Final Report for LNC00-170

Assisting Farmers with Enterprise Diversification

Project Type: Research and Education
Funds awarded in 2000: $54,550.00
Projected End Date: 12/31/2003
Matching Federal Funds: $50,000.00
Matching Non-Federal Funds: $28,750.00
Region: North Central
State: Kansas
Project Coordinator:
Jerry Jost
Kansas Rural Center
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Project Information

Summary:

Business planning helps farm families evaluate and implement new farm enterprises. These planning steps include setting goals, evaluating enterprise options, developing a marketing plan, constructing a production plan, assessing profitability, assessing financial feasibility, making decisions, and preparing for success. A disciplined process of planning stimulates synergy and accountability among farmers. In addition, farmers receive technical assistance by means of individual consultation, market research, and financial consultation using the FINPACK analysis.

Introduction:

Low commodity prices challenge farmers to consider new enterprises that add value to farm products to improve profits. However, to develop successful enterprises, farmers need training in business and market planning that fits with their whole-farm plans. Such training and planning assistance will improve the rate of successful adoption of new on-farm enterprises.

Farmer-to-farmer planning groups provide a valuable learning tool for producers as they make changes in management and marketing. This project focused on local farmer groups to reinforce new learning.

Project Objectives:

1. Five farmers developed the skills and understanding to effectively mentor other farmers in the selection, planning, and implementation of new on-farm enterprises.
2. A business planning process to select profitable and sustainable farm-based enterprises enabled 30 farm families to improve the environment and their quality of life.
3. A business planning process to select profitable and sustainable farm-based enterprises will enable one farmer cooperative to diversify enterprises on members’ farms to improve the environment and their quality of life.
4. An enterprise financial database will be collected and enterprise profiles will be developed that will be disseminated to other farmers.

Research

Materials and methods:

Over the past nine years, the Heartland Network organized 37 farmer clusters to promote sustainable agriculture. These local farmer-to-farmer networks have proven to be effective tools to develop new management skills, make on-farm changes, and extend outreach to other farmers. Our experience in whole farm planning was used in this project to develop quality of life goals that guide enterprise selection and development of project participants.

A review of business planning tools and projects involved in farm-based enterprise development was conducted. The experience of the Nebraska Edge program working with small rural businesses suggested facilitating business planning within a group context to stimulate accountability and creativity while also reinforcing learning.

“Farming Alternatives: A Guide to Evaluating the Feasibility of New Farm-Based Enterprises” developed by Cornell University and NxLeveL’s “Tilling the Soil of Opportunity” were the principal planning guides. Permission was granted from Cornell University to adapt their planning exercises for this project. Farmers also received copies of the “Tilling the Soil of Opportunity” guide as they worked through their own farm business plans. Four persons were trained as “Tilling the Soil of Opportunity” educators offered by the NxLeveL Training Network. The Holistic Management approach (i.e., integrating existing resources with management tools appropriate to fundamental ecological principles) provided an site-specific ecological assessment.

Steps & Actions in Planning a New Farm Enterprise

Set Family Farm Goals: Where do we want to go?
Write a farm mission statement
Assess personal entrepreneurial traits
Assess family needs and preferences
Set goals & objectives for a new enterprise
Understand fundamental ecological principles

Identify Alternative Enterprises: What are the alternatives?
Assess current physical, market, management, and financial resources
Identify where to go to get information from other producers, the Internet, library, agencies, etc.
Evaluate enterprise options

Develop a Marketing Plan: Will it sell?
Describe the benefits of the product or service
Learn to do your own market research
Identify your customer profile
Assess market options
Identify the competition and how you compare
Calculate price & forecast sales
Choose promotional strategies and estimate cost
Choose distribution strategies and estimate cost

Develop a Production Plan: Can we produce it on our farm?
Determine if the environment fits the enterprise
Determine start-up costs
Calculate the life cycle and seasonality of production
Estimate how much you can produce
Research legal and regulatory factors
Figure the right risk management plan

Assess Profitability: Will it make us money?
On-farm FINPACK analysis of current farm financial data and projected financial outcomes with enterprise diversification
Calculate a family income statement
Forecast new income from the enterprise
Forecast debt, interest payments, and depreciation

Assess Financial Feasibility: Can we afford to do it?
Calculate a projected farm cash flow with the new
enterprise

Make a Decision: Shall we start the new enterprise?
Test the option with the farm mission, family goals, and the principles of holistic management
If the decision is yes, write an action plan

Harvest Your Future: How can we prepare for success?
Learn how to negotiate “win-win” solutions
Learn how to better use your time
Learn about transitions into the next generation

The project organized three groups of farmers who participated in eight planning sessions using the NxLeveL curriculum. These groups met in the Kansas towns of Minneapolis, Grantville, and Kechi. Another group met on three Saturdays in Phillipsburg. This training included 38 farms and 59 individuals. Each group was facilitated by the project coordinator. Guest speakers at these workshops included farmers, lawyers, accountants, insurance agents, and Small Business Development Center advisors.

