small-scale basis" that may fULfill the goal of bringing non-farm equity into agricufture: "With the collaboration between agricultural economists and an investment corporation, it might be possible to arrange the test marketing of a non-farm equity frnancid instrument. Much insight could be gained from a case study of a hctioning institution for n o n - f m equity use in production agriculture. Economists often resort to complex behavioral models because of an inability to use economic experiments. The introduction and evaluation of a specific equity instrument on a small-scale basis could complement traditional modeling" (Lowenberg-DeBoer et al. 1989,92). 3.4 The CSAFM as an alternative prototype

The CSA Financing Method (CSAFM) seems to be a strong candidate for the above request. Particular attention should be directed to point (3) of Gilson (1992, 7-8)

which states that

"...any additional outside capital required for the business should

be in the form of debt capital,

outside or external equity capital which involves

dilution of management control". In the CSA case, the sum of the individual shares that Members purchase fiom the Farmer, constitute the non-farm equity capital. This initial up-front equity injection enables the Farmer to purchase the required farm supplies such as seed, plants, fertilizer, etc. without having to finaace via a costly line of credit or an

operating loan."

In the CSA caseythis initial equity t r d e r is not only possible, but also

does not dilute management control of the farm, contrary to what is believed in Gilson (1 992).

Concerning the last point in Gilson (1992, 7-8) which states:

"...the farm family

which assumes all residual risk associated with the business". This problem does not arise in the CSA case. Once again, depending on the Ievel of risk sharing described by the particular CSA contract, a large portion of the entire amount of risk (especidly production risk) will be transferred fiom the Farmer to the CSA Members. The CSAFM challenges

traditional agricultural financing on this point as well. The CSAFM also offers alternatives to the other points brought up in Gilson

(1992). For point (1) some CSA core goups participate actively in the farm management decisions especially when the farm land is leased or owned by the entire CSA community. For point (2), although most CSA fmers and farm families do provide the majority of the labour, many CSAs include a compulsory work quota for each member within the contract. For points (3) and (6), some CSA communities actually provide their farmer(s)

or grower(s) with the required land and farm assets required to produce their food. For point (5), many CSAs are part-time operations which are supported financially by non-

farm income. The focus of this thesis is to assess the potential of CSA as an alternative financing method in agriculture, whereby farmers may increase their level of income, by first decreasing their dependence on heavy borrowing to hance operations, and second, by assuring a guaranteed market and price for their produce prior to harvesting.

24 'The (CSA) producer has the benefit of lowering his dependence on a spring 0 p e r a ~ g loan thus reducing interest charges" (Allerdings 1994,4).

Chapter 4.

RESEARCH QUESTIONS AND HYPOTHESES 4.1 The Research Logic Chart 1 (to follow) is presented as an aid to understanding the steps involved in this research. The Research Logic begins with the General Research Ouestion which asks: whether CSA can be considered a financially superior alternative arrangement for

both Producer and Consumer? This general question can not be answered given the results of one CSA case study, therefore a Case-Specific Research Ouestion is presented

which asks whether: CSA "ABC" provides a financially superior alternative arrangement for both Producer and Consumer? The Case-Specific Research Question will be analyzed in three sub-questions: one far the Producer and two for the Consumer.

4.2 The Case-SpecSc Producer Research Question The Case-Specific Producer Research Question asks: For the "ABC5 operation, is the CSA method of financing and direct marketing a superior financial alternative to

traditional debt £inancing and wholesaler marketing in agriculture? The corresponding Case-Specific Producer H p t h e s i s follows: During the 1997 season, the CSA "ABC" Farmer would achieve a higher net income than if he had financed by means of an operating line of credit or loan, and marketed his produce through a wholesaler. 4.3 The Case-Specific Consumer Market Research Question The resulting Case-Smcific Consumer Market Research Ouestion asks whether the CSA method of consumer purchase would be a financially superior alternative to

traditional retail markets?

The corresponding Case-Suecific Consumer Market

Hwothesis is a claim that a representative Memberhvestor of the CSA "ABC" 1997 season was better off purchasing through CSA cbABC"than through the local non-organic

and organic retail markets.

Cbaat 1. The Research Logic

I+

s] I

'

Consumer Market Analysis

,Consumer Investment Analysis

4.4 The Case-Specific Consumer Investment Research Question

The Case-Smcific Consumer Investment Research Ouestion asks: How does the retail organic market value (OMV) re-

to a Memberhvestor on their 3 180 share price

compare to the returns on $180 if these funds would have been invested in alternative contract period? The corresponding fmancial investments during the same CSA CLABC'T

Case-S~ecificConsumer Investment Hypothesis follows: The Memberhvestor's organic market value (OMV) rate of return @om the CSA Investment Tool (CSAIT) of the %J3C"

1997 contract was superior to the rate of return of some risk-equivalent financial

investment.

Chapter 5. CSA CONTRACTS

5.1 The CSA Member as an "Investor" Given their ecological and environmental commitments (through organic farming practices), and their strong social priorities (through the use of a community network), CSAs have also managed to attract ''non-traditional

investor^"^

into the high risk

business of agriculture (associated with such locally undiversifiable risks as drought, flooding, and pest infestation, in addition to the common financial risks). 5.2 The General CSA Contract

Under the CSAFM, the CSA Farmer will typically honor the following written contract: -

To provide

-

-

-

GCSA Member/Investor (MA)

with a weekly (or bi-weekly) delivery of a

"baskety' (or "bag") of vegetables/fits during a predetermined period of time. In return, the CSA M/I will promise to provide an up-front payment for the entire delivery period several months before seeding and planting takes place.

It is essential to note that each CSA contract is specifically tailored and is binding under several specific conditions which reflect the level of risk both the Farmer as well as the Memberhvestor are willing to accept. As will be seen shortly, using two very restrictive examples, the CSA Investment Tool (csAIT)~~can be viewed as a "hybrid" displaying the characteristics of both a debt instrument and an equity vehicle, depending on contract

specifications. Although, literature on CSAs reveals a spectrum of variations in the above

Arguments for describing the CSA Member as a Memberfinvestor will be presented in Chapter 7 entitled: The Consumer Investment Analysis. ' 6 An in-depth explanation of the CSAlT will be presented in Chapter 7 entitled: The Consumer Investment Analysis.

general CSA contract, particular attention will be given to two extreme cases of CSAIT described by Contract 1 (the "Debt" contract) and Contract 2 (the bbEquity"contract). 5.3 Contract 1 (the uDebtn contract) Given the survey results of Salm (1997:Table 34), about 5% of all Canadian CSA contracts resemble Contract I specifications:

The CSA Farmer promises to provide the Memberhvestor (MA) with 12 bags of organically grown vegetables delivered once a week (I bag per week) on Wednesday evenings (to a specified drop-off point), over a 12 week period beginning August 6, 1997

and ending October 22, 1997. The total purchase cost of $180 is paid up fiont by the MA on March 15, 1997? t

In addition, the contract stipulates that if, for any reason, the CSA Farmer is unable to provide the promised produce during any particular week, or if the cash value of a bag (comparable to a variabie "coupon" payment) is deemed by the M/I to be below a

non-organic market value of $15, the M, upon request, will be reimbursed with a cash payment of $15 per bag.

The above example is precisely the Contract offered by the case study CSA "ABC". The CSAIT of Contract 1 provides a default risk-fkee investment? for the Member/Investor, but a potentially risky situation for the Farmer in the case of underproduction or undervaluation.

27

These are the dates ofthe 1997 "ABC" amended contract, The actual contract dates were fi.om July 23, 1997 to October 8, 1997 with the $180 payable on March 1, 1997. A special request, to shiA the official contract backward by two weeks, was granted by Farmer c'ABC', in order to accommodate the Researcher's availabilities. 2S An in-depth description of the characteristics of the CSAIT of Contract 1 will be presented in Chapter 7 entitled The Consumer Investment Analysis.

5.4 Contract 2 (the "Equityn conmct)

According to Salm (1997: Table 34), the majority (51%) of a l l Canadian CSA contracts resemble Contract 2 (the "Equity" contract) specifications:

The CSA Fanner sells the Memberhvestor a "share" of the CSA harvest (no ownership of farm assets is transferred) for a cost of $180, under all except one of the conditions stated in Contract 1. Under Contract 2, the M/I agrees to incorporate the realities of agriculhrral production risk.

In other words, the M/I is willing to accept the added risk that during any particular week, a bag {comparable to a variable "dividend" payment) may not be delivered or mav be less than its (non-organic) market value, representing a potential cash

loss of up to $15 per bag?'

It can be assumed that unlike the default-fkee nature of the CSAIT of Contract 1, the CSAiT of Contract 2 is a much more risky investment for the Member/Investor. However, the risks to the Farmer, stemming fiom underproduction or undervaluation have

been eliminated. A f U investment analysis of the CSAIT of Contact 1 and Contract 2

will be presented in Chapter 7 as a extension to the Consumer Market Analysis of Chapter 6.

29 In the event of a 1 1 1 loss of the $15 during one particular week, the Mn's acntal loss would be much greater since hefshe would now have to spend at least another $15 to purchase their produce

elsewhere.

Chapter 6.

THE CONSUMER MARKET ANALYSIS 6.1 Restatement of the Consumer Market Research Question and Hypothesis Before commencing any form of analysis, it may be u s e l l to restate the casespecific consumer market research question and hypothesis. The case-specific consumer market research question, introduced in 4.3, asked whether the CSA method of consumer purchase would be a hanciallv suDerior alternative to traditional retail markets? The corresponding case-specific consumer market hypothesis to test, also previously stated in

4.3, is a cIaim that a re~resentativeMember/Investor of the CSA 'cABC" 1997 season was

better off ~urchasingthrough CSA "ABC" than throuah the local non-organic and organic retail markets.

6.2 Experimental Scope Both the Consumer Market Analysis and the Consumer Investment Analysis (Chapter 7) are designed to quantify the financial gain of one particular Memberhvestor of the CSA ''ABC". As this research is a case study approach and is based on the data fiom one Memberhvestor in a group of sixty, it is not possible to draw a general conclusion about "returns to all CSA "ABC" Mernber'Investors" unless it is assumed that the "ABC" shares are homogeneous;* nor is it possible to forecast the ''returns to all CSAs" from the results of a specific case.

However, the following modeI(s) and

procedure@) can be used to evaluate the rehms to other Memberhvestors of the CSA

"ABC" or any other CSA operation.

6.2.1 Procedure

The researcher registered as a Member by purchasing one share in the CSA "ABC" main (summer) 1997 season?

Several weeks prior to the first "ABC" delivery,

30

Please refer to section 7.10, assumption 5. According to Farmer ''ABC" (25/10/97), the variety, quantity, and quality of the produce in each "ABC" bag was virtually the same across all bags. 3' The CSA "ABC" summer contract provides enough organic vegetables (and some hits) to adequately feed a family of four (2 adults and 2 children) weekly over 12 weeks.

permission to record retail prices at several non-organic stores (each representative of a major supermarket food chain), and two organic stores was requested. A letter explaining the nature of the research and its promised anonymity was presented to the management of each store. A sample of 7 non-organic stores, as well as a fanner's market stand, all

within a 5 km radius32 of the researcher's dwelling, was confirmed. A second sample containing two organic stores was also formed within the same 5 km vicinity.)' 6.2.2 The Data Tables

The necessary data used to conduct the consumer market analysis can be found in Tables A1 to A12 of Appendix A. When viewing any o w of the 12 tables, the reader will notice that the first two columns present the qualitative and quantitative characteristics of the "ABC" produce received during the particular week. The "ABC" produce, after being picked up by the researcher at the specified drop-off point, was sorted, washed if necessary, and weighedJ4 so that the appropriate measure of quantity could be associated with the particular CSA "ABC" vegetable or h i t . The next ten columns indicate the

prices for each "ABC" item across the two samples of ten stores in total. Stores #I to #7 are non-organic; Store #8 is a farmer's market stand; and #9 and #lo are organic stores. It is important to note that Store #7 did not enter into the sample until week 3, and that data from Store #8 was not used in the quantitative analysis due to the incompatible

presentation of its data3' The last four columns of Tables A1 to A12 show the non-

" The logic behind the sample's proximity to the researcher's dwelling was to avoid or at least minimize possible regional income and price biases. 33 These were the oniy two possible organic stores selling produce within a 30 km radius of the researcher's dwelling. 34

The scale used in the experimental portion of the thesis was a nondigital scale. The scale was tested for accuracy using standard verified weights. The scale, with a maximum capacity of 2400g, was consistently accurate at the 150g; 300g; 600g; 900g; I200g; 1500g; 1800g and 2100g levels. Given the resuits of the above tests, it was concluded that all measurements fiom the scale are accurate. The scale was calibrated in units of 25g with clearly observable mid-points of 12.5g increments. Measurements falling between the 12.5g increments were approximated by rounding to the nearest 12Sg increment. The precision error for a given measurement, given the calibration of the scale, falls anywhere within the interval off: (Og to 6.25g). Therefore, quantity values for produce sold by weight could possibly be understated or overstated by a maximum of 6 X g .

organic and organic average prices across the two samples as well as the average market

values of the CSA "ABC" produce derived fkom the product of the sample average price

and the quantity of "ABC"produce. 6.2.3. The Market Values and Rates of Return

The small box at the bottom right of Tabies A1 to A12 shows both the nonorganic market value (NOMY) and the organic market value ( O M ' ) of the CSA "ABC" bag or delivery. Below these dollar amounts are the weekiy percentage rates of return to

the Memberhvestor given the percentage difference between market values of deliveries and the average $15 CSA "ABC" MA cost per bag?

6.2.3.1 The Non-Organic Market Value (NOMV) and Rate of Return For Table A 1, the value of $12.00 above the symbol CNoMV indicates3' that on Thursday August 7, 1997, the "ABC" M/I would have had to pay an average of $12.00 for the equivalent non-organic selection and quantity of the CSA "ABC" bag given the non-

organic average price and value across the sample of 7 non-organic stores. Since this doliar amount is less that the "ABC" M/Iys$15 average weekly cost, the weekly rate of return is considered to be negative (-19.98%).

6.2.3.2 The Organic Market Value (OMV) and Rate of Return For the CSA M/E who attaches a superior value to organic produce, and therefore would rather compare the purchase of CSA "ABC" organic produce to organic retail aitematives, the following fiom Table A1 would be concluded: The value of $27.62

35 The firmer's market stand advertised its prices in terms of ''price for a number of vegetables or fruits" (i.e. "3 tomatoes for W ) ,and not "price per unit of weight" as in all other stores. Not being able to weigh the produce fiom Store #8 rendered its data unreliable.

The total share price of $180 divided by 12 weekly deliveries yields an average cost per bag of $15.

"

The letter C represents "Coupon". CV represents "Coupon Value" and CR represents "Coupon Rate". Although it is discussed in more depth in Chapter 7, each of the weekly CSA deliveries given the "ABC" contract type, can be compared to a variable coupon payment received by the Member/Investor fkom the "ABC" Fanner.

above the symbol COm indicates that on Thursday August 7, 1997, the "ABC' M/I would have had to pay an average of $27.62 for the exact organic selection and quantity of the CSA %BC" bag given the organic average price and value across the sample of 2 organic

stores. Since tbis dollar amount is much more that the "ABC" M/I's $15 average weekly cost, the weekly rate of return is calcuIated at 84.13%.

6.2.3.3 Stating the Results To conclude, according to the sample information, it can be said that for Week 1 of the 12 Week CSA "ABC" contract, the non-organic market value (NOMV) of the CSA

"ABC" bag was $12.00, indicating an overpriced (to the non-organic market) CSA "ABC" bag for the M7I who attributes no added value to organic produce. Alternatively, for Week 1 of the 12 Week CSA "ABC" contract, the organic market value (OMV) of the

same CSA "ABC" bag was $27.62, indicating an underpriced (to the organic market) CSA "ABC" bag for the M/I who makes a distinction between organic and non-organic

produce. The NOMV and OMV results fiom all 12 Weeks of the "ABC" contract displayed in Tables A1 to A12 are summarized in Table 4. 6.2.4 Possible Data Biases

It is important to consider three factors that may have brought some bias to the market valuations. These are the effects of averaging, the use of substitutes, and the selection of valuation days. There are pros and cons to averaging. Some stores within the sample were offeering prices much lower (through specials and promotions) than their competitors, giving a downward influence on average price and therefore an undervaluation bias to the CSA "ABC" bag. It is also important to note that most consumers will not use an average price or value across a sample of stores as a benchmark in their shopping decisions. Most will shop at one or two stores in particular. Sample

size is also a consideration. Increasing the sample size might have marginalIy changed the average prices and valuations, but at a cost of breaching the conditions for the controlled 5 km shopping zone chosen in the study- For the organic sample, increasing the sample size would have perhaps yielded a more reflective average price,

27

-

Table 4. NOMV and OMV Resdb during fhe 12 Week CSA UABCnContract Period CSA WEEK (end of)

COUPON

gl COUPON

COUPON VALUE (CV) (OW

1 2 3 4 5 6 7 8 9 10 11 12

$ $ $ $

S $ $ $ $ $ $

$

27.62 20.84 22.64 18.38 18-83 20.83 17.81 25.34 17.24 17.27 19.69 23.50

F== verage

Maximum

I Minimum

Coefficient of Variation

Represents the probability of the random variable (c-) being within 1 Standard Deviation ($2-74) of the Average (or mean) ($15.25). " Represents the pmbabilii of the random variable (c-) being within 1 Standard Deviation ($3.34) of the Average (mean) ($20.83). *" The Coefficient of Variation is equal to the Standard Deviation divided by the Average (mean) and expressed as a percentage. The Coefficient of Variation accounts for the size of a variable's values and removes the effect of units of measure. Despite the fact that the Variance of C($11.17) is greater than the Variance of cNUUV ($7.52), the Coefficient of Variation of C- (16.04%) is less than the Coefficient of Variation of C(17.99%) which indicates that cUMV is relatively less variable around its Average (mean) than is cNVw.

-

however, in the indicated 5 km radius of choice (and beyond it) there were still only two possible candidates, In the organic sample, it can be seen that Store #9 prices were usually higher than Store #I 0, causing a strong average price bias. The problem of substitutes and selection is also a consideration when viewing the data. Many stores across the sample did not carry certain items of the CSA "ABC" produce. This either meant that fewer stores (or fewer prices were used to calculate averages) and in some cases where the exact produce could not be found in any particular store, the price of a substitute vegetable (or f i t ) had to be used.

All details and

justifications made in these situations can be found in the notes accompanying Tables A1 to A 12 found in Appendix A.

As far as valuation days were concerned, there may have been some small bias associated with not being able to value the CSA "'AE3C" bag on the actual day it was received. The reason for the one day lag was that CSA "ABC" deliveries and therefore pick-ups by Mns at the drop-off points were made in the early evening of each Wednesday of the "ABC" contract week. Most stores contained in both samples were closed by that time. Therefore store prices were tabulated the next morning. There may also have been bias associated with adjusting the contract period to suit the researcher availabilities. At the beginning of the official CSA "ABC" contract (July 23 to October 8,1997), the researcher was overseas, and a request to shift the CSA "ABC" contract period by two weeks was granted by Farmer "ABC". The amended contract used for all analyses in this thesis, was fiom August 6 to October 25, 1997. The researcher is aware that in order to capture the true value of the actual 1997 CSA "ABC" Contract, and therefore reflect the actual average M/I return, an analysis during the actual contract period should have been carried out. Concerning the last two deliveries of the amended contract, Farmer "ABC" requested that these deliveries be picked up at the farm and not at the original drop-off point.

It was also requested that these bags be collected on a

Saturday and not the regular Wednesday. Market valuations for these last two bags were made on the next morning following pick-up.

When filling these last two bags, the

researcher asked Farmer "ABC" to use the same methods of valuation as he had used

during the official CSA "ABC" season. This was requested in order to minimize the

effects of both overvaluation and undervaluation.

6 3 Conclusions from the Consumer Market Analysis Table 4 shows both the non-organic (NOMV) and organic (OMV)market values and returns. According the Consumer Market Analysis, conducted by the researcher using the produce from one representative share of CSA "ABC" 1997 summer contract, and based on the characteristics of the samples described in sections 6.2.1, 6.2.2, and 6.2.3, the following can be conciuded: For the non-organic market valuations (NOMV), the

"ABC" Member/Investor received a total non-organic market value $182.94 at a cost of $180.

This represents a total saving of ~2.94:~ The corresponding average weekly

NOMV per "ABC" bag was $15.25, representing a small weekly saving of $0.25 (an average weekly percentage return of 1.63%).

More importantly, and perhaps more

conclusive are the results given the organic market valuations. In this case, the M/I received a total organic market value (OMV) of $249.99 at a cost of $180, representing a total saving of $69.99:'

The corresponding average weekly (OMV)per bag was $20.83,

representing a weekly saving equal to $5.83 (an average weekly percentage return of

3~.88%~7-

''

This saving amount has not yet been discounted to reflect the time between the Mn's purchase of the "ABC" Share (March 15, 1997) and hidher first delivery (August 6, 1997). The appropriate discounting will be performed and explained in Chapter 7. 39 40

Please refer to footnote 38.

Savings of this amount are not uncommon to CSA. For example, the Kimberton CSA I988 share price cost $320, and "the same quantity of vegetable, according to prices at local markets, would have cost $530. Thus, shareholders of the Kimberton CSA saved $210 each in 1988" (which represents a total percentage return (saving) of 65.63%) (Groh and McFadden 1990, 167). Salm (1997: Table 38) also shows that 57% of Canadian CSA members claimed that CSA Prices were ''much less" than compared to marketset organic prices; 36% replied 'bo difference" and 7% "greater".

Chapter 7.

TEE CONSUMER INVESTMENT ANALYSIS 7.1 Comparing the CSAIT to other Financial Instruments

In order to examine the Community Supported Agriculture Financing Method (CSAFM) in detail, it is useful to first present some financial definitions to assist in the

Consumer Investment Analysis.

The following definitions serve to underline two

important points: The CSA Investment Tool (CSAIT) (the particular investment tool used

in a specific CSA contract) cannot be considered, according to the Canadian Institute of Chartered Accountants (CICA) definition, a 'Ykancial instrument" per se.

Second,

despite this realization, comparison between a non-financial investment (such as the CSAIT) and other financial instruments is not only possibIe, but is also justifiable as it has been done in many other instances. Examples of such common comparisons occur in

lease and purchase

decision^.^

Part of the challenge in analyzing the CSAIT, stems fkom the difficulty of comparing it to the most common corporate financial instruments. An in-depth search into the recognized and accepted d e f ~ t i o n of s a "financial instrument", "financial asset"

(or fmancial security) ''financial liability", and "equity" are necessary before these terms can be used to compare or describe any aspect of the CSAIT7.2 Definition of a Financial Instrument

The CICA Handbook, Section 3860 in particular, was developed as an aid to accountants in classifying financial instruments as either debt or equity, usually for tax implications. When dealing with new hybrid securities, for example ones that have the characteristics of debt but are actually equity instruments, or complex securities which are

41 For example, while an operating lease and a loan are both contracts, an operating lease can not be considered a '%ancia1 instrument". A "financial instrument" is any contract that gives rise to both a L'fiianciaIasset" and a "financial liability" (CICA 1995, 2852). An operating lease is a contract which entails a LYhanciaIliability" but no corresponding (6nancial) asset for the lessee (CICA 1995,2854).

a combination of both, the ability to dissect a security's debt and equity components becomes a valuable skill.

The CSA Investment Tool (CSAIT), as mentioned earlier, does take on several forms according to the particular CSA contract specifications and inherent risk relationships. The following definitions will aid in better describing and understanding the CSAITs of CSA contracts. According to subsection 3860.05 of the CICA Handbook

(CICA 1995,2852) entitled ~ e f i a i t i o n s : ~ ~

"(a) A financiat htrument is any contract that gives rise to both a fmancial asset of one party and a fmancial liability or equity instrument of another party.

(b) A financial asset is any asset that is: (i) cash; (ii) a contractual right to receive cash or another financial asset fiom another party;

(iii) a contractual right to exchange Linancial instruments with another party under conditions that are potentially favourable; or (iv) an eauity instrument of another entity.

(c) A fmancial IiabiHty is any Liability that is a contractual obligation: (i) to deliver cash or another fiaancial asset to another party; or (ii) to exchange financial instruments with another party under conditions that are potentially unfavorable.

(d) An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities" (CICA 1995,2852). Subsection 0.2 1 (CICA 1995,2855) explains: "When a financial instrument does not nive rise to a contractual obligation on the part of the issuer to deliver cash or another financial asset or to exchange another financial instrument under conditions that are potentially unfavourable, it is an equity instrument".

''Terms are presented in bold for emphasis.

7.3 Definition of a Contract

Further clarification on what is meant by "contract" and "contractual" is given in subsection 0.06 (CICA 1995,2853): 'The terms 'contract' and 'contractual' refer to an aareement between two or more parties that has clear economic conseauences that the parties have little, if any, discretion to avoid, usually because the agreement is enforceable by law. Contracts. and thus financial instruments, may take a variety of forms and need not be in writing". Subsection 0.12 (CICA 1995,2853) clearly states that: "Assets, such as prepaid expenses, for which the future economic benefit is the receipt of goods and services rather than the right to receive cash or another financial asset are not fmancial assets. SimiIarly, items such as deferred revenue and most warranty obligations are not financial liabilities because the probable outflow of economic benefits associated with them is the delivery of goods and services rather than cash or another financial assetyy. Subsection 0.14 (CICA 1995,2854) states: "Contractual rights and obligations that do not involve the transfer of a financial asset do not fall within the scope of the defmition of a fmancial instrument. For example, some contractual rights (obligations). such as those that arise under a commodity f h r e s contract, can-be settled only by the recei~t(delivend of nonfinancial assets. Similarly, contractual rights (obligations) such as those that arise under an operating lease for use of a physical asset can be settled only by the receipt (delivery) of services. In both cases. the contractual rkht of one Darty to receive a non-financial asset or service and the correswndina oblieation of the other mrtv do not establish a present right or obiiaation of either arty to receive, deliver or exchange a financial asset". 7.4 Defmitions of Investment and Annuity

The following definitions are also important when describing the CSAIT: Investment : ''The sacrifice of certain present value for (possibly uncertain) future value" (Ross et al, 1995,940). Investment : "Sacrifice of consumption in the present through the flow of expenditures in order to produce goods with the hope of increasing consumption in the future" (Shim and Siege1 1995, 194).

Annuity: "An annuity is a level stream of regular payments that lasts for a fixed number of periods. Not sucprisingly, annuities are among the most common kinds of financial instruments. The pensions that people receive when they retire are often in the form of annuities. Leases, mortgages, and pension plans are also annuities" (Ross et al. 1995, 103). 7.5 Conclusions given the Financial Definitions

Given the definitions in 7.2, 7.3 and 7.4, it is clear that the CSA investment Tool (CSAIT) does not contradict the CICA definition of "contracty' and "contractualt which

even afTirms that contracts need not be in writing, as is the case in 41% of Canadian CSAs

where an oral agreement or handshake binds the contract."

As far as the CSMT

qualifying as a "financial instnunenty' or more specifically a '%ancia1 asset" for the Memberhve~tor~ this cannot hold, for payments are paid in commodity and not in cash. It will be accepted, therefore, that the CSAIT is not a "f?nancial instrument" or more

specifically, a c'finmcialasset (security)" for the CSA M/I. Despite this, the CSAIT can still be considered an "investmenty' as it does not contradict the (Shape et al., 1997) or (Shim and Siegei, 1995) definitions. The CSA MII is giving up a present value equal to the contract's share price for (possibly uncertain) fbture value in the form of produce.

Given this reality, the CSA Member can now justifiably be referred to as a

Memberhvestor. Now that the CSAIT can be considered to be an investment, it is assumed that a corresponding "rate of return" on investment can be calculated given the market values (NOMVs and OMVs) and timing of the CSA deliveries. When examining deliveries (under the conditions of the "ABC" the structure of the stream of CSA cbABC" Contract stated in 5.3) it is evident that the "cashflow" structure of the CSAIT of Contract 1 adheres to the above definition of an annuity (Ross et al. 1995, 103). The CSAIT of

Contract 1 (the one offered by CSA "ABC") can be described as a delayed variable rate (or payment) annuity to be specific.

