ATTRA is the national sustainable agriculture information service operated by the National Centerfor Appropriate Technology under a grant from the Rural Business-Cooperative Service USDepartment of Agriculture These organizations do not recommend or endorse productscompanies or individuals ATTRA is headquartered in Fayetteville Arkansas (PO Box 3657Fayetteville AR 72702) with offices in Butte Montana and Davis California

By Preston Sullivan and Lane GreerNCAT Agriculture SpecialistsMay 2002

Evaluating a Rural EnterpriseEvaluating a Rural EnterpriseEvaluating a Rural EnterpriseEvaluating a Rural EnterpriseEvaluating a Rural Enterprise

INTRODUCTION

This publication is for people who already livein rural areas and want to add new enterprisesto their operations New farm enterprises todayare often non-traditionaleverything from add-ing pastured poultry to a beef operation to start-ing a bed-and-breakfast in the barn to making acornfield maze to attract tourists

This publication wont tell you what will makethe most money Every person and every piece

of land is different and there is no single pre-scription to tell you what enterprise is right foryou Any new enterprise will however requirean investment of your time money and otherresources And there will always be risks in-volved

There are thousands of books Extension materi-als and people who can tell you how to producesomething whether its baskets bison or blue-berries But these resources cant help you de-cide wheather that enterprise is right for you andyour farm

We reviewed many enterprise planning guidesand have condensed their salient points in thispublication Most of these guides ask entrepre-neurs to assess their personal and family objec-tives They all stress the importance of having abusiness plan a financial plan and a marketingplan The business plan will outline how thebusiness should work and generate plans foroperation Perhaps the best thing about a de-tailed business plan is that it causes you to thinkin detail about what you are getting into TheResources section at the end of this publicationprovides titles and ordering information for sev-eral useful guides to help determine the feasibil-ity of your new enterprise

Two of the very best of these publications areFarming Alternatives A Guide to Evaluating theFeasibility of New Farm Based Enterprises a work-

Marketing and Business Guide

Abstract Evaluating an enterprise boils down to asking a series of good questions Among these questions are Do Ihave the resources to do this Do I really want to do this Do I have the experience and information to do this Howmuch profit can I make How will I market the products This publication seeks to provide enough information to helpyou judge whether a new enterprise is right for your operation Additionally we provide a resource section of additionalinformation on relevant topics

TABLE OF CONTENTS

INTRODUCTION 1EVALUATING YOUR RESOURCES 2FINANCIAL ASSESSMENT 3EXPERIENCE AND INFORMATION 4MARKETING 5CHOOSING AN ALTERNATIVE ENTERPRISE 7REFERENCES 8RESOURCES 8

EVALUATING A RURAL ENTERPRISEPAGE 2

book from Cornell University and A Primer forSelecting New Enterprises for Your Farm a Ken-tucky Extension Service publication Theseguides discuss alternative enterprises and intro-duce a step-by-step process to assess the objec-tives resources markets production demandsand profitability of new enterprises Both includea lot of useful worksheets to help with these as-sessments See the Resources section for moreinformation on how to order these publications

EVALUATING YOUR RESOURCES

Before committing to a new enterprise there arealways fundamental questions that ought to beaddressed These may be practical (What are thebusinessmanagement skills of those involved)organizational (Does everyone involved agree onhow the business should be run) or philosophi-cal (Does everyone involved know understandand agree on the objectives both short- and long-term) The following are typical of the kinds ofquestions suggested in the sources we reviewed

Marketing

Where am I going to sell the productsWho is the customerWhat is the size of the potential customerbaseWhere do the customers live and how willtheir location influence my selling to themWhat are the customers needs and desiresAm I going to sell directly to consumersAm I going to wholesale to the commoditymarketWhat are the seasonal price fluctuations I canexpectWhat are the quality standards that I mustmeetHow many hours will it take to research di-rect marketsAre there legal or food-safety considerations

Personal

Do I have time to devote to this new enter-priseDoes the workload correspond with the timeof year I want to work

Will the new enterprise complement my cur-rent enterprisesDo I have written objectives describing thedesired outcomeDo I have the skills and experience necessaryto do thisDo I like to supervise peopleHave I managed a business beforeDo I have enough personal energy to do thisCan I count on my family members for sup-portDo I care what the neighbors think about mynew enterpriseWhy do I want this enterprise

