Thursday, August 6, 2009

Profitability of Free-Range Egg Production

This posting provides a brief economic analysis of the free-range egg production farm I described earlier.

In the first six months of 2009 their revenues were $1906 revenues from about 525 dozen eggs and their variable expenses (not including fixed costs) equaled $976. The corresponding profits of $930 is a pittance compared to the labor involved.

One of the sons spends at least 2-3 hours per day with the birds and spends the majority of each Saturday at the Farmers' Market. Assume that his opportunity cost of labor is $10, and let us only count his eight hours of labor at the Farmers' Market. Over six months, four Saturdays in each month, eight hours per Saturday, at $10 per hour, and his opportunity cost amounts to 6*4*8*$10 = $1,920. Remember this does not count his non-Saturday labor, which over one week is greater than his Saturday labor.

These calculations suggest that the free-range egg production system is a failure in terms of ability to generate profits. One would only want to engage in this type of production if they found a particularly high personal reward working with the chickens. This person and his family belongs to a Mennonite-like family, and they probably place a large value on being able to work as a family and not inside traditional society.

Moreover, the manager of the eggs really knew his stuff. He could calculate costs for various components of the farm like he had a computer in his head, and he seemed to know every chicken personally. He was smart and focused on trying to make a profit. If he can't make a profit, I doubt many others could either.

These quick calculations, and my mulling over the details of my visit, leave me dubious as to whether anyone could make a reasonable profit in free-range egg production.