43 Salm (1997, Table 34) shows that 52% of CSA contracts were a written signed form; 41% were oral with or without a binding handshake, and 7%took the signed cheque as binding.

It is important to keep in mind, while reviewing the resuits of the consumer

market analysis in section 6.3 and considering the assumptions to follow in section 7.10, that defining and describing the exact structure of the CSAIT of a particular CSA contract is not a prerequisite to assessing the ccrehlmsy'fiom i t AU that is required is the market

valuation and timing of "cash flows" (deliveries), not an analysis of its structure in terms of resembling or mimicking specific financial instruments. It is also interesting to note that by manipulating the "cash flowsy', for example by forcing a M/I recovery amount in the final period equal to the initial investment (by decreasing the weekly market values of deliveries accordingly), the CSAIT can mimic the structure of a variable coupon bond paying back its face value in the last period. Although this manipulation may serve as a means of comparing the CSAIT of Contract 1 to certain bond issues, it is believed that distorting the actual payment and timing schedule of the CSAIT is misleading and does not truly reflect the actual investment. 7.6. The CSAIT of Contract 1 (the "Debt" contract)

The aim of this section is to examine in greater detail, the financial structure and fmancial characteristics of the CSA Investment Tool of Contract 1 (the "Debty'contract).

The CSAIT of Contract 1 is the one used in the CSA "ABC" contract7.6.1 Restatement of Contract 1

The CSA Farmer promises to provide the Memberlhvestor (M/I) with 12 bags (payments) of organically grown vegetables delivered once a week (1 bag per week) on Wednesday evenings (to a specified drop-off point), over a 12 week period beginning August 6, 1997 and ending October 22, 1997. The total purchase cost of 5 180 is paid up fiont by the M/I on March 1Sy1997.

In addition, the contract stipulates that if, for any reason, the CSA Farmer is unable to provide the promised produce during any particular week, or if the cash value of a bag (comparable to a variable cbcoupon'ypayment) is deemed by the M/I to be below a non-organic market value of S 15, the M/I, upon request, will be reimbursed with a cash payment of $15 per bag.

This ''Debt" contract offered by the case study CSA "ABC" can be translated into a mathematical or financial representation. The contract seems to most closely resemble a Delayed Variable Rate (or payment) Annuity. For example, Farmer "ABC" can be seen as taking a collective "loan" or c'mortgage" from the entire CSA ccABC"Community, which he promises to repay (with a form of variable interest) through weekly installments

of organic produce. 7.6.2 Financial Defdtions required to analyze the CSAIT of Contract 1

Debt is defined as a "loan agreement that is a liability of the firm (in this case, the farmer), and an obligation to repay a specified amount at a particular timey'(Ross et al. 1995,938).

An Annuity is "a level stream of equal dollar payments that lasts for a fixed time. An example of an annuity is the coupon part of a bond with level annual payments" (Ross et al. 1995, 934). Other examples of annuities are mortgages and leases, and pension plans (Ross et al. 1995, 103). The general formula for the Present Value (PV) of an Annuity (Ross et al. 1995, 103) is as follows:

where

C is the regular payment per period r is the discount rate of interest n is the terminal period

A Deferred (Delayed) Annuity is an annuity that "starts making periodic payments on a specified future date" (Sharpe et al. 1997, 730). Examples are pension and life insurance plans.

A Variable Annuity is an annuity where ''the size of the regular payments is not prescribed but depends on the performance (of an investment podolio managed by the institution)" (Sharpe et al. 1997, 729). An example of a variable annuity is the Variable Rate Mortgage where the mortgage interest rate is variable and is set on the 1st day of each month (XYZ Bank #19362,03/1997).

7.6.3 What is meant by "Debt" in Contract 1 The use of the word "Debt" was used to qualifL this contract, due to the limited Lability clause stated in paragraph two of the written contract (7.6.1). This clause states that in the case of underproduction or undervaluation, the "ABC" Member/lnvestor has

the right to demand a $15 reimbursement from Farmer "ABC". The fact that this

guarantee was possible, led Contract 1 to be termed the "debt" contract, implying "an obligation to repay a specified (or minimum in this case) amount" (Ross et al. 1995,938) to the M/I. 7.6.4 Other Possible Representations of the CSAIT of Contract 1 Alternatively, the CSAIT of Contract 1 could also be viewed as an "Equity" investment, where the Memberhvestor is equipped with a Put optiod4 (with an exercise price of a $15 non-organic market value) on the weekly delivery of hidher Share. The

M/I has the right (not the obligation) to exercise the Put Option (right to sell hisher produce back to Farmer "ABC") at an exercise price of $15. This equity investment combined with the Put Option can also represent the limited liability clause of the "ABC" contract. Debate as to whether there is an actual stock or a face value in terms of a bond that is recoverable in the final week of the Contract is a key factor in considering the "Stock with Put Optiony' or "Bond" representations of Contract 1. As will be seen through a

series of representations, focus was put on translating the written contract into a mathematical form that would best reflect the timing and disbursement of the cashflows. Manipulation of the Cashflows to resemble a Bond (Debt) or Equity (Stock with Put

Option) structure is possible (and can enable some comparative analysis), but in the opinion of the researcher does not reflect the CSAIT of the actual "ABC" contract (which resembles a delayed variable rate (payment) annuity).

JJ "A put (option) gives the holder the right to sell the stock for a fixed exercise price during the life of the option" (Ross et al. 1995,6 10).

7.6.4.1 Put Option on Stock

Using the NOMV data from Table 4 (6.3) the implications of viewing the CSNT of the "ABC" contract as an equity investment can be demonstrated. Consider the case of one MII purchasing one share of the total CSA "ABC" "stock" (the portion of the total harvest alIotted to the CSA "ABC" operation) on March 15, 1997 at a cost of $180. Assume that this $180 share can be further broken down into 12 equal individual weekly shares (or stocks) of $15. Now fiuther assume, that Farmer "ABC" "sells" the MA a Put Option on each individual $15 share (or stock) at no extra cost. This would mimic the

cIause in Contract 1 which states that if the value of the weekly delivery falls below its

$15 NOMV, Farmer "ABC" will reimburse the M/I with a cash r e f h d of $15.

To recap, the he purchases the $180 "ABC" share (or stock) with 12 put options,

one on each weekly share of the total $1 80 share (or stock). This combination gives the himher the right (but not the obligation) to sell back any individual share (or stock) to the Fanner bbABC"for a guaranteed cash amount of S 15. However, the MA will only exercise the Put Options if the "Price" of a weekly delivery f d s below its $15 equivalent N O W . The contract now becomes a limited liability contract, protecting the M/I fiom downside risk (i.e. undervaluation of the CSA "ABC"bag). Diagram 1 shows the large variability in profits associated with buying only 1/12 (one week's delivery) of the $180 total share without a put option (i.e. in the absence of the limited liability clause).45

46

Given the Limited liability clause of Contract 1, it is

assumed that the Life of each put option is one week (i.e. the option expires 7 days fiom the date of delivery). Given the results of Week 1 of the 12 week delivery period fiom Table 4, we recall that the Week 1 NOMV was CINoMV = $12.00. Diagram 2 plots the Intrinsic Value of the Put Option (at expiration) against the NOMV of the CSA "ABC" bag (at expiration). Diagram 2 shows that the Put is increasingly valuable to the MII as

NOMV (stock price) fdls below the Exercise Price of $15.

Diagram 3 plots the

Combined Position of Diagrams 1 and 2. Purchasing the weekly delivery (stock) with the

45

46

This represents the situation displayed in Contract 2 (the "Equity" contract).

There is still a question as to whether there is a total $180 share remaining at the end of the contract period, based on the fact that a portion of the total S 180 share is consumed weekly.

Diaatam 1 :Buv only the $15 Weekly Stock

I

Now ot =A

nABc" Bag at expiration (s)

Diarrram 2: Buv only the Put O~tionon $15 Weeklv Stock Intrinsic

v 8 l Of ~ Put pasition at expiration

0) I

10

+Eurci..

15

-

-

20

25

N O W of CSA "ABC' 8aa at expiration (S)

Pria

Diagram 3: Combined Wedged) Position

0

S

10 15 20 NOMV of CSA "MC"Bag 8t .*rrtion

25

(S)

put option provides the M/I with a hedged position or limited liability position. Diagram 3 shows that the M/I, given the M t e d liability clause in the "ABC" contract, should

never lose money by being guaranteed to receive at Least a $15 NOMV or a $15 cash refund for hidher weekly delivery. The profit fiom buying only the Put Option (nput)is equal to the Intrinsic Value of the Put (IVput)minus the Put Premium (or price) (Pp3,where the Jntriusic Value of the

Put equals the maximum of zero or the difference of the Exercise Price Q and the Stock Price (Ps). The Owner of a Put Option will generally exercise the Put Option (given a

-

zero Put Premium) when the Intrinsic Value of the Put (E PJ is greater than (>) $0. For the CSAIT of Contract 1, the Put Premium is zero, therefore the profit fiom buying only the Put option (xpm)is simply equal to the Intrinsic Value of the Put (Diagram

2). The Stock Price is the NOMV of the weekly CSA "ABC" Bag (at expiration), and the Exercise Price is the $15 NOMV provided by the limited Liability clause. Using the NOMV results fiom Week 1 taken fkom Table 4, where the NOMV of the CSA "ABC" bag was $12, the npmfor Week 1 can be calculated:

during Week 1 is $3. Therefore the profit &om buying only the Put option (zpUd However, it is important not to forget that for the C S A K of Contract 1, the Stock and Put option on the Stock are sold as one package, therefore the initial $15 weekly share cost

paid by the MI1 is not a sunk cost. Therefore the Combined (hedged) Position of buying both the Weekly $15 stock and exercising the Weekly Put Option on that stock (Diagram 3) yields a net profit (Net n)of SO.

Net II = cost of weekly share + ( N O W of weekly share + nput)

Net I I w =-$I5 ~ ~ +($I2 +$3)=$O Net n Wctk =-$I5 +($15)=$O

Net ll weekI = $15 cost of weekly share + $15 refund fiom Farmer W C " = $0 Therefore, in Week 1, given the limited Liability clause of Contract 1, instead of receiving a non-organic market value (NOMV) of $12 for the CSA "ABC" defivery? while having paid $15 for it (which represents a potential loss of $3), the Mfl would

exercise the Put Option (i.e. return the delivery) and thereby break-even by receiving a $15 cash refund fiom Farmer "ABC".

The "ABC" M/I would therefore recover a

potential loss of $3. According to the NOMV results displayed in Table 4, the M/I would have exercised the Put Option in Weeks 1, 3,4, 5, and 10, where each respective NOMV was below $15. The M/I would have increased hidher value by $13.41 fiom $182.94 to $196.35.

It is essential to note that the Put Option would only be used by an M/I who did not attribute a superior value to organic produce. In reality, the organic market values (OMVs) of the "ABC" deliveries were all much greater that their $15 individual purchase

price. Therefore, to exercise the Put option on their NOMV would actually leave the M/I worse off, befause the S 15 refund could not replace the organically conscious "ABC~

organic market value (OMV)of any week's delivery. 7.6.4.2 Variable Coupon Bond

Another alternative way to view the CSAIT of Contract 1 is to transform the timing and payment of its OMVs fiom Table 4 into the structure of a variable rate coupon

bond. For example, if the face value of the bond is assumed to be the $180 share purchase price, and an equal portion of this amount (or $15) is deducted fiom each week's OMV and lumped into one final payment, the following structure would result:

The corresponding variable coupon rates4' (expressed as percentages of the $180 face value) are 7.01%; 3.24%; 4.24%; 1.W%;2.13%; 3.24%; 1.56%; 5.74%; 1.24%; 1.26%; 2.61%; and 4.72% respectively. The sum of the variable rates, 38.87%, equals the

average OMV coupon rate of return liskd in Table 4. The price (or present value) of this bond could be calculated by choosing some value for r and discounting to March 15 (the purchase date). A search for a bond in the financial markets with equivalent default risk could be undertaken in order to compare its coupon rates with the CSAITs7.7 The Discount Rate

In terms of choosing an appropriate discount rate for the NPV calculation(s) that follow, several assumptions are required. First, it is assumed that discounting will be performed even though it is generally not a consideration witbin a one-year period as the time value of money principle48is not applied. Second, weekly discounting was chosen to match the weekly payment schedule of the CSA "ABC" deliveries. Third, in terms of choosing the actual value for the discount rate, it was assumed that Contract 1 was default risk-fiee given the contract's guarantee of safety of principal backed by its Limited liability clause. The annual rate for XYZ Bank's Canadian T-Bill Mutual Fund (CDN T-BF)

which also assumes 100% safety of principal was used as a benchmark to calculate the

47

It is assumed at this stage for the sake of simplification, that the discount rate (r) is equal to zero.

"(These) time preferences occur because there are always other valuable opportunities for using (the) money. Interest rates reflect the opportunity costs of not immediately putting the money into the best other uses... . The level of interest rates reflects the value of these opportunities and thus the strength of time preferences" (Bany et al. 1988, 190).

weekly risk-fiee discount rate equal to 0.0279/52~' or O.OOOS36S3 846 per week.

Therefore, it was assumed that the discount rate, which by definition is the sum of the risk-fiee rate, the risk premium50and the idation premium, was simply equal to the riskEree rate. It was assumed that the risk-premium, virtually nil, was zero and that the

inflation premium, not considered, was also zero. (Rates of return for all XYZ Bank mutual funds were not adjusted for inflati~n).~'

Selecting the appropriate discount rate for NPV calculations, involved finding an alternative investment with an equivalent risk to the CSAIT of Contract 1 and applying the former's weekly rate of return as the discount rate. The logic behind choosing the

CDN T-BFas this alternative investment was that it had an element of (daily) fluctuating interest rate risk similar to the CSAIT's (weekly) variability in the market values of each delivery. The CDN T-BF was also chosen as it was an alternative investment choice available to any "ABC" M/I including the researcher, who assumed that he/she would consider alternative financial investments offered at their personal bank, XYZ Bank. The funds invested in the CDN T-BF are not guaranteed by the Canadian Deposit Insurance Corporation, and neither are those funds invested in the CSA." A k e d and guaranteed rate of return (or yield) fiom a 30 day Government of Canada (GOC) T-Bill, posing no interest rate risk (variability) during its contract period was not considered to be a riskequivalent investment. The Bank of Canada rate was also not chosen, as the appropriate discount rate because this rate is only offered to large financial institutions and is not offered to s m d investors such as the MYI in question."

49

This is the annualized compounded (monthly) rate of return (based on daily rates) of the CDN TBF divided by 52 weeks (XYZ Bank, 07111/97). "The risk premium is the investor's reward for risk bearing.... Thus the risk premium represents the cost of risk bearing" (Barry et al. 1988,246).

" Confirmed via

personal communication (Employee, XYZ Bank Asset Management Inc.,

02/12/97).

''It is obvious that the probability of collapse of the CDN T-BFcaused by the bankruptcy of XYZ Bank is much less than the probability of bankruptcy of Farmer "ABCn due to adverse farming conditions. However, the CSA "ABC*' contract was assumed to be d e h l t risk fkee because Farmer ''ABC' was, given the rare possibility of complete crop Mure, able to fully reimburse all "ABC' Member/Investors from his non-farm income source.

7.8 The CSAIT of Contract 1 :The Delayed Variable Rate Annuity The following representation is the general formula of the CSAIT described in Contract 1 (the "Debt" contract). The official contract period began March 1, 1998 and ended October 8, 1997.

E

= Variable

Market Value of CSA Weekly Delivery, where this value can never be less than a $15 NOMV or a f 15 cash refund (the total share price of S 180 distributed equally over the 12 weekly deliveries) and never greater than some positive market value (SMV) determined by the chosen market valuation (NOMV or OMV). In other words,

$IS< E 0 36.93% (32 week fully discounted rate of return on investment)

The above NPV (OMV) analysis (which assumes that discounting is necessary for a period of less that one year (7.10 assumption 12), and at a risk-fiee rate w = 0.0279/52)

yields a positive net present value of $66.48, and a corresponding percentage rehun on the initial investment of 36.93%.

Thus by the definition of NPV, the CSAIT (OMV)

investment opportunity is profitable and can be chosen? The NPV ( O m values, which

reflect a fdl discounting, are slightly less than those arrived at through a partial discounting of 21 weeks (Table 5) used to compare the CSAIT (OMV) to other XYZ

Bank financial investments. The results Erom the above NPV calculation indicate an average weekly OMV value of $20.54 per bag or an average weekly gain in disposable income of $5.54- From the resuits of the l l l y discounted NPV (based on results fiom the OMV sample) the Memberhvestor may be willing to pay up to $246.48 ($180+$66.48) for the CSA "ABC" share. This is true if and o d y if it is assumed that the consumer's goal in this case is to break-even with the retail market,

7.13 The IRR Analysis To calculate the Internal Rate of Return (IRR)," the NPV in 7.12 is set equal to zero and the corresponding value for w is solved for. The interest rate that satisfies this equation is the IRR. By means of an IRR solver program,65w was found to be equal to 1.26%. In other words, in order to reduce the M y discounted NPV (OMV) fiom $66.48 to $0, the appropriate discount rate would have to increase fiom 0.05365% weekly to 1.26% weekly

or from 2.79% annually to 65.54% annually. According to our assumptions about the choice of the discount rate (7.7), this would mean that the alternative risk-equivalent financial investment would have to yield a annual return of 65.54%.

Finding this

alternative to the CSAIT (OMV) would be difficult, if not impossible, given both the positive relationship between risk and return,66 and the already high rate of return

(36.93%) and risk-fiee nature of the CSAIT of Contract 1. " "An investment is worth making if it has a positive NPV. If an investment's NPV is negative, it should be rejected" (Ross et al. 1995,75).

-

64

"This rate (the IRR) is called by various names the 'discounted-rate-~~retum', the 'marginal efficiency of capital', or the 'yield of an investment' .... In effect, the LRR equates the present vaiue of the cash flow series to the initial investment" (Bany et a1 1988,216). Microsoft Excel, version 5.0, This relationship is best seen by the Capital Market Line (CML) which is the linear efficient set of the CAPM (Capital Asset Pricing Model). The CML plots the expected return of an efficient portfblio against its standard deviation. The slope of the CML,referred to as "the reward per unit of risk borne", is positive, which confirms that increased risk is a necessary cost for increased expected return (Sharpe et al. 1997,238).

7.14 Manipulation of NPV (OMV) to show Delayed Variable Rate Annuity

The following manipulation of the NPV (OMV) equation (fiom 7.12) serves to separate the $15 minimum value guaranteed by Fanner "ABC" from the weekly variable rate6':

NPV =-180+

0

(1 + W)

+..,+

For any particular delivery, if

0 + s l y 1 + i,) + $15(1+ i,) ( ~ + W ) ~ O(l+w)" (l+wlP

e < $15 (NOMV), then i

i,) + $15(1+ + (l+w)=

= 0 and $1 5 is reimbursed to the

Memberhvestor.

The following NPV (OMV)shows the variability in weekly rates of return for the CSA "ABC" Contract. Coupon rates fkom Table 4 have been inserted:

NPV = -180+

"

0

0

(1 + ~ ) l + . . . + (l+w)"

+ $l5(1+0.8413)+$15(1+0.3896) + $15(1+0.5092) + (l+w)'l (1 + w)= (1 + w ) ~

Unlike the variable rate mortgage where changes in rates are announced prior to payment, the variability in rates (or payments) in the CSA case can only be calculated in retrospect,

7.15 Representation of the NPV (OMV) Weekiy Gain in Disposable Income

Perhaps the most representative way of displaying the returns to the "ABC" M, is to re-arrange the NPV and its corresponding cashflows in a manner that isolates the

variable weekly cash-equivalent gains (savings) in disposable income (7.10, assumption

NPV =-180+0+ $12v62+$15+$584+$15+ $7.64+$15 (1+~)~'

(l+w)=

(1+w)*

+ $338+$15+ $3.83+$15+ (I+W)~

(I+*)=

The above NPV (OMV) can be M e r re-arranged to separate the variable weekly gains from the $15 weekly repayments. Note that the NPV (OMV)result is the same as in

NPV =-180+0+

$12.62 + $5.84 + $7.64 + $33 8 (I+w)~' ( I + W ) ~ ( I + w ~ (l+wlU

$2.8 1 + $1034 ( ~ c w ) " (itw)"

+

$224

(I+w)"

+

4-

$3.83 (l+w)=

+

S5.83 + (I+w)*~

$227 + $4.69 + S850 + ( $ I ~ X A : ~ ) 1 ( I + W ) ~ ( I + W ) ~ ' (1+wln (1 + n)"

Table 6 takes the 12 non-discounted (OMV)weekly savings for the "ABC" Mn

fiom Table 4 and fully discounts each one to time

The Total 12 week fully

discounted saving is $66.48 with a weekly average equal to $5.54. The largest saving

($12.31) occurred in Week 1 and the smallest ($1.97)in Week 9. Chart 4 takes results

£torn Table 6 and plots them accordingly. The first bar of each week is the Organic Market Value (OMV) of the "ABC" weekly bag (delivery). The second bar is the $15 average Share cost per week. The third bar is the difference between bars one and bar two, or the Weekly fully discounted saving in disposable income realized by the 4cABC"

----

Table 6. Discounted Weekly "ABC" Membcr/Investor (OMV)Savings CSA WEEK

(end of)

OMV of CSA Bag*

D~scountedw Share OW Cost of CSA Per Week Bag

1 2 3 4 5 6 7 8 9 10 11 12

Weekly CSA Member Saving'

Oiscountedh weekly CSA

Member Savinp

S 12.62 $ $

5-84 d 7.64 $ 3.38 $

S

3-83 $

$

s

$ 5-83 $ 2.81 $ 10.34 $ 2.24 $ 2.27 $ 4.69 $ 8.50

s

$ $ $

s s $

12.31 5.60 7.36 3.14 3-58 5.54 2.55 9.96 1-97 1-99 4.37 8.1 0

Sum Average Max. Min. A

* Numbers taken from Table 4.

"Each Organic Market Value (OMV) corresponding to each weekly CSA "ABCn delivery is fully discounted to time t=O (or May 15. 1997). for it is on this day that the CSA "ABC" Member/lnvestor purchases the $180 share from Farmer "ABC". Discounting is performed to decrease the OMVs to reflect the lag (and resulting forgone value for the MA) between the initial investment date (May 15, 1997) and the stream of 12 weekly deliveries beginning August 6, 1997 and ending October 22,1997.

Chart 4. Discounted Weekly (OMV) Savings or Gains in disposable income for "ABCwMemberflnvestor BFully Dlrcounted OMV d CSA w a l y 610

0 Fully Diswmbd

w*

SlvhrO

1

2

3

S

6

7

8

Note: numbers from the above chart have been rounded to the nearest dollar (S).

9

10

11

12

AVG

WEEK

7.16 The CSAIT o f Contract 2 (the "Equityn contract) As already explained in 5.4,51% of all Canadian CSA contracts use the CSAIT of

Contract 2 (the "Equity"contract), Therefore, unlike the default risk-free nature of the CSAIT Contract 1, the CSAIT of Contract 2 is a much more risky investment for the Memberhvestor. However, the risks to the Farmer, stemming from underproduction or undervaluation have been eliminated in Contract 27.16.1 Restatement of Contract 2 (the "Equity" contract) Farmer "ABC" agrees to sell the Memberhvestor a "share" of the CSA harvest (no ownership of fann assets is transferred) for a cost of $180, under all except one of the conditions stated in Contract 1. Under Contract 2, the M/I agrees to incorporate the realities of agricultural production risk-

In other words, the M/I is willing to accept the added risk that during any particular week, a bag (comparable to a variable "dividend" payment) may not be delivered or mav be less &an its (non-oreanic) market value, representing a potential cash loss of up to $15 per bag.68

7.16.2 General Representation o f Contract 2 (the YEquity"sale) The following mathematical representation of the CSAIT of Contract 2 considers the same period of the official "ABC" contract, March 1 to October 8, 1997.

"

In the event of a l i 1 loss of the $15 during one particular week, the Member's actual loss would be much greater since Wshe would now have to spend at least another $15 to purchase their produce elsewhere.

NPV = -180+

.-'

0

(1+wJ1

+.*.+

0 (l+wJ20

+

"I

+

6 2

+

(1twJ2l (l+w.)=

- Variable Market Value of CSA Weekly Delivery, where $0 w, = wf + w,

fi3

+

(1+ w J U

< $w

(Discount rate adjusted by a risk premium to reflect added risk of

Contract 2).

7.16.3 The Added Risk to the Memberhvestor under Contract 2 Lacking a limited liability clause such as the one in Contract 1, Contract 2 shifts more of the production risk &om Fanner "ABC" to the MA. Hence the discount rate w, or the new risk-equivalent financial investment used in the comparative analysis should

increase to reflect a positive risk premium (increased riskiness of the contract for the M/I).

The variable dividend payments of the CSAIT of Contract 2 are not guaranteed at some

minimum NOMV (as in Contract I), allowing for a strong potential fluctuation in their market values between $0 (i-e. no produce delivered) and some positive market value

(SMV). The down-side risk represents a potential weekly cash loss of up to $1 5 for the "ABC" MIL 7.16.4 Assumptions for the Consumer Investment Analysis of Contract 2

The following assumptions serve as a means of simp-g CSAIT of Contract 2 evaluated at the Organic Market Values (OMVs): 1. Assumptions 1 to 13 f?om Contract 1 (fiom 7.10)

2. "Dividend" payments are variable.

the analysis of the

3. "Dividend" payments are non-cumulative. In other words, if no delivery or only a small delivery is possible during any particular week, then the fanner will not compensate for it in the following or successive deliveries (seen as c'dividend" payments). 4. The discount rate used for NPV calculations incorporates a risk premium to reflect the

level (of default risk) of variability in the size of the "dividend paymentsy'. Therefore, it can be assumed that, unlike the default risk-fhe nature of payments of Contract 1 (derived by its limited liability clause), Contract 2 is much more risky-

7.16.5 Financial Definitions required to analyze the CSAIT of Contract 2

The structure of the Preferred Share taken from Hatch and Robinson (1989,288) is as follows:

Po is the present price of the share; Dr is the annual dividend kb is the annual rate of return to the preferred shareholder "A term-preferred share is a relatively recent Canadian phenomenon. The phrase is used to describe a particular type of share that has many of the characteristics of debt. A term-preferred share pays dividends and is preferred over common shares as to assets, but often has additional features. For example, the dividend is fkequently set at a floating rate. The redemption feature usually leads to a relatively early maturity'' (Hatch and Robinson 1989,283).

"The purchaser of a security is exposed to risk if there is uncertainty about the return that can be expected over the investment horizon. In the case of preferred shares, the uncertainty centers on the dividend to be received, the resale value of the security, or both" (Hatch and Robinson 1989,292). 7.16.6 Interpretations of the CSAIT of Contract 2 (the "Equity" contract)

The CS&'

as described in Contract 2 seems to have the characteristics of a

term-preferred share with the following specEcatioas: floating rate, non-cumulative

From 7.5 it was discovered that the CSAIT can not be considered a financial instrument, but does qualifL as an investment. The CSAIT of Contract 2 is therefore considered an equity "investment", and not an equity financial "instrument'.

dividend, non-callable, non-convertible, with no sinking fund. Alternatively, the CSAIT of Contract 2 might be compared to a share not equipped with a limited liability put option (as in Diagram 1 of 7.6.4. i), and paying variable rate non-cumulative dividends. 7.17 Canadian CSAs with Contract 2 specifications

According to Salm, (1997: Table 34) only 16% of CSAs under a Contract 2 arrangement distribute excesses to shareholders, (reflecting a positive relationship of higher expected return for bearing higher risk). However, the majority of CSAs (56%)

sell their excess produce. This may be a serious concern for the CSA Memberhvestor who would expect to reap the rewards of overproduction as would a cbditional" equity investor who generally receives a greater dividend payment on the owned stock if the

issuing company declares profits and is willing to pay out It is logical to expect that a CSA with an equity type contract such as Contract 2, would distribute its excess

production to its Member/Investors who have agreed to accept a greater risk for potentially greater returns. However, the results from Canadian CSA data (Salm 1997: Table 34) indicate that the majority of CSA's prefer to sell their excess produce in the

case of overproduction rather than distribute it to its M/Is.