After you have determined that the enterprise issomething you really want to do consider theseadditional questions (for land-based enterprises)

Land

What is the water drainage likeAre the soils suitableWhat is the seasonal rainfall patternWhat will happen to my enterprises during aflood or droughtAre these plants or animals adapted to thisclimatic regionAre there water resources available for irri-gation or for watering livestockDo I want concurrent uses for the land suchas wildlife conservation fishing or hunting

Buildings and Machinery

Do I have adequate facilitiesWhat additional machinery will I needCan I rent or borrow machinery or storagefacilities

Labor Needs

How much labor will be requiredWhat is the source of laborHow much will it costIs seasonal labor availableWill I need housing for my workersDoes this enterprise use existing labor in off-seasons

EVALUATING A RURAL ENTERPRISE PAGE 3

There are many resources that can guide you inyour search for the answers to these questionsSee the Resources section at the end of this pub-lication for more information

FINANCIAL ASSESSMENT

After you have answered the above questionsyoull have a better idea of what costs will beinvolved in a new enterprise and that informa-tion will help you determine the profit potentialIt is advisable to do the following exercise be-fore spending more time or money developingthe logistics of production or a full enterprisebudget

One way to compare enterprises for profitabilityis to calculate a gross profit analysis (Savory andButterfield 1999) otherwise known as grossmargin analysis (Kay and Edwards 1994) or acontributory margin (Zimmerman andVillanueva 2001) The gross profit or margin isthe amount of money left over after all the newcosts associated with the new enterprise are sub-tracted from the gross income generated by thatnew enterprise These new expenses are sepa-rate from the general overhead expense becausethey are incurred only if the new enterprise isimplemented In other words these are the vari-able costs associated with a new enterprise

To avoid confusing comparisons do not proratethe overhead (fixed costs) for enterprises in thisexercise You will get more accurate results byassuming that the entire overhead cost must bepaid out of the gross profit from the enterpriseFor example if you need to use your tractor in anew venture the cost of owning the tractor (pay-ments insurance etc) is already fixed But thedirect expense of using the tractor in your newenterprise (fuel routine maintenance) can be as-signed to the operating cost of the venture thatuses the tractor By subtracting these operatingcosts from the total sales you arrive at the grossprofit The gross profit from all enterprises com-bined must be at least enough to cover the over-head or you will go broke

Table 1 shows the gross margin for a sweet cornenterprise Figures are generated on a per-acrebasis and so can be compared to any other enter-

prise on a per-acre basis Notice how only thecosts directly related to that enterprise are in-cluded in the gross profit analysis Land rentcould also be included but if the land is alreadyowned or mortgaged it should be left out of thisanalysis and considered a fixed cost With thissweet corn enterprise we have $2444 gross profitleft to pay overhead costs and ideally provide aprofit if a profit was initially projected

Table 1 Gross profit for one acre of sweet corn

To make valid comparisons between enterprisesusing gross profit or margin analysis use a com-mon unit of measure A common unit for agri-culture is gross profit per acre For some otherenterprises units to consider might be profit perhour or $bushel or $cwt Using a common unitwill allow you to compare dissimilar enter-prisessuch as broccoli for fresh market salesand goats sold wholesale A per-acrecomparision shows the best return on the landAnother good use of the gross profit analysis isto compare all your existing enterprises for theircontribution to covering overhead costs Theresults may surprise you For example you mayfind that the principal enterprise is actually be-ing supported by several secondary enterprises

In cases where there is no overlap between twoenterprises a direct comparison may not be pos-

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EVALUATING A RURAL ENTERPRISEPAGE 4

sible An example of this would be if you al-ready had grazing and timber enterprises andwanted to add a lease-arrangement huntinglodge to the same land The only variable costsassociated with the enterprise might be legal feesrenovation costs on the house and maintenanceIn this case if the gross profit was still high andyou responded positively to the personal ques-tions above you would go ahead with the enter-prise

The gross profit analysis does not preclude fullfinancial planning for each enterprise and for thewhole farm If for example the overhead costsare in excess of all the income generated you willgo broke If you are buying new equipment(fixed cost) specifically for an enterprise that costcan be assigned to that enterprise and amortizedover the useful life of the machinery If you bor-row money to buy the equipment the loan pay-ment can be allocated as a variable expense forthe enterprise gross profit analysis In the whole-farm budget all the income from all the variousenterprises will be included along with the vari-able costs for each and the overhead expenses

