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Cost of Goods Sold (COGS) is the total of all the costs that go into producing a product. For farms, ranches, food hubs CSA operations, this is the foundation of pricing your products and knowing how to price meat, produce, and value added items profitably. Knowing how to calculate cost of goods sold helps manage COGS farm expenses, calculate cost of sales and understand the cost of production in agriculture. Calculating this value can become complicated depending on the number of different products you produce and the costs associated with producing each.
Many farms want to understand cost of goods sold because it determines profitability, product margins, and wholesale vs direct to consumer pricing. Calculating COGS also helps track your cost of farm production, cost of goods for resale, and cost of goods manufactured for farm based products. In this article, you’ll learn how to calculate cost of goods sold for farm products and apply the COGS formula to your own operation.
Cost of goods sold is the total cost required to produce or purchase a product and make it ready for sale. It includes the direct costs of materials, labor, and production that go into creating the item you are selling. COGS shows the true cost of producing a product and is used in accounting to measure profitability and calculate margins.
For farms, cost of goods sold includes the inputs and expenses needed to produce crops, livestock, meat, dairy, eggs, or value added products. This can include feed, seed, processing fees, packaging, labor, storage, fuel, and other production expenses that directly support raising or growing food.
Knowing your COGS helps determine profitability, margins, and pricing. It shows which products are making money and which aren’t, helps you compare wholesale vs direct to consumer pricing, and makes it easier to price meat, produce, CSA shares, and value added items. When farms calculate COGS accurately, it becomes easier to understand production costs, manage expenses, and make better business decisions.
The formula for calculating the costs of goods sold is:
Value of Inventory at the Beginning of the Year
+ Additional Inventory Cost (inventory purchased throughout the year)
- Inventory at the End of the Year
= Cost of Goods Sold
This cost of goods sold formula is the same whether you want to calculate cost of goods sold, compute cost of goods sold for crops or livestock, or determine COGS for a CSA business. It helps determine the cost of goods manufactured and the true cost of sales.
In order to use the Costs of Goods Sold formula, you must calculate the values below. These steps apply whether you are calculating COGS for beef, poultry, produce, eggs, or value added products. Here is the 6 step process for calculating COGS in farm or agricultural businesses:
This inventory includes:
For farms, this often includes feed, livestock on hand, produce in cold storage, frozen cuts, greenhouse starts, and eggs. This is critical in the COGS calculation because inventory value affects the final cost of goods.
These are all costs that go directly into production or purchasing of a product:
Direct farm examples include feed, seed, irrigation supplies, butchering fees, processing fees, farm supplies, and packaging for wholesale or CSA. These are all part of cost of goods manufactured and farm cost calculation.
These are all costs that indirectly go into production or purchasing of a product:
Additional indirect farm production costs include fuel, freezer space, cold storage, insurance, delivery miles, and harvest labor. These often get overlooked when calculating cost of production in agriculture but are essential for accurate COGS.
These are all costs that goes into maintaining and use of your facilities:
This applies to greenhouses, cold storage units, barns, wash pack areas, and the facilities needed to store and produce goods.
The final value to be determined is your inventory at the end of the business year. The easiest way to determine this value is to take physical inventory. Any lost or worthless inventory should not be included in this value as it can not be sold.
This step is especially important for farms because inventory lives in different stages. This is where many food producers and ranchers struggle to find cost of goods sold.
Tip: Use Local Line's farm inventory management software to make product and inventory tracking easier to manage and report on. With features like real-time inventory updates and restock reminders, it ensures efficient management and customer satisfaction.
After you have collected all of the values from the steps listed above, you are ready to do your COGS calculation. For example:
$20,000 (inventory at the beginning of the year)
+ $15,000 (product costs + production costs + facility costs)
- $30,000 (inventory at the end of the year)
= $5,000 (COGS)
Because many farms operate multiple product lines, it is often helpful to calculate COGS separately by enterprise. This gives you a clearer picture of product level profitability and the true cost of production. You may want to calculate COGS by category such as poultry, beef, produce, dairy, eggs, or value added products. This helps determine margins, compare wholesale vs retail profitability, and calculate the cost of goods manufactured more accurately.
For each category, include the direct and indirect costs required to raise or produce the product. Direct costs contribute to production such as feed, seed, processing, and packaging. Indirect costs support overall operations such as fuel, utilities, and equipment. Both contribute to the cost of goods sold calculation.
Many farms increase COGS accuracy simply by improving how they track inputs and production costs. Examples include:
These steps help when you want to compute cost of goods sold, calculate cost of production in agriculture, or determine COGS for each enterprise more precisely.
Below are common categories you can include when doing a cost of goods sold calculation for farm products:
You can calculate COGS for each enterprise, product line, or batch. This makes it easier to see which products are profitable and how production changes affect costs and pricing.
Feed: $600
Chicks: $250
Processing fees: $500
Packaging: $100
Fuel for transport: $70
Beginning inventory: $0
Purchases and production inputs: $1,520
Ending inventory: $120 of frozen cuts
COGS calculation:
$0 + $1,520 – $120 = $1,400 COGS
If you sell 100 birds:
$1,400 ÷ 100 = $14.00 per bird
Seeds and soil: $8
Fertilizer and irrigation: $4
Packaging: $2
Harvest labor: $11
Delivery: $5
Beginning inventory: $0
Purchases and production inputs: $30
Ending inventory: $0
COGS calculation:
$0 + $30 – $0 = $30 per box
If you sell the CSA box for $45:
$45 – $30 = $15 gross profit per box
These examples show how COGS can be adapted for different farm enterprises and product types.
Local Line helps farms and ranchers track inputs, inventory, production, and sales in one place.
This makes it easier to determine cost of goods sold, calculate COGS by product, and automate cost of goods manufactured or cost of sales.
With over 50 customizable reports, you can track cost of goods sold and inventory more easily, manage sales, and get the insights needed to understand profitability.
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Use the cost of goods sold formula:
Beginning inventory + Purchases and production costs – Ending inventory = COGS.
For farms, this includes the cost of inputs, processing, and labor required to produce and prepare the product for sale.
COGS includes the direct costs of producing your product. For farms, this may include feed, seed, fertilizer, processing, packaging, harvest labor, and freight. These are costs that directly contribute to creating a product you can sell.
COGS is an expense. It appears on your income statement and reduces your gross revenue to calculate gross profit. Inventory is the asset. When inventory is sold, it becomes an expense as cost of goods sold.
If you spend $1,600 on raising 100 broiler chickens and have $200 of unsold inventory at the end of the year:
$1,600 – $200 = $1,400 COGS.
Cost per bird would be $14.00 if all 100 birds are sold.
Expenses that do not directly contribute to production are not included. Examples include marketing, accounting, office supplies, website costs, rent for sales space, and insurance unrelated to production. These are operating expenses, not COGS.
There is no single ideal percentage because it depends on your farm type and pricing model. Many farms aim for COGS to stay below 50 percent of the sale price for direct-to-consumer products and lower for wholesale. Tracking COGS per enterprise helps you understand your own target range and margins.
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