There must be some

explanation for this outside the realm of Corporate Finance. It must be recognized that the CSA "return on investment'' is in the form of produce not cash (7.10, assumption 2).

CSA produce, unlike cash, is perishable, non-transferable, and non-cashable, and not

easily storable over long periods of time (i.e. holds its value). Evidence found in Canadian data related to average delivery sizes shows that the average CSA customer is not interested in receiving more produce per week (Salm 1997, Table 22). In fact, according to three theses: Salm (1997),Laird (19 9 9 , and Suput, (1992), one of the most common reasons for high turnover rates of M s in CSAs was attributed to an excess of food. Thzrefore, instead of seeing food go to waste, most CSA feel justified in selling their surpluses in other markets. The farm in this study, held a Saturday/Sunday Market,

where excess produce was sold at higher prices than those used to calculate the CSA WC"deliveries. Data confirming CSA MII satisfaction, indicate that most Canadian

CSA MernberlInvestors believe that they are achieving a high rate of return (through

savings). According to Salm (1997: Table 38), 57% of investors pay tess than the OMV, 36% pay the same, and 7% pay more. Therefore, for CSAs offering Contract 2, the problem of the market value of C'dividends"being less than the average weekly share cost

does not seem to be a fiequent (only 7%) occurrence in the Canadian context. CSA "ABC" OMV data fkom Table 4 attests to the above observation-

7.18 Conclusions fkom the Consumer Investment Analysis The Consumer Investment Analysis has presented a detailed description of both the CSA Investment Tool (CSAIT) of Contract I (the "Debt" contract) and the CSAlT of

Contract 2 (the "Equity" contract). Emphasis was placed on understanding the CSAIT of Contract 1 as this was the Contract offered by the case study CSA "ABC". A series of financial definitions, used to better understand the structure of the CSAIT revealed that

although the CSAIT could not be considered to be a 'Yimncial instrument", it did qualify as an "investment" which defined by a contract could (under the assumptions of 7.10)

yield a rate of return and therefore be compared to rates of return of other financial investments. The rates of return of the CSAIT of Contract 1 evaluated at the Organic Market Values (OMVs) found in Table 4 were first partially discounted in order to compare these rates to the rates of return of alternative financial investments offered by the XYZ Bank. The CSAIT (OMV)partially discounted rate of return of 37.77% during the 32 week investment period (March 15, 1998 to October 22, 1997) surpassed the rate

of retum of the XYZ risk-equivalent investment (CDN T-BF) of 1.60%. The CSAlT (OMV) average rate of retum also exceeded the rates of return of other risk-superior XYZ

Bank financial investments. The same weekly (OMV) rates were inserted into a series of NPV calculations which were designed to calculate the fully discounted rate of return to the CSA "ABC" Memberhvestor.

The fully discounted (OMV) rate of retum was

36.93%.

The Case-Specific Consumer Investment Research Question (4.4) which asked: How does the retail organic market value (OMV) return to a Memberhvestor on their $180 share price compare to the returns on $180 if these h d s would have been invested

in alternative financial investments during the same CSA b'ABC" contract period can now

be answered: The CSAIT (OMV) rate of return exceeded those rates of return realized on XYZ Bank financial investments during the same contract period. Therefore, the CaseSpecific Consumer Investment Hypothesis, which stated that the Memberhvestor's organic market value (OMV)rate of return from the CSA Investment Tool (CSAIT) of the

"ABC" 1997 contract was superior to the rate of return of some risk-equivalent financial investment, cannot be refbted.

Chapter 8.

THE PRODUCER ANALYSIS 8.1 Restatement of Producer Research Question and Hypothesis

The case-specific producer research question, introduced in 4.2, asked whether the CSA method of financing and direct marketing would be a superior financial alternative

to traditional debt financing and wholesaler marketinn; for the "ABC" operation? The corresponding case-specific producer hypothesis that followed was a claim that during the 1997 season, the CSA "ABC" Farmer would achieve a higher net income than if he had

financed bv means of an operating line of credit or loan. and marketed his produce

through a wholesaler.

8.1.1 Procedure Before any comparison can be made between the CSA and Non-CSA methods of marketing and financing, several preliminary steps had to be taken. In section 8.2, a series of s k cumulative Summary Budgets for the CSA "ABC" are presented, which allow for a determination of the costs to be covered by the 1997 " A X " share price, as well as demonstrate what adjustments to the share price would be required in order to meet more rigorous budgets. A discussion on the dichotomy between the actllal and break-even

share prices is presented in section 8.3. Section 8.4 explains how wholesale prices, which determine the revenue for Non-CSAs were calculated. In Section 8.5, two Simulations are presented to compare the Revenues, Costs and Financing between the "ABC"

operation as a CSA and the "ABC" operation as a Non-CSA. A Net Present Value (NPV) analysis based on the results ofthe Simulations is provided in Section 8.6. 8.2 The CSA uABC" Farm Budgets

A series of six Farm Summary Budgets have been calculated to show their

corresponding impacts on the value of the CSA "ABC" share price required for Farmer "ABC" to cover incremental costs. Budget data for the "ABC"operation were revealed in

a series of meetings with Farmer "ABC". During the first meeting (Mr. ~ a n n e r ~ cbABC", ' 18/10/97), Farmer "ABC" attributed a dollar amount to a cost list prepared by the

researcher. In the second meeting (Mr. Farmer cbABC",25/10/97), budget data were verified and any missing items were added. A third and final meeting (Mr. Farmer cbAE3C",01/02/98) served to once again review the budget data, and to make some minor

adjustments. Other personal communications with Farmer "ABC" (Mr. Farmer "ABC", 19/11/97); (Mr. Farmer "ABC", 02/02/98); (Mr. Farmer "ABC", 03/02/98) and (Mr.

Farmer "ABC", 07/02/98) also helped in arriving at more representative7' budget data All six Summary Budgets contain revenue a d cost data that are mictly relevant to the 1997 CSA "ABC" operation. The notes accompanying the Summary Budgets can be

found in Appendix C. Summary Budget 1 (Table 7) displays the revenue achieved &om the sale of the 60 CSA "ABC" Shares at $180 each. This amounts to a total of $10,800 in sales revenue.

Interest incomeR equal to $36.13, which was earned by investing73the $ lO,8OO in share sales revenue for 3 1 days into an XYZ

Bank GIC (offering 2.00%/a) on March 15, 1997,

and then reinvesting the principal and interest for another 30 days on April 15, 1997 and

under the same terms. ($10,836.13).

Total Revenue for "ABC" was therefore equal to $10,836

On the cost side, Summary Budget 1 only concerns itself with cash

operating costs, which include the costs for farm inputs, other costs required to begin the CSA operation, hired labour costs, and interest on operating capital. Total Operating Costs for "ABC' were $10216 ($10,215.60).

It is important to note that due to the

alternative marketing and financing techniques of the CSAFM, interest costs on operating capital were zero as all the necessary h d s required to pay for operating expenses and 70

The name of the CSA "ABC" Farmer will not be revealed in order to guarantee his anonymity.

" By b'repfesentative"is meant as close as possible to actual incurred costs. Cost data were based on the Fanner's experienced estimates, for no official receipts were available- Rigorous emphasis was placed on isolating the CSA "ABC' operation's share of total farm costs &om the three other farm operations (Organic Tree Nursery, Organic Saturday/Sunday Market, and Organic Seed Company)-

r, Interest of $350 on share sales of $37,500 for the Kimberton CSA was also included under "Income" for the 1989 Operating Budget (Groh and McFadden 1990, 165).

"Some CSA firms actually utilize short term debentures to generate some interest prior to using these b d s in their operations" (Allerdings 1994,Q).

68

Table 7. Summarg Budget 1 I.REVENUE (solely ftom CSA "ABC" operation) 1. CSA "ABCn Share Sales 2- Interest made from Investment of Share S a l e a. 31 day GIC: XYZ Bank; 03115l97-04/14/97 (@200Wa) b. 30 day GIC: XYZ Bank; 04flS/97-05/~4197(@ZOO%Ia)

Total Shares 60

Price per Revenue Share $180.00 $10,800

$ 18-35 $ 17-78 $ 36.13

-

$ 36.13

3. Revenue Adjustment for $15 Weekly "ABC" Member Refunds"

Total Revenue II.OPERATING COSTS (restricted to CSA "ABC" operationm) 1a. Non-LabouF*" (incurred ~ r i oto r or durina but relevant to the 12 week "ABC' contract ~eriodl i Seeds & Plants t Organic Fertilizer 3 Organic Pest Control r Fuel (farm machinery only) 6 Electricity 6 Water 7 higation Network 8 Water Pump (Leased) a Farm Tools (small) io Maintenance & Repair Costs (farm machinery only) i i Maintenance 8 Repair Costs for Barn 12 Advertising 13 Delivery Supplies ir Delivery Fuel 16 Delivery Vehicle (Leasing) 16 Delivery Vehicle (License and Registration) f7 Farm Truck (License and Registration) 18 OClA Certification i a OClA Per Sale Payment (0.5% of Total Sales) a UPA Membership Fee

I

$ 80.00 $ 200.00 $ 240.00 $ 100-00 $ 480.00

n/applic. $ 800.00 $ 400.00

$400.00 $ 800.00

$ 333.33 $ 400.00 $ 150.00 $ 205.63

$213.70 $ 8.81 $ 49.48 $ 134.54 $ 54.00

1b. Labour berforrned bv non-familv farm labour duflna the 12 week *ABCn contract oeriod)

Labourer

H

wks

L1

total hrs 300

$ 10.00

LCL8 Total

70 SO0

$ 10.00 $ 10-00

hfsiwk

ratemr

ToGI Paid $ 3,000 $700.00

1c. Interest on Owratina Ca~ital

n/applic. Total Operating Costs

A. Not Income from Summaw Budget 1

.s_ --

r----~Zlz

hired labour were received up-fiont through the saIe of the 60 "ABC' shares on March 15, 1997. Reliance on a spring operating loan or Line of credit, a necessity in many farm

operations, was therefore avoided. Net Income fiom Summary Budget 1 showed a positive balance of $621 ($620.53). Arriving at a positive net balance indicates, that based on the costs contained in this budget, and given a Memberhvestor base of 60 shares, the "ABC" share price of $180 was more than sufficient to break even. The actual break-even share price based on Summary Budget 1 is $170.26.

Summary Budget 2 (Table 8) incorporates Summary Budget 1 and adds to it Ownership

restricted to Taxes, Insurance, and Housing Costs relevant to

Machinery, Buildings and Land. It is assumed that these are incurred costs and not opportunity costs.

Total Ownership costs based on Summary Budget 2 were $726

($726.20). Net Income fkom Summary Budget 2 shows a negative balance of -$lo6 ($105.67). Arriving at a negative net baIance indicates that based on the costs contained in this budget, and given a Memberhvestor base of 60 shares, the "ABC" share price of $180 is insufficient to break even. The actual break-even share price based on Summary

Budget 2 is $182.36-

Summary Budget 3 (Table 9) incorporates Summary Budget 2 and adds, under Ownership Costs, the Financing Interest Costs incurred by CSA "ABC'. Since "ABC" is not financing the ownership of any of its Machinery, Buildings or Land, Financing Interest Costs are zero. Therefore, Net Income fiom Summary Budget 3 shows the same negative balance of 6106 (-$105.67)as in Summary Budget 2. Arriving at a negative net balance indicates, that based on the costs contained in this budget, and given a Memberhvestor base c?f 60 shares, a share price of $180 is insufficient to break even. The actual break-even share price required, based on Summary Budget 3, is also $182.36. In other words, since CSA ccABC"is not financing the ownership of its Machinery,

74

It is important to re-emphasize that the costs shown in all six budgets are the proportion o f total costs that must be assumed only by the CSA "ABC' operation. Notes accompanying Summary Budgets 1 to 6 (Appendix C) explain how these costs were isolated.

Table 8. Summary Budget 2 I. REVENUE (from Summary Budget 1) H. OPERATING COSTS (from Summary Budget 1) Ill. OWNERSHIP COSTS (mstricted to CSA "A6CWoperationm) 1a. Machinery

I

Housing:

tt Taxes on all F a 24 Insurance on Farm Truck zs Insurance on Delivery Vehicle z6 Insurance on Farm rr Housing for Tractor 28 Housing for Rotor Tiller n Housing for Compressor a Housing for Sprayer

m

n

n/inc!.

3 83.08 $ 24.66

$106.67

S 56-01 $ 5-06 $ 34.75 $ 5.22

IS 315.47

1b. Buildinas Taxes: Insurance

3r

Taxes on Barn

___

. . - . .

32 Insurance on Barn

n/inclincl. in zu

hs

-

1c. Land

Taxes:

XI

Property Taxes

Total Ownership Costs

8. Net Income from Summary Budget 2

S 410.73

1$ 410.73

Table 9. Summary Budget 3 I. REVENUE (from Summary Budset 2)

II. OPERATING COSTS (from Summary Budget 2) Ill. OWNERSHIP COSTS (restricted to CSA "ABC" operationm) Total owners hi^ Costs (from Summaw Budaet 21 1a. Machinery

Financing Interest:

M Tractor 36 Rotor Tiller s Compressor 37 Sprayer Farm Truck

nfapplic. nlapplic. nlapplicn/applicn/applic.

$ $ $ $ $

bs 1b. Buildinas

1c. Land

Financing Interest:

ro Property

Total Ownership Costs C. Net Income from Summary Budget 3

-

-

-

Buildings, and Land, the required break-even share price does not increase, given the

existing sale of 60 shares.75 Summary Budget 4 (Table 10) incorporates Summary Budget 3 and adds the noa-cash costs of depreciation. As a remit, Total Ownership Costs increase by $1,628.99 to $2,355 ($2,355-18). Net Income fiom Summary Budget 4 shows a balance of -$l,735 (-$1,734.65).

Arriving at a negative net balance indicates, that based on the costs

contained in this budget, and given the existing Member/Investor base of 60 shares, a share price of $180 is insdficient to break even. The actual break-even share price required, based on Summary Budget 4, is $209.51. in other words, if CSA "ABC" had to

also incorporate the economic cosd6 of replacing its assets, under the conditions stated in the notes to Budgets 1 to 6 (Appendix C), the 1997 "ABC" share price should have been at least $209.5 1, given the existing sale of 60 shares.

Summary Budget 5 (Table 11) incorporates Summary Budget 4 as well as the non-labour and labour

operating costs and equity interest opportunity

ownership costs. The opportunity gain fiom saving seeds and plants used in the 1997 CSA "ABC" operation was $480. This amount would have been paid for by Farmer "ABC" had he not saved these seeds and plants from the 1996 c4AE3C"operation. The

opportunity cost of farm f h l y labour (or unpaid labour) totals to $ 10,440 (assuming that

family labour is paid the same wage as hired labour).

Under Ownership Costs are

included the opportunity cost charged for the use of capital in the "ABC" operation. This

''

In a discussion with Farmer "ABC' concerning the optimal number of share sales, he related that it would be either 60 or 150. By producing the equivalent of 100 shares of produce, but only selling 60 for the CSA, with the remaining 40 shares of produce available for sale at the SaturdaylSunday market for higher prices, the Fanner was able to realize a higher level of combined income, thau had he sold all 100 shares for the CSA at $180 each. Farmer "ABC' claims that he could only match the combined optimal level of revenue fiom two operations with the sale of 150 shares entirely fiom the CSA operation (Mr.

Farmer "ABC', 0 1/02/98),

''(Boehlje and Eidrnan 1984,134-135). n "The opportunity cost approach (is a) method in which the concept of opportunity cost is applied to solve a short-term, nonrouatine decision problem- Opportunity cost represents the net benefit lost by rejecting some alternative course of action. Its significance in decision making is that the best decision is always sought, since it considers the cost of the best alternative nor taken" (Siege1 & Shim l987,3O 1).

Table 10: Summary Budget 4 REVENUE (from Summary Budget 3)

[I.OPERATING COSTS (from Summary Bud-

3)

Ill. OWNERSHIP COSTS (restricted to CSA "ABC" operationm) Total Ownershia Costs (from Summaw Budaet 31 1a. Machinerv

l~e~reciation:

Depreciation on Tractor Depreciation on Rotor Tiller u Oepreclpreclation on Compressor u Depreciation on Sprayer rs Depreciation on Farm Truck 4.r 42

i

S 231-00 S 30.50

3

$264-96 $104.32 $ 72.28 $703.06

I

1b. Buildinas

Depreciation:

48

Depreciation on Barn

$925.93

1

Total Ownership Costs

0. Net Income from Summary Budget 4

r-----

d-l.~~;

Table 11: Summary Budget 5 I. REVENUE (from Summary Budget 4) II.OPERATING COSTS (restricted to CSA "ABC" operationm) Total O~eratinaCosts from Summan, Budaet 4

laii. Non-LabouF (incurred Prior to or dunna but relevant to the 12 week "ABC" contract -ria pportunity Cost from saving Seeds & Plants 1bii. Labouf-

1 $ 480.00

herformed bv farm familv durina 12 week "ABC" contract oeriodl

1biii. Labour*+ (netformed bv fann family in menatation for the 12 week "ABC" contract ~erim

Ibiv. Labour (~etformedbv farm familv onlv fordelivew durina the 12 week "ABC" contract mriodl

Total Operating Costs 111. OWNERSHIP COSTS (restricted to CSA "ABC" operation-) Total Ownershiti Costs (from Summaw Budaet 4)

) ~ ~ uInterest: i t ~

61 62 K?

Equity Interest:

68

Opportunity Equity Interest on Barn

I$ 416.67

Equity Interest:

67

Opportunity Equity Interest on the CSA "ABC" Land

I $700.00

sr

Deductions for Business Expenses

Opportunity Equity Interest on Tractor Opportunity Equity Interest on Rotor Tiller Opportunity Equity Interest on Compressor m Opportunity Equity Interest on Sprayer 66 Opportunity Equity Interest on Farm Truck

140.10 12.65 82.74 12.38 35.47 S 283.34 $ $ $ $ $

1

1

Total Ownership Costs IV. ADJUSTMENTS

Transfer of Sales Taxes (GSTIPST) Revenue w Taxes on CSA "ABC" Income

n/avail. n/applic. Wavail.

6#

E. Net Income from Summary Budget 6

------4 14 06s

C II~pI-

I

opportunity cost represents the potential equity interest earned on capital assets had Farmer "ABC"been able to invest their average investment at some long-run market rate of interest or return, or re-invest in his farm business. Total equity interest opportunity costs equal % l,4OO.Ol. Total Operating Costs for Summary Budget 5 increase to $21,136 (21,135.60) and Total Ownership Costs for Summary Budget 5 increase to $3,755 ($3,755.19), giving a Net Income of -$14,055 (-$14,054.66). Arriving at a negative net balance indicates, that based on the costs contained in this budget, and given a Member/lnvestor base of 60 shares, a share price of $180 is insufficient to break even. The actual break-even share price required, based on Summary Budget 5, is $414.85. This share price is the "long-run economically feasible" share price or the Total Budget

share price for the CSA "ABC" 1997 season.

Summary Budget 6 (Table 12) incorporates Summary Budget 5 and is designed to override Summary Budget 3 if the CSA "ABC" was actually financing the ownership of Farm Machinery, Buildings and Land. As many CSAs are in this position, it is useful to include this final budget.

Financing costs total to $ 2,384.52.

Therefore, Total

Ownership Costs for Summary Budget 6 are $6,140 ($6,139.70), giving a Net Income of $16,439 (416,439.17). Arriving at a negative net balance indicates, that based on the costs contained in this budget, and given a Memberhvestor base of 60 shares, a share price of $180 is insufficient to break even. The actual break-even share price required, based on Summary Budget 6, is $454.59. Had CSA "ABC"been financing the ownership of its farm assets during the 1997 season, a share price of $454.59 would be representative of the "long-run economically feasible" or Total Budget share price.

8.2.1 Results of Budget Analysis The Net Income results (A to F) for each of the six Summary Budgets are listed in Table 13 on the following page. It is important to notice the drastic decrease in income as more and more costs are incorporated into each successively comprehensive budget. Part

G of Table 13 shows the required break-even share prices given the revenues and costs for each budget, as well as the break-even revenue requirements corresponding to these break-even share prices.

CSA "ABC", given its $180 1997 season share price, is

Table 12: Summary Budget 6 I. REVENUE (from Summary Budget 6 ) II. OPERATING COSTS ( m m Summary budget 5 )

Ill. OWNERSHIP COSTS (restricted to CSA "ABC" operationm) Total Ownershb Costs (from Summaw Budaet 5)

1a. Machinery L

Financing Interest:

Tractor Rotor Tiller a Compressor 64 Sprayer 61 62

$ 280.20 $ 25.30 $ 169.62 $ 25-38

1b. Buildinas

1c. Land

Financing Interest:

67

Property

1$

1,141

Total Ownership Costs IV. ADJUSTMENTS

r ) ~ e d u d i o n sfor Business Expenses Transfer of Sales Taxes (GSTIPST) Revenue 70 Taxes on CSA "ABC" Income

68

F. Net Income from Summary Budget 6

n/avail. ntapplic. n/avail.

1

,------416.4397

roo---

77

Table 13: R a d t s of Summary Budgets 1 to 6

A. INCOME net of OPERATING COSTS (from SBA1)

B. lNCOME net of OPERATING and OWNERSHIP COSTS (from SB 2) (adds Taxes, Insurance, and Housing Costs)

C. INCOME net of OPERATING and OWNERSHIP COSTS (from SB 3) (given zero Financing Interest Costs)

D. INCOME net of OPERATING and OWNERSHIP COSTS (from SB 4) (adds Depreciation Costs)

E. INCOME net of OPERATlNG COSTS and OWNERSHIP COSTS (from SB 5) (includes Opportunity Costs) F. INCOME net of OPERATING COSTS and OWNERSHIP COSTS (from SB 6) (assumes Financing Interest Costs) G. SHARE PRICES L

I

"ABC"'9fl

I

"ABC" '97

A

#

SBl

I I

SHARE PRICES (required to breakaven) SB2 1 SB3 1 5 8 4 I SBS I SB6

I

I

1

I

Comsponding Breakswn Revenue ($) required # SB 1 SB 2 SB 3 SB 4 SB 6 SB 6

SB stands for Summary Budget Given the sale of 60 shares @ $180 per share.

only covering its cash operating costs h m Summary Budget 1, as well as the majority of the ownership costs in Summary Budget 2, and therefore also Summary Budget 3. In

order to meet a total budget, CSA ccABC"would have to charge a share price of $414.85

(SB S), given the same share sales of 60. The resulting revenue generated, equal to $24,890.79, would be sufficient just to cover costs, and therefore break-even. Chart 5

provides a graphical representation of the net Income results fiom all six Summary Budgets, and Chart 6 compares the corresponding required break-even share prices.

8 3 Share Prices and the Economic Viability of CSAs The central financial figure that affects and brings together both sides of the CSA market (the Farmer and the Member) is the Share Price. Interestingly, the CSA share price can and has been calculated differently across CSAs. However, as it is explained by Suput (1992), the long-term economic viability of a CSA can only be guaranteed if its share price incorporates all the costs of a Total Farm ~ud~et.''

8.3.1 Share Price Calculation Methods The following are the usual methods by which share prices are calculated: 1. Total Budget Method:

Share Price = Proiected Total Budget # of Shares Offerable

The Total Budget Method is simply the quotient of the CSA7s Total Projected Budget for the upcoming season and the Number of Shares Offerable (or Number of Expected Shares to be Sold). Estimating expected membership size is also a serious consideration for many CSAs which, due to poor enrollment, are not able to sell all shares that are offerable. For example, CSA c'ABC" produced the equivalent of 100 shares of produce during the 1997 season, but was only able to sell 60 shares. Being able to spread

complete (or total) budget includes a listing of all production and income, and all inputs and The complete budget, sometimes referred to as the total budget, includes an estimate o f the average annual cash operating receipts, cash operating expenses, inventory changes, and changes in capital items (depreciation on buildings, facilities and machinery) to develop an estimate of average annual farm profit or Ioss" (Boehlje and Eidman 1984,229). " "A

expenses for the farm business.

Chart 5. Net Income Results tram Summary Budgeta 1to 6

Summay Budgets

IW Net Income

Note: numbers fiom the above chart have been rounded to the nearest dollar (S).

Chart 6. Corresponding Break-even Share Prices -

2 Break a v m Stun Prices

3

4

Summay Budgets

6

6

the existing costs of the CSA operation over a larger membership base, would have enabled "ABC" to come closer to meeting a Total Budget (Summary Budget 5). For example, assuming all costs remain the same as well as the $180 share price, had CSA "ABC" been able to sell 100 shares instead of 60, total revenue from contract sales (ignoring short-term investment opportunities) would have totalled $18,OOO.

This

increased revenue would have covered the costs in Summary Budget 1, Summary Budget 2, and therefore Summary Budget 3, Summary Budget 4 and a portion of the costs in

Summary Budget 5 (Total Budget). 2. Group Budget Method:

Share Price = Value from Total Method adjusted according to what community can rrfford decided at a CSA General Meeting. The total projected budget is presented and a consultation and pledge process is carried out until a share price is reached which is acceptable to both the farmer and members.

The Group Budget Method is common among established CSAs who each have a highly developed core group to mediate and an actively involved member community to

participate in meetings. The following commentary taken firom Laird (1995, 92) explains the process of the Group Budget Method:

"'We try to get all people in the whole community together in one room, and then in March or April, they have the budget a month before, and we have one meeting where we will explain every expense... And then we have a meeting where people just pledge... And so far, we are sitting now, every year with a deficit...and then we have to go a second time, and then there is still a deficit...then we have to do something, just so you see it's not so ideal... all the other farmers do too, we cancel the depreciation...that's the first thing you can do...and if this thing is not enough, then we have to reduce our personal income...we were not in need to do that yet, but this is the reality of We, a certain community has a certain amount of money...and we trust the people, to pledge as much as they can...and then we come to this sort of figure and we have to arrange ourselves and it worked ...we could cover our costs."'

3. Partial Budget Method:

Share Price = Portion of Proiected Total Budget # of Shares OKemble

The Partial Budget Method is used by many CSAs, especially beginning CSAs, whose main goals are membership consolidation and creation and who also have or want little management involvement from members, such as the CSA ''ABC-

When asked

what costs he wanted to recover through the share price, Farmer "ABC" emphasized operating costs and the cost of hired labour as essential. However, when asked how he

actually determined the $180 share price, Farmer "ABC" stated that in order to attract new members from the non-organic retail market, he decided to set the cost of the weekly organic delivery at $15 (what it would cost to purchase the nonsrganic equivalent in supermarkets) (Mr. Farmer "ABC",18/1O/97). Offering a share price that will attract new members as well as retain existing ones, often involves short-term budgetary concessions which CSAs hope will pay off in the !ong run. In other words, through gradual education, CSA farmers try to make

members more aware of the total costs of producing their shares. This awareness may enable the CSA farmer to charge a higher price per share and not be afraid of losing

existing members. For example, CSA "ABC",given the total (non-discounted) retail

OMV of the 1997 "ABC" share fiom Table 4, equal to $249.99, and assuming that all 60 existing "ABC" Member/Investors would be willing to pay this amount79but no more, a

maximum share price could be set at $249.99. This would position the Farmer "ABC" between the breakeven share price of Summary Budget 4 ($209.5 1) and that of Summary Budget 5 (Total Budget) ($414.85).

Given this $249.99 share price, and the existing

budget analysis, Farmer "ABC" would be able to cover all of his operating, ownership (including depreciation) costs as well as some portion of his opportunity costs.

8.3.2 Economic Viability of CSA Suput (1992, 65) describes the necessity for considering long-term economic viability when developing the CSA budget and its corresponding share price:

79

Once again it is assumed that the MA is solely motivated by financial gain.