Full planning budgets used to estimate costs formany farm enterprises should be available fromyour local Extension service Others can be foundat httpwwwfbminetcabcbudgethtm aweb site with enterprise budgets for a large num-ber of crop and livestock enterprises The bud-gets at this web site use the term contributionmargin to describe gross profit These budgetsare separated into contribution margin and build-ings and machinery replacement costs (over-head) The budgets are laid out in an easy-to-read format with an overview preceding thetables Each enterprise budget contains market-ing alternatives cash flow timing and key fac-tors affecting profit with margin estimates al-ready calculated When calculating your cost ofproduction be sure to use reliable estimates foryour situation and include other costs that maynot be listed in the budget It is also useful toproject poor average and good production sce-narios for each enterprise If you cannot be prof-itable with poor production consider anotherenterprise

EXPERIENCE AND INFORMATION

The most salient requirement for farming is ex-perience (Nation 1998) Practical experience isparticularly important for a new enterprise es-pecially if the enterprise is not related to whatyou normally do You can gain a lot of the nec-essary knowledge from people who are currentlydoing what you are considering Apprenticingwith someone who is already farming or just vol-unteering some time is a good way to get expe-rience (See ATTRAs resource list SustainableFarming Internships and Appenticeships for moreinformation on experiential farm work across thecountry) Also start out small with your ownenterprise until you learn the basics StockmanGrass Farmer editor Allan Nation (1997) suggeststhese four stages when considering a new enter-prise

1 Get the knowledge you needto produce and market the product

2 Produce it for yourself and yourfamily

3 Produce it for your friends who havetried it like it and ask you for it

4 Do it as a business

Although this approach may seem slow it willgo faster and require a lot less startup investmentthan jumping in and trying to learn as you go

Gathering information on specific enterprises isalso an important step when considering diver-sification Your local Cooperative Extension Ser-vice and other USDA agencies can provide fun-damental information about some alternativesas can non-profit organizations in your state Youcan also contact Extension specialists at yourstates land-grant university Other sources ofinformation include websites and publications(books magazines and newsletters) The re-source list at the end of this publication also pro-vides helpful information

Often however even though there is productioninformation for a specific crop there is little in-formation available on budgets or markets Yourbest resource in a situation like this will prob-

EVALUATING A RURAL ENTERPRISE PAGE 3

There are many resources that can guide you inyour search for the answers to these questionsSee the Resources section at the end of this pub-lication for more information

FINANCIAL ASSESSMENT

After you have answered the above questionsyoull have a better idea of what costs will beinvolved in a new enterprise and that informa-tion will help you determine the profit potentialIt is advisable to do the following exercise be-fore spending more time or money developingthe logistics of production or a full enterprisebudget

One way to compare enterprises for profitabilityis to calculate a gross profit analysis (Savory andButterfield 1999) otherwise known as grossmargin analysis (Kay and Edwards 1994) or acontributory margin (Zimmerman andVillanueva 2001) The gross profit or margin isthe amount of money left over after all the newcosts associated with the new enterprise are sub-tracted from the gross income generated by thatnew enterprise These new expenses are sepa-rate from the general overhead expense becausethey are incurred only if the new enterprise isimplemented In other words these are the vari-able costs associated with a new enterprise

To avoid confusing comparisons do not proratethe overhead (fixed costs) for enterprises in thisexercise You will get more accurate results byassuming that the entire overhead cost must bepaid out of the gross profit from the enterpriseFor example if you need to use your tractor in anew venture the cost of owning the tractor (pay-ments insurance etc) is already fixed But thedirect expense of using the tractor in your newenterprise (fuel routine maintenance) can be as-signed to the operating cost of the venture thatuses the tractor By subtracting these operatingcosts from the total sales you arrive at the grossprofit The gross profit from all enterprises com-bined must be at least enough to cover the over-head or you will go broke

Table 1 shows the gross margin for a sweet cornenterprise Figures are generated on a per-acrebasis and so can be compared to any other enter-

prise on a per-acre basis Notice how only thecosts directly related to that enterprise are in-cluded in the gross profit analysis Land rentcould also be included but if the land is alreadyowned or mortgaged it should be left out of thisanalysis and considered a fixed cost With thissweet corn enterprise we have $2444 gross profitleft to pay overhead costs and ideally provide aprofit if a profit was initially projected