Four individuals received “Tilling the Soil of Opportunity” training certification. Only two individuals, Claire Homitzky and Jerry Jost, facilitated the four NxLeveL classes.

Four farmers served as mentors. These mentors received individual training from the project coordinator so that they can provide better assistance to other farmers considering enterprise diversification. This training included understanding the practices that facilitate mentoring. Farmer mentors were compensated for time, travel, and phone bills.

In addition to the workshops, three NxLeveL classes continued to meet in follow-up meetings and farm tours to assist farmers in the implementation of their business plans. This included nine formal gatherings.

A shorter, one-day “Plan to Grow” workshop was offered in eight locations (Colby, Hiawatha, Cottonwood Falls, Peabody, Manhattan, Wamego, Winfield, Emporia) in Kansas. Three of these locations included a second meeting. These workshops used a variety of business planning tools coupled with marketing studies. Seventy farmers representing 58 farms participated in these workshops.

Participating farmers were offered an on-farm consultation with a FINPACK analyst. FINPACK is a computer software program developed by the Center for Farm Financial Management at the University of Minnesota. It is a comprehensive financial planning and analysis system designed to help farmers and ranchers understand their financial situation and make informed decisions. This analysis also helps farmers explore alternatives and compare management strategies. This program uses farm records to conduct business analysis, long-range planning, and cash-flow planning. This program, when used with an analyst in an on-farm consultation, teaches financial concepts through their application on individual farms. This project conducted several on-farm FINPACK consultations.

This project assisted the Kansas Organic Producers. A leadership development workshop helped board members understand their roles in this marketing cooperative. Another initiative helped a group of meat goat producers conduct a producer survey and initiate a feasibility study for a marketing alliance.

Research results and discussion:

The following scores from the one-day “Plan to Grow” workshops were based on the questions listed below. A score of 1 indicates a very dissatisfied response and 5 indicates a very satisfied response. The participants found these workshops quite effective.

1. How relevant was this workshop to your current needs? 3.8
2. What level of new information and skills did you gain from this workshop? 3.8
3. How useful were the handouts you received? 4.2
4. How well did the workshop progress from one step to another? 4.3
5. What was the quality of your instructor? 4.6
6. How likely are you to go back through these planning tools later and fill in what you didn’t have time to complete? 3.6
7. How likely are you to recommend this workshop to someone else? 4.2
9. How would you rate the overall quality of this workshop? 4.3

The value of these one-day workshops were that they required less time, less reading and homework, and allowed more farmers to participate who couldn’t attend a two-three month NxLeveL class. The disadvantage was little follow-up interaction with these farmers. This reduced the project’s influence over future decision making.

At the end of this project the farmers participating in the NxLeveL “Tilling the Soil of Opportunity” business planning, and completed a mail evaluation survey. Using scores of 1 indicating strong disagreement to a score of 5 meaning strong agreement, the farmers evaluated this course as listed. These numbers are a mean average score. These scores reveal the farmers found these classes very effective.

These business planning classes helped me learn new management skills. 4.5
These business planning classes improved my aspirations for our farm business. 4.57
These business planning classes helped me make effective changes on my farm. 4.14
The Kansas Rural Center played an important role in helping me plan for business success. 4.14

Research conclusions:

A table documenting participant evaluation was included in the hard copy report that doesn’t convert into this electronic format. Those scores documented a significant learning in how to develop a business plan. The 38 farms involved with the training project 28.75 new jobs within the next five years. They expect to double the percentage of value-added sales from their farm and increase the direct market sales by half. They estimate they will increase their overall sales by 55% resulting in an increase of income of over $16,000 per farm. Unfortunately, less than 40% of the participants completed their business plans.

The list below describes some specific individual impacts of this project upon the businesses of cooperating farmers.

• One farm as a result of the business planning decided to reduce their radio advertising budget from $15,000 to $3,000 to better target their advertising dollars.
• A group of the farmers tested their market plans and skills by opening up a new farmers’ market in their region.
• One farmer expanded her bread mix business and started a bread baking business.
• One farmer for the first time began direct marketing grass-fed beef.
• One elderly farm couple started their first subscription service to send their granddaughter to college.
• One farmer expanded her pastured poultry business to a monthly sales of 1,000 birds.
• One farmer hired a local youth 40 hours a week over the summer to help with the production of her pastured poultry business. Her economic analysis revealed this enterprise ranked third on their conventional farm in terms of dollar sales.
• One farmer incubating his freezer-beef business met his targeted sales of 12 steers in his second year of the enterprise.
• Three farmers built a retail sales facility on their farms.
• Three farmers secured value-added grants to develop their businesses. One of these began the first commercial mushroom production in the region.
• One farmer won a producer award for producing the best quality pork for Nieman Ranch.
• One farm following the business planning workshops did an extensive remodeling of their store including educational displays.

The following quotes from cooperating farmers indicate a very positive impact of the business planning classes.