"All the benefits (of CSA) hinge on the (long-term) economic viability of CSA. Economic viability means that a farm must have and meet a total budget" The following is a List of most probable reasons why many CSA Share Prices are not calculated based on a Total Budget: 1. In most cases, Share Prices would be too costly for the average CSA Member/Investor. It must be reemphasized once again that the long-term sunivd and growth of a CSA is

also dependent on keeping existing members and attracting new ones. This is the main reason why the Partial Budget Method and the Group Budget Method of CSA share pricing are most often used. Laird (1995, 86) reinforces this reality in the following two statements:

'2 concern about share prices, and the juggling farmers must do to come up with a share price. Most growers seem to know how many people they could conceivable grow for and how much it costs for them to grow this amount The problem many farmers find is that when they divide their projected budget by this mythical share number, the share is unaffordable for most people." "'My concern is that most CSAs undervalue their share prices based on a fear that they wouldn't sell if they were priced based on a realistic budget including all capital depreciation, realistic salaries, health insurance, vacations, etc. All the regular s t u f f businesses need to cover."' 2. Some f m e r s do not keep a written account of their expenses. These farmers may lack the time to record or perhaps know-how of what costs to consider in a total budget and how to calculate them.

When asked about next year's CSA "ABC" share price, Farmer "ABC" explained that he had no intention of increasing the share price (Mr. Farmer CSA "ABC", 01/02/98).

Farmer "ABC 's" desire to attract and educate new consumers about organic agriculture, while retaining existing members is his current priority. Farmer "ABC" is aware that his CSA operation is not self-supporting and does not qualify as economically viable in the

long run. CSA "ABC" relies on three other profitable farm operations as well as non-

farm income to subsidize residual costs not covered by the sales of share contracts. 8.4 Calculation of Wholesale Prices

The next three sub-sections explain the procedure, collection and results &om

wholesale price data required to conduct the Producer Analysis. 8.4.1 Procedure

In analyzing the benefits to a Producer fiom using the CSAFM, several steps had to be performed to reach a final conclusion. The first step was to determine the benefits to CSA marketing by calculating the revenue that the same farmer would have received by

selling the identical CSA produce directly to a wholesaler. The second step entailed incorporating the benefits to CSA financing by calculating the financing costs associated with borrowing by Line of Credit or short-term Personal Loan. Steps one and two were

combined in order to produce two Simulations which are found in sub-sections 8.5.1 and

8.5.3. A comparison of the differences in Revenue, Costs and Interest are shown in Table 17 and graphically in Chart 7. 8.4.2 Data Collection of Wholesale Prices

Tables C1 to C12, which can be found in Appendix C, present the weekly revenues that Farmer "ABC" would have received had he sold the same CSA produce directly to an organic wholesaler. The price data were taken from the larger of two local organic wholesalers during the same CSA amended contract period.80 The original format

of the data gave the weekly pricesaLat which this wholesaler would sell to organic

80

March 15, 1997 to October 22, 1997.

8' An employee of this wholesaler's nanagement described the steps of the organic marketing process: There is no auction as in the non-organic market; producers and who1esalers arrive at prices on a per contract basis; all producers must be certified organic (by OCIA standards); the fanner will call the wholesaler with a request to sell; a price will be suggested by the wholesaler based on the stated grade given by the farmer; the wholesaler will visit the farm and assess the true grade of the produce; adjustments to prices, if necessary, will follow; if produce is pre-packaged by the farmer, a higher price will be offered; pick-up costs (for local farms) are already incorporated into the offer price. For non-local farms, an

retailers.

When interviewing an employee of this companyys management

(Employee/Broker, Local Organic Fruit and Vegetable Wholesaler, 11/l2/97 and

21/01/98), it was stated that a mark-up of between 15 to 20% included in the Listed prices82could be removed to arrive at a very good approximation of what a local organic f m e r would have, on average, receiveda fiom this wholesaler. Contaiwd in a box at the bottom right of each of the Tables C 1 to C12 are the weekly Wholesaler's Sell Value to Retailer (WSV); Wholesaler's Buy Value fiom the Farmer (adjusted given an average mark-up of 17.5%); and Total Farm Revenues (FR) for the equivalent of 60 sharess4 of

organic produce. A summary of the 12 weeks of data taken from Tables C 1 to C 12, has

been compiled in Table 14. Simulations I and II (8.5.1 and 8.5.3) will be carried out using the Farm Revenues

(FR)based on the prices offered by an organic wholesaler (WBVs from Table 14) instead of Farm Revenues (FR) based on the prices offered by a non-organic wholesaler. Several points had to be considered prior to making this decision. Although a certified-organic (by OCIA) f m e r can legally sell their organic produce in the non-organic market, it was

still necessary to see why this was not a common occurrence by calculating the prices and therefore Farm Revenues (FR) that Farmer "ABC" would have received had he chosen to

additional premium to cover additional pick-up costs is added (Ernployee/Broker, Local Organic Fruit and Vegetable Wholesaler, 11112l97).

"

The price used, given a choice of prices for a particular vegetabldfhit offered by the wholesaler, was the one that did not include the pre-packaging of produce by the h e r . This choice is consistent with the decision to remove the $150 in delivery supplies (which includes bags and ties) Erom the Non-CSA

Costs in both Simulations I and II. 83 This assumes that the fkmer's produce meets the grade and quantity requirements for the listed prices in the original organic wholesaler price data.

"

It is again assumed that the other 59 CSA "ABC" shares are homogenous in diversity, quality and quantity to the researcher's analyzed share.

- -

Table 14. Results of Non-CSA Revenue by Sdling to Organic Wholesaler L

CSA WEEK (end of)

WSV (Wholesaler Sell Value)

WBV (Wholesaler

Buy Value)

I

1

2 3 4

5 6

7 8 9 10 11 12

-

CSA Revenue

Difference Opportunity Loss from using Non-CSA Marketing Opportunity Gain from using CSA Marketing

sell his organic produce to a non-organic wholesaler offering non-organic market prices determined by the local Central ~arket.*' As suggested by Tessier (llllU97) and Employee/Broker, Local Organic Fruit and Vegetable Wholesaler (21/01/98), it was discovered that non-organic wholesale prices

are much less than organic wholesale prices (as with non-organic and organic retail prices

shown in Tables A1 to A12 of Appendix A). The non-organic daily price data used to test the above suggestions were provided by Tessier (16/02/98) a chief price analyst for the Central Market of Montreal. Data from Tables C 1, C6, and C 12 were replaced with nonorganic market data from the Central Market and recorded in Tables C' 1, C'6, and C' 12 (see Appendix C). As was expected, the organic fanner would have received a much lower price for his organic produce had he sold at non-organic market prices,86than had he sold directly to an organic wholesaler. For example, when comparing Table C1 to

Table C'l, Farmer "ABC" would have received $6.92 more for the equivalent of one share of produce by selling to an organic wholesaler than by selling to a non-organic wholesaler at the market price. This represents a total difference in revenue of $415.20 for 60 shares of produce. When comparing Table C6 to Table C'6, Farmer "ABC" would have received $3.47 more for the equivalent of one share of produce by selling to an organic wholesaler than selling to a non-organic wholesaler at the market price. This represents a total difference in revenue of $208.20 for 60 shares of produce.

When

comparing Table C 12 to Table C' 12, Farmer "ABC" would have received $5.38 more for the equivalent of one share of produce by selling to an organic wholesaler than selling to a non-organic wholesaler at the market price. This represents a total difference in revenue of $322.80 for 60 shares of produce. It is safe to say without tabulating the non-organic market values for the remaining 9 weeks, that, although selling organic produce in the

8s In fact, according to a local non-organic wholesaler (Employee/Broker, Local Non-Organic Fruit and Vegetable Wholesaler, 17/02/98) as well as a price analyst for the local Central Market (Tessier, 16/02/98), a f m e r will generally receive between 0 to 10% Iess than the market price when selling to a non-organic whoksaler. In hct, both sources mentioned that it was common practice for a local f m e r to sell directly to a local wholesaler by-passing the Central Market and using this market's prices as benchmarks in their negotiatiocs. g6 All assumptions made for the organic wholesaler pricing also hold for the non-organic wholesaler pricing.

non-organic market is possible, it is not an optimal revenue decision given the two choices (non-organic and organic) in wholesale marketing for the ccABC"operation as a Non-CSA. Therefore, it will be assumed for the purposes of Simulations I and 11, that the only comparisons made shall be between Farmer "ABC" selling his organic produce to an organic wholesaler and with Farmer "ABC" marketing through the CSA. 8.4.3 Results

Results fiom Tables C1 to C12 have been compiled in Table 14. It shows that total Non-CSA Revenue achieved by selling the same total amount of "ABC" produce to a Local organic wholesaler over the same 12 weeks at varying weekly organic market

prices is $8,058.58. This is $2,741.42 less than the fixed $10,800 in share sales revenue realized by Farmer "ABC' when marketing through the CSA.

The contrast in the

variability and timing of revenue streams between the Non-CSA and CSA methods should be re-emphasized. With the CSAFM, revenue fiom the sale of shares is received on March 15 1997, two months before any cash outflows are required.

The effects

(positive or negative) of having revenue as a h c t i o n of variable market prices are avoided with the CSAFM. With the Non-CSA (or traditional) method, revenue is only realized when the harvest period begins (August 6, 1997 for the ccABC"operation) and these weekly revenues are a function of fluctuating organic market prices. Therefore in

terms of sales revenue, the opportunity loss of Non-CSA wholesaler marketing is

$2,741.42 given the alternative of direct CSA marketing. The CSAFM provided Farmer "ABC" with 34.02% more revenue than selling the same produce to a local organic

wholesaler. 8.5 Simulations: The 'ABC Operation as a CSA versus a Non-CSA

The following simulations have been performed to better assess the gains to Farmer ccABC"fiom using the CSAFM instead of a traditional method of debt financing

(either through the use of a Line of credit or an operating loan) and the traditional method of marketing (selling to an organic wholesaler).

8.5.1 Simulation 1: Wholesaler Marketing with Line of Credit Financing

The following assumptions are required to contrast the "ABC" operation as a CSA

(using CSA share sales marketing and financing) with a Non-CSA (using marketing through an organic wholesaler and financing by means of a line of credit): 1. Although Fanner "ABC" does not bank with the XYZ Bank, interest rates fiom an XYZ Bank Line of credit offered during the CSA WC"coniract period will be used in this simulation. 2. The interest rate on the XYZ Bank $15,000 secured'" line of credit (LOC) is equal to the bank prime rate plus 1%88(Employee, X Y Z Bank Info-Line, 15/1l/W). From May 1 1997 to October 1 1997, the prime rate remained fked at 4-75% and increased to 5.25% on October 2, 1997 (Employee, XYZ Bank Info-Line, 15/11/97).

3. Interest on the LOC is calculated daily and a payment equal to the monthly accumulated interest is charged to the accountggon the last day of each month.

4. It is assumed that the Farmer "ABC" begins with zero equity in both CSA and NonCSA cases. 5. It is also assumed that the Non-CSA production schedule is the same as the CSA production schedule (August 6 to October 22, 1997). The Non-CSA farmer will sell his weekly harvest to a wholesaler on the same day as the CSA farmer will deliver to members. The Non-CSA f m e r will incur the same operating costs (listed in Summary Budget I), on May 15, 1997 as the CSA f m e r , excluding those costs associated with advertising and delivery. All other costs listed in Summary Budgets 2 to 6 are the same for "ABC" operation as a CSA or as a Non-CSA. Therefore, in order to simplify calculations, Simulation 1 will only consider the revenues and costs contained in Summary Budget 1.

87

By "secured" is meant that the borrower already has a mortgage or equivalent financial collateral with the bank 88 89

This preferential rate is offered to valued clients.

It is assumed that the line of credit is actually an overdraft directly tied to the W e r ' s personal chequing account. Prior to April, 1998, the XYZ Bank's LOC was not tied to a bank account and required monthly payments equal to accumulated monthly interest to be paid fiom art external source. Plans to make the XYZ LOC as an account overdraft were realized in April, 1998.

6. It is also assumed that the costs of hired labour are the same for both the CSA and nonCSA operations. It will be fiuther assumed that the $5,000 in hired labour costs will be distributed in equal bi-weekly portions over the 12 weeks. Hired labour will be paid on the same day as revenue is received h m the sale of produce to the wholesaler or delivery of produce to the members.

7. Figures under the Cash In (Revenue) column of Table 15, are the weekly organic Farm Revenue (FR) results (fiom Table 14) based on product of the weekly Wholesaler Buy ~ a l u e s (WBV) ~* per share and the farmers total weekly supply which is assumed to be the equivalent of 60 times the one share amount (or 60 shares). 8.5.2 Results from Simulation I

When contrasting the marketing and financing methods of the "ABC" operation as

a CSA versus a Non-CSA, by means of Simulation I (Table IS), the following results were noted: 1. The Revenue for the CSA is $2,741.42 (34.0%) greater then the Non-CSA Revenue.

Once again, it is worth noting that the $10,800 CSA revenue is guaranteed and received up-front through share sales on March 15, 1997, while the $8,058.58 Non-CSA Revenue stream only begins August 6, 1997 and is variable due to the weekly fluctuations in organic market prices throughout the following 12 weeks. 2. The Costs for the CSA operation are $991-85 (10.8%) greater than those costs associated with the same operation as a Non-CSA. This is because all costs associated with advertising ($400); and delivery ($578.14) are not applicable9' to the Non-CSA

operation. By selling to the organic wholesaler, advertising costs are assumed to be nil, and pick-up costs have already been incorporated into the Wholesaler Buy Values (WBV)

The Wholesaler Buy Values (WBV) were calculated by using the Wholesaler Sell Value (WSV) data provided by the largest local organic w h o l d e r . A 17.5% wholesaler mark-up, the average of 15% to 20% as estimated by (EmployeelBroker, Local Organic Fruit and Vegetable Wholesaler, 11/12/97), was removed fiom the WSVs to arrive at a good approximation of what the farmer would have received for his organic produce (the WBVs) if marketing through this wholesaler. It is assumed that the cost of advertising is zero, since the Non-CSA farmer sells directly to the organic wholesaler. The CSA costs of delivery are removed, since they do not apply to the Non-CSA, and organic wholesaler local pick-up costs are already included in the prices.

Table 15 SIMULATION I:Sellincl Produce to Orpanic Wholesater and Financina bv Line of Credit Date May-15 Way 15-31 Jun-01 June 1-30 JuI-01 July 1-31 Aug-01 4ug. 1-5 Aug-06 Aug-13 Aug-20 Aug-27 hg. 1-31 SepO1 Sept. 1-2 Sep-03 Sep-10 Sep-17 Sep-24 3ept. 1-30 Oct-01 Oct-01 Oct-08 oct-IS Oct-22 Oct-23 let. 1-31 NOV-01

Cash In ($1

Cash Out

Net InfOut

Balance 1 Interest INet Balance (Secured LOC @ Prime* + 1%)

om 0.04 0.00

760.86 613.89 540.25 488.37

653.45 824.1 9 670.69 692.78

556.33 658.75 794.66 804.34

* The Prime Rate was 4.75% from May 1,1997 and changed to 5.25% on October 2 1997. * Assumes that the advertising costs ($400); delivery supplies costs ($150); delivery fuel costs ($205.63); delivery vehicle leasing costs ($213.70) and delivery vehicle license and registration costs ($8.81) are not applicable. Also replaces the CSA OClA 0.5% of total sales payment equal to SS4 (or O1005x$1O.8OO) from March 15.1997 and adds the Non-CSA OClA 0.5% of total sales payment equal to S40.29 (or 0.005x$8,058.58) on October 23 1997.

found in Table 14. An adjustment of $13.71 ($54-M0.29) has also been made to total Non-CSA costs to reflect the decrease in the required payment (0.5% of total sales revenue) to the OCIA. 3. The Balance of CSA Revenues and Costs (operating and labour) is $584.40. If the

Interestg2made on investing the contract sales of $10,800 for the two months prior to M a y 15, 1997, the equivalent of $36.13, is added to the above figure,a Net Balance of $620.53

is achieved. 4. The BaIance between Non-CSA Revenues and Costs (operating and labour) shows a

deficit of $1,l6S. 17. When the cost of financing (Interest) through the use of the XYZ Bank Line of Credit (LOC) is added, the deficit widens by an extra $89.55 (the equivalent

of 1.1% of Revenues or 7.1% of the Net Balance) resulting in a Net Balance of

-

$1,254.72.

5. The simulation results show that the CSA marketing and hancing method is an optimal strategy for the "ABC" operation and therefore superior to the Non-CSA methods. With the CSAFM, equity generated fiom contract sales is received up-front on

March 15 and prior to seeding which not only avoids the use of debt (operating)

financing, but enables the fanner to earn interest on this equity. The CSA revenue is stable and guaranteed, therefore providing a guaranteed price and market for the farmer as

opposed to the Non-CSA method in which the revenue stream is delayed until August 6, 1997 and is dependent on fluctuating market prices offered by the organic wholesaler.

6. The CSAYsNet Balance of $620.53 is $1,875.25 greater than the Non-CSAYsNet Balance of -$l,254.72.

a Please refer to Summary Budget 1 for details.

7. A further complication for the Non-CSA operation arises with the outstanding Net Balance of $1,254.72 (as of November 1, 1997) on the LOC at the end of the production period. This balance must eventually be repaid with interest. 8-53Simulation II: Wholesaler Marketing with Loan Financing The following assumptions are required to contrast the "ABC" operation as a CSA

(using CSA share sales marketing and financing) with a Non-CSA (using marketing through an organic wholesaler and financing by means of a personal loan): 1. Although Farmer "ABC" does not bank with the XYZ Bank, interest rates £kom XYZ Bank's fixed rate personal loan for a principal amount between $5,00 1 and 9 15,000 were used in this simulation.

2. The interest rate used for the loan is 9.75% (equal to Prime + 5%) which was the XYZ Bank lending rate from April 18, 1997 to November 27, 1997 (Employee, XYZ Bank Mo-Line, 15/11/98). 3. It was assumed that the term of the loan was 12 months, as a possible shorter-term loan of 6 months (assuming the same interest rate of 9.75%) demanded payments much too high to be covered by the same revenue stream, thereby resulting in the default of one or more of the 6 monthly loan payments.

4. It was assumed that the principal amount of the loan is $5,075 (with 12 corresponding monthly payments of $445.58). This loan amount, arrived at using a loan c a l c ~ l a t o ris~ ~ the minimurn loan amount (using increments of $25) required to: a. Cover the initial operating costs incurred on May 15, 1997; b. Ensure that no default on payments would occur during the contract period &om March 15 to October 22,1997; c. Arrive at the minimum positive daily Balance during the same contract period.

5. It was assumed that loan payments were made on the 15th of each month, with the first payment due June 15,1997. 6. Assumptions 4; 5; 6; and 7 fiom Simulation I also hold for Simulation 11.

93

Intuit Quicken for Windows, version 3.

8.5.4 Results from Simulation II

When contrasting the marketing and financing methods of the "ABC" operation as a CSA versus a Non-CSA, by means of Simulation II (Table 16), the following results

were noted: 1. The Revenue for the CSA is $2741.42 (34.0%) greater than the Non-CSA Revenue. It

is important to distinguish between receiving $10,800 up-fiont equity on March 15 1997 in the CSA case, and getting $5,075 in loawd funds on May 15 1997. In Simulation 11,

the fkst 2 monthly loan payments of $44558 each are not supported by any stream of revenue, and are therefore entirely subsidized fiom the loaned amount. Only as of August 6, 1997, does a stream of variable revenue actually begin repaying the loan.

2. The Costs for the CSA and Non-CSA operations are the same as in Simulation I. 3. The Net Balance of Non-CSA Revenues and Costs (operating and labour) shows a deficit of -$1,437.13, with -$I, 165.17 of this amount representing the shortfall in Revenue necessary to cover operating and labour costs, and -$271.96 (the equivalent of 3.4% of Revenues or 18.9% of the Net Balance) equal to Interest costs. 4. The CSA method's Net Balance of $620.53 is $2,057.66 greater than the Non-CSA

method's Net Balance of -$1,437.13.

5. It is important to note that the last 7 loan payments are not supported by any revenue flows. These h a 1 payments totalling $3,119.06 more than exhaust the remaining Balance

as of October 23, 1997, leaving a negative Balance of -$1,437.13 in the Non-CSA farmer's account as of M a y 15, 1998. 6. Unlike delaying payments at the cost of accumulating interest on a line of credit (as in

Simulation I), a default on a loan payment will immediately have legal implications.

Table 16 SIMULATION II :Sellina Produce to Omanic Wholesaler and Financing by 1 Year Fixed Rate Personal Loan (QQ 9.75% for $5.001-$15.000) Date

Cash In

($1 May-1I Jun-15 Jul-1S Aug4 Aug-13 Aug-15 Aug-24 Aug-27 Sep-03 ~ e p -a1 Sepl5 Sep-17 Sep-24 OCt-Ql Oct-08 Oct-1s Oct-22 Oct-23 NOV-15 Dec-15 Jan-15 Feb-15 Mar-15 Apr-15 May4 5

5,076.04 0.00 0.0a 760.88 613.89

Cash Out

Loan P M r

($1

($1

6,183.46

0

Net In/Out

Balance

Us.sa a.5a

-833.33 44S.58

510.25 488.37 653.45 824.1 9

-833.33 -833.33 4568

670.69 692.76 556.33 658.75 794.66 804.34 0.00 0.00 0.00 0.00 0.00 0.00

-833.33 -833.33 445.68 -833.33 -40.29 445.58 us.58 -445.58 446.68

44s.68 US.S8

The monthly Loan Payment (PMT) was calcuiated using a loan calculator given the principal amount of $5,075, an annual interest rate of 9.75% and a duration of one year.

1

Defaulting on the final 4 payments of the XYZ Bank l o e due to the inadequate aud seasonally skewed distribution of fann revenue, is a reminder of the risks associated with debt financing in agriculture. 7. The simulation results also co-

that the CSA marketing and financing method is an

optimal strategy for the c'ABC" operation and therefore superior to the Non-CSA methods. With the CSAFM, equity generated from contract sales is received up-fiont on March 15 and prior to seeding which not only avoids the use of debt (operating)

financing, but enables the farmer to earn interest on this equity. The CSA revenue is stable and guaranteed, therefore providing a guaranteed price and market for the farmer as

opposed to the Non-CSA method in which the revenue stream is delayed until August 6,

1997 and is dependent on fluctuating market prices offered by the organic wholesaler. 8.5.5 Simulations: Conclusions

Both simulations demonstrate the superiority of the CSA financing method as compared to the Non-CSA financing methods of line of credit or operating loan. In addition, the CSA method of share sales marketing, not only avoids the use of debt financing, but enables the farmer to "earn" interest. The CSA revenue is received upfiont providing a guaranteed price and market for the f m e r as opposed to the Non-CSA wholesaler marketing method in which revenue is a function of fluctuating market prices. The results of Simulations I and 11 have been summarized in Table 17 and displayed

graphically in Chart 7.

94

Borrowing a larger amount on March 15, 1997, under the same conditions, does not solve the loan default problem.

Table 17. Simulation Results

METHOD

REVENUE

COSTS

CSA

$10,800.00

- $10,215.60

$8,058.58

- $9,223.75

$8,058.58

- $9,223.75

Non-CSA

INTEREST

BALANCE

+ $36.13

+ $620.53

- $89.55 - $1,254.72

(Simulation I) Non-CSA

- $271-96

- $1,437.13

(Simulation II)

Chart 7. Simulation Results

Note: numbers &om the above chart have been rounded to the nearest dollar ($).

8.6 The NPV Analysis

Given the results of Summary Budget I, Simulation I and Simulation II, a series of

NPV calculations will be presented to

assess the feasibility of the "ABC" operation as

either a CSA or a Non-CSA. For the sake of simplification, all NPV calculations will assume a discount rate of zero. Results are sumxnarized in Table 18 and Chart 8.

NPV I (CSA) shows the difference between the total revenues and total operating costs fiom Summary Budget 1 and excludes the interest earned fiom investing the " D C "

share sales revenue. A positive NPV of $584.40 indicates that the "ABC" operation as a CSA is financially feasible (in the short-term) and can be undertaken.

-

NPV I = $10,800 $10,215.60 = $584.40 > 0

NPV LI (CSA) adds to NPV I the interest earned fiom investing the "ABC" share sales revenue under the terms specified in Summary Budget 1. A positive NPV of $620.53 indicates that the cbAE%C" operation as a CSA is again financially feasible (in the short-term) and can be undertaken.

-

NPV II = $10,800 + $36.13 $10,215.60 = $620.53 > 0 NPV III (Non-CSA) is the NPV for the Non-CSA given the results of SimuIation I. It is equal to -$1,254.72. A negative NPV indicates that the amount (and timing) of positive cash flows are not sufficient to cover negative cash flows. Therefore, the "ABC" operation as a Non-CSA is not financially feasible (in the short-term) and should not be undertaken given the conditions and results of Simulation I.

NPV III (Non-CSA) = $8,058.58

- $9,223.75 - $89.55 = - $1,254.72 < 0

Table 18. NPV Results NPVI

NPVfl

NPV Ill

NPV IV

CSA

CSA

(CSA)

(CSA) $620.53

(Non-CSA)

(Non-CSA)

ADV I

ADV ll

-$I ,254.72

-$1,437.13

$1,87525

$2,057.66

$584.40

Chart 8. NPV Results

Note: numbers from the above chart have been rounded to the nearest dollar ($).

NPV N (Non-CSA) is the NPV for the Non-CSA given the results of Simulation 11. It is equal to -$1,437.13. A negative NPV indicates that the amount (and timing) of positive cash flows are not sufficient to cover negative cash flows. Therefore, the "ABC" operation as a Non-CSA is not financially feasible (in the short-term) and should not be undertaken given the conditions and results of Simulation II. NPV IV (Non-CSA) = $8,058.58

- $9223.75 - $271.96 =- $1,437.13 < 0

CSA ADVANTAGE I is the difference between NPV II (CSA) and NPV tII (Non-CSA)- The CSA opportunity gain in terms of Revenue (what ccABCygained fiom CSA marketing) is $2,741-42. The CSA opportunity loss in terms of Costs (what "ABC'

would have saved in costs through wholesaler marketing) is $991.85. Farmer "ABC's" opportunity saving in terms of CSA financing is $89.55 (what it would have cost him had he financed by means of line of credit). A positive NPV Advantage equal to $1,875.25 reinforces the superiority of the CSAFM over traditional h e of credit financing and wholesaler marketing methods used by the Non-CSA.

-

CSA ADV I = $2,741.42 $991.85 + %125.68 = $1,875.25 CSA ADVANTAGE I1 is the difference between NPV I1 (CSA) and NPV IV (Non-CSA). The CSA opportunity gain in terms of Revenue (what "ABC" gained fiom CSA marketing) is also $2,741.42. The CSA opportunity loss in terms of Costs (what "ABC" would have saved in costs through wholesaler marketing) is also $99 1.85. Farmer "ABCys" opportunity saving in terms of CSA financing is $271.96 (what it would have cost him had he financed by means of a loan). A positive NPV Advantage equal to

$2,057.66 reinforces the superiority of the CSAFM over traditional loan financing and wholesaler marketing methods used by the Non-CSA.

-

CSA ADV II= $2,741.42 $991.85 + $308.09 = $2,057.66 8.7 Conclusion from the Producer Analysis

The budget analysis fiom 8.2 indicated that CSA "ABC" does not meet a total budget, and cannot therefore be considered as seKsuf?icient

or economically viable in the

long run. The $180 CSA cbABCshare price in 1997, given a membership base of 60 shares, falls $234.85 short of the total budget share price of $414.85 fkom Summary Budget 5. Despite this, CSA "ABC" direct member share sale marketing is still superior to Non-CSA marketing via a wholesaler. CSA costs (based on Summary Budget 1) are slightly greater than Non-CSA costs due to delivery charges. However, unlike the NonCSA case, CSA revenues did exceed costs. Net Income for the CSA, based on Summary

Budget 1, is $620.53, which is $1,87525 greater than the Non-CSA Net Income ($1,254.72) fiom Simulation I (line of credit hancing with wholesaler marketing) and

$2,057.66greater than the Non-CSA Net Income (41,437-13) under Simulation II (loan financing with wholesaler marketing).