Table 1 Gross profit for one acre of sweet corn

To make valid comparisons between enterprisesusing gross profit or margin analysis use a com-mon unit of measure A common unit for agri-culture is gross profit per acre For some otherenterprises units to consider might be profit perhour or $bushel or $cwt Using a common unitwill allow you to compare dissimilar enter-prisessuch as broccoli for fresh market salesand goats sold wholesale A per-acrecomparision shows the best return on the landAnother good use of the gross profit analysis isto compare all your existing enterprises for theircontribution to covering overhead costs Theresults may surprise you For example you mayfind that the principal enterprise is actually be-ing supported by several secondary enterprises

In cases where there is no overlap between twoenterprises a direct comparison may not be pos-

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stsoCelbairaV

deeS 0005$

rezilitreF 0053$

lortnoCdeeW 0081$

esUyrenihcaM 0038$

gnitsevraH 00543$

gniluaH 0052$

stsoCelbairaVlatoT 00656$

ercatiforPssorG $ 42 0044

EVALUATING A RURAL ENTERPRISEPAGE 4

sible An example of this would be if you al-ready had grazing and timber enterprises andwanted to add a lease-arrangement huntinglodge to the same land The only variable costsassociated with the enterprise might be legal feesrenovation costs on the house and maintenanceIn this case if the gross profit was still high andyou responded positively to the personal ques-tions above you would go ahead with the enter-prise

The gross profit analysis does not preclude fullfinancial planning for each enterprise and for thewhole farm If for example the overhead costsare in excess of all the income generated you willgo broke If you are buying new equipment(fixed cost) specifically for an enterprise that costcan be assigned to that enterprise and amortizedover the useful life of the machinery If you bor-row money to buy the equipment the loan pay-ment can be allocated as a variable expense forthe enterprise gross profit analysis In the whole-farm budget all the income from all the variousenterprises will be included along with the vari-able costs for each and the overhead expenses

Full planning budgets used to estimate costs formany farm enterprises should be available fromyour local Extension service Others can be foundat httpwwwfbminetcabcbudgethtm aweb site with enterprise budgets for a large num-ber of crop and livestock enterprises The bud-gets at this web site use the term contributionmargin to describe gross profit These budgetsare separated into contribution margin and build-ings and machinery replacement costs (over-head) The budgets are laid out in an easy-to-read format with an overview preceding thetables Each enterprise budget contains market-ing alternatives cash flow timing and key fac-tors affecting profit with margin estimates al-ready calculated When calculating your cost ofproduction be sure to use reliable estimates foryour situation and include other costs that maynot be listed in the budget It is also useful toproject poor average and good production sce-narios for each enterprise If you cannot be prof-itable with poor production consider anotherenterprise

EXPERIENCE AND INFORMATION

The most salient requirement for farming is ex-perience (Nation 1998) Practical experience isparticularly important for a new enterprise es-pecially if the enterprise is not related to whatyou normally do You can gain a lot of the nec-essary knowledge from people who are currentlydoing what you are considering Apprenticingwith someone who is already farming or just vol-unteering some time is a good way to get expe-rience (See ATTRAs resource list SustainableFarming Internships and Appenticeships for moreinformation on experiential farm work across thecountry) Also start out small with your ownenterprise until you learn the basics StockmanGrass Farmer editor Allan Nation (1997) suggeststhese four stages when considering a new enter-prise

1 Get the knowledge you needto produce and market the product

2 Produce it for yourself and yourfamily

3 Produce it for your friends who havetried it like it and ask you for it

4 Do it as a business

Although this approach may seem slow it willgo faster and require a lot less startup investmentthan jumping in and trying to learn as you go

Gathering information on specific enterprises isalso an important step when considering diver-sification Your local Cooperative Extension Ser-vice and other USDA agencies can provide fun-damental information about some alternativesas can non-profit organizations in your state Youcan also contact Extension specialists at yourstates land-grant university Other sources ofinformation include websites and publications(books magazines and newsletters) The re-source list at the end of this publication also pro-vides helpful information

Often however even though there is productioninformation for a specific crop there is little in-formation available on budgets or markets Yourbest resource in a situation like this will prob-

