Our Best Guesses
Quick Recap: Prasenjit and I are students at Cornell Tech building a platform to connect farmers with institutional buyers like hospitals or schools. We want to compare local vs. non-local food on price and food miles. Our goal is to show that by buying directly from local farmers, buyers can save on both. I used to be a farmer in Upstate New York.
So far our adventure has included Qualitative Interviews, exploring the Ag Census, and finding data on the Origin of Every Product. We’re building an algorithm that matches farmers and buyers using some dummy data. Setting prices is tricky.
Well, we did it. We made it through the first round of pricing for five products — kale, romaine, tomatoes, broccoli and sweet corn.
Our goal is to set prices that beat the price of conventional products and make sure that farmers still make a profit.
The farmers make a profit. The buyers get a little discount. Empire State of Food gets compensated for delivery and for matching.
The prices for buyers we came up with are:
How did we do? Are these prices reasonable for wholesale? Email me at lpm36@cornell.edu.
The data we pulled from for price setting was:
- Cost of production per acre data from Richard Wiswall
- Yield per acre from New England Vegetable Management Guide
- Hunt’s Point Market Terminal prices and unit sizes
- Louie’s 10% mark up — covers delivery
- Cost of delivery for Empire State of Food including mileage and labor
We can gage how well we estimate by how many $/lb we can shave off of the typical wholesale price. If we’re within 10% — that’s good. If we’re saving more than 15% I begin to doubt our assumptions — I know the margins aren’t that good. Is there a percentage of products where it is acceptable to not beat the conventional price?
Another factor to account for is are we using the correct inflation rate. Richard Wiswall’s numbers are from 2009. The Hunt’s Point prices for food haven’t changed between 2009 and 2019. Regular inflation from $100 2009 to 2019 is $119.95, but it appears food is different. We made the choice to not include inflation in our calculations.
Another big unknown is are we estimating weights and volumes correctly. How much does a bunch of kale weigh? We saw 7–8 oz and 16oz. When I polled my instagram followers, the results were mixed. That’s a huge difference in the amount of product per unit! Whatever assumptions we make about units have a big impact on how financially feasible the whole platform is.
Two things we have not accounted for are volume of product and lead time. Can we give bulk discounts? Can we give discounts for committing to buying products months in advance? We should. We need to figure out how.
This is only the first iteration. We will definitely need to refine how we set prices further.