Farmer CSA "ABC" benefits from receiving

equity up-fiont on March 15 1997 which guarantees him a market and therefore a price for the eventual c'ABC" produce. This initial equity not only saves Farmer CSA "ABC" the potential costs of operating interest ($89.55) from LOC financing or ($271.96) fiom

operating loan financing but enables him to make interest ($36.13) by investing the

$10,800 in share sales revenue for two months. The NPV analysis of 8.6 demonstrated that the "ABC" operation as a CSA was financially feasible at least in the short-run, while the "ABC" operation as a non-CSA definitely was not.

The producer hypothesis fiom 8.1, "during the 1997 season. the CSA "ABC" Farmer would achieve a hieher net income than if he had fmanced by means of an

operating line of credit or loan, and marketed his produce through a wholesaler", is confirmed (can not be rejected) fiom the results of the producer analysis. The General Research Question of 4.1, which asks whether CSA can be considered a financially superior alternative arrangement for Producers, can not be answered given the conclusions fiom a single case study cbAE3C". However, the results fiom two CSA surveys, Salm (1997) and Laird (1995), indicate that "ABC" is representative of the majority of

Canadian and American CSAs. Salm (1997, 56) found that 16% of Canadian CSA respondent farmersg5 stated that CSA provided "much greater income stability as

95 Of the over 500 CSA's in North America, 50 are Canadian (Salm 1997, 4). Therefore, Salm (1997) results, given 44 CSAs, are more representative of the total Canadian CSA population than the Laird (1995) sample of 69 is of the U S total CSA population.

compared with other marketing strategies"; 46% stated "greater";

19% stated "no

difference"; 12% answered cckss"; and 7% answered "much lessy'. Laird (1995,78) found that 78% of the surveyed US CSA respondent farmers felt that: "CSA offers a more

financially secure (i-e. less economicaliy risky) marketing outIet than do other means of distributing their products. Twelve percent feel CSA is less financially viable, and ten percent find no dzrerences". As with the Consumer analysis, only "financial" costs and benefits have been

considered in the Producer analysis.

Other important documented benefits to CSA

farmers, such as '>reducing organic/ecologically Nstainable"; c%uildinga community" and "educating about farming"¶Listed in Table 1, only strengthen the position of CSA and

if quantified should increase CSA NPVs.

Chapter 9. CONCLUSION 9.1 The Risk Reduction and Financing Benefits of the CSAFM

It is clear, given the choice in contract arrangements, that the CSAFM provides

alternatives to the problems concerning financing and risk associated with the traditional debt models described by Gilson (1992) in 3.1 and 3.2. The CSAFMYsability to transfer

non-farm equity capital fkom Member/Investors to the Farmer qualifies as an alternative to traditional debt financing. Varying degrees of risk redistribution (according to the type of contract) are attractive for both Farmer and M/I.

The notions of risk bearing in

traditional farming as resting uniquely on the shoulders of the farm family are also challenged by the CSAFM, where the Farmer is guaranteed both a market and price for his produce prior to beginning the season's operations. 9.2. CSA Contracts

The importance of CSA contracts in delineating the risk relationship between Farmer and Memberhvestor can not be overstated. Since there exists no homogenous contract common to all CSAs, all agreements will be binding under different conditions which will determine the amount of risk to be shared. The implications of a Contract 1 type of agreement (CSA "ABC")with a refund clause compared to that of a Contract 2 type (majority of Canadian CSAs) are important as their effects on both parties are

dramatically different. In Contract 1 (the "debty' contract) the Farmer is responsible for a greater portion of the risk, while in Contract 2 (the "equity" contract) the majority of risk is absorbed by the Member/Investor. 9.3 The Consumer Market and Investment Analyses

The Consumer Market Analysis demonstrated that it is possible for CSA MemberAnvestors to benefit fiom CSA direct marketing without reducing the revenue of the CSA Farmer (confirmed in the Producer Analysis).

The results of the Consumer

Market Analysis indicated, given an Organic Market Valuation (OMV)of the ""ABC"

weekly produce, that M/Is realized a (non-discounted) total saving of $69.99 during the 12 week contract period by purchasing through the CSA "ABC".

The goal of the Consumer Investment Analysis was to demonstrate given certain assumptions (7.10), the superior rate of return of the CSA Investment Tool (CSAIT) compared to the rates of return on financial i.nvestments offered by a Canadian Chartered

Bank QCYZ Bank) during the identical CSA investment period of 3 2 weeks. The "ABC" CSAIT rate of return evaluated at organic market values (OMVs) was partially discounted to arrive at 37.33%. The rate of return on the chosen risk-equivalent XYZ Baak financial

investment (the Canadian T-Bill Mutual Fund (CDN T-BF)) was only 1.60%. The CSAIT (OMV) rate of return also surpassed the best performing XYZ Bank mutual h d (CDN EF) during the same investment period.

It can be said for the "ABC" Memberhvestor, that CSA is their best option for an organic food source and given the assumptions (7.10) offers the best return on a $180 investment. However, as far as CSA qualifjing as a viable choice for the consumer attaching no superior value to organic produce, CSA may not prove to be the best option especially when this particular M/I includes a premium for not being able to select their produce. In this case, the CSAIT (NOMV)(valued in the noworganic market) would be inferior as both an alternative source of food, and as an alternative to financial investments. 9.4 The Producer Analysis

The Producer Analysis demonstrated in detail what costs should be considered when calculating a share price based on a total budget.

The six Summary Budgets

showed an increasing degree of cost recapture, and that the ability to meet a total budget was necessary to ensure the long-term economic viability of any farm operation. The "ABC" share price of $180 was $234.85 short of meeting the $414.85 total budget share

price described in Summary Budget 5. The three methods for calculating the CSA share price: the total budget method, the group budget method and the partial budget method, were explained and reasons why so many CSA share prices are not based on total budgets were provided. The most common reason was the need to compromise short run losses

due to an inferior share price with the goal of attracting new members while retaining

existing ones. In order to properly test the benefits of using the CSAFM, a comparison between the "ABC" operation as a CSA and a Non-CSA was performed, with the aid of two simulations. Simulation I compared the CSA direct marketing and share sales

financing to Non-CSA wholesaler marketing with Line of credit financing.

Results

showed that not only were CSA revenues superior, interests costs on operating capital

were nil (in fact the CSA Farmer was able to invest the revenue &om contract sales in order to make interest revenue) which resulted in a net balance $1,875.25 greater than the Non-CSA. Simulation II performed the same analysis but used operating loan financing for the Non-CSA. Results were even more impressive for the CSA as the net balance was

$2,057.66 greater than the Non-CSA. An NPV analysis, demonstrated that the only feasible financing and marketing decision for the ''ABC" operation was to adopt the CSAFM. 9.5 The General CSA Research Question

The General CSA Research Question (4.1) asked whether the CSA can be considered a financially superior alternative arrangement for both Producer and Consumer? It must be reemphasized that CSA "ABC" is only one case within the diverse CSA market. Results fiom the analyses of "ABC" are not intended to lead to general

conclusions about CSA. However, the experiments and procedures used in this case study can easily be applied to any other CSA operation.

In summary,this thesis has presented an alternative form of financing known as the CSA Financing Method (CSAFM). This method, despite the large diversity in CSA

contract specifications, has helped many farms to maintain a more stable level of income by reducing a portion of the financial stress associated with debt Gnancing (Salm 1997,

56). In addition, the CSAFM provided a guaranteed market and price for the farmer's

produce prior to the harvest. Budget and NPV calculations, as well as other measures of profitability and return, given a logical organic market valuation, for the two parties in the

CSA "ABC" contract, indicate that both Producer and Consumer reap the rewards of a

win-win situation.

9.6 Recommendations for Further Research The following two sections encourage both fiuther testing of the CSAFM and propose fiuther investigation into the breadth of application of Community Supported Agriculture. 9.6.1 Testing the Model with other CSAs

In order to more completely answer the General CSA Research Question, more experiments such as the ones carried out in this thesis are necessary. The ideas presented and procedures followed in all three experiments can be applied to other CSAs. The Summary Budgets and corresponding share price calculations may prove to be particularly usell in helping CSAs decide on the degree of cost recapture to be reflected in their respective share prices. As CSAs continue to both consolidate and propagate, there will

be more adequate empirical evidence concerning their long run economic viability. As was explicitly stated in section 7.10, the researcher as a member of CSA

"ABC" based all measurements on his representative bag which was assumed to be an average bag.

However, if this is still a concern, this query might be handled in the

following way: It may be useful to randomly select a sample of members £?om the CSA

and measure each person's weekly bag in order to derive an average value, standard deviation and coefficient of variation across bags. Another potential criticism might also be relevant had the researcher's bag had been specifically prepared for the researcher.

However this was not the case. At his specific drop-off point, which catered to 20 of the 60 CSA "ABC" members, bags were not individually identified (Mr. Farmer "ABC", Z / l O/W). Thus, the choice of which bag to select was purely random.

Members could also be interviewed to better determine their attitudes toward risk

as well as to value the premiums each might associate with not being able to select their

own produce.

For producers, grouping the opinions of a panel of CSA Farmers,

concerning the assumed risk and the successllness (return) of CSAs could be carried out

using the Delphi method. The experiments conducted in this thesis could also be repeated on CSA "ABC" over time as well as for a sample of Canadian CSAs as a cross-sectional

and/or time series analysis.

9.6.2 Applying the Model outside CSA

Although the CSAFM was developed with the paradigm of sustainableg6 agricultural as a basis, there are few, if any obstacles in applying the model in aaditional agriculture. According to Salm (1997: Table 2) two of the CSAs in her Canadian sample were not using organic farming practices. However, for the majority of CSA proponents

who associate intrinsic and/or economic value to the "Organic" and cCCornmunity" components of the current CSA h e w o r k , the question of whether the CSAFM should be applied outside its current context is perhaps an issue for debate.

~ ' its "Although the original concept of CSA was developed in ~ i o d ~ n a m i cfarms, basic premise of subscription farming can and has been taken over by farmers using other agricultural (including conventional) methods" (Salm 1997,2). For the Member/Investors of CSA "ABC' and most likely for those of most CSAs, applying the model outside of organic may not yield, as the non-organic market

value (NOMV) data for CSA "ABC' suggests

(in

Table 4), any significant savings

compared to retail markets. Despite this, the diversity of CSA should not be overlooked

as its potential is assessed for other types of organic or conventional production. There

are already CSAs that include eggs and poultry, flowers and value-added products such as maple syrup, jams, sauces etc. as part of their CSA bags (Salm 1997,3 1).

% "There is much debate about the meaning of Sustainable agriculture. It is often used to define an alternative to 'conventional' modern agriculture; in short, sustainable practices aim for long-term goals shaping current production levels, mindfbl of environmental and non-renewable resource constraints, ernphasising inherent natural processes, cychg and interactions, low-external inputs, socially-just relationships, local knowledge and practices, self-reliance, while also maintaining economic viability" ( S a h 1997,2).

97

"Organic which includes Biodynamic agriculture prevents the use of synthetic chemicals in the form of fertilisen and biocides through the use of integrated management practices like crop rotations and biological controls, recognizing the importance of interactions between components of a timing system" (Salm 1997,2).

9.7 The Emergence of CSA

This final section reemphasizes the potential of Community Supported Agriculture, suggests which fanns may benefit most by adopting CSA, and how CSA must be better recognized by Government and private lending agencies.

9.7.1 The CSA Target Farm Size

In the researcher's opinion, the CSAFM will prove to be most useM to small farm operations. It is generally these farms that are under the greatest financial stress, and where income is most sensitive to small increases and decreases in revenues and costs.

For these operations, adopting the CSAFM as Simulations I and 11 have shown for cbABC",may mean the difference between survival or bankruptcy.

Data on the

distribution of net worth taken fkom the 1996 Canadian Farm Financial Survey

(Agriculture and Agri-Food Canada and Statistics Canada 1996, slide 4) states that 'Yarms with less than $25,000 in revenues make up 113 of a l l farms, and account for only 1/6 of the net worth" while ''fiirms with more than $100,000 in gross revenues make up another

1/3 of all farms but have nearly 2 3 of the net worth". According to AAFC and SC (1996,

slide 12) which illustrates the percentage of fanns with high debt, farms in the lowest

revenue class (less than $25,000) carried superior debt loads to f m s in revenue classes ($25,000 to $49,9!39) and ($50,000 to $99,999)- As shown in Table 3, the majority (33%) of Canadian CSAs have household incomes less than $25,000.

It can therefore be

understood that the positive effects of the CSAFM on these relatively vulnerable farms are significant. 9.7.2 CSA Potential in Quebec

Quebec, home for the case study CSA "ABC' and the third most concentrated province for CSAs after Ontario and British Columbia (Salm 1997: Table I), has the lowest average net worth per farm ($450,000) and the highest debt as a percentage of

assets in (19.8%) compared to all other provinces (AAFC and SC 1996, slide 3). Quebec also had the third largest percentage of facm bankruptcies (19.6%) in 1996 after Alberta

and Saskatchewan (AAFC 1997,34). It is clear that the potential for the CSAFM and the

already large concentration of CSAs within Quebec is a reflection of this province's relatively higher level of financial stress for certain agricultural producers. 9.73 Making Government and Private Lending Institutions Aware of CSA

The CSAFM should also be recognized by federal and provincial governments and private lending

(Le. FCC, chartered banks and trust companies, credit

unions, etc.). Although the CSAFM does not significantly reduce the amount of longterm bornowing for farm operations (unless perhaps the CSA is achieving a total budget share price), the institutions mentioned above should seriously consider the CSAFM's risk-reducing characteristics in terms of better meeting repayment obligations on longterm debt, by first eliminating operating interest costsg9 and by guaranteeing a predetermined Level of revenue.

A lending institution, when viewing the results of

Simulations I and II should take into account CSA "ABC's" increased liquidity and capacity to repay medium and Long-term debt. Access to credit for CSAs should also be facilitated based on the decrease in default risk associated with the CSAFM, especially Contract 2 "equity" types which already comprise the majority (5 1%) of Canadian CSA Contracts (Salrn 1997: Table 34). Both federal and provincial governments should be aware of the potential of CSA in decreasing the amount of reliance on income support

payments. It is believed that the CSAFM will prove to be most useful to small and parttime

farm business, whose type or scale of production does not provide them with access

to elaborate production and price risk management tools such as futures markets.

98 ''Chartered banks, the Farm Credit Corporation (FCC)and credit unions were the major farm lenders. Chartered banks and FCC accounted for 36.8% and 20.2% of outstanding long-term debt (AAFC and SC 1996, slide 22). In 1996, the federal share as a percentage of total Canadian f k n debt was 1 !PAand the provincial share 10%(AAFC 1997,33). 99 In 1996 interest costs on operating capital totalled 5 1-68 billion for all Canadian farms, the equivalent of 7.4% of the total operating expenses o f m . 9 billion (AAFC 1997,41).

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Lang, Gerhard and George DoHebs. A Practical Guide to Research Methoak, 36 ed. Lanham, MD: University Press of America, 1984. Lins, David Am, Paul N. Ellinger, and Dale H. Lattz. "Measurement of Financial Stress in Agriculture." Agricultural Finance Review 47 (1987) : 53-61 Lobban, Christopher S. and Maria Schefter. Successful Lab Reports: A manual for Science Students. New York: Cambridge University Press, 1992.

Loyns, RM.A. and M. Kraut. "The Family Farm in the Next Decade: The Positive Role of Part-time Farming." Canadian Journal of Agricultural Economics 40 (1992) :591-604Madsen, David. Successfil Dissertations and Theses: A guide to Graduate Student Research fiom Proposcrl to Completion, 2d e d San Francisco: Jossey-Bass Publishers, 1992.

Robineau, Bruno and Mayvome Robineau. "Community-Supported Agriculture, Japanese Style." Maine Organic F m e r dG Garden, November/December, 1990, 12. S c h ~ p p ,Karen and Terry Gips. "Community Supported Agriculture: connecting Farmers and Consumers-", AUMKA (Newsletter of the International Alliance for Sustainable Agriculture), Summer 1991, 1-4. Siegel, Joel G. and Jae K. Shim. Encyclopedic Dictionary of Accounting and Finance. Englewood CWs, NJ: Prentice Hall Inc., 1989. Turabian, Kate L. A Manualfor Writers of Term Papers, Theses, and Dissertations, 6th ed. Chicago: University of Chicago Press, 1996.

XYZ Bank. "Protecting Customer Deposits". CDIC Workbook. #I7584 (1OM). XYZ Bank. XYZ Asset Management Inc. ' X Y Z Highlights Investment Choices." #2 1786 ( O M 997).

XYZ Bank. " X Y Z Bank Financial Group: Investment Products." #95 1-D-559 (12/1997). PERSONAL COMMUNICATIONS b. Not Explicitly cited in Text Banerji, Dr. S. Professor of Finance. Faculty of Management. McGill University, Montreal. 18 November 1997 (in person).

Duval, Jean. Ecological Agricultural Projects, McGili University, Montreal- 22 October 1997 (by phone: 5 14-398-7771). Employee. Le Centre Biologique de 1a Potcati&re,Quebec. 12 December 1997 (by phone: 418-856-1 110). Employee. MunicipalitC de Notre-Dame de 514-453-4128).

fie Perrot. 29 Januaxy

1998 (by phone:

Employee. Revenue Canada, Montreal. 22 October 1997 (by phone: 514-283-5300).

Employee, Statistics Canada, Montreal. 3 February 1998 (by phone: 514-283-5724). Employee. XYZ Bank Asset Management Inc., Montreal- 13 November 1997, (by phone). Employee. XYZ Bank Asset Management Inc., Montreal. 10 December 1997, (by phone). EmployeefBroker. Local Organic Fruit and Vegetable Wholesaler. Montreal. 12 December 1997 (by phone). Levy, Dr. Professor of Accounting. Faculty of Management. McGU University, Montreal. 2 1 October 1997 (by phone). Levy, Dr. Professor of Accounting. Faculty of Management. M c G i University, Montreal. 25 November 1997 (by phone).

Mrs.Farmer CSA 'ABCn. Farm, Montreal. 14 October 1997 (by phone). Mrs. Farmer CSA "ABC". Farm, Montreal. 16 October 1997 (by phone). Rowat, Michael. Chef Faculty Club. McGill University, Montreal. 17 October 1997 (by phone). Tessier, Jean-Claude. Agronomist and Price Analyst for the Marche Central de Montreal. 17 February 1998 (by phone: 514-945-605 I).

APPENDIX A

Notes to Table A1 I. By 'large' is generally meant 'Field' Tomatoes. 2. By 'medium' is generally meant Vine' or 'Greenhouse' Tomatoes. 3. By 'medium' is generally meant 'Select' Cucumbers. 4. By 'small' is generally meant 'Kirby' Cucumbers. 5. All quantities are reported in kilograms except for bolded numbers. 6. The note 'n/al indicates that the data was not available.

7. The price was quoted as 3 for $0.99. 8. The price was quoted as 4 for $0.99. 9. See note 7. 10. See note 7. 11. The price was quoted as 3 for $1-00. 12. The price of Swiss Chard (Mite stem) was used as a substitute13. See note 7. 14. Store #7 was not part of the data set until Thursday August 21 1997. 15. Store #8 data was not entered into the analysis due to the unambiguous nature of its prices. 16. The price was quoted as $1S O per bag which contained approximately two heads of Red Curly Lettuce. 17. Store #9 Green Onions were used as a substiute for #9 Chives. 18. Store #lo Green Onions were used as a subst'iute for #lo Chives. 19. The price was derived by taking the average of all #I0 listed Pepper prices. 20. In order to have a data point, it was assumed that one organic Cucumber (medium) was equivalent in weight and price to three organic Cucumbers (small). 21. In order to get a data point for this category, the #1O Swiss Chard (red stem) price for August 28 1997 was used. 22. The #I 0 Cantaloupe price was expressed as $4,89/kg. 23. This is the average price per organic Cucumber (small). 24. This is the average price per kilogram for organic Cantaloupe. 25. This is the total value of the fourteen CSA Cucumbers (small). 26. This number is the average price per kilogram for organic Cantaloupe multiplied by the CSA weight of 1.425 kg.

Notes to Table A2 1. The CSA Red Onion was weighed with its stem. 2- The bag of assorted lettuce leaves contained approximately half a head of Romaine, one head of Red Curfy and one head of Green Curly. 3. The price was quoted as 3 small (Kirby) Cucumbers for $0.99. 4. The price was quoted as 2 for W.99. 5. The price was quoted as 4 for $0.99. 6, See note 3. 7. See note 3. 8. The price was calculated given a price of $13 9 for a bag containing approximately 5 stems. Please note that the above data was taken from Thursday August 28 1997, in order to have at least one data point for this category. 9. The price was quoted as 3 for $1.00. 10. It was assumed that the #S price of Green Curly was the same as Red Curly. 11. See note 3. 12. The price was quoted as $1-50 per bag *whichcontained approximately 2 heads of Lettuce. 9 3. See note 12. 14. The price was calculated given a price of $1-49 for a bunch of approximately 5 stems. 15. The average price for non-organic Italian Tomatoes was $0.96/kg more that the average price of non-organic Medium Red Tomatoes. Therefore the average price of organic Italian Tomatoes was also set at $0.96/kg above the average price of organic Medium Tomatoes (@ $5.65). This provided a data point for this category. 16. Other data, from #5 (21/08/97 & 28/08/97) for example, confirmed that #lo White and Purple Peppers could be priced equivalently. 17. The price was derived by taking the average of all #lo listed Pepper prices. 18. The price was quoted as $3.79 for a 31b bag. 19. In order to have a data point, it was assumed that one organic Cucumber (medium) was equivalent in weight and price to 3 organic Cucumbers (small). 20. This was the average price per organic Cucumber (small). 21. This was the total value of the 3 CSA Cucumbers (small).

Notes to Table A3 1, In order to get a data point for this category, #S Chinese Lettuce was used as a

substitute for Mizuna. Chinese Lettuce was quoted at $2.1 8Jkg. 2, The price was $1S O for a pint basket of Yellow String Beans. 3. #9 Green Onions were used as a substitute for #9 Chives. 4- Other data, from #S (21/08197 & 28/08/97) for example, confirms that #9 White and Purple Peppers may be priced equivalently. 5. #lo Green Onions were used as a substitute for #lo Chives, 6. Other data, from #5 (21108197 & 28/08/97) for example, confirms that #lo White and Purple Peppers may be priced equivalently. 7. The price was derived by taking the average of all #lo fisted Pepper prices. 8. In order to get a data point for this category, the #lo Swiss Chard (green stem) price for August 28 W97 was used. 9. In order to get a data point for this category, #lo Chinese Cabbage was used as a substitute for Mizuna. Chinese Cabbage was priced at 63.29kg. 10. The #lo Cantaloupe price was expressed as $4.69/kg. 11. This was the average price for non-organic Mizuna. 12. This value represents the average price per kg for non-organic Mizuna multiplied by the CSA weight of 0.625kg. 13. This was the average price for organic Mizuna. 14. This was the average price per kg for organic Cantaloupe. 15. This value represents the average price per kg for organic Mizuna multiplied by the CSA weight of 0.625kg. 16. This value represents the average price per kg for organic Cantaloupe multiplied by the CSA weight of 1.450kg.

Table A4: Results from Week 4 of 12 Week CSA "ABC" Contract Period

I

CSA "ABC" Week 4 :Wlche8day August 27 1997

CSA "ABC" Produce

Basil (green) Red Tomato (large) Red Tomato (medium) )talian Tomato Green Pepper

Jalapeno Pepper Spanish Onion Swiss Chard (white stem) Romaine Lettw Boston Lettuce Yellow Watermelon

I

Price8 per unit ($)

Qua-

2 stems 1 6 3 1

2 0,275 0.800 0.175 0.150

2 1 1 bunch 1 head 1 head In or 2.425kg

0.0625 0,400

1 1 1 0.5

1

I

Thunday August 28 1997

Avo. Non-

Avg.

Avo. Av#. I Non- ,

nla 2.84

nla 3.07 1.30 nla nla nla 1.30 nla nla - nla 0.99'1.88'1.38~ 1.38' 1.58' 1.29 nla nla nla

nla 1.58' 1.78' nla

nla

1

0.25/1

1

I

da I

1.29 nla 1.39 nla rJa 1.7!fq 1.34 0.99 1.08111.98'J 1 . W 1 2 , 5 8 ' O 1.29 1.55 0.99 1.98" 1 9 9 " 1,0011 1.29 1.28 1.57 1.09 nla 1.W 4.OW 1.78" rJe 1.99

1

1

I

I

1.34 11.79 1.55 11.94

1.57 1.00

1 1.28 1 1.7P

I

I

I

1

TOTAL

I

1.79 1.91

1.29 4.3P TOTAL

'

Notes to Table A4 1. The quoted price of $0.59 per Onion was converted to $1.48/kg given the CSA weight of 0-400kg. 2. # price l was quoted as 2 for $0.99. However, the CSA Lettuce was twice its size. 3. #1 price was quoted as 1 for $0.69. However, the CSA Lettuce was twice its size. 4. kr;! price was quoted as 1for $0.99. However, the CSA Lettuce was twice its size. 5. #2 price was quoted as 1 for $0.79. However, the CSA Lettuce was twice its size. 6. #3 price was quoted as 1 for $0.69. However, the CSA Lettuce was twice its size. 7. It is assumed that the #4 Purple Pepper price is equivalent to the W Black Pepper price. 8. #4 price was quoted as 1 for 60.79. However, the CSA Lettuce was twice its size. 9. #4 price was quoted as 1 for $0.89. However, the CSA Lettuce was twice its size. 10- The price was caicuiated given a price of $1-99 for a bag containing approximately 5 stems. 11. #6 price was quoted as 1 for $0.99. However, the CSA Lettuce was twice its size. 12. #6 price was quoted as 1 for $0.99. However, the CSA Lettuce was twice its size. 13. #7 price was quoted as 1 for $0.99. However, the CSA Lettuce was twice its size. 14. #7 price was quoted as 1 for $0.99. However, the CSA Lettuce was twice its size. 15. The price was calculated given a price of $0.79 for a bag containing approximately 3 stems. 16. Other data, from #S (21/08/97 & 28/08/97) for example, confirms that #9 White and Purple Peppers may also be priced equivalently. 17. The price was derived from a 1.36kg bag of Yellow Onions priced at $3.49. 18. #9 price was quoted as 1 for $1.29. However, the CSA Lettuce was twice its size. 19. In order to get a data point, price of Red Watermelon was used. The price was expressed as $1.79/kg. 20. The price was calculated given a price of $1.49 for a bag containing approximately 5 stems. 21. The average price for non-organic Italian Tomatoes was $0.27/kg more that the average price of non-organic Medium Red Tomatoes. Therefore the average price of organic Italian Tomatoes will also be set at $0.27/kg above the average price of organic Medium Tomatoes (@ $3.56). This provided a data point for this category. 22. Other data, from #S (21/O8/97 & 28/08/97) for example, confirms that # I 0 White and Purple Peppers may also be priced equivalently. 23. The price was derived from 21b bag of Yellow Onions priced at $2.65. 24. The #10 Swiss Chard (green stem) price was used. 25. This value is the average price/kg of organic Yellow Watermelon. 26. This value is the average pricefig multiplied by the CSA weight of 2.425kg.

Table A5: Results from Week 5 of 12 Week CSA "ABC" Contract Period ( CSA "ARC" M&k 5 :Wednmday ~ e p t e m b e m 8 7 -

.

Quantity

CSA "ABC" Produce

I

Thunday September 4 1997

Pricm per unit ($)

-

I

I Avg.

Avg.

Avg.

Non-

Non- I

,

Avg.

