SOWING CENTS

CPAs support Virginia’s farms

BY CHIP KNIGHTON

Not to go out on a limb, but it seems like a safe bet that the vast majority of CPAs don’t spend much time on a tractor in the course of doing their jobs.

Jane Cullipher, CPA, is a notable exception.

Cullipher was a sole proprietor in the tax industry when she married Mike Cullipher 20 years ago. At that point, she took over the bookkeeping responsibilities at his family’s farm, Cullipher Farm in the Pungo area of Virginia Beach. Th at only scratches the surface of her true responsibilities at the 250-acre farm, which has been in operation since the 1850s and grows greens, berries, soybeans and wheats.

She works in farm’s greenhouses and fi elds at Cullipher Farm, which has grown from three employees to 21 since she came on board. As a result, no two work days are ever the same.

“It’s just hard work,” she said. “It’s a physical tax season. Having had 400 clients, under the kind of pace that you run, I ran hard from Jan. 31 through April 15. Th at mental running, you do it physically [working for the farm]. It’s nonstop. If something breaks on the farm, you can’t just say, ‘I’ll get to that Monday.’ You could lose an entire grain house. It’s a 24/7 business.”

Admittedly, Cullipher is a bit of a special case in that she’s as comfortable with a tractor as she is with an adding machine. But many aspects of her farming experience are typical in Virginia’s largest industry.

FEEDING THE FARMS THAT FEED THE WORLD

According to the Virginia Department of Agriculture and Consumer Services, the agriculture industry provides more than 300,000 jobs in the Commonwealth, with an annual economic impact of $52 billion. Onethird of Virginia’s total land area is covered by farms, ranging from industrial farms to livestock farms in Smithfi eld to small family operations like Cullipher Farm.

VSCPA member Jim Schmidt, CPA, represents one of those giant industrial farms. He’s the controller at Frank T. Williams Farms, which has operated out of 10,000 acres in Virginia Beach since 1994. Williams Farms grows wheat, corn and soybeans, the vast majority of which go to other farms to feed livestock.

“Th e only thing that we grow that a human being would eat is wheat, and it’s the wrong wheat,” Schmidt said. “In Virginia, it’s too hot to grow wheat for bread. Wheat for bread is called hard red wheat, and it’s grown in places like Kansas and Washington. Our wheat is used for cookies and crackers and things like that.”

Williams Farms is at the opposite end of the spectrum from Cullipher Farm. It’s 40 times as big, and while Cullipher is a one-woman show, Schmidt has fi ve accountants in his employ.

While most of Cullipher’s customers come from South Hampton Roads, Williams sends its product around the globe.

“Th is is a global economy now. If you look at the East, that’s where things are happening now,” Schmidt said. “Two billion of the seven billion people on the whole planet are in China and India. If you look at China, that’s a lot of desert. If you look at India, it’s a lot of mountains and a lot of rain. Th at’s going to make it tough to feed their people.

“Th ey can grow lots of rice, but what they want is protein. Th ey’re emerging countries and their people want to eat meat. If you want meat, you need corn and soybeans. u

INDUSTRY

Agriculture has an annual economic impact of $52 billion in Virginia.

They’re not able to grow products in the quantities they need because of the terrain and the climate. We’re very fortunate in this country to be able to grow food anywhere we want to, and we send it to them.”

Another major difference between the two types of farms is essentially marketing. For the past seven years, Cullipher Farm has run a Community Supported Agriculture (CSA) program, where consumers pay in advance for “shares” of the farm’s harvest and receive a weekly basket of seasonal produce. It’s a prime example of the “farm-to-table” movement that has grown in recent years, and has led to unique accounting challenges.

“You’ve got a lot of accruals in trying to figure out how much labor is going into these baskets,” Cullipher said. “You have to assign a cost to the program to figure out whether the program works. It’s working for us, but that depends on crops and Mother Nature. She’s been having a little fun this year.”

The CSA program tends to involve local consumers coming directly to the farm to get their produce, and it involves no small amount of promotion. In contrast, Williams Farms doesn’t even have a website.

“If you were to buy a Smithfield ham or a Perdue chicken, you don’t pick it up and say, ‘I wonder who fed that chicken,’” Schmidt said. “We have no Web presence. We don’t have a sales force. It’s not necessary.”

BANDING TOGETHER

Schmidt isn’t the only VSCPA member who does business with Perdue, the Marylandbased chicken processing company. Sue Hottel, CPA, is the controller at the Virginia Poultry Growers Cooperative (VPGC) in Hinton, near Harrisonburg.

The VPGC came about because of machinations between major poultry companies, and Hottel had a front-row seat the entire time. After working in public accounting and the nonprofit and transportation fields, the Harrisonburg native began her poultry career at Perdue, then accepted a position at Rocco Enterprises, which later became Cargill Turkey Products, before moving to WLR.

Those mergers were commonplace in Harrisonburg, where the main industry has always been poultry. Hottel worked for three of the four major players in the area, only missing out on Tyson. When she was employed at WLR, the company was sold to Pilgrim’s, marking that company’s first foray into the turkey business after working exclusively with chicken.

“They had never quite figure out how to make money in the turkey industry,” Hottel said. “They announced the closing of our plant. That was when some of our growers got together and decided to buy the plant and operate it as a cooperative.”

From an accounting perspective, things didn’t change much for Hottel, who by that point was well versed in the specialized niche of accounting for poultry. She was used to paying growers, calculating the costs of live birds and calculating the costs for the plant. The biggest change was that the co-op owners accumulated patronage equity in addition to shares of stock. One of the biggest tasks for Hottel was familiarizing the owners with aspects of the business they hadn’t dealt with before.

