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Woods-Cultivated versus Wild-Simulated Forest Farming Methods:
Costs and Revenues Compared

Once the decision to grow or husband ginseng on forestlands has been made, the next step is to decide how much time and money to invest. No matter what your depth of interest is, you should begin by considering the following questions:

1. What other income opportunities or activities could I carry out in my forest?
2. Which approach will I use to produce ginseng?
3. Will I make money?
4. Do I have the time, patience, and labor to do it?

As a forest-farming venture, ginseng husbandry can be pursued as a hobby or as a serious income generator. However, before starting a ginseng venture, it is important to gather information about current costs, expected yields and revenues, and other factors that affect profitability. An enterprise budget is a simple financial tool to determine profitability. The costs are subtracted from the expected revenues to provide an idea of profitability.

In developing enterprise budgets, revenues occur in future years; thus, their actual value may differ considerably from that of expected revenues. To account for this uncertainty, you can adjust numbers, such as yields or prices, and see how these changes affect profitability. In terms of costs, you should include the time and labor required to prepare the site, plant seeds, maintain the crop, harvest the plants, and dry the harvested product.

The following section provides example enterprise budgets for woods-cultivated and wild-simulated ginseng husbandry approaches on a one-tenth-acre (approximately 4,350 square feet) tract of forestland. Table 2 gives comparative costs and revenues for the two husbandry approaches while Figure 2 is a cash-flow diagram illustrating costs and revenues for both approaches to ginseng forest farming.

Figure 2 is a cash flow diagram for the two systems.

Woods-cultivated ginseng (one-tenth acre or 4,350 square feet)

Cost assumptions

Seed: $225

One-tenth of an acre (about 4,350 square feet) allows for nine 5-by-80-foot (width by length) raised beds. Using this arrangement, each bed covers 400 square feet of planting space for a total planting space of 3,600 feet. The remainder of the area (about 750 square feet) is used as walkways and to accommodate tree roots, watercourses, boulders, and so forth.

Woods-cultivated ginseng grown from seed will require at least five years to yield a marketable product. You might want to plant four seeds per square foot, which would require 1,600 seeds per bed (4 seeds x 400 square feet). An average germination rate is 75 percent, meaning that approximately three out of every four seeds should become established.

For a one-tenth-acre plot, 1,600 seeds per bed multiplied by nine beds requires 14,400 seeds. One-pound of ginseng seed contains 6,500 seeds on average and can be purchased at an average price of $90 (range: $45 to $130). You will need 2.5 pounds of seed to adequately plant all nine beds for a total seed cost of $225.

Labor: $2,300

Site preparation and planting will take an estimated 60 hours on a one-tenth acre forested bed. Maintenance is estimated at 25 hours per year or 125 hours for five years. In the final year, harvesting and preparing the roots for sale (cleaning and drying) is estimated at 45 hours. Assuming labor costs $10 per hour over five years for a total of230 hours, the total labor costs are $2,300.

Equipment and materials: $500

Equipment such as a rake, digging tools, backpack sprayer, and drying equipment are fixed costs that are a one-time investment and do not increase with acres planted. A rototiller is another fixed-cost item ($700 to $1,500), which is optional and not included in this example. Materials such as pesticides (e.g., fungicides) may also change the investment because they vary by the amount of land planted and the extent of problems. For this example, costs are estimated at $500.

Total costs = $3,025

Yield and revenue assumptions

Revenue: $7,775 ($6,390 After Discounting)

In this example using the woods-cultivated approach to growing ginseng, an estimated 100 ginseng roots are contained in a dried pound. Assuming survival of two (out of four) seeds initially planted per square foot, yields are estimated at 800 roots per bed. Using these same assumptions for all nine beds, 7,200 roots would be harvested on one-tenth of an acre for a total of 72 dry pounds. Current prices for woods-cultivated ginseng range from $25 to $300 per pound depending on how "wild" the final product looks. Using an average price of $150 per pound, the gross revenues over a five-year period are $10,800. Subtracting total costs of $3,025 leaves a net revenue of $7,775 per one-tenth acre. This translates to $77,750 per acre.

The process of determining the value of an investment over time is referred to as cost-benefit analysis. In this process, future values are discounted to the present and provide what is referred to as net present value, which is simply the discounted sum of all costs and revenues incurred over the life of the investment. All future costs and future revenues are discounted to the present by a formula that involves selecting an acceptable interest rate (as is done with a savings account or stock investment). Because costs and revenues from growing ginseng will be realized in the future (five years or more), you should keep in mind that a dollar today is worth more than a dollar in future years. This is simply due to the time value of money and is why we have interest rates. Think about a bank account and the interest you might earn on $100. If the interest rate is 4 percent, you will have $104 in one year. The same process works with investing in ginseng. Future revenues need to account for the value of money over time. In this example, the future value of the investment in woods-cultivated ginseng without discounting is $7,775 on a one-tenth acre. After applying a discount rate of 4 percent, however, the net present value over five years of this investment is actually lowered to $6,390 (Table 2). The venture is still profitable but not quite as profitable when a time factor is included.

Using a larger interest rate, such as 7 percent, would make the investment even less profitable. The question is how much more profitable is it compared with alternative investments such putting money in a bank account and earning a 4 percent return or when compared with the wild-simulated approach to ginseng husbandry? While this deliberation may not be important if ginseng husbandry is simply a hobby, it is something that should be seriously considered when pursuing ginseng husbandry as an investment venture.

Wild-simulated ginseng (one-tenth acre or 4,350 square feet)

Cost assumptions

Seed: $225

One-tenth of an acre (about 4,350 square feet) provides 3,600 feet of planting space after allowing for have many tree roots, watercourses, boulders, debris, and so forth in the area. Raised beds are not used in this approach to growing ginseng, so seed will be scattered throughout the plot.