: nla I

? ~ iCW) l Red Tomato (large) Red Tomato (medium) G m Pepper Red Pepper White Pepper Huwarian Pepper (white) Red Onion Swiss Chard1 Romaine Lettuce Cantaloupe

1 stern 1 15 1 2 1 2 2 1 bunch 2 heads 1 or 2.125 kg

nla -

nla 2.84 2.84 1.74

6.59 nla

nla

nla

nla nla 1.86 1.52

nla

n/a

1 , S 1.52 2.62 2.18

nla nla nla 6.58 -

a nla n/a 2.00/6 1.00R 1.00tl

da nla

I nla Na

1 4.30 1 4.19 I Ma Ia

: n/a

2.18

TOTAL $13.01 CV ""6c

-13.27% CR

TOTAL

Lf a d ~6-

2654%

Notes to Table AS 1. The CSA bunch of Swiss Chard was made up of one-half white stem and onehalf red stem Swiss Chard2. #3 price was quoted as 1 for $0.59. However, the CSA Lettuce was at least twice its size. 3. The price was calculated given a price of $1-99 for a plant containing approximately 5 stems. 4. The price calculated given a price of $1-99 for a plant of Green Basil containing approximately 5 stems. 5. The price was calculated given a piice of $0.99 for one bag containing approximately 3 stems. 6.The price was calculated given a price of $0-99 for one bag of Green Basii containing approximately 3 stems. 7. This was the price of Swiss Chard (white stem). 8. See note 7. 9. #7 price was quoted as 1 for $0-47. However, the CSA Lettuce was at least twice its size. 10. The quoted price of $0.99 per onion was converted to $2.83/kg given the CSA weight of 0.35Okg. 11. The quoted price was $1.29 for half of a Cantaloupe, 12, The price was calculated given a price of $1-49 for one bag containing approximately 5 stems. 13. The price was calculated given a price of $1-49 for one bag of Green Basil containing approximately 5 stems. 14. Other data, from #5 (21/08/97 & 28/08/97) for example, confirms that #lo White and Purple Peppers may also be priced equivalently. 15. The price was derived by taking the average of all #lo listed Pepper prices, 16- The price was quoted as $3.79 for 31b bag. 17. The #l 0 Swiss Chard (red stem) price was used.

Table A6: Results from Week 6 of 12 Week CSA "ABC" Contract Period

ICSA "ABC" Wmk 6 :Wednesday Septetmber 10 1997 1

Thunday September 11 1997

I

CSA "ABC" Produce

Red Tomato (large) Pink Tomato (medium)

5 2

Glssn Pepper

1

White Pepper Hungarian Pepper (white) Spanish Onion Wsb Chard (white stem) Romaine Lettuce'

2

(Ween) Ydkw Watsnnelon ~ssplant lScalkplni Squash (orand . - .

3 1 1 bunch 5 heads 1 bunch 1 1 1 2 ears TOTAL

TOTAL

Notes to Table A6 1. The CSA bunch containing the 5 heads of gourmet Lettuce was equivalent in size to 1 head of Lettuce in the stores. 2. The store did not carry Orange Scallopini Squash, therefore the price of Green

Acorn Squash was used. 3. The price was quoted as $1-99 for one dozen4. See note 2. 5. The store did not carry Orange medium Tomatoes, therefore the price of Pink medium Tomatoes was used. 6. See note 2. 7. See note 3. 8. Store did not carry Orange Scallopini Squash, therefore the price of Orange Acom Squash was used, 9. The price was quoted as $1-69 for one dozen. 10. See note 2. 11. See note 3, 12. See note 5. 13. See note 2. 14. The price was quoted as $1-49 for one dozen. 15. See note 5. 16. The price of Yellow Watermelon expressed as $1-49 per melon was converted to $0,52/kg given the CSA weight of 2.850kg. 17. See note 2. 18. The price was quoted as $0.99 for 8. 19. See note 2. 20. The price of Pink medium Tomatoes was derived by taking the price of Red medium Tomatoes. 21. The price of Orange medium Tomatoes was derived by taking the price of Yellow medium Tomatoes. 22. The price of Spanish Onions was derived by converting the price of $3.49 for a 31b bag of Yellow Onions. 23. The price was not listed, therefore the price of Cantaloupe was used, 24. See note 2. 25. Store #10 did not carry Pink medium Tomatoes, therefore the price of Red medium Tomatoes was used. 26. Store # I 0 did not carry Orange medium Tomataes, therefore the price of Red medium Tomatoes was also used. 27. Previous data from #S (21/O8/97 & 28/08/97) indicated that White and Purple Peppers share the same price. Therefore, #10 price of Purple Peppers was used. 28. The price was derived by taking the average of all #lo Pepper prices. 0 Swiss Chard (green stem) price was used. 29. The #I 30. See note 23. 31. See note 2. 32. This value is the average pn'ce/kg for non-organic Yellow Watermelon. 33. This value represents the non-organic value of the CSA Yellow Watermelon. 34. This value represents the average price/unit for organic Yellow Watermelon. 35. This is the organic value of the CSA Yellow Watermelon.

Notes to Table A7 1. It was assumed that the total number of CSA Cam& (4 medium;l small;l I baby) would be compared to the 'PLU 4094 BUNNY BRAND' bunch of medium Top Carrots with an average weight of 3009 per bunch (M; 09/25/97). 2, The CSA bunch of Top Carrots was 0.525kg (rinsed) or 1.75 times the 0.300kg #4 benchmark bunch. 3. The store did not carry Orange Scallopini Squash, therefore the price of Green Acorn Squash was used. 4. See note 3. 5. See note 3. 6. The store did not carry Orange Scallopini Squash, therefore the price of Orange Acom Squash was used. 7. This figure is based on pfice of $0-99 for a bag containing approximately 5 stems of Arugula. 8. The price of Kale (green stem) was used as a substitute, 9. See note 3. 10. See note 3. 11- The price was $5.00 for a pint basket containing approximately 15 Peppers. 12. See note 3. 13. The price was $1-00 for a basket containing approximately 20 small Carrots. 14- In order to get a data point for this category, the price of Red Pepper was used instead. 15- The price was not listed, therefore the price of Cantaloupe was used as a substitute. 16. See note 3. 17. The figure was based on price of $2.09 for 21b bag of large Carrots multiplied by the CSA weight of 0.600kg. 18. The figure was based on price of $1-89 for a bunch of approximately 5 stems of Amgula. 19. See note 14. 20. Previous data from #5! (21108197 & 28/08/97) indicated that White and Purple Peppers share the same price. Therefore, #lo price of Purple Peppers was used. 21. The price was derived by taking the average of all #lo Pepper prices. 22. This was the price of Swiss Chard (green stem). 23. See note 8. 24. See note 15. 25. See note 3. 26. The figure was based on price of $1.39 for 21b bag of large carrots multiplied by the CSA weight of 0.600kg. 27. The value is the average price per organic Yellow Watermelon. 28. The value is the average price per kg for organic Carrots. 29. The value is based on the average price per organic Yellow Watermelon. 30. The value represents the average price per kg of organic Carrots multiplied by the CSA weight of 0.525kg.

Notes to Table AS 1. It was assumed that the total number of CSA Carrots (2 large;2 medium;2 small; 6 baby) would be compared to the ' PLU 4094 BUNNY BRAND' bunch of medium Top Carmts with an average weight of 0.300kg per bunch (W; 09/25/97). 2. The CSA bunch of Top Carrots was 0.600kg (rinsed) or 2 times the 0.300kg #t4 benchmark bunch. 3. The price was quoted as 5 for $1-294. The price was quoted as $1-99 for a box containing approximately 5 stems. 5. The price was quoted as 5 for $1-39. 6. The price was quoted as 5 for $1-19. 7.The price was quoted as $1-99 for a plant containing approximately 10 stems. 8. The price was quoted as 4 for $2.29. 9. The price was quoted as $t69 per dozen. 10. The price was quoted as $0.99 for a bag containing approximately 5 stems. 11. The price was quoted as 2 for $0.99. 12. The price of #S Swiss Chard (white stem) was used. 13. The price of #S Kale (green stem) was used. 14. The price was quoted as $2.49 per dozen. 15. The price was quoted as $2.99 for half a dozen. 16. The price was quoted as $1-29for a bunch containing approximately 10 sterns17. The price of #7 Swiss Chard (white stem) was used. 18. The price was quoted as 10 for $1.29. 19. The price was $1-00 for a basket containing approximately 20 small Carrots. 20. The price was quoted as $2.97/kg. 21. The price of #9 Kale (green stem) was used. 22. The quoted price of $2.09 for half of a Cantaloupe was used as a substitute. 23. The figure was based on price of $2.09 for a 21b bag of large Carrots. 24. The figure was based on an average price per bunch (5 stems) of available herbs (Arugula and Coriander). 25. The price was quoted as $3.1 Wkg. 26. The price was derived by taking the average of all #lo Pepper prices. 27. The price of #lo Kale (green stem) was used. 28. The quoted price of $4.49 per Cantaloupe was used as a substitute. 29. The price of Zucchini was used as a substitute. 30. The figure was based on price of $1-39for a 21b bag of large Carrots. 31. The value is the average price per kg for organic Leek. 32. The value is the average price per unit for organic Yellow WaterrneIon. 33. The value is the average price per kg for organic Carrots. 34. The value is the average price per kg multiplied by a weight of 0.51 25kg for the CSA Leek. 35. The value is the average price per kg multiplied by a weight of 0.600kg for the CSA Carrots-

Notes to Table A9 1. It was assumed that the total number of CSA Carrots (2 large;5 medium;2 baby) would be compared to the ' PLU $094 BUNNY BRAND' bunch of medium Top Carrots with an average weight of 3009 per bunch (a; 09/25/97). 2. The CSA weight of Red Potatoes was 0.6625kg prior to removal of soil. Since most store Potatoes are pre-rinsed, the CSA weight was adjusted to 0.625kg. 3. The CSA bunch of Top Camts was 0.525kg (rinsed) or I.75 times the #4,0.300kg benchmark bunch. 4. The price of Green Acorn Squash was used as a substitute. 5. See note 4. 6. See note 4, 7 , The price of iW Black Pepper was used as a substitute. 8. #4 Scallopini Squash was sold by unit not by weight. 9. See note 4. 10. The price of #S Swiss Chard (white stem) was used. 11. The price of #S Kale (green) was used. 12. The price of Green Kohlrabi with stem (expressed as a per unit price) was used, 13. See note 4. 14. The price of #7 Swiss Chard (white stem) was used. 15. See note 4. 16. See note 4. 17. The price was $1-00 for a basket containing approximately 15 Red Potatoes. 18, The price was $1.OO for a basket containing approximately 20 small Carrots. 19. See note 4. 20. See note 4, 21. The price was calculated given a price of $4.49 for a Slb bag of Red Potatoes. 22. The price was calculated given a price of $2.09 for a 21b bag of large Carrots. 23. Previous data from #S (21/08/97 & 28/08/97) indicated that White and Purple Peppers share the same price. Therefore, the #I0 price of Purple Peppers was used. 24. The price of Red Onions ($3.75 for a 31b bag) was used as a substitute. 25. The price of #lo Kale (green) was used. 26. The average price of Beets ($2.79 for 21b bag) and Rabiole ($2.99 for 21b bag)

was used. 27. See note 4. 28. See note 4. 29. The price of Zucchini was used as a substitute. 30. Price per kg calculated given a price of $4.29 for a Slb bag of Red Potatoes. 31. The price per kg was calculated given a price of $1-29 for a 21b bag of large Carrots. 32. The values is the average price per kg for organic Kohlrabi. 33. The value is the average price per kg for organic Scallopini. 34. The value is the average price per kg for organic Carrots. 35. The value is the average price per kg multiplied by the 0.37Skg CSA Kohlrabi. 36. The value is the average price per kg multiplied by the 0.1 75kg CSA Scallopini. 37. The value is the average price per kg muftiplied by a weight of 0.525kg for the CSA Carrots.

Table AlO: Results from Week 10 of 12 Week CSA "ABC" Contract Period

) )

CSA "ABC" Week 10 :Wedmday October 8 1997

1 Quantity

CSA "ABC" Produce

Red Tomato (large) Red Tomato (medium) l~unQarian Pepper (whb) Cubenelle Pepper (orange) Long G m n Hot Pepper

2 1 3 1 2

1 head 1 bunch

corn Squash (green) corn Squash (oranae) 7

-

7

Buttercup Squash (green) Ydlaw Turnip (Rutabaga) Red Potatoes 'Ydkw watermelon 'Empire &plss4

1 5

21 1 4

Thumday October 9 1997 Price8 per unit ($)

1

1

Avg.

I,

Org. Va/w 1.14

1.09 1.40 0.71 12.60 0.39 2,6g 0.62 2.74 1.17 3.04 1.56 1.94 2.48 1.8p 5.93 4,80U 0.53 2.60

1.49 1.55

AVQ. Non-

Avg. Avg. Non- I om. Org. I Org. Prim Value M c e 2-62 1-51 1.90

:

0.575 0.075 I ( 0.125 0,0375 0.0625 0,525 0.576 0.3125 0.500 1.500 1425" 2.850 0,325

I

1.52 1.30 0.86 1.08 1.30 0.86 0.86 nla 1.19 0.W 0.99 0.99 do 0.89 n/a n/a nla 1.98 2.20'' nls nla 2.18 2.62 1.30 0.77 1.30 1.08 2.18

1.89 1.24 1.24 1.24 0.78 1.50/bdr."~1.981w1.89" 1.11 1.001~.'~~2.3@" 1.4p 1.01 nla da 4.8p 2.08 1.501mq1'! 2.59 3 . 0 1 ~1-63 1

I

:

1 1 I 1 I 1

TOTAL

0.84 1.37 4.56 2.76

1.3p 4,80"0 0.01

TOTAL

Notes to Table A10 1. It was assumed that the total number of CSA Carrots (2 large;S medium;6 baby) would be compared to the ' PLU 4094 BUNNY BRAND' bunch of medium Top Carrots with an average weight of 0.300kg per bunch (a; 09/25/97). 2. All prices are those for Mclntosh Apples because at the time of pricetaking, the researcher was unaware of the true variety of the CSA apples. It is important to note that it was noticed in the data collection for Week 12 Fable 12). that the prices for Mclntosh and Empire Apples were exactly the same across all stores. 3. The CSA weight of Red Potatoes was 1.4SOkg prior to removal of soil. Since most store Potatoes were prefinsed, the CSA weight was adjusted to 1.425kg. 4. The CSA bunch of Top Carrots was 0.7375kg (rinsed) or 2.46 times the 1W,0.300kg benchmark bunch5. The price of Red Cabbage was converted from $1-391headto $2.65/kg given the CSA weight of 0.525kg. 6. The price of Leek was advertised as 6 for $3.99. 7. The price of Leek was advertised as 3 for $2.29. 8. The price of Red Cabbage was converted from $0.99/head to $1.89/kg given the CSA weight of 0.525kg. 9. This was the price of #5 Green Kale. 10. This particular fruit was not available in the store, but a price of $1-00nb was quoted by store manager. 11. The price was quoted as 2 for $0.99. 12. The price was $1S O for a basket containing approximately 15 Red Potatoes. 13. The price was $1-00 for a basket containing approximately 20 small Carrots. 14. The price was $1.SO for a basket of approximately 7 Apples. 15. The #9 price of Leek was quoted as $2.69/kg. 16, The #Q price of $1.16/kg for Green Cabbage was used. 17. The #9 price of $1-49 per bunch of Green Kale was used. 18. The price of Rabiole was used as a substitute. 19. The price was calculated given a price of $4.49 for a 51b bag of Red Potatoes. 20. The price per kg was calculated given a price of $2.09 for a 21b bag of large Carrots. 21. The price was den'ved by taking the average of all #lo Peppers. 22. The price of #lo Jalapeno Peppers was used. 23. The #lo price of Leek was quoted as $2.69/kgt 24. The #lo price of $1-49 per bunch of Green Kale was used. 25. The price of Green Acorn Squash was used as a substitute. 26. The price of Rabiole ($2.99 for a 21b bag) was used as a substitute. 27. The price was calculated given a price of $4.29 for a Slb bag of Red Potatoes. 28. The price per kg was calculated given a price of $1.29 for a 21b bag of large Carrots. 29. The quoted price of $4.89 per Cantaloupe was used as a substitute. 30. The price was converted from an advertised price of $4.09 for a 31b bag. 31. The value represents the average pricekg of organic Leek. 32. The value represents the average price per kg for organic Carrots. 33. The value represents the average price per unit of organic Yellow Watermelon. 34. This is the value of CSA organic Leek. 35, This value is the average price per kg multiplied by a weight of 0.7375kg for the CSA Carrots. 36. This is the value of the CSA organic Yellow Watermelon.

Table A l l : Results from Week 11 of 12 Week CSA "ABC" Contract Period CSA "ABC" Week 11 :Wednesday October 15 1997 A

Thursday October 16 1997 I

I Qwntity

CSA "ABC" Produce

Prices per unit ($1

I

Avg.

Non-

Italian Parsley Red Tomato (large) G m Tomato (medium) Lono Green Hot Pspper

1 bunch 3

I

Leek White Onion

(OM)

Acom Squash (green) Purple KohlraM (no stem) Yellow Turnip (Rutabaga)

Red Potatoes Carrots' Escarole Lettuce Red Watermelon

3

1 1 or 0,375kg 5

2 bunches 1 3 or 0.575kg 5 12 19 or 0,850kg 1 head 1

I

I

1.30 1.52 1.08 1.08 1.08 1.3011.52 n/a da nla n/a O , W L nla I nla

I

-

-

1.0011 13.88 1.49 1.27 nla ! n h 3 . F 0.66

I

nla n/a nla

0.99 0.99 0.89 0.99 1.19 llla nla 0.99 nla 1.52 2.18 1.52

nla Ma nla

0.W l . O O h k . ' O ~2.W' 2 2 P 0.W 0.80 n/a ; 1 . 8 T 1 f , 8 f ' 1.02 1.52 nla ) M a 4.59" 1.69 1

TOTAL

TOTAL

Notes to Table A1 1 The CSA delivery was actually picked up at the farm on Saturday Odober 18 1997, and the Store data was recorded on Sunday Odober 19 1997.

A

1. It was assumed that the total number of CSA Carmts (17 medium; 2 baby) would be

compared to the PLU 4094 BUNNY BRAND bunch of medium Top Carrots with an average weight of 0.300kg per bunch (W; 09/25/97). 2. The CSA weight of Red Potatoes was 1-950kg prior to removal of soil- Since most store potatoes were pre-rinsed, the CSA weight was adjusted to 1-875kg. 3. The CSA bunch of Top Carrots was 0.850kg (rinsed) or2.83 times the #4,0.300kg benchmark bunch. 4. The price of Red Tomatoes (medium) was used as a substitute for Green Tomatoes 5. See note 4, 6. See note 4. 7. The advertised price was quoted as 3 for $2.49. 8. See note 4. 9. The advertised price was quoted as 3 for $2.29. 10. The quoted price was $0.99 for 2 bunches of Italian Parsley. 11. See note 4. 12. The price of Green Kohlrabi (with stem) was quoted as 3 for $1-99. 13. See note 4. 14. The price was quoted as 2 for $0.99. 15. See note 10. 16. See note 4. 17. The price of $1-50 was for a basket containing approximately 15 Red Potatoes. 18. The price of $1-00 was for a basket containing approximately 20 small Carrots. 19. The price was quoted as S2.641kg. 20. The price was $4.49 for a 51b bag. 21. The price per kg was calculated given a price of $1-99 for a 21b bag of large Carrots 22. The average of all #9 listed Lettuce prices was used as a substitute. 23. To get a current week price, the price increase in Red Tomatoes (medium) from the previous week was added to the previous week's price of Red Tomatoes (large). 24. The average of all #lo listed Pepper prices was used as a substitute price, 25. The price was quoted as $2.99/kg. 26. The average price of Beets ($2.79 for 21b bag) and Rabiole ($2-99 for 21b bag) was used as a substitute. 27. The price per kg was calculated given a price of $1-99 for a 21b bag. 28. The price per kg was calculated given a price of $3.99 for 51b bag. 29. See note 21. 30.The average of all0I# li&d Lettuce prices was used as a substitute. 31. The quoted price of 54.59 per Cantaloupe was used as a substitute. 32. The value represents the average price per kg for organic leek. 33. The value represents the average price per kg for organic Purple Kohlrabi.

Notes to Tabb A l l (contined) 34, The value is the average price per kg for organic Camts. 35, The value representsthe average price per kg for organic Red Watermelon 36. The value represents the product of both the average price per kg of organic Leek and the weight of the 0.37Skg for the CSA Leek37. The value represents the produd of both the average price per kg of organic Purple Kohlrabi and the weight of the 0.575kg for the CSA Purple Kohlrabi. 38. This is the average pficekg multiplied by a weight of 0.850kg for the CSA Carrots. 39. The value represents the product of both the average price per unit of organic Red Watermelon and the weight of the 2.22Skg for the CSA Red Watermelon.

Notes to Table A12 The CSA delivery was actually picked up at the farm on Saturday Odober 25 1997, and the Store data was recorded on Sunday October 26 1997.

A

1. It was assumed that the total number of CSA Carrots (12 baby top carrots) would be compared to store small baby carrot bags of 3409 and 4549. 2. The weight of the CSA Green Cabbage was 1-42Skg. However, when sold in stores by the kg, the outer leaves are removed. Therefore, the CSA weight was adjusted to 1-1625kg. 3. The CSA weight of Red Potatoes was 1.350kg prior to removal of soil. Since most store Potatoes were pre-rinsed, the CSA weight was adjusted to 1-300kg. 4. The CSA weight of Baby Carrots was 0.575kg prior to removal of soil, Since all store Carrots are pre-rinsed, the CSA weight was adjusted to 0-55Okg. 5. The price was advertised as 3 for $1-99. 6. The # Green l Cabbage was sold by the kg- The value of $0.90 represents the product of the SO.771kg price and the CSA weight of 1-1625kg. 7. The price was advertised as $1-99 for a 0.454kg bag. 8. See note 7 , 9. The price was advertised as 3 for $2.49. 10. The #2 Green Cabbage was sold by the kg. The value of $1-00 represents the

product of the $0.86/kg price and the CSA weight of 1.1 62Skg. 11. The price was advertised as $1-69 for a 0.454kg bag. 12. The #4 bunch of Swiss Chard (white stem), priced at $2.89, was approximately twice the amount of the CSA bunch of Swiss Chard (green stem). 13. The price was advertised as $1.89 for a 0.454kg bag. 14. The #5 price of Kale (green) was used as a substitute for Kale (mufficoloured). 15. The price of 1 bunch of Swiss Chard (white stem) was used as a substitute. 16. The price was advertised as $1 -49 for a 0.340kg bag. 17.The price was advertised as 2 for $0.99. 18. The #6 Green Cabbage was sold by the kg. The value of $0.92 represents the product of the $0.79/kg price and the CSA weight of -1625kg. 19. The price was advertised as $1-79 for a 0.454kg bag. 20. The price of I bunch of Swiss Chard (white stem) was used as a substitute. 21. The price was advertised as $0.99 for a 0.340kg bag. 22. The basket contained approximately 15 Red Potatoes. 23. The #9 price of Leek was expressed in $/kg. 24. The #9 price of Green Cabbage was expressed in $/kg. 25. The #9 price of Kale (green) was used as a substitute for Kale (mufficoloured)26. The price of 1 bunch of Swiss Chard (white stem) was used as a substitute. 27. The #9 price of $2.49 was for a 1kg bag containing 5 Yellow Turnips (Rutabagas). 28. The #9 price was advertised as $4.19 for a 51b bag. 29. The #9 price was advertised as $1-99 for a 21b bag. 30. The #9 price of Mclntosh Apples was used as a substitute. 31. The #lo average price for all advertised Pepper prices was used as a substitute32. The # I 0 price of Leek was expressed in $/kg. 33. The #lo price of Green Cabbage was expressed in *kg.

Notes t o Table A12 (continued) 34. The #lo price of Kale (green) was used as a substitute for Kale (multicoloured). 35. The #lo price of Eggplant of $3.29/kg (taken from October 19 1997) was increased by 81.99/kg which represents the difference between the average non-organic

Italian Eggplant price and the average non-organic Eggplant price. 36. The #lo price of Yellow Turnip (Rutabaga) was advertised as $2-49 for a 21b bag, 37. The #lo price was advertised as $3.99 for a Slb bag. 38. The #I 0 price was advertised as $1.59 for a 21b bag. 39. The #lo price of Cantaloupe ($4.59 per unit) was used as a substitute. 40. The #lo price of Mclntosh Apples was used as a substitute. 41. The average organic price is expressed in $/kg and not $/unit. 42. The average organic price is expressed in W g and not Wunit. 43. The average organic price is expressed in Wunit and not $/kg. 44. The organic value is the product of $2.67/kg and 0.67Skg. 45. The organic value is the product of $1.l8/kg and 1.6125kg. 46. The organic value is the product of $4.59/unit and 1 unit.

APPENDIX B

Tabls B1: XYZ Bank standard Chequing account Features: Interest Calculated on Daily Closing Balance, Interest Paid Monthly on last day of the month. Annual Interest Rate from March 1 1997 to October 31 1997 equal to O.lS%*.

Balance Interest Date 222 days ($1 ($1 Mar4 5 t 80.00 0.01 Mar-31 f80.01 0.02 Apr-01 l8O.Ol Apr-30 180.03 180.03 0.02 May-01 May-31 180.05 180-05 0.02 Jun-01 180.07 Jun-30 0.02 180.07 Jul-01 180.09 JuI-31 l8O.OQ 0.02 Aug-01 Aug-31 180.1 1 180.1 1 0.02 SepO1 180.13 Sep30 180.1 3 Oct-01 0.02 180.15 Oct-22

rllonthly Maintenance Fee of $1.OO charged o account if Balance any time during a nonth is less that $250. Date Balance Interest

Mar45 Mar-31 Apr-01 Apr-30 May-01 May-31 Jun-01 Jun-30 Jul-01 Jul-31 Aug-01 Aug-31 SepOl Sep30 Od-01 Oct-22

Opening Ba\lance

I Less Service Cha e

I

Final Balance

I

-4.36% Employee, XYZ 8ank Info-line, l5/ll/97).

146

Table 83: Performance of the XYZ Bank CON T-BF from March 16 1997 to October 22 1997A (Total of 222 days)

-Date

Mar-15 'SSM

Daily Rate TSE Close

t

'FSSM

RETURN 22 days)

Daily Rate (%)

O.OOO23ll 0,0231 171 0.000076S 0.007691C

o.oooona 0.0000729 0.OOOO723 0.0002165 0.0000724 0.0000725 0.0000739 0.0002953

0.0076991 0.007285C 0,0072294 0-0216549 0.0072417 0.0072541 0.0073926 0.0295289

0.0000733 0.0000733 0.0000731 0.0060724 0.0002170 0.0000734 o.oooo73a 0.0000734 0.000072g 0.0002290 0.0000733 0.OOOO8N 0.0000726 0.0000726 0.0002182 0.0000728 0.0000728 0.0000734 0.0000729 0.0002186 0.0000734 0.0000739

0.0073336 0.0073280 0.0073127 0.0072940 0.0217807 0.0072982 0.007300(1 0.0073406 0.0072885 0.0229011 0.0073258 0.0083741 0.0072553 0.0072572 0.021 8158 0.0072626 0.0072753 0.0073361 0.0072865 0.0219552 0.0073384 0.0073850

Annual Rate (%)

--

*

*

Value (S)

Bdrnce 8.44 281 281

2m 264 7.90 264 2.65 270 10.78

Mar-31

t

--

2.68

2.67 267 2-66 7.95 266 266 268 2-66 8.36 267

3.06 2.65 265 7.96 265 266 2-68 266 8.01 2-68

2.70

Ap r-30

Mar-28

s

1so.ao

0-04 0.01 0-01 0.01 0.01 0-04 0.01 0.01 0.01 0.05 0.23 nterest Earned t 80.2270 180.23 3alance 0.01 0.01 0.01 0.01 0.04 0.01 0.01 0.01 0.01 0.04 0.01 0.02 0.01 0.01 0.04 0.01 0.01 0.01 0.01 0.04 0.01 0.01 0.40 nterest

1S O 9

Return

0.13%

iarned

*

0.0000719 0.0000712 0.0002142 0.0000717

0.0071935 0.0071229 O.O214213 0.0071652

263 2.60 7.82 262

180.6284 180.63 3alance 0.01 0.01 0.04 0.01

0.35%

Interest Earned

Balance

Interest Earned Balance

+

t

JuI-31

nterest Zarned

3alance 'SSMT

t

Aug-29

nterest

Earned 3alance 'SSMT

'

s-Q

ntecest

Earned 3alance

*

'SSMT

Oct-22

nterest !amed

lalance A

Daily rates taken from (XYZ Bank mutual fund database, 11/12/97).