“One of the issues that the management team has to work with is to make sure the board understands and manages not just the growing, live-bird side of the business, but also the plant side, the production side of the business,” she said. “Most of the board members are not as familiar with that piece. They had been used to growing turkeys and sending to them to the plants, and that’s where their responsibility ended. Now they’re responsible for the entire operation — everything from raising the birds to getting the meat to the wholesalers.”

Marketing-wise, the VPGC isn’t all that different from Williams Farms. The co-op doesn’t have a brand name, and all of its birds are sold to wholesalers. But in a town that was built on poultry, savvy consumers wanted to understand more about the origin of the poultry on their table.

“We have gotten into some specialty products,” Hottel said. “We do organic and we do nonantibiotic products. There is some demand for that, and we are trying to fill that need.”

In addition to balancing production in light of the markets for turkey and commodity grain, Hottel must determine where to deploy the company’s expenditures. The VPGC aims to get profits back to the owners as quickly as possible in the firm of patronage equity while leaving enough money in the business for operations.

“Turkey markets don’t always rise and fall at the same rate as the commodity prices,” she said, “so our income and expenses don’t always match up. We can have a very, very good year and then have a year that’s not so good, and they can come one right after the other.

“…We have always been a very conservative company, and our goal has been to have reserves on hand for the downturns. Every part of agriculture and agribusiness is cyclical. The goal is to make sure we had the reserves in place for the downturn.”

INDUSTRY

HEDGE GAME

Commodity market pricing also plays a major role in determining the success of Williams Farms. Part of Schmidt’s role is to execute what amounts to an insurance policy with regard to the price of the company’s products.

“When bad things happen or wars break out, the market reacts to that very, very quickly,” he said. “Your prices can change nearly instantly. If you’re a producer and you want to get a margin and lock it in as closely as you can, you say to yourself, ‘I’m harvesting this product in June and selling it in August.’ So you go to the Chicago Board of Trade and look for the August price that’s out there. If it’s acceptable, you sell a contract.

“As long as you behave yourself and don’t overhedge and gamble and think you’re smarter than the market, if you do it patiently and try to meet in the middle, you’ll be okay.”

The nature of the markets for Williams Farm’s products leads to some counterintuitive thinking. To give a recent example, Russia’s incursion into Crimea created uncertainty that provided a boon to companies that produce basic commodities.

“Russia invading Crimea is a terrible thing, but whenever you have uncertainty, commodity prices rise,” Schmidt said. “Soybeans are fed to pigs and to chickens. Those prices were $13, $14, $15, $16. Our margins were tripled.

“If someone tells you, ‘You’re going to do the same thing you did yesterday, but we’re going to pay you three times as much for it,’ you’re pretty happy. I’m sorry for all the people who were hurt by it, but people need food.”

That doesn’t mean any rise in commodity prices is a good thing for Williams Farms. Petroleum is a key ingredient in pesticides and herbicides, to say nothing of its importance in transporting products.

To cut down on his own uncertainty, founder Frank Williams has worked to vertically integrate his business as much as possible. “We own the grounds, the implements, the seed, the fertilizer, the equipment that puts the seeds into the ground and takes them out of the ground,” Schmidt said. “We own the trucks that carry the products to market and the tanks where you can store grain to sell at a later time.”

A similar philosophy has paid off for the VPGC, which has also benefitted from a period of relative stability in ownership. Several members of the co-op board have been in place since the founding of the organization.

Where Williams Farms looks to control variables as much as possible, the VPGC has focused on staying small and agile. It may seem different from buying up as many pieces of the business as possible, but the end goal is the same — eliminating uncertainty through a sense of control.

“Our goal is to have a very lean organization,” Hottel said. “The more overhead you have, the harder it is to make decisions. All of our decision-makers are basically located in one building. Before, you had to go to Texas to get a decision, and it could take weeks. It’s much easier when you’re not top-heavy, when you don’t have a lot of hierarchy built into the organization.

“…When you have processing plants in several states, at that point you start building the hierarchy to take care of it. At some point, you forget how to operate on more of a shoestring [budget]. Here, we’re one processing plant, one feed mill, one grain-unloading station. We have really strived to remember that we are not a huge organization.”

A FULL-SERVICE FARM

That same lesson is easy for Jane Cullipher to remember whenever she comes in from the greenhouse to reconcile her farm’s payroll. Her function would be outsourced at most small family farms — it just so happened that the scion of Cullipher Farm married a CPA who could handle the books.

Before she came on board, the farm’s tax department was, in her words, “literally a shoebox on April 14.” As the farm has grown and its programs have become more complex, the accounting has become more challenging.

Cullipher Farm and other small farms have benefited from the aforementioned farm-totable movement. The farm has also worked to maintain customers by offering preparation tips with their produce.

“We’ve found that people are not going out for nicer dinners, and what they’re starting to do is cook at home again,” Cullipher said. “We’re trying to educate people about how to use the products. They’ll look at a rutabaga and say, ‘What do you do with that?’ We try to help prepare the consumers as much as possible.”

And that has helped to bring in new customers for the CSA program, which now operates on a first-come, first-serve basis for spots. The baskets show the breadth and quality of the farm’s products.

“The people who aren’t participating in it see the variety of what our farm has,” Cullipher said. “Even if they don’t get a basket, they want our heirloom tomatoes or some of those organic berries.”

From those locals who patronize Cullipher Farm to the foreign customers who buy Williams Farms’ grain, the food business is big business in Virginia. And CPAs are at the forefront of making those farms as profitable as they can be — whether or not they spend any time on a tractor. n

CHIP KNIGHTON is communications specialist at the VSCPA, as well as contributing editor at Disclosures magazine. * cknighton@vscpa.com connect.vscpa.com/ChipKnighton @ChipKnighton