The Economics of a Mushroom Farm

As of this present day, many successful mushroom businesses have been running for around or more than a decade. Some of these businesses are Southwest Mushrooms, North Spore, Mossy Creek Mushrooms, Fresh from the Farm Fungi, What the Fungus, Earth Angel Mushrooms, and Fungaia. Many more exist that have smaller YouTube presences and then there are also a number of small to medium size business which do not promote themselves through some sort of online medium but who still eek out a modest living.

With the propagation of the know-how as taught through online mediums, mushroom cultivation has become significantly more accessible. As I scroll through YouTube learning on my own, it seems that every day, I discover a new channel dedicated to showcasing their developing mushroom farm, with one recent channel doing a daily documentation of their path to growing "1000 lbs a week" - a moderately difficult goal. The business model of growing mushrooms has proven to be lucrative and accessible and many common folks minds' - of which I am admittedly one - have been "inoculated" with the idea of starting a mushroom farm.

While I do not have the hard data on mushroom farming start ups, in my own area around the DMV area (DC, Maryland, Virginia), there factors pointing towards this trend:

• Existence of multiple mushroom vendors spread across most farmers markets in the area - few are large (1000 lbs/week capacity) with more likely doing 100 - 300 lbs/week and some importing from Pennsylvania region which is a mushroom hot spot

• Mushroom products popping up in grocery stores which once never carried more gourmet varieties (Giant, Whole-foods, H-Mart, and undoubtedly others)

• News of other small mushroom start ups in the area

• Existence of large number of mushroom supplement brands and new companies selling novel mushroom items like mushroom coffee, mushroom chocolate, or mushroom gummies with new items undoubtedly in development.

It seems that in conjunction with the macro-economic environment turning more recessionary (high interest rate environment, smaller job pool, reduced immigrant labor due to deportation squeezing corporate margins and thus hiring of all sorts) and the greater ease of starting a mushroom farm, there will be a temporary explosion in the number of small mushroom farms spawning across the US over the next five to ten years - if it has not started already. It would be curious to see the data of larger companies like North Spore who send spawn to fledgling mushroom farms and thus likely have an accurate sample of the number of new farms.

So while my understanding of the environment is limited, if my intuition is correct, the mushroom landscape will turn more competitive over the next five to tent years and then there will be a general market consolidation as the more established and successful farms crowd out the rest. However, it also means that if a company can get up to speed with their lab work and spawn/spore/liquid culture production within the next year, there might still be lucrative opportunities to sell to other mushroom start ups who will undoubtedly need to purchase spawn.

Let's turn to the basic economics of a mushroom farm. It takes about $1 - $2 in raw material costs to grow a pound of mushrooms (closer to $1 if doing spawn in house) and a couple dollars of overhead (which obviously decreases as volume increases). Assuming a conservative estimate of $5 per pound including raw material and overhead, and a conservative average selling price of $10 per pound, there is a 100% mark up in price. Thus, if 500 lbs of mushrooms are grown every week or 2,000 lbs a month, this represents a $20,000 in sales and $10,000 in profit a month. Naturally, when one starts out, there are likely to be more expenses from equipment purchases and various other one-time needs.

This is the basic back of the envelope calculation that those starting a mushroom farm go through, and when they see the $10,000 a month in profit, they are spurred on into action.

This is not to mention that medicinal supplements such as mushroom powders and tinctures can be sold as nonperishable items with higher mark ups going up to as high as $15 - $20/lb depending on branding. It also does not include the profit that can be generated from selling high quality spawn, liquid cultures, spore syringes, etc. When one sees the prospect of moving up to 1,000 - 2,000 lbs a week, the upper scale of what an individual can achieve following the established business model (which does not necessitate the installation of large-scale industrial equipment), the profit balloons to up to $30,000 - $40,000 a month or around $360,000 to $480,000 a year.

Naturally, the actual buildout of the farm, leasing costs, and problems in the first few years are likely to render the profit much smaller than what is above, perhaps in the range of $100,000 - $200,000. This is more likely a realistic estimate of profit unless the warehouse can be set up in an exceptionally efficient manner or the mushrooms marketed and sold as a more premium item, which obviously hinges on mushroom quality which is dependent on grower experience.

When one considers that mushroom farming may soon become significantly more competitive, the margins will be depressed even further unless the business can find a way to position themselves in a better manner. In my opinion, there are three key ways that this can be done:

1) Development of novel non-perishable items

2) Establishing premium brand

3) Moving into mushroom adjacent products like mycelium bricks

There are enough mushroom powder and tincture sellers already such that unless the business can come up with a snazzy marketing strategy that pulls from existing customers, the sales that will result from the above will likely not be more lucrative or meaningful than the sale of fresh mushrooms. Of course, if running at say 1,000 lbs a week which translates to ~52,000 lbs a year, this still generates ~$500,000 a year in sales, which provides jobs for employees and generates some profit.

The path towards greater profitability depends on the creation of novel food items. Somehow, the health benefits of fresh mushrooms or dried mushrooms must be developed to leverage new products that are clearly different from others. This will require research, experimentation, and risk of failure. Given the health benefits of fresh mushrooms and my belief that whole-foods which are less processed usually are healthier, the development of some sort of fresh mushroom based frozen food is one such possibility.

On the second point, establishing a premium brand and selling quality mushrooms to upscale restaurants could also result in higher margins closer to $15 - $20 per lb which would generate a more comfortable profit margin. This, of course, requires that the farmers actually grows high quality produce which appeals to said customers.

Given my belief that multiple mushroom farms with reasonably intelligent owners will crop up over the next years, this strategy will only allow the business to charge slightly more given that mushrooms are generally a commodity. Unless the cultivator finds a way to really set his or her mushrooms apart such that there is a clear quality difference - and I honestly find this unlikely unless they develop such a deep understanding of mycology to the point that they might be better off in another job - the premium from marketing as a premium brand is likely to be limited.

On the third point, one major item that has appeared over the past years, is myco-materials which are based off of growing mycelium over sawdust and then baking them to harden them into packaging materials (like styrofoam) or lite construction material. If there proves to be a large demand for these myco materials, the business could make substantial strides by pivoting in that direction given their institutional knowledge in mycelium/mycology behavior.

In conclusion, if a business builds out to even 1,000 - 2,000 lbs a week which is the upper limit of what can be produced following the established business model, the profit generated is estimated at $100,000 - $200,000 a year. The only way to make more money than that is by the development of novel items, exceptional quality, or exceptional marketing. All these will be hard to achieve in a more competitive environment that will soon come.