'SSM is the sum of twice Friday's Close over Saturday and Sunday and Monday's Close. All italicized dates such as Mar-28 are Bank Holidays where the TSE was closed.

Table 84: XYZ Bank No-Load Mutual Fund Returns

Mutual Fund Portfolio Category non-RRSP)

Fund Name

Investment Principal Unit Price Risk Units 1 Year Objective Category Amount Purchased AC(m)R(d) (volatility) Invested at Oct. 31 1997 a

-

--1 Year Value and Gain

222 Day 222 Day Return Value given 1 Year and

AC(m)R(d)

Gain C

00% MM

CDN T-BF

Safety of Pfincipat

Lowest

$ 180.00 $

10.00

18.00

2.79%

$182.88 $ 2.88

100% MM

CDN MMF

Safety of Principat

Low

$ 180.00 $

10.00

18.00

2.9691

Sl83.N $ 3.24

5% MM

CDN MMF 66% Safety of US MMF 10% Principal STlF 10% Portfolio MORTF 96%

3.42#

$l83,74 $ 3.74

!S% INC

L

Portfolio

Medium- $ 180.00 Low

Principal Amount

Unit Price

Unls AC(m)R(d) Purchased (Wear) $ 10.00 11.70 2.96% $ 10.00 1.80 4.43% $ 9.85 j.83 3.85% $ 11.30 2.39 4.46% 17.72 Portfolio AC(m)R(d) (1 Year) =

CDN MMF 6S% $ 180.00 US MMF 10% STIF 10% MORTF 16% I

100%IND

I

I

CDN IF

CDN EF

I

I

$ $ $ $ $

120,46 18.80 18.69 28.20 186.10 3.42V

I

Index

MediumHigh

$ 180.00 $

10,71

16.8067

Growth

High

$180.00 $

24.36

7.3892

. 1003CGR

I

Value (1 Year)

22.88% $221.18 $ 41.18

13.92%

36.68% $245,84 $ 6S.84 ,

22.26%

Notes to Table 84: XVZ Bank No-Load Mutual Fund Returns

Mutual fund investments are not insured by the Canada Deposit Insurance Corporation (CDIC), The minimum initial purchase for non-registeredfunds is $2,000, which may be liquidatedwithin 24 hours of opening, as long as a minimum balance of $100 is maintained. XYZ Bank states that: "The indicated rates of return for the Funds are the historical annual compounded (monthly) total returns as of October 31 1997, incIuding changes in unit values and reinvestment of all disMbutions (i.e, interest income as well as capital gains income where applicable). Returns are net of all fees and expenses, which would have reduced returnsw(XYZ Bank, 07111/07). All rates have not been adjusted for inflation, Actual reallzed investor returns may also be diminished by taxes on interest income andlor capital gains. Fund Catenodes : MM (Money Market Funds); INC (Income Funds); IND (Index Funds); GR (Growth Funds). Fund Names : CDN T-BF Canadian T-Bill Fund: Invests in government-guaranteed Canadian T-bills. CON MMF Canadian Money Market Fund: lnvests in short-term securities, including Government of Canada and provincial T-bills, commercial paper and banker's acceptances. US MMF US Money Mahet Fund: lnvests in short-term securities issued by Canadian corporations and payable in US dollars, STlF Short Tern Income Fund: Invests in Canadian government and corporate fixed income securities with maturities of less than three years. MORTF Mortgage Fund: Invests in single-family, residential first mortgages guaranteed against default by XYZ Bank or the CMHC. CON IF Canadian Index Fund: Tracks the TSE 300 Total Return Index. CDN EF Canadian Equity Fund: lnvests in stocks of rapidly growing Canadian and internationalcompanies. a AC(m)R(d) represents the Annualized Compounded (monthly) Rate of Return based on (daily) market rates from October 31 1996 to October 31 1997 found in (XYX Bank, 07/11/1QQ7). b Rate not based on the 1 year AC(m)R(d), but calculated using the actual daily market data for the CON T-6F from March 15 1997 to October 22 1997 (See Table 83 in the Appendix 0). c Value not based on the 1 year AC(m)R(d) but calculated using the actual daily market data for the CON T-BF from March 15 1997 to October 22 1997 (See Table 83 in the Appendix 6) # Fund invests solely in government-guaranteed Canadian treasury bills. A The "Safety of PrincipaF Non-RRSP Portfolio from the XYZ Bank suggested Wealth Allocation Model Portfolios (XYZ Bank #21894,08/97). The Top performing fund among all Mutual funds from XYZ Bank for October 31 1996 to October 31 1997 (XYZ Bank, 07111/97). a

-

-

-

-

-

-

-

Notes for Summary Budgets 1to 6 (Tables 7 to 12)

153

* Although the CSA "ABC" Farmer did not actually invest his share sales revenue, it was assumed that the investment vehide would have to be guaranteed. A 30-59 day GIC (Guaranteed Investment Certificate) offering 2.00%1a ($5,000-$25,000) (Employee, XYZ Bank Info-Line, 27/01/98) was chosen over the CDN T-Bill Mutual Fund (offering a predicted estimate of 2.79%la) because the latter's funds are not insured by the CDIC. The lattefs risk of loss of principal, although virtually nil, was still considered a deterrent for the Fanner. Another benefn of the 30 day GIC is that the Farmer has the option to reinvest principal and interest in another 30 day GIC- m e Fanner is also free to withdraw some or all of his contract sales revenue after 30 days if cash is needed earlier. A third investment vehicle was considered: the direct purchase of GOC T-Bills. It was found that this investment was not available to the Farmer, for the minimum maturity amount for 30-60 days was $25,000. T-bills are usually sold at a discount to their Maturity or Face values. The GOC 30 day T-Bill yield for March 1 1997was 2-7S%/a (a purchase cost of $24,943.56) and for April 1 1997 was 2-98%/a (a purchase cost of $24,938.84) (Employee, XYZ Bank Info-Line, 27/01/98}. "By Revenue Adjustment is meant the total amount in weekly $15 cash refunds paid to the "A8CW Memberlfnvestors, who upon realizing that their weekly "ASC" delivery was below the minimum $15 Non-Organic Market Value (NOMV) stated in "ABC" Contract's limited liability clause, requested the refund. Since in the CSA "ABC" case no such requests were made, the Revenue Adjustment is not applicable and therefore $0. The Revenue Adjustment, if applicable, is actually a cost incurred by CSA farmer during the harvest period and should be placed on the cost side of a budget. "Many of the following costs are based on the CSA "ABC" Farrnefs experienced estimates. Stated costs cover the entire 5 acres of organic vegetable/fruit operation. According to the Farmer, 4 acres can be allotted to CSA, and 1 acre to the SaturdaylSunday Market. Therefore, tabulated costs below are generally 415 of stated costs. t . These are 415 of the total costs for seeds and plants that had to be purchased. 2. This represents 415 of the total cost of Organic Fertilizer. 3. This represents 415 of the total cost of Organic Pest Control. 4. This includes fuel costs for the Tractor, Water Pump, and Farm Truck. 415 of the total cost can be attributed to CSA. 5. This is the electricity charge at $200 per month to run the Compressor during July, August and September, 415 is attributed to the CSA produce. 6. Water costs are zero because the farrn has a natural replenishing water supply. n/applic. means "not applicable". 7. These are 415 of the total costs incurred to set up the imgation network 0.e. plastic pipes, brackets, hoses). The inigation network is used solely for the 5 acre organic vegetable/fnrit operation. 8. The water pump was leased for a total cost of $500. 4/S of its usage can be attributed to CSA, 9. Approximately $500 was paid to purchase hoes, forks, shovels, diggers, and flats. 415 of this cost can be attributed to CSA. 10, These are (415) of the costs for maintenance and repair to the tractor, compressor, farrn truck, delivery vehicle, and farm tools. 11. This cost is based on a 2% yearly maintenance cost (Boehlje & Eidman 1984,160) of the 1997 $50,000 insured replacement value of the barn. 113 of this total yearly maintenance cost is indicated, as 1/3 of the total barn space is used by the CSA operation. 12. This cost is 80% of the total cost for translation ($400), photocopies (CSA contracts and newsletters), stamps, envelopes, etc., as approximately 80% of all printed information was for the CSA and 20°h for the SaturdaylSunday Market. 13. These are the costs for supplies directly related to delivering the CSA bags, such as plastic bags, string, exado knives, nrbber bands, markers, nozzles, buckets, etc. 14. These are the gasoline costs for the delivery vehide. Three delivery routes of SOkm, 50km, and 100 km were covered each Wednesday during the 12 week CSA contract period. A gasoline cost of $0.08568/krn was based on the 1997 Nissan Pathfinder (automatic transmission) city and highway average (13.6UlOOkm) gasoline (regular grade @ $0.63/1) consumption estimates from Statistics Canada, given over the phone by a local dealership (Employee, Cite Nissan, 18/02/98). 15. The delivery vehicle is leased for $13,OW during 24 months. The CSA should cover the cost of only 12 days of the total annual lease payment. The delivery vehicle is primarily the family vehide

-

154

and it is assumed that it was only used by the CSA on CSA delivery days. 16. It was assumed that the CSA operation should cover the costs of 12 days (121365) of the delivery vehicle's annual license ($43) (for one driver) and registration ($225) (CAA Quebec, 05/97). 17. It was assumed that this cost was considered more of an operating cost than an ownership cost. The Farm Truck is used all year round. However, during the 12 week CSA contract, 80% ( ~415) r of its use was for CSA. It is assumed that the CSA operation will cover (12/52)x0.8 of the annual license ($43) (for one driver) and registration ($225) costs, 18. The yearly OClA (Organic Crop ImprovementAssociation) certification fee was considered an operating cost because it was considered as required by the Farmer to be able to sell produce as organic. The certification covers all organic operations on the farm: free Nursery(1997 revenue= $15,000); Seed Company(1997 revenue=$1,000); CSA(1997 revenue=$10,800); SaturdaylSunday Market(1997 revenue=$2,500). f herefore, the annual fee was charged in proportion to revenue from each of the 4 organic operations, Therefore the CSA should cover ($10,8001$29,300) of the 1997 OClA fee. The total fee amounted to $365 ($290 regular amount + $75 late payment charge). 19. The OClA per sale payment is fixed at 0.005 of total sales (Duval, 28110197). For the CSA, sales were equal to total contract sales of $10,800. 20. The UPA (Union des ProducteursAgricote) fee is a union due. It is legally not enforceable. We have assumed that the CSA Farmer is a member of the UPA, and that the CSA operation should cover ($10,800/$29,300) of its 1997 annual fee of $233.61 (Employee, UPA, 02/02/98). 21. This is the total cost for hired labour for CSA production. Hired labour (8 workers: L1 to L8) were paid $1Olhour and were paid bi-weekly. Their 12 week CSA work consisted mainly of spotweeding; picking, and collecting. 22. Since the Farmer received the necessary revenue to purchase inputs, no financing was necessary. nlapplic. means "not applicable". 23.Taxes were not included in the analysis. nhncl. means "not included". 24. This is the portion of the total annual insurance cost on the farm truck attributed to the CSA. The truck is used all year round, but only 12 weeks of the year for the CSA. The annual insurance cost is $450. The value is the product of 12/52 and 415 muftiplied by $450. 25. This is the portion of the insurance cost on the delivery vehicle that is attributed to the CSA. The delivery vehicle is predominantly the family vehicle and was only used during each of the 12 delivery days. The value is 12/365 of $750. 26. This figure is the annual insurance cost on the whole farm, which includes farm buildings, all farm operations and farm liability. (The premium excludes coverage on the farm house), 4/30 (30 acres of the total 70 acres of farm property are used for agricuttural produdion) of the $800 annual premium is attributed to the CSA operation. 27. Housing Costs are also part of the total costs associated with providing machinery services. (Boehlje & Eidman 1984, 145) define Housing Costs as [{(Purchase Price + Salvage Value)l2} x Housing Rate]. The Housing Rate chosen for "ABCwwas 2% as suggested by (Boehlje & Eidman 1984, 145). The Purchase Pn'ce, used in the above formula, can either be the "current market (purchase) price(s) for used capital asset(s)" or the "current replacement (purchase) price(s) for new capital assets" ..."some capital assets, such as major items of farm machinery, have reasonably well-defined markets. In these cases, the c m n t market value for the used machine can be assumed to reflect its value in dollars of current putchasing power. Other assets do not have welldefined markets, and the replacement cost of a similar asset should be used. The current market value is most easily approximated by calculating ownership and operating costs of capital assets based on current year market or replacement prices. Current year market prices for used capital assets and current replacement costs for new capital assets represent the economic cost of purchasing these assets in current year dollar values, once we take into account any inflation or deflation, plus other changes in the price level of these assets that have occurred since they were purchased" (Boehlje & Eidman 1984,134). For the purposes of "ABC", it is assumed that the Tractor, Rotor Tiller, and Truck have well-defined used markets and therefore their current (used) market values can be calculated. Further, due to the small scale of his farm operation, Farmer "ABC" will generally prefer to purchase the used versions of high-priced new farm machinery. For the other "ABC" machinery such as the Compressor and Sprayer, it will be assumed that well-defined used markets do not exist and therefore current (new) replacement prices for these machines will be used.

155

Given the above, it is assumed that the Jan. 1 "current 1997 market (purchase) price" of the used "ABCn (Jan-1 1986) Tractor is 27.2% (8oehlje & Eidrnan 1984:TaMe 4.3 (Category 1; Age 11)) of the Jan. 1 1997 $15,000 purchase price (a substitute for the Jan.1 1997 current list price of a new replacement machine), This yields a Jan. 1 1997 current market Purchase Price of $4,080 for the used Jan.1 1986 Trador- The cunent Salvage Value in the above formula was assumed to be 19.5% (Boehlje CL Eidman 1984: Table 4.3 (Category 1;Age 15)) of the Jan. 1 1997 $15,000 purchase price (a substiiute for the 1997 current list price of a new replacement machine). This yields a Jan. 1 1997 current Salvage Value of $2,925 for the used Jam1 1986 Tractor. It is therefore assumed that Farmer "ABC" could sell/trade-in the used Jan. 1 1986 Tractor on Jan 1.2001 (at the age of 15 years) for $2,925 (1997 dollars). The Tractor is only used for the 5 acre total organic vegetablelfruit operation. Therefore (415) of the total annual Housing Costs for the Tractor should be covered by the 4 acre CSA "ABC" operation. 28. It is also assumed that the Jan. 1 "current 1997 market (purchase) pricenof the used "ABCn (Jan.1 1986) Rotor Tiller is 15-7% (Boehlje 8 Eidman 1984: Table 4.3 (Category 4; Age 11)) o f the Jan. 1 1997 $2,500 purchase price (a substitute for the Jan.1 1997 current list price of a new replacement machine), This yields a Jan. 1 1997 current market Purchase Price of $392-50 for the used Jan.1 1986 Rotor Tiller. The current Salvage Value in the above formula was assumed to be 9.6% (Boehlje & Eidman 1984: Table 4.3 (Category 4; Age 19)) of the Jan- 1 1997 $2,500 purchase price (a substitute for the 1997 current list price of a new replacement machine). This yields a Jan. 1 1997 current Salvage Value of $240 for the used Jan.1 1986 Rotor Tiller. It is assumed that Fanner "ABC" could sellhrade-in the used Jan. 1 1986 Rotor Tiller on Jan 1.2001 (at the age of 15 years) for $240 (1997 dollars). The Rotor Tiller is only used for the 5 acre total organic vegetable/fruit operation. Therefore (415) of the total annual Housing Costs for the Rotor Tiller should be covered by the 4 acre CSA "ABC" operation. 29. It is assumed that the Jan. 1 1997 "current replacement (purchase) price" of a new "ABC" Compressor is $3,000. The current Salvage Value in the above formula was assumed to be 44.8% (Boehlje 8 Eidman 1984: Table 4.3 (Category 1; Age 5)) of the Jan. 1 1997 $3,000 current new replacement purchase price (a substitute for the 1997 current list price of a new replacement machine). This yields a Jan. 1 1997 current Salvage Value of $1,344 for the Jan.1 1995 Compressor. It is therefore assumed that Farmer "ABC" could selUtrade his Jan. 1 1995 Compressor on Jan 1. 2004 (at the age of 7 years) for $1,344 (1997 dollars). The Compressor is only used for the 5 acre total organic vegetable/fnrit operation. Therefore (4/5) of the total annual Housing Costs for the Compressor should be covered by the 4 acre CSA "ABC" operation. 30. It is assumed that the Jan. 1 1997 "current replacement (purchase) price" of a new "ABC" Sprayer is $500. The current Salvage Value in the above formula was assumed to be 30.4% (Boehlje & Eidman 1984: Table 4.3 (Category 3; Age 5)) of the Jan. 1 1997 $500 current new replacement purchase price (a substitute for the 1997 current list price of a new replacement machine). This yields a Jan. 1 1997 current Salvage Value of $152 for the Jan.l 1995 Sprayer. It is therefore assumed that Fanner "ABC" could sellltrade his Jan. 1 1995 Sprayer on Jan 1.2004 (at the age of 7 years) for $152 (1997 dollars). The Sprayer is only used for the 5 acre total organic vegetable/fruit operation. Therefore (4/5) of the total annual Housing Costs for the Sprayer should be covered by 4 acre the CSA "ABC" operation. 31. Taxes were not included in the analysis. Wind. means "not included". 32. Insurance cost for Buildings (i.e.. Barn) used in the "ABC" operation is included in line 26. 33.Total Property Taxes for the entire 70 acre property were $2,60O/year. It is suggested that because Fanner "ABC" does realize a greater proportion of non-farm income, only the 30 acres used for the 4 farm operations (see note 18) should be considered. The "ABCwproportion of Property costs should be 30/70 of $2,600 and again $10,800/$29,300 of the former amount (see note 26). 34-38. Since Farmer "ABCwis no longer financing the ownership of his farm machinery, interest costs as a component of total ownership costs are zero. Summary Budget 6 calculates interest costs for machinery purchases if Farmer "ABC" was actually financing the machinery. 39.Since Farmer "ABC" is no longer financing the ownership of his farrn barn, interest costs as a component of total ownership costs are zero. Summary Budget 6 calculates interest costs for building purchases if Fanner "ABC" was actually financing the bam. 40. Since Farmer "ABCwis no longer financing the ownership of his farrn land, interest

156

costs as a component of total ownership costs are zero. Summary Budget 6 calculates interest costs for land purchases if Farmer "ABC" was actually financing the land. 4 f . Depreciation Costs (atthough non-cash) are still included in the total ownership costs associated with providing machinery services. Boehlje & Eidman (1984,139) define Average Annual Depreciation (straight-line) as [(Purchase Price Salvage Value)fYears of Useful Life), "Depreciation is the reduction in the market value of a machine due to wear, obsolescence and age. Notice this is the economic concept of depreciation, not necessarily the amount of depreciation to take for tax purposes.... Two decisions must be made before average annual depreciation can be calculated: the years of useful life and a salvage value at the end of the useful life must be estimated. The useful life is the period of years the owner plans to use the machine. It is usually less than the wear-out life since, ... farmers normally trade machines before they are worn out,... The salvage values are stated in terms of current market values. Thus the difference between current replacement cost and salvage value is the amount of depreciation to be taken off iri current dollarsn (Boehlje & Eidman 1984, 138-139). Depreciation for the Tractor was calculated given a current purchase price of $4,080 and a current salvage value of $2,925 (see note 27) and based on a remaining useful life of 4 years- The Tractor is only used for the 5 acre vegetablelfruit operation. Therefore (415) of the average annual depreciation cost should be covered by the 4 acre CSA "ABCn operation. 42. Depreciation for the Rotor Tiller was calculated given a current purchase price of $392.50 and a current salvage value of $240 (see note 28) and based on a remaining useful life of 4 years. Rotor Tiller is only used for the 5 acre vegetablelfruit operation. Therefore (415) of the average annual depreciation cost should be covered by 4 the acre CSA "ABC" operation. 43. Depreciation for the Compressor was calculated given a current purchase price of $3,000 and a current salvage value of $1,344 (see note 29) and based on a remaining useful life of 5 years. The Compressor is only used for the 5 acre vegetablelfruit operation. Therefore (4/5) of the average annual depreciation cost should be covered by the 4 acre CSA "ABC" operation. 44. Depreciation for the Sprayer was calculated given a current purchase price of $500 and a current salvage value of $152 (see note 30) and based on a remaining useful life of 5 years, The Sprayer is only used for the 5 acre vegetable/fruit operation. Therefore (415) of the average annual depreciation cost should be covered by the 4 acre CSA "ABC" operation. 45. It is also assumed that the Jan. 1 "current 1997 market (purchase) price" of the used "ABC" (Jan.1 1989) Farrn Truck is 22.6% (Boehlje & Eidman 1984: Table 4.3 (Category 4; Age 8)) of the Jan. 1 1997 $18,000 purchase price (a substitute for the Jan.1 1997 current list price of a new replacement machine). This yields a Jan. 1 1997 current market Purchase Price of $4,068 for the used Jan.1 1989 Farm Truck. The current Salvage Value in the above formula was assumed to be 13.9% (Boehlje & Eidman 1984: Table 4.3 (Category 4; Age 12)) of the Jan. 1 1997 $18,000 purchase price (a substitute for the 1997 current list price of a new replacement machine). This yields a Jan. 1 1997 current Salvage Value of $2,502 for the used Jan.1 1989 Farrn Truck. It is assumed that Farmer "ABCWcould selUtradein the used Jan. 1 1989 farm Truck on Jan 1.2001 (at the age 12 years) for $2,502 (1997 dollars). Since the Farm Truck is used all year round, the average annual cost of Depreciation was multiplied by (12/52) and by the usual (415). Therefore, the Depreciation for the Farm Truck was calculated given a current purchase price of $4,068 and a current salvage value of $2,502 and based on a remaining useful life of 4 years. 46. The Jan. 1 1997 "current insured replacement value" of the (Jan. 1 1995) "ABC" Farm Barn is $50,000. The current salvage value for the barn (and buildings in general) is assumed to be $0 given an average total life equal to 20 years (8oehlje & Eidman 1984, 160). Therefore for the average annual Depreciation calculation (see note 41). the current purchase price for the Barn will be $50,000 and its Salvage Value $0 with a remaining useful life of 18 years. 113 of the Barn's total space (and annual usage) is attributed to the "ABC" operation Therefore (113) of the average annual Depreciation costs for the Barn should be covered by the 4 acre CSA "ABC" operation. 47. This is the (opportunity) cost that would have been added to actual 1997 cash Operating Costs had Farmer "ABC" not saved certain seeds and plants from the 1996 "ABC" season, used in the 1997 "ABCn season. 48. This is the total (opportunity) cost for labour provided by the "ABC" Farm Family (F1 is Farmer; F2 is Farmer's Spouse; and F3 is Fanner's Son) dMng the 12week "ABC" contract period. The total cost of $8,640 is adually 4/5 of Fanner "ABC" stated costs (1080 hours @ $lO/hour) for

-

157

the entire 5 acre organic vegetablehit operation, Therefore, if Farmer "ABC" had to pay farrn family labour provided during this period for the "ABC" operation, given an hourly wage of $10 (same as non-family farm labour), operating costs would have increased by an additional $8,640. 19. This is the total (opportunity) cost for labour provided by the "ABC" Farm Family (F1 is Fanner; F2 is Farrnefs Spouse; and F3 is Farmer's Son) in pmparafion Ibr the 12 week "ABC" contract period. The total cost of $800 is actually 415 of Farmer "ABC" stated costs (100 hours @ $1Olhour) for the entire 5 acre organic vegetablelfiuit operation. Therefore, if Farmer "ABC" had to pay for farrn family labour provided in preparation for the "ABC" operation, given an hourly wage of $10 (same as non-family farm labour), operating costs would have increased by an additional $800. 50. This is the total (opportunity) cost for labour provided by the "ABC" Farm Family (F1 is Fanner; F2 is Farrnefs Spouse; and F3 is Fanner's Son) fiiKdeliVery during the 12 week "ABC" contract period. Therefore, if Farmer "ABC" had to pay for farm family labour provided for delivering the weekly "ABC" produce, given an hourly wage of $10 (same as non-family farm labour), operating costs would have increased by an additional $1,000. 51. The numbers used in this calculation are the same ones used to calculate the average investment in note 27- tiowever, instead of multiplyingthe latter by the housing rate, a long-run real rate of return to equity capital chosen by the farmer will be applied. The chosen rate for this case study is 5%. It is the rate which the farmer would want to earn on the funds invested in the purchase of his Tractor, if he could invest these funds at some market rate or reinvest them in his business at some given rate. The produd of the average investment and the 5% rate represents an opportunity cost that is charged (via the share price) to the "ABC" Member. 52. The numbers used in this calculation are the same ones used to calculate the average investment in note 28. However, instead of multiplying the latter by the housing rate, a long-run real rate of return to equity capital chosen by the farmer will be applied. The chosen rate for this case study is 5%. It is the rate which the farmer would want to earn on the funds invested in the purchase of his Rotor Tiller, if he could invest these funds at some market rate or re-invest them in his business at some given rate. The product of the average investment and the 5% rate represents an opportunity cost that is charged (via the share price) to the "ABC" Member. 53. The numbers used in this calculation are the same ones used to calculate the average investment in note 29. However, instead of multiplyingthe latter by the housing rate, a long-run real rate of return to equity capital chosen by the farmer will be applied. The chosen rate for this case study is 5%. It is the rate which the farmer would want to earn on the funds invested in the purchase of his Compressor, if he could invest these funds at some market rate or re-invest them in his business at some given rate. The product of the average investment and the 5% rate represents an opportunity cost that is charged (via the share price) to the "ABC" Member. 54. The numbers used in this calculation are the same ones used to calculate the average investment in note 30. However, instead of mukiplying the latter by the housing rate, a long-run real rate of return to equity capital chosen by the farmer will be applied. The chosen rate for this case study is 5%. It is the rate which the farmer would want to earn on the funds invested in the purchase of his Sprayer, if he could invest these funds at some market rate or reinvest them in his business at some given rate. The product of the average investment and the 5% rate represents an opportunity cost that is charged (via the share price) to the "ABC" Member. 55. The numbers used in this calculation for the average investment can be taken from note 45. However, instead of multiplyingthe latter by the housing rate, a long-run real rate of return to equity capital chosen by the farmer will be applied. The chosen rate for this case study is 5%. It is the rate which the farmer would want to earn on the funds invested in the purchase of his Truck, if he could invest these hrnds at some market rate or re-invest them in his business at some given rate. The product of the average investment and the 5% rate represents an opportunity cost that is charged (via the share price) to the "ABC" Member. 56. The numbers used in this calculation used to calculate the average investment can be taken from note 46. However, instead of multiplying the latter by the housing rate, a long-run real rate of return to equity capital chosen by the farmer will be applied- The chosen rate for this case study is 5%. It is the rate which the farmer would want to earn on the funds invested in the purchase of his Barn, if he could invest these funds at some market rate or re-invest them in his business at some given rate. The product of the average investment and the 5% rate represents an opportunity cost that is charged (via the share price) to the "ABC" Member.