• “This course forced me to address all aspects of my business … I found it very useful.”
• “This made me analyze my advertising budget and my clients … the interaction with others brought out new ideas.”
• “We really learned a lot … the speakers were outstanding … great job!”
• “I would recommend this to anyone interested in farming or an ag business.”
• “The information presented was pertinent, useful and valuable … Information and networking of this type is rare for smaller, individual enterprises. Therefore, I do feel these meetings filled a valuable need for those involved.”
• “I felt the workshops were very well presented … I just wish I had attended a workshop such as this when we first started. I felt it was time well spent.”
• “The workshops were a valuable opportunity to set aside time to begin to evaluate and plan new farm enterprises and marketing strategies.”
• “We learned some new strategies we plan to use.”
• “A good job of presenting the material … gave some good pointers … gave background for doing a better job of marketing our products.”
• “Everything was laid out in a manner to put together your business. A lot of our new marketing ideas grew out of the business class. It helped me organize my books better.”
• “Our ability to better identify priorities was the best thing to come out of the business planning class.
• “I was more confident that I would succeed.”
• “I saw it was possible to work together as a family farm.”
• “The class gave me tools that helped me move my business out of the idea stage and into reality. The interaction and information empowered me to take the chances that I had not been able to take before – specifically moving to farming on a full time basis.”
• “We began to change our vision for what would really be necessary for us to accomplish our goal and dream of a family business.”
• “Business planning taught me to do market research and to profile and target my customers.”
• “I now believe that direct sales to individual customers can have a greater impact on my bottom line.”
• “We decided against a hoop house for the time being and went into direct marketing of poultry.”
• “When I first got into the plan, I started to feel overwhelmed with how much was involved. As we went through the plan step by step my aspirations returned to the positive side and I felt encouraged in my abilities to do all aspects of a business.”
• “The information provided an excellent springboard for dialogue and ‘role playing.’ The marketing materials contain some very useful information.”
• “The ‘Plan to Grow’ workshops on small farm business planning is an affordable first step in a serious commitment to operating and managing a successful small farm operation. I found the workshop topics and materials integrated personal and family goal setting with important aspects of business planning. I found the friendly and informal atmosphere of the workshop and the presenter fostered a sense of community among the participants. I highly recommend this workshop for new and established farm owners who are uncertain as how to make it in a changing agricultural economy.”
• “The workshop series really helped me think about my farm as a business. It reinforced the importance of planning – both in terms of being specific about where the farm and I are going.”
• “(The biggest change on my farm) was in goal setting and writing down what I want accomplished in one year, two years, 5 years, etc. Now I have a gauge of where I’m at and how effective I am.”
• “I found the “Tilling the Soil of Opportunity” business planning workshops very useful. This course forced me to address all aspects of my business by having to determine the details for each business plan section. The course was particularly helpful in marketing strategies and the financial planning sections. These sections allowed me to pinpoint areas of needed improvement.”
• “The marketing workshop was informative. We learned some new strategies we plan to use.”
• “The workshops were a valuable opportunity to set aside time to begin to evaluate and plan new farm enterprises and marketing strategies.”
• “The information I received was very useful and practical. The handouts and worksheets gave me the opportunity to sit down and focus on the direction I wanted to go with my marketing efforts. Sometimes the hardest part of marketing is just taking the time to stop and plan your objectives.”

Economic Analysis

The project developed four enterprise budgets that were generated from the FINPACK analysis of cooperating farmers. These enterprise budgets cover pastured poultry, game bird hunting, pasture hogs, and organic crops.

Farmer Adoption

One hundred twenty-nine farmers participated in the business planning classes. Those farmers participating in the longer NxLeveL classes evaluated their experience more positively than the farmers attending the one-day “Plan to Grow” workshops. The challenge in this project was recruiting farmers to participate in these business planning classes. The classes were demanding and involved commitment both in the class and doing the homework to optimize effectiveness. Time is a significant constraint for participants.

The 38 farms involved with the NxLeveL training project 28.75 new jobs within the next five years. They expect to double the percentage of value-added sales from their farm and increase the direct market sales by half. They estimate they will increase their overall sales by 55% resulting in an increase of income of over $16,000 per farm. Unfortunately, less than 40% of the participants completed their business plans.

Participation Summary

Educational & Outreach Activities

Participation Summary

Education/outreach description:

Information on enterprise diversification was presented at the annual Kansas Sustainable Agriculture Roundup. Through this project, workshops were presented on food safety risk assessment, Iowa examples of value-added marketing, marketing farm-raised meats, marketing medicinal plants, institutional food sales, steps to success with new enterprises, value-added business planning, developing community-based food systems, and understanding your customer to target your marketing. Another two workshops were targeted to agricultural professionals as they assist farmer diversification. These workshops addressed issues of food safety and value-added food systems as a way to create economic opportunities for farmers.

Producer stories were communicated to the wider public through 14 radio interviews with producers and eight articles released through the Kansas agricultural press or KRC’s Rural Papers.

Project Outcomes

Recommendations:

Areas needing additional study

There is a need for a business planning curriculum that fits better into the busy lifestyles of farmers. There is also a need for short videos that could be used in classes to illustrate key concepts and success stories.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.