Wild-simulated ginseng will require at least eight to ten years to yield a marketable product. You might plant four seeds per square foot for a requirement of 14,400 seeds, with the understanding that one plant per square foot should be the eventual spacing (to avoid disease and other problems resulting from overcrowding). This assumes an average germination rate of 75 percent, meaning that approximately three out of every four seeds should germinate and become established. You will need 2.5 pounds of seed to adequately plant the area; therefore, the final cost for seed is $225.

Labor: $1,600

Preparing the site and planting the ginseng will take an estimated ten hours. Inspection and maintenance will be minimal, but biweekly checks over the ten years will still take about 100 hours of total time. Harvesting, cleaning, and drying the roots will take about fifty hours. This is a slightly longer time estimate for processing the harvested products than for the woods-cultivated approach because wild-simulated roots require more effort to free them from tree roots, rocks, heavy soil, and so on. Therefore, the labor costs at $10 per hour will total $1,600 for this approach.

Equipment and materials: $100

Again, equipment such as a rake, digging tools, and drying equipment are fixed costs that are a one-time investment and do not increase with acres planted. Total costs are estimated at $100 since little equipment is required for preparation of wild-simulated planting areas. Additionally, the major costs incurred with woods-cultivated culture is due to the likelihood of disease (fungal) problems and the associated need for a backpack sprayer, fungicides, and protective clothing. With the wild-simulated budget projected here, there will be no use of fungicides.

Total costs = $1,925

Yield and revenue assumptions

Revenues: $4,375 ($2,956 After Discounting)

Roots grown via the wild-simulated approach are generally smaller than with the woods-cultivated approach, with about 200 roots contained in one dried pound. The 3,600 roots harvested total 18 pounds. Current prices for wild-simulated ginseng range from $200 to $500 per pound. Using an average price of $350 per pound, the value of the crop in ten years is $6,300 per one-tenth acre. Subtracting costs ($1,925) leaves a profit of $4,375 on one-tenth of an acre. This would be equivalent to over $43,750 for an acre.

Using the same discounting procedure mentioned in the woods-cultivated example, and assuming a 4 percent discount rate over ten years, net present value of the investment on one-tenth acre is $2,956. By comparing the two systems after discounting, the woods-cultivated method would be more profitable, even though the wild-simulated approach is more inexpensive and the product is worth more per pound. This is primarily because of the longer growing period for wild-simulated ginseng, which requires ten years for the investment to "mature" and demands labor and attention (albeit less) during this additional time. Keep in mind that the price paid for wild-simulated ginseng may increase over the growing period as it has done historically. Consequently, such increases may outpace any discount rate you have set, and the investment could be more profitable than anticipated.

The Economics of Ginseng Husbandry: The Bottom Line

Comparing the two systems shows clear differences in costs and revenue (Table 2). Woods-cultivated ginseng requires more labor for making beds, greater attention to maintenance, and increased equipment/material costs. However, the woods-cultivated approach receives revenue at around five years as opposed to at least ten years for wild-simulated ginseng, and yields are generally much greater than for wild-simulated ginseng. Although you may do the work yourself, it is important to consider labor costs. Obviously, not including the labor costs makes both investments substantially more attractive, especially the woods-cultivated approach.

Wild-simulated ginseng offers the possibility of turning a fair profit from less investment in labor or money. The trade-off to this approach is that you must generally wait longer (nine to ten years) to harvest. Additionally, yields will generally be lower due to the smaller size and weight of individual roots and less-crowded planting arrangements.

In the enterprise budget developed, revenue was calculated using assumptions about plant spacing and yield. Naturally, yields will vary considerably as a function of individual root weight and plant density (spacing). More roots will be needed per pound as size and weight per root decreases, and vice versa. Similarly, fewer plants in an area, due to wider spacing, will also reduce yields. Table 3 is included for estimating yield potential from a one-tenth-acre planting as determined by plant spacing and weight per root. This table can be used to see how such factors will increase or decrease yields-and, thus, revenues.

The calculations provided are an example and are only a guide to the potential costs and revenue that you might encounter. They do not reflect economies of scale. As the operation increases in size, the costs for certain supplies tend to decrease since quantity discounts begin to apply. Nor do these calculations reflect excessive losses from rodents, slugs, insects, fungal diseases, weeds, and theft. Also note that in terms of revenue, in recent years prices have remained low for woods-cultivated roots that appear similar to field-grown products (i.e., cultivated). At the same time, prices for wild-simulated roots that closely resemble "wild" products continue to climb. Thus, the best investment prospects may actually be found with the wild-simulated approach, even though the discounted returns are slightly lower when compared with the woods-cultivated approach.

Forest farmers selling to domestic consumers in farmers' markets and shops may want to develop value-added ginseng products. Dried ginseng slices soaked in honey or maple syrup, jellies, ginseng beer, and candy are examples of marketable products. Growers can also make teas and tinctures (i.e., alcohol extracts) with low-grade roots (damaged or cultivated in appearance) in order to make the most of their investment. There are also "niche" markets, particularly in urban areas, for fresh root.

Obtaining organic certification may increase market access, but the cost of certification should be weighed against any perceived price gains. Generally, no premium is paid for organically certified roots within the international wholesale ginseng market. On the other hand, many domestic herbalists and consumers seek organically grown ginseng root and care much less about "wild" appearances. Organic certification might, therefore, be a good option for domestic market growers.

This web content is adapted from Forest Finance series #5: Opportunities from Ginseng Husbandry in Pennsylvania (Burkhart and Jacobson) published in 2007 by the Pennsylvania State University (copyrighted 2007).

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