EVALUATING A RURAL ENTERPRISEPAGE 4

sible An example of this would be if you al-ready had grazing and timber enterprises andwanted to add a lease-arrangement huntinglodge to the same land The only variable costsassociated with the enterprise might be legal feesrenovation costs on the house and maintenanceIn this case if the gross profit was still high andyou responded positively to the personal ques-tions above you would go ahead with the enter-prise

The gross profit analysis does not preclude fullfinancial planning for each enterprise and for thewhole farm If for example the overhead costsare in excess of all the income generated you willgo broke If you are buying new equipment(fixed cost) specifically for an enterprise that costcan be assigned to that enterprise and amortizedover the useful life of the machinery If you bor-row money to buy the equipment the loan pay-ment can be allocated as a variable expense forthe enterprise gross profit analysis In the whole-farm budget all the income from all the variousenterprises will be included along with the vari-able costs for each and the overhead expenses

Full planning budgets used to estimate costs formany farm enterprises should be available fromyour local Extension service Others can be foundat httpwwwfbminetcabcbudgethtm aweb site with enterprise budgets for a large num-ber of crop and livestock enterprises The bud-gets at this web site use the term contributionmargin to describe gross profit These budgetsare separated into contribution margin and build-ings and machinery replacement costs (over-head) The budgets are laid out in an easy-to-read format with an overview preceding thetables Each enterprise budget contains market-ing alternatives cash flow timing and key fac-tors affecting profit with margin estimates al-ready calculated When calculating your cost ofproduction be sure to use reliable estimates foryour situation and include other costs that maynot be listed in the budget It is also useful toproject poor average and good production sce-narios for each enterprise If you cannot be prof-itable with poor production consider anotherenterprise

EXPERIENCE AND INFORMATION

The most salient requirement for farming is ex-perience (Nation 1998) Practical experience isparticularly important for a new enterprise es-pecially if the enterprise is not related to whatyou normally do You can gain a lot of the nec-essary knowledge from people who are currentlydoing what you are considering Apprenticingwith someone who is already farming or just vol-unteering some time is a good way to get expe-rience (See ATTRAs resource list SustainableFarming Internships and Appenticeships for moreinformation on experiential farm work across thecountry) Also start out small with your ownenterprise until you learn the basics StockmanGrass Farmer editor Allan Nation (1997) suggeststhese four stages when considering a new enter-prise

1 Get the knowledge you needto produce and market the product

2 Produce it for yourself and yourfamily

3 Produce it for your friends who havetried it like it and ask you for it

4 Do it as a business

Although this approach may seem slow it willgo faster and require a lot less startup investmentthan jumping in and trying to learn as you go

Gathering information on specific enterprises isalso an important step when considering diver-sification Your local Cooperative Extension Ser-vice and other USDA agencies can provide fun-damental information about some alternativesas can non-profit organizations in your state Youcan also contact Extension specialists at yourstates land-grant university Other sources ofinformation include websites and publications(books magazines and newsletters) The re-source list at the end of this publication also pro-vides helpful information

Often however even though there is productioninformation for a specific crop there is little in-formation available on budgets or markets Yourbest resource in a situation like this will prob-

EVALUATING A RURAL ENTERPRISE PAGE 5

ably be a farmer who is already raising or some-one who is already buying the crop or a similarcrop A good way to find farmers is to attendstate or regional workshops or conferences thatare in some way related to your area of interestExtension puts on workshops throughout theyear that provide an opportunity to network withyour fellow growers The approach to findingbuyers would be similar For instance if youare interested in adding cut flowers to yourfarms mix you might attend a statewide con-ference for florists

MARKETING

Author and business consultant Peter Druckersays that only two activities produce results Oneis innovation and the other is marketing (Na-tion 1997) Marketing may take many formsranging from passive marketing into the com-modity chain all the way up to marketing a re-tail product directly to consumers Which mar-keting method you choose will have a profoundeffect on the price your product commandsPrices in many prepared budgets will typicallybe wholesale prices Adjust these prices to yourlocal market (retail or wholesale) based on whatyou can realistically expect to get paid Visit withother farmers in your area who are selling thesame thing you want to sell or go to the localfarmers market and check out prices

There are two important reasons for doing mar-ket research You need to understand your market your

competition and consumer trends You need to be able to project potential sales

volume and prices (Grudens-Schuck andGreen 1991)

