Extending the Conversation
Dec 18, 2012
From Legacy Moment (12/14/2012).
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Last week I shared some personal insight and a challenge posed by my son to help him establish a farm/ranch enterprise. In response, Gary Matteson, Farm Credit's Vice President of Young, Beginning, Small Farmer Programs and Outreach, weighed in. Based on firsthand experience as a farmer and his professional expertise with Farm Credit, Gary has invaluable insights for establishing a new venture. To extend the conversation, he wrote:
"Investigating potential businesses in retail agriculture requires the same tools used with any business planning effort but with an increased focus on what to produce, the most profitable markets in which to sell and how to access those market channels.
I'd say look first at retail agriculture businesses by market demand and market channels, then build farm production models to suit the channel. Finding a profitable market and market channel might indicate that it is more profitable to use your entrepreneurial skills as an aggregator or broker rather than as an agricultural producer.
Ag entrepreneurs frequently suffer from the inability to identify the core activities that generate profit. Instead, they do many tasks from production to value-added processing to marketing to distribution that might be best contracted out to others.
For example, FedEx, UPS and maybe even the livestock hauler next door all do a great job delivering stuff overnight. Okay, I realize that FedEx doesn't ship cattle, but the point is that maybe you can find someone who can do a given task cheaper/better/faster than you can yourself.
It's not that you can't haul cattle as part of a grass-fed custom meats business, but taking on the equipment costs and liabilities of livestock trucking might not be the best thing for the balance sheet of a new business. It's likely not an effective way to spend your precious management time either, when you could be out there selling more product.
Now, just because you can find someone that's cheaper/better/faster doesn't mean that for other reasons you want to keep that contracted service in-house. Maintaining customer relationships, risk management of critical tasks and efficient use of limited resources are important factors to assess regarding that most difficult of resources to account for: how to best spend your time as a retail agriculture entrepreneur.
Should you be building fences, making hay, or preg-checking cattle? The best way to answer that question is to know your costs. Retail agriculture-based businesses call for another type of cost center knowledge: identifying the marketing costs to sell your product. Spending the day at a farmers market selling a couple of coolers full of beef might bring in a healthy level of gross sales, but what do you net after accounting for time, travel, equipment, preparation and marketing materials?
Marketing costs are not insignificant, especially when you count the opportunity cost of your labor by asking what else you could be doing with your valuable time as owner-manager-entrepreneur. One way to gain efficiency is to look at retail ag business planning as modular. Planning for efficiency in retail agriculture begs for consideration of how to include other related enterprises that can grow from the core business.
Build your business plan with an eye toward adding offshoots. If the core business is production of grass-fed beef, think about starting out by selling at a farmers market to test the waters, then plan how you will access other market channels by diversifying with CSA (Community Supported Agriculture) or wholesale restaurant sales. In other words, from the beginning, plan how you will build your business capacity by diversifying your use of marketing channels.
The retail agriculture business plan you develop to show your lender doesn't have to have all the details for these offshoots, but showing that you are thinking of growth options is a great way to project a vision for a profitable future."
News & Resources for You:
Or read the full version of the report here, for more: "...to bridge knowledge gaps on how young and beginning farm operators and small farm operators utilize newly emerging domestic marketing opportunities." ("The Emergence of Retail Agriculture: Its Outlook, Capital Needs, and Role in Supporting Young, Beginning, and Small Farmers," by Gary Matteson and Alan R. Hunt; August 2012)
Photo courtesy of USDA NRCS.