Evaluating New Farm Enterprises
Evaluating New Farm Enterprises
|Earnie and Martha Bohner explored freeze-drying shiitake mushrooms as a new way to add value. Photo by Martha Bohner.|
Whether you’re launching a new farm business or retooling an existing one, analyzing all of your possibilities is crucial to the success of your venture. Consider writing a business plan, a road map that specifies your priorities, goals and objectives. Moreover, business plans provide a framework for reviewing your progress and pointing out the need for mid-course corrections. If you want to undertake business planning, consider using Building a Sustainable Business: A Planning Guide for Farmers and Rural Business Owners, a 280-page guide to planning, implementation and evaluation. The book, co-published by SARE’s Sustainable Agriculture Network, includes dozens of worksheets to help you navigate the process.
With an existing farm operation, you should be able to do a basic enterprise analysis using the records you have to keep for tax purposes, says Seth Wilner, a county extension agent with the University of New Hampshire. “Look at your profitability, then look for anomalies. Maybe you thought blueberries were a profit center, say, but they’re not. So maybe you should shift things around.”
You might consider seeking outside help with a specific element of your plan, like marketing. For a medium-sized direct marketing farm business, working with a marketing consultant will typically cost between $1,000 and $3,000. Hiring a consultant is a good idea if you’re not sure how to get started or if you lack the time to go through the process on your own. “It’s definitely a worthwhile investment if you’re in the retail market,” Wilner says. “It’s a lifetime investment.”
Failure to judge the true demand for a product is a common cause of failure in many business ventures. To improve your odds, be thorough about your market research. Good research entails finding out as much as possible about your planned products or services. Investigate as many marketing options as possible and identify several that look promising. The more ways and places you have to sell your product, the better your chances of success.
Promotion and customer relations should be part of your marketing plan. A common rule of thumb for promotional expenses is 3 percent of projected sales.
In New Hampshire, Wilner helped three farms improve their bottom line by working with a marketing consultant, partly with a SARE grant aimed at building marketing skills for both farmers and county Extension.
For example, Beaver Pond Farm, a well-established farm near Newport, N.H., specializing in pick-your-own raspberries, used the consultant’s advice to improve signage, raise prices on some items and adjust the layout of their farm stand to improve product visibility. They planted blueberries to diversify their crop mix and began selling meat, apples, cheeses and milk from other local farms in addition to their own products.
“People want more one-stop shopping. The customers haven’t batted an eye on the price hikes,” Wilner says. “The farm’s gone from breaking even or maybe losing a little money to having two good seasons.”
Marketing activities are guided by a variety of regulations at federal, state, county and municipal levels. Some vary by type of enterprise and location, while others are more general. Legal considerations include the type of business ownership (sole proprietorship, partnership, etc.), zoning ordinances, small business licenses, building codes and permits, weights and measures, federal and state business tax issues, sanitation permits and inspections, food processors’ permits and more. For more information, consult the Legal Guide for Direct Farm Marketing (Resources).
Adequate insurance coverage is essential. Every operator should have liability insurance for products and premises, employer’s liability, and damage insurance to protect against loss to buildings, merchandise and other property. Ask your insurance agent about liability and loss insurance specifically designed for direct-market farmers.
Trying a new Venture? First, Make A solid plan...
Before Earnie and Martha Bohner, farmers since 1982, launch value-added products, they analyze all the costs and benefits. After starting their farm with two acres of blueberries, they added other small fruits, then began processing them. Today, they cultivate 7 acres in Lampe, Mo., and enjoy a comfortable income. Yet, they adopted each new enterprise only after asking a series of soul-searching questions, such as:
In 2004, they explored freeze-drying shiitake mushrooms as a new way to add value. Armed with a SARE farmer grant, Earnie plunged into research. He found an inexpensive dryer, but it required a prohibitive amount of energy to operate, a cost he needed to justify with a lucrative end product.
When he ran the costs – raw product, packaging, bags, labels, packing and shipping – he found that the freeze-drying was considerably more expensive than air-drying, a distinction that might be lost on customers.
Earnie ran the numbers on further processing the mushrooms into soup mix, adding still more value. Drying the mushrooms off site brought down their costs, and they could charge enough for a premium soup mix to more than offset them. The Bohners debuted the soup mix in 2006 to an enthusiastic response.
What’s next? More planning as the couple attempts to move into wholesale marketing of shiitakes.
“After evaluation in three to four test markets, we will be better able to make an economically sound decision as to whether we can justify building our own freeze-drying facility,” Earnie says.