The Cornell Farming Alternatives guide men-tioned earlier has marketing worksheets that ad-dress the following considerations

Target Market DescriptionsThe demographics of people you want tosell to (age gender family status incomelevel class occupation children maritalstatus location ethnic group education)

Marketing OptionsThese include any method used to sellor distribute your product (Grudens-Schuck and Green 1991) Examples areselling directly to consumers from thefarm farmers markets selling directly torestaurants cooperative marketing sell-ing wholesale to a distributor broker orprocessor etc Identify your most promis-ing options Also consider transportationneeds and distances to market

Market EntryHow will you introduce the product tothe market Will it be marketed underthe producers or processors nameWhat will get the buyers attention (ad-vertising and promotion) (Schermerhorn)

Existing Market DemandHow many potential buyers are includedin your target market at this time Whatis the average purchase or frequency ofservice per buyer per year What are thetotal purchases or number of services peryear

CompetitionAnalyze your competition businessname estimated sales volume qualityof product price customer satisfactionappearance type of buyer targetedstrengths weaknesses Direct competi-tion offers the same product you do in-direct competition is anything your tar-get market can substitute for your pro-duct Remember alliances can be formedwith competitors

Market TrendsHas consumption been increasing Is thenumber of competitors increasing Whatare your projections for market trends inthe next five to ten years What are theindustry trends and emerging markets

Expected PriceThere are many formulas and strategiesfor setting prices What is the lowest priceyou can expect to receive What is the

EVALUATING A RURAL ENTERPRISEPAGE 6

highest price Ultimately pricing willreflect your competition costs of produc-tion quality service the convience youprovide and the types of buyers you havetargeted

Expected Sales VolumeWhat is the least number of units youmight sell in a bad year How many in agood year What is the expected salesvolume How long will it take to buildthe market to your desired sales volume

Direct marketing involves personally connectingwith consumers determining what they want orneed and producing the products that meet theirneeds Author Joel Salatin who raises pasturedbeef and poultry in Virginia suggests severalthings to think about when deciding on pricingyour products First dont underprice themFarm-produced products are superior becausethey are more environmentally friendly and hu-manely produced Salatin suggests that produc-ers set a rewarding and satisfying gross marginand then stick to it This will allow you to builda customer base with clients who appreciate theproduct for what it is not for what it costs(Salatin 1998) Your estimated price can be usedto calculate returns in any enterprise analysis

Direct marketing depends on building relation-ships with customers In fact the term relation-ship marketing has been used to describe the bestmethods of direct marketing for family farms Inan article in The Stockman Grass Farmer (Nation1997) Joel Salatin sets out five advantages of re-lationship marketing They are

Consumer Education The producer has to tellthe consumers why his farm products are differ-ent from those bought in the grocery stores Thisis not only good for business it is also a smallstep toward the development of the consumersawareness about farm social and health issuesthat affect our lives

Product Quality When the producer raises cropsor livestock in an environmentally friendly orsustainable fashion it is easier not to compro-mise the quality of the products

Customer Loyalty When the consumer knowsthe producer personally the relationship be-tween them is not easily broken Good sellersknow and use their customers names Loy-alty helps bring in repeat customers

Lifestyle As Salatin explains I think one ofthe biggest differences between the pressuresI encounter as a small operator and the pres-sures encountered by the big operators is theamount of control we have over the situationsthat cause pressure (Nation 1997)

Balance The first rule of business is that thecustomer is always right but that doesnt al-ways mean you have the right customer Insome instances removing a name from yourcustomer list may help to balance the pro-ducerconsumer relationship so that you canconcentrate on profitable sales appreciativecustomers people who get with the program(Nation 1997)

Allan Nation says If you are considering get-ting into direct marketing dont bet the farmon it Keep doing what you are doing for aliving and start learning and experimenting ona small scale Try the food you produce on yourfamily and your friends first If your familyand friends are not crazy about it there is morelearning to be done Nation adds that A newbusiness needs virtually 100 customer satis-faction from day one to survive (Salatin 1998)

So the bottom line is to establish markets beforeyou begin the enterprise If you are direct mar-keting consider these questions before start-ing production What do the people in my areawant What are their tastes Are they accus-tomed to store bought eggs meat and veg-etables What matters most to people in mylocal areaconvenience and price Are theywilling to pay for the quality and freshness oflocally grown food