158

57. In order to calculate some opportunity equity interest on the CSA land, the current market value per acre of the land is required (Boehlje & Eidman 1984,173)- For "ABCwthe 1997 curtent market value of the Land is $3,50O/acre (Employee, Societe de Finacement Agricole du Quebec, 30101198). By applying the same 5% long-run real rate of return on equity to the 4 acres of Land owned by the farmer and used for the "ABC" operation yields an opportunity cost that is charged (via the share price) to the "ABC" Member. 58. In some cases, there may be some reimbursement in business expenses (via a tax credit) which could possibly be viewed as a redudion in costs. This credit a u l d be treated as a fonn of revenue, and would therefore serve in decreasing the share price. This item has not been considered in this study as no relevant data were available. Wavail. means "not avaiiable". 59. In most businesses, transfers of sales tax revenue to government sources are applicable. However, since CSA "ABCwsells unprocessed fruit and vegetable produce which is exempt from federal sales tax (GST) (Revenue Canada, 1992) or provincial sales tax (PST) (Ministere du Revenu du Quebec, 1996), no transfers are required. niapplic. means "not applicable". In the event of taxation on produce, the CSA share price would have to include taxation. 40. The CSA share price should also be adjusted for income taxes at the margin- Inother words, the cost of transfers to the provincial and federal governments on income made through the sale of the CSA shares should be included in the cost side of the budget. A CSA farmer, whose sole revenue source is the CSA operation should consider his after-tax revenue (disposable income) given his income tax bracket. A CSA farmer, such as "ABC"whose primary source of income is non-fann, may choose to consider his marginal tax rate on that extra revenue earned from the CSA operation. 61. Summary Budget 6, although not relevant to the 1997 "ABCnseason, has been included to show the impad of financing interest costs on the "ABCnshare price if "ABC" had to actually finance the purchase of its capital assets. In this case, the financing interest costs of Summary Budget 6 can be seen as replacingthe financing interest costs of Summary Budget 3. Boehlje 8 Eidman (1984, 142) define Interest per Year = [{(Purchase Price + Salvage Value)i2) x Interest Rate]. Although current nominal interest rates provided by the XYZ Bank were used in all interest calculations, Boehlje & Eidman (1984) emphasize the importance of using current real rates where nominal rates have been adjusted for a long-run projected average inflation rate over the investment term. The interest cost is a charge for the use of the capital invested in the machine. This should be calculated as the real cost of using capital in current dollars. The real interest rate (the nominal rate minus the general rate of inflation) is multiplied by the average investment to calculate the interest charge" (Boehlje & Eidman 1984, 141). Boehlje and Eidman (1984, 135) further explain: ''The general rate of inflation should be measured with either the producer price index or the implicit gross national product (GNP) deflator. Another useful and perhaps more appropriate index to use for this case study is the Farm Input Price Index (Statistics Canada, 1998) or the projected inflation rate published in the Medium Term Baseline ( A M C, 1996). For the "ABC" Tractor, the average investment used is the same as that explained in note 27. The nominal rate used is the XYZ Bank 4 Year Personal Fixed Rate Loan rate as of Jan. 1 1997 for a loan amount of $5,001 to $15,000. Although the average investment for the Tractor is less than $5,001, the above rate is still applied, for in reality, Farmer "ABC" would most probably consolidate all his machinery loans into one loan within the above range. The rate is equal to Prime (4.75%) + 5.25% or 10%. It is also assumed that the interest rate chosen reflects the same term (# of years) used for depreciation (4 years for the Tractor), In actuality most banks will only lend for a term equal to 113 or 112 of the life of the asset. 62. For the "ABC" Rotor Tiller, the average investment used is the same as that explained in note 28. The nominal rate used is the XYZ Bank 4 Year Personal Fixed Rate Loan rate as of Jan. 1 1997 for a loan amount of $5,001 to $15,000, Although the average investment for the Rotor Tiller is less than $5,001, the above rate is still applied, for in reality, Farmer "ABC" would most probably consolidate all his machinery loans into one loan within the above range. The rate is equal to Prime (4.75%) + 5.25% or 10%. It is also assumed that the interest rate chosen reflects the same term (# of years) used for depreciation (4 years for the Rotor Tiller). In actuality most banks will only lend for a term equal to 113 or 112 of the life of the asset. 63.For the "ABC" Compressor, the average investment used is the same as that explained in note

159

29, The nominal rate used is the XVZ Bank 5 Year Personal F i i Rate Loan rate as of Jan- 1 1997 for a loan amount of $5,001 to $15,000. Although the average investment for the Compressor is less than $5,001 , the above rate is still applied, for in reality, Farmer "ABC" would most probably consolidate all his machinery loans into one loan within the above range. The rate is equal to Prime (4.75%) + 5.50% or 10.25%. It is also assumed that the interest rate chosen reflects the same term (# of years) used for depreciation (5 years for the Compressor). In actuality most banks will only lend for a term equal to 113 or 112 of the life of the asset, 64. For the "ABC" Sprayer, the average investment used is the same as that explained in note 30. The nominal rate used is the XVZ Bank 5 Year Personal F i i Rate Loan rate as of Jan, 1 1997 for a loan amount of $5,001 to $15,000- Although the average investment for the Sprayer is less than $5,001, the above rate is still applied, for in reality, Farmer "ABC" would most probably consolidate all his machinery loans into one loan within the above range. The rate is equal to Prime (4.75%) + 5.50% or 10.25%. It is also assumed that the interest rate chosen reflects the same term (# of years) used for depreciation (5 years for the Sprayer). In actuality most banks will only lend for a term equal to 113 or 112 of the life of the asset. 65. For the "ABC" Truck, the average investment used isthe same as that explained in note 55, The nominal rate used is the XYZ Bank 4 Year Personal Fixed Rate Loan rate as of Jan. 1 1997 for a loan amount of $5,001 to $15,000. Although the average investment for the Truck is less than $5,001, the above rate is still applied, for in reality, Farmer "ABC" would most probably consolidate all his machinery loans into one loan within the above range. The rate is equal to Prime (4.75%) + 4.25% or 9%. It is also assumed that the interest rate chosen reflects the same term (# of years) used for depreciation (4 years for the Truck), In actuality most banks will only lend for a terrn equal to 113 or 112 of the life of the asset. 66. For the "ABC" Barn, the average investment used is the same as that explained in note 56. The nominal rate used is the XYt Bank 10 Year Fixed Rate Mortgage rate as of Jan. 1 1997 equal to 8.15%. We assume that the rate chosen is less than the term (# of years) used for depreciation (18 years for the Barn), simply because the XVZ Bank does not offer a longer term than 10 years for a f ~ e rate d mortgage. Lending institutions such as the Farm Credit Corporation (FCC) offer more competitive lending rates with longer tens. 67. For the "ABC" Land, the average investment used is the same as that explained in note 57. The nominal rate used is the XYZ Bank 10 Year Fixed Rate Mortgage rate as of Jan. 1 1997 equal to 8.15%. This rate was chosen simply because the XYZ Bank does not offer a longer terrn than 10 years for a fwed rate mortgage. Lending institutions such as the Farm Credit Corporation (FCC) offer more competitive lending rates with longer terms. Had "ABC" been actually financing the purchase of its capital assets, an alternative and perhaps superior method of calculating ownership costs, known as the Capital Recovery Method (Boehlje 8 Eidman 1984, 142) could be used as a substiiute for Depreciation and Interest. If the "ABCn was financing by means of debt capital and it was the researcher's intention to combine both financing interest and equity interest in the average investment, the use of the real weighted average cost of capital could be u9Iized as a blended rate of interest to be charged given the relative ratios of Debt and Equity in the Farm Business. The Weighted Average Cost of Capital (WACC) as defined in Ross et al. (1995, 354) and adjusted for the general rate of inflation yields the Real Weighted Average Cost of Capital (RWACC) where RWACC = [{(D/@+E))xRd)+{(U(D+E))xRe}~Rinfl, where D=proportion of Debt; E=proportion of equity; Rd=norninal rate (cost) of debt capital; Re=nominal rate (of return) to equity capital; Rinfl= inflation rate. Summary Budget 6 bases financing interest costs on the average investment multiplied by some nominal rate. However, in order to capture the actual financing interest costs, assuming financing through a lending institution for a given amount, for a given term, and at a given nominal interest rate, the use of an amortization schedule to calculate either the average financing interest costs over the entire period of the loan or for the particular year being assessed is a better method. Calculatingthe cumulative amount of principal repaid, based on the same amortization schedule may also be a truer reflection of recovered portion or owned equity in the capital asset. It may be important to also note that in many cases, capital assets such as the machinery owned by Farmer "ABC" (given the conditions stated in note 27), would probably be consolidated into one loan. 68. Please refer to note 58. 68. Please refer to note 59. 70. Please refer to note 60.

Table CI:Wtek 1 Nan-CSA Farm Revenues fmm Selling to an Organic Wholesaler* Non-CSA Week 1 :W e d d a v Awust 6 1997

I

Wholesaler :Week of Aumust 4 4 1997

I

1 Quantity f 1

Pricdunit (S) Value (S) 0.63 0.63 Chives 1 bunch 0.81 2 [ 0,3875 209 Red Tomato (large) 0.63 265 1 0.2375 Red Tomato (medium) 3 0.60 241 2 0.250 Green Pepper 3.26 0.28 0.0875 Hungarian Pepper (white) 1 4.16 0.59 7 Cucumber (medium) 7 1.70 14 6 'Fidd' 6 0.28 Cucumber (small) 236 1 236 Broccoli 1 head 1.17 1.17 1 Swiss Chard (red stem) 1 bunch 0.79 0.79 1 1 head Red Curfy Lettuce 1.78 1.78 1 or 1,425kg Cantaloupe 1 14.90 Wholesaler's Sall Value to Retailer 12.68 Wholesaler's Buy Value from Farmer W V I (1 + 0.175)J 760.88 Total Farm Revenues for the equivalent of 60 shares of produce

CSA Produce

m.lo.-

-

I

Notes Price of G m n OnPrice fran Week 4

Price horn Week 2 PriceofqSakcYfromWeek3 Price of 'Fmfrom Week3

PricefromWeek2

L

WSV WBV FR

'Wholesaler price data for Tables C1 to C12 were transmitted by (Employee, Le Centre Bioiogique de la Potcatiere, 15/12/97).

Table C2: Wtek 2 Non-CSA Farm Revenues from Selling to an Organic Wholesaler Wholesaler :Week of Auaust 14-151997

Non-CSA Week 2 :Wedndav Auaust 13 1997 I

CSA Produce Basil (qreen) Red Tomato (large) Red Tomato (medium) Italian Tomato Green Pepper White Pepper Hungarian Pepper (white) Red Onion Cucumber (medium) Cucumber (small) Romaine Lettuce Red Curly Lettuce Green Curly Lettuce Kale (green) Eggplant

3 stems 4 5 2 1

2 1 1 3 3 1 'Field' 112 head 1 head 1 head 2 bunches 1

-

Notes Quantity Pricelunit (S) Value ($) 0.15 0.05 3 1-62 Price from Week 4 data 0.775 2.09 1.06 Price fran Week 1 data 0.400 265 0.50 Price of 'PinK from Week 1 3.09 0.1625 0.30 2.41 0,125 0.37 3.26 0.1125 0.24 3.26 0.075 0.52 0.250 209 1.78 Price of ' S e b d from Week 3 0.59 3 0.28 Price of ' F ifrom Week 3 0.28 1 0.40 0.79 0.5 0.79 0.79 1 0.79 0.79 1 1.75 0.88 2 1.46 2.20 0.6625 12.02 WSV 10.23 WBV 613.89 FR - .

I

I

i

Table C3: Week 3 Non-CSA Farm Revenues from Sding to an Organic Wholcsder

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Quantity Pridunit (S) Value (S) Notes 1 0-42 0.42 Price of Green Onions

CSA Produce

Chives Red Tomato (large) Red Tomato (medium) Green Pepper Nhite Pepper Purpfe Pepper Hungarian Pepper (white) Yellow String Beans Swiss Chard (white stem) Mizuna (Spider Mustard) Kale (green) Cantaloupe

1 bunch 3 7 2 1

0.8825 0,600 0,225 0.125 ? 0,?25 1 0.0625 0.1625 bunch 1 1 bunch 1 head / 0.625kg 0.625 1 1 bunch 1 or 1.450kg 1

2.09 2.87 241 3.26 3.26 3.26 2.31 1.00 2.20 0.88 1.41

1.85 Priwfnwn W-4 1.72 PrkefromWatk4 0.54 Price fmm We& 4 0.41 0.41 0.20 0.38 1-00Price of 'Green' used 1 -38Price of Chinese Cabbage 0.88 1-41 I

10.58 WSV 9.00 WBV S10.25 FR

Table C4: Week 4 Non-CSA Farm Revenues from Selling to an Organic Wholesaler

I

Non4SA Week 4 :~ e d n e s d r v ~ w u27 s t1997 --

I

Wholesaler :Week of Auaust 2539 1997

I

CSA Produce Basil (green) Red Tomato (large) Red Tomato (medium) Italian Tomato peen Pepper white Pepper Purple Pepper Jalapeno Pepper Spanish Onion Swiss Chard (white stem) Romaine Lettuce Boston Lettuce Yellow Watermelon - --

-

- -

-

2 stems

1 6 3

1 2 1 2 1 1 bunch 1 head 1 head 1/2or 2.425kg

1

2 0.275 1 0.800 1 0.175 1 0.150 1 0.1 375 0.150 0,0625 0,400 1 1 1 0.5

I

I

Quantity Pridunit ($) Value (S)

0.05 209 2.87 3.09 2.41 3.26 3.26 3.97 1.94 1.00 0.79 0.75 2.38

I

Notes

0.10 0.58 2.29 0.54 Prim of 'PinK used 0.361 0.45 0.49 0.25 0.78 Price of Ydlauu' used 1.00 Price of 'Green' used 0.79 0.75 1-19

I , I

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Table CS: Week 5 Non-CSA Farm Revenues from Selling to an Organic Wholesaler

CSA Produce Basil (green) Basil (purple) Red Tomato (large) Red Tomato (medium) Green Pepper Red Pepper White Pepper Hungarian Pepper (white) Red Onion Swiss Chard (red & white) Romaine Lettuce Cantaloupe

1 stem 1 stem 1 15 1 2 1 2 2 1 bunch 2 heads 1 or 2125 kg

Notes Quantity Pricdunit (S) Value (S) 0.05 0.05 Price fmm Weak 4 1 0.05 Price of 'Gmn' from Week 4 1 0-05 0.63 0.300 209 1.750 5.02 287 0.60 0.250 241 0.0375 0.24 Price of Pwpk' used 6.51 0.81 0-125 6.51 0.73 0.1 125 6-51 0.59 0.350 1.68 1-06 Price ol 'Green' a d 'Red. used 1.08 1 1.58 Price ftom Week 4 0.79 2 1-41 1 1.41 12.80 WSV 10.89 WBV 653.45 FR L

I

Table C6: Week 6 Non-CSA Farm Revenues from Selling to an Organic Wholesaler Non-CSA Week 6 :Wodnesdav Somternber 10 1997

CSA Produce Red Tomato (large) Pink Tomato (medium) Orange Tomato (medium) Green Pepper White Pepper Hungarian Pepper (white) Spanish Onion Swiss Chard (white stem) Romaine Lettuce Kale (green) Yellow Watermelon Eggplant Scallopini Squash (orange) Corn i I

Wholesaler :Week of SePtamber 8-12 1997

Notes !Quantity Pricefunit (S) I Value (S) 1.21 I 1-61 1,325 3.09 1-04 Price of 'PinK from Week 5 0.3375 0.175 3.09 0.54 Price of 'PinK from Week 5 2 2.41 0.54 0.225 1 6.51 I 2.12 0.325 2 6.51 1.06 0.1625 3 1.85 I 0.88 Price of 'YdW used 0.475 1 1.04 1 I 1.04 Price of ' G m ' used 1 bunch I 0.79 5 gourmet size = 1 regular 0.79 5 heads 1 0.88 0.88 1 1 bunch 238 I 2.38 P r h lrom Week 4 1 1 or 2850kg 2.20 2.37 1-075 1 0.94 I 0.35 Prke of ' A m ' used 0.375 1 0.27 0.54 Prke of 'Sweet Corn 2 2 ears 16.14 WSV 5 2

1

1

I

Table C7: Week 7 Non-CSA Farm Revenues from Selling to an Organic Wholesaler

1 NO~CSA%&

7 FWdnesdav 5.d.mb.r 171e91 r ~ l h o ( . u & : Week of ~ 8 . m b . r 15-19 1997

CSA Produce Arugula Red Tomato (large) Red Tomato (medium)

Quantity Pricefunit (S) Value ($) Notes 3 0.05 0.15 PdcehomWadc4 0.475 1.21 0.58 1,050 287 3.01

L

White Pepper Scotch Bonnet Pepper Swiss Chard (white stem) Kale (coloured) Yellow Watermelon Eggplant Scallopini Squash (orange) Carrots

3 stems 2 8 1 f 1 bunch 1 bunch 1 or 22125kg 1 1 16 or 0.525kg

1

-

0.200 0.0125 1 1 1 0.6625 0.600 0.525

6.51 3.97 1.04 0.88 238 2.20 0.94 0.96

1.30 0.05 1.04 PriceofDmn'used 0.88 2-38 Price hom Week 4 1-46 0.56 Price of 'Acorn' used 0.50 Average of 3 'Famy' brands 13.13 WSV 11.18 WBV 670.69 FR

.

Table C8: Week 8 Non-CSA Farm Revenues from Selling to an Organic Wholesaler

1 Non-CSA W r k 8 :Wdneadav Sentember 24 1997 1 r

CSA Produce Basil (green) Red Tomato (large) Leek Green Pepper Red Pepper Cubanelle Pepper (red) Swiss Chard (green stem) Kale (purple flowering) Yellow Watermelon Eggplant Zucchini Carrots Corn

2 stems 4 1 or 0,5125kg 1 3 1 1 bunch 1 bunch 1 or 2.050kg 1 1 12 or 0.600kg 5 ears

Wholesaler :Weok of Se(.mber

22-26 1997

Notes Quantity Pridunit (S) 1 Value (S) 2 0.05 I 0.10 PricefromWeek4 1.3625 1.21 1.65 0.5125 1 0.26 1.65 0.175 298 0.52 3.86 0.500 I 1.33 0.050 6.51 0.33 1.04 1.04 1 0.88 1 1 0.88 1 238 2 3 8 PriahwnWeek4 0.6125 I 1.35 220 1.43 1-15 0.800 0.87 I 0.52 Average of 3 ' F a W brands 0.600 0.29 1.46 price of'^ from Week7 S 13.57 WSV

I

Table C9: Week 9 Non-CSA Farm Revenues from Selling to an Organic Wholesaler

CSA Produce Red Tomato (large) Green Pepper Orange Pepper Purple Pepper White Pepper Jalapeno Pepper White Onion Swiss Chard (green stem) Kale (purple) Purple Kohlrabi (with stern) Scallopini Squash (orange) Acorn Squash (white) Eggplant Red Potatoes Carrots r

2 2 1 1 1 1 1 1 bunch 1 bunch 1 or 0.375kg 1 or 0.175kg 1 1 6 9 or 0.525kg

Quantity Pridunit (S) Value (S) Notar 0.675 1.21 0.82 Prke fnwn Week8 0.275 276 0.76 0.1 375 6.51 0.90 0,075 6-51 0.49 0.1625 6.51 1.06 0.0375 3.97 0.15 0.400 1.15 0.46 1 1.08 1.08 1 0-88 0.88 0.375 1.98 0.74 0.175 0.94 0.16 Price of * A m sused 0.300 0.94 0.28 0.900 2.20 1.98 0.625 1.15 0.72 0.525 0.80 0.42 Average of 3 'Fancf brands 10.89 WSV 9.27 WBV 556.33 FR

Table C10: Week 10 Non-CSA Farm Revenues from Selling to an Organic Wholesaler

CSA Produce Red Tomato (large) Red Tomato (medium) Hungarian Pepper (white) Cubanelle Pepper (orange) Long Green Hot Pepper Leek Red Cabbage Kale (purple) Acorn Squash (green) Acorn Squash (orange) Buttercup Squash (green) Yellow Turnip (Rutabaga) Red Potatoes Carrots Yellow Watermelon Empire Apples ,

Quantity Pricdunft (S) Value (S) Notes 1.21 0.575 0.70 Plka from Week 8 1 0.075 0.30 3.97 3 0.81 Price from Week 9 6.51 0.125 1 6.51 0.0375 0.24 Prke horn Week 9 2 3.97 0.25 Price from Week 9 0.0625 1 or 0.375kg 1.65 0.62 0.375 1 head 0.525 0.91 I 0.48 1 bunch 0.94 0.94 1 0.54 0.94 1 0.575 1 0.94 0.29 0-3125 1 0.99 0.500 0.50 1.41 5 1.SO0 2.12 1.06 1A25 1.51 21 13 or 0.7375kg 0,7375 0.80 0.59 1 or 2.850kg 2.38 2.38 Price from Week 4 1 1.96 4 0.64 Price of 'MclntW usad 0.325 12.90 WSV 10.90 WBV 658.75 FR -

2

I

I

I

Table C11: Week 11 Non-CSA Farm Revenues from Selling to an Organic Wholesaler Non-CSA Week 11 :Wedmdav October 15 1997 A

Wholesaler :Week of October 13-17

CSA Produce Italian Parsley Red Tomato (large) Green Tomato (medium) Long Green Hot Pepper Leek White Onion Kale (green) pcom Squash ( g r n ) Purple Kohlrabi (no stem) Yellow Turnip (Rutabaga) Red Potatoes Carrots Escarole Lettuce Red Watermelon r

Quantity Pricslunit (S) Value ($) Notiis 1 bunch 1 0.60 0.60 Price of 'Cuw 3 1-025 1.21 1.24 PricefromWdc8 3 0.350 3.09 1.08 Price of 'Pink from Week 5 1 0.050 3.97 0.20 Price fmm Week 9 1 or 0.375kg 0.375 1-65 0.62 5 0.7625 1.15 0.87 2 2 bunches 0.94 1.88 ? 0,6375 0.94 0.60~ 3 or 0.575kg 0,575 1.98 1.14 Price from Week10 5 0.8625 1.41 1.22 12 1,875 1.06 1.98 19 or O.8SOkg 0.850 0.80 0.68 1 head 1.07 1-07 Average of all Lettuce 1 or2225kg 1 2-38 2.38 Price form wack 4 15.56 WSV The data is actually from Saturday October 18 1997. 13.24 WBV 794.66 FR

I

I

Table C12: Week 12 Non-CSA Farm Revenues from SeMing to an Organic Wholesaler Nan-CSA Weak 12 :Wadnesdav October 22 1997 A

Quantity Plidunit (S) Value (S) Notes 2 0.075 3.97 0.30 Price from Week 9 3 1-15 0.3625 0-42 2 or 0.675kg 0.675 1.65 1-12 0.77 1.1625 0.66 1 head/l.l625@ 1 1 bunch 0.94 0.94 1 head 1 0.94 0.94 2 bunches 2 1.13 225 1.49 PricafromWaek8 2 220 0.675 1-200 1.12 2 0.94 2 0.4875 0.69 1.41 7 1.300 1.06 1.38 0,550 12 1.19 PritsoflMimi'kand 2.16 1 or 1.7375 1 2.38 Prke fmm Week 4 238 6 1.84 0.78 0-425 I 15.7s wsv The data is actually from Saturday October 25 1997. 13.41 WBV 804.34 FR

CSA Produce Long Green Hot Pepper White Onions Leek Green Cabbage Kale (green) Kale (multicoloured) Swiss Chard (green stem) Italian Eggplant Acorn Squash (green) Yellow Turnip (Rutabaga) Red Potatoes Carrots (baby) Red Watermelon Empire Apples A

Wholesaler :Week of October 20-24 1997

'

m

1

,

J

Table Ctl: Week 1 Non-CSA Farm Revenues from Selling at the Nan-Organic Market #

CSA Produce r~.-o.am@ Chives 1 bunch Red Tomato (large) 2 Red Tomato (medium) 3 Green Pepper 2 Hungarian Pepper (white) 1 Cucumber (medium) 7 Cucumber (small) 14 or 0.700kg Broccoli 1 head Swiss Chard (red stem) 1 bunch Red Curly Lettuce 1 head Cantaloupe 1 or t -425kg Market Value for one share of produce

L

Quantity Pridunit (S)IValue ($) I 0. 58 1 0-58 0.3875 0.2375 0.250 0.0875 7 0.700 1 1 1 1.425

1

1.65 213 1.16 1.06 0.12 0.44 0.71 0.83 0.31 0.46

Total Farm Revenues fir the equivalent of 60 shares of produo

Notes

0.641 0.51 0.29 Price of 'medium' used 0.09 sold by the busficl" (bu.)=Bb. 0.83 Price of 'Setect' 0-31 sold by the bu,=5Otb. 0.71 0.83 0-31 0.66 Sold by the bu.=SMb. 5.76 MV

'

1

345.031 FR

I

Table C'6: Week 6 Non-CSA Farm Revenues from Sewing at the Non-Organic Market #

1 NO~CSA Week 6 :~ ~ 6 & & d wSemtember 10 1007 I CSA Produce Red Tomato (large) Pink Tomato (medium) Oranqe Tomato (medium) Green Pepper White Pepper Hungarian Pepper (white) Spanish Onion Swiss Chard (white stem) Romaine Lettuce Kale (green) Yellow Watermelon Eggplant

5 2 2 1 2 3 1 1 bunch 5 heads 1 bunch 1 or 2.850kg 1

Market :Dav of Sentember 10 1997

I

Notes Quantity Pricslunit (S) 1 Value (S) 0.83 I 1-10 1-325 1.52 0.51 0.3375 1.38 2.75 price of ' Y W used 2 0.61 0.14 Price of 'medium' used 0.225 2.56 0.83 SOUby the 1/2bu.=lz~ib 0.325 1.59 0.26 soid by Uw 1R bu.=1251b. 0.1625 0.19 Priceof'~um-brgs'wcd 0.40 0.475 0.92 1 0.92 1 0.44 0.44 1 0.57 I 0.57 Price of Chinese Cabbage 1 1.SO 1-50 1 ~(hs bu.=mb0.60 I 0.65 ice or ( m l ) by 1.075 .old 4 1 h s hr~lr. 1 0.23 ~ *or*-r 0.61 0.375 I 0.19 2 0.10 I I 1o.n MV I

I

r

Table C'12: Week 12 Non-CSA Farm Revenues fmm Selling to an Organic Wholesder # Market :Dav of October 22 1997

Non4SA Week 12 :Wdnesdav Oefokr 22 1997 A CSA Produce Long Green Hot Pepper White Onions Leek I

Kale (green)

Kale (multicoloured) Swiss Chard (green stem) Italian Eggpiant Acorn Squash (green) Yellow Turnip (Rutabaga) Red Potatoes Carrots (baby) Red Watermelon Empire Apples --

A

2 3 2 or 0.675kg 1 bunch 1 head 2 bunches 2 2 2 7 12 6

Quantity- Plicdunit (S) Value (S) Notes 0.075 2.65 0.20 Sdd by tht 112bu.=l2Slb. 0.3625 0-44 0.16 2 0-42 0-28 1 1

2 0.675 1-200 0.4875 1.300 0.550 1 0-425

-

0.39 0.39 0.88 200 0.54 0-33 0.33 1-15 1-15 0-50

-

0-39 Price of Chinese Cabbage 0-39 Price of Chinese Cabbage 1.75 P ~ ~ f r o m W e d c Q 1-35 SAJby the IR b~A6.51b. 0.65 sold by the b u . 4 b . 0-16 0.43 "" 0.63 Prka of 'Mini' canols 1-15 QrkedYaUoW~weeklO 0.21 Sold by me bu.=42lb.

-

The data are actually from Saturday October 25 1997.

# Market price data were taken from the Bulletin Info-Prix (fruits et legumes Nord-amen'cains) a service

provided by FPMQ (la Federation des Producteurs Maraichers du Quebec). The Bulletin Info-Prix is published by la FPMQ with the collaboration of CAssociation des Jardiniers-Maraichers du Quebec (AJMQ) and the consulting firm of Jean-Claude Tessier (Tessier, 16/02/98). Each market price used is the average of the Day's High and Low prices.

" Conversions from bushels to pounds were provided by (Employee. Le Bureau de la Statistique (du Quebec, 18/02/98).

-

"Data for Apples provided by (Employee, Union des Producteurs du Quebec, 18/02/98). Data for Potatoes provided by (Employee, Union des Producteurs du Quebec, 19/02/90).

i