Value-Added Products
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Increase income from value-added products through rotational grazing
Data collection in progress
Kakheti Steppes
Georgia
Problem: This grassland landscape is degraded due to large-scale unsustainable grazing practices. Farmers have financial incentives to increase sheep density and to keep sheep on the grass for the maximum possible amount of time. This leads to grassland degradation through a loss of plant biomass, loss of grassland plant species, erosion and desertification.
Action: SABUKO is working to shift the financial model to one that promotes sustainable grazing practices. They are creating nature-positive business opportunities which allow farmers to generate more money from fewer sheep, through additional products like cheese and wool.
Indicator: Increasing farmer income added through value-added products will be one step in creating a socioeconomic shift towards sustainable land use practices in the project area.
Methods
First, baseline data was collected on farmers’ incomes under ‘status quo’ unsustainable grazing practices. Data such as gross profit, net profit, gross profit margin, net profit margin, and return on investment (ROI) were collected through a questionnaire that was sent to 85 local farmers, of which 82 completed the survey.
Next, the income from farmers who do and do not participate in the value-added supply chain will continue to be monitored annually. SABUKO will track how many famers participate in the value chain, and whether their participation provides a higher financial return with fewer sheep.
Results
SABUKO has so far collected baseline data for the years 2019 – 2022, before the development of nature-positive products and markets, shown in Table 1 below.
Table 1: Median values across 82 farmers surveyed. See below for definitions of each of these variables.
Gross profit: The money a farmer earns from selling sheep and sheep-related products minus the costs associated with raising and producing those sheep products. If a farm makes $50,000 from selling sheep and spends $30,000 on their care, the gross profit is $20,000.
Net profit: The actual money a farmer has left after subtracting all expenses, including the costs of raising sheep and other operational expenses, from the total revenue. If a farm earns $50,000 from selling sheep but incurs $40,000 in all expenses, the net profit is $10,000.
Gross profit margin: The percentage of money, out of the total revenue, that remains after covering the direct costs of raising and selling sheep. If a sheep farm’s total revenue is $50,000 and the direct costs are $30,000, the gross profit margin is 40%.
Net profit margin: The percentage of total revenue that represents the actual profit after covering all expenses, both direct (feeding and healthcare for sheep) and indirect (administrative costs, salaries and wages, supplies, etc.). If a farmer’s total revenue is $50,000, and the total expenses, including direct and indirect costs, are $40,000, the net profit margin is 20%.
ROI: Return on Investment – a measure of how much profit a farmer is making in relation to the money invested in various aspects. If a farmer invests $5,000 and generates a profit of $1,000, the ROI is 20%.
Interpretation
Many of these values dipped in 2020, highlighting the difficulty of maintaining revenue levels during a disruptive period, such as the Covid-19 pandemic. These financial fluctuations emphasize the vulnerability of a market heavily reliant on exports. The subsequent years (2021 and 2022) showed signs of recovery, with both gross and net profits increasing. The stability of gross profit margins at 23% suggests that farmers adapted to the challenges posed by the pandemic, possibly through cost-cutting measures or finding new markets. The improvement in net profit margins in 2020 and 2022 (6%) indicated that the farmers implemented effective strategies to manage expenses and maintain or increase revenue during the recovery period.
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