For more complete information on direct mar-keting call and request the three ATTRA pub-lications entitled Direct Marketing FarmersMarkets and CSAs The direct marketing pub-lication includes information about resources

EVALUATING A RURAL ENTERPRISEPAGE 6

highest price Ultimately pricing willreflect your competition costs of produc-tion quality service the convience youprovide and the types of buyers you havetargeted

Expected Sales VolumeWhat is the least number of units youmight sell in a bad year How many in agood year What is the expected salesvolume How long will it take to buildthe market to your desired sales volume

Direct marketing involves personally connectingwith consumers determining what they want orneed and producing the products that meet theirneeds Author Joel Salatin who raises pasturedbeef and poultry in Virginia suggests severalthings to think about when deciding on pricingyour products First dont underprice themFarm-produced products are superior becausethey are more environmentally friendly and hu-manely produced Salatin suggests that produc-ers set a rewarding and satisfying gross marginand then stick to it This will allow you to builda customer base with clients who appreciate theproduct for what it is not for what it costs(Salatin 1998) Your estimated price can be usedto calculate returns in any enterprise analysis

Direct marketing depends on building relation-ships with customers In fact the term relation-ship marketing has been used to describe the bestmethods of direct marketing for family farms Inan article in The Stockman Grass Farmer (Nation1997) Joel Salatin sets out five advantages of re-lationship marketing They are

Consumer Education The producer has to tellthe consumers why his farm products are differ-ent from those bought in the grocery stores Thisis not only good for business it is also a smallstep toward the development of the consumersawareness about farm social and health issuesthat affect our lives

Product Quality When the producer raises cropsor livestock in an environmentally friendly orsustainable fashion it is easier not to compro-mise the quality of the products

Customer Loyalty When the consumer knowsthe producer personally the relationship be-tween them is not easily broken Good sellersknow and use their customers names Loy-alty helps bring in repeat customers

Lifestyle As Salatin explains I think one ofthe biggest differences between the pressuresI encounter as a small operator and the pres-sures encountered by the big operators is theamount of control we have over the situationsthat cause pressure (Nation 1997)

Balance The first rule of business is that thecustomer is always right but that doesnt al-ways mean you have the right customer Insome instances removing a name from yourcustomer list may help to balance the pro-ducerconsumer relationship so that you canconcentrate on profitable sales appreciativecustomers people who get with the program(Nation 1997)

Allan Nation says If you are considering get-ting into direct marketing dont bet the farmon it Keep doing what you are doing for aliving and start learning and experimenting ona small scale Try the food you produce on yourfamily and your friends first If your familyand friends are not crazy about it there is morelearning to be done Nation adds that A newbusiness needs virtually 100 customer satis-faction from day one to survive (Salatin 1998)

So the bottom line is to establish markets beforeyou begin the enterprise If you are direct mar-keting consider these questions before start-ing production What do the people in my areawant What are their tastes Are they accus-tomed to store bought eggs meat and veg-etables What matters most to people in mylocal areaconvenience and price Are theywilling to pay for the quality and freshness oflocally grown food

For more complete information on direct mar-keting call and request the three ATTRA pub-lications entitled Direct Marketing FarmersMarkets and CSAs The direct marketing pub-lication includes information about resources

EVALUATING A RURAL ENTERPRISE PAGE 7

market development market research market-ing plans niche marketing product differentia-tion farmers markets value-added marketingand examples of real farmers who have done itIt also provides a list of recommended resourcesto consult when considering your market plan

CHOOSING AN ALTERNATIVE ENTERPRISE

There are many kinds of enterprises that can beprofitable in a rural area Ken Scharaboks book(see Resources) describes 300 specific rural en-terprises Cornell Universitys publication Farm-ing Alternatives lists several broad categories

1 Nontraditional crops livestock andother farm products

2 Service recreation tourism foodprocessing forestwoodlot and otherenterprises based on farm and naturalresources

3 Unconventional production sys-tems such as organic farming andaquaculture

4 Direct marketing and other entre-preneurial marketing strategies

When considering alternative enterprises youshould look first at your farms underutilizedresources and your areas market opportunitiesUnderutilized resources might include unusedbuildings or manure that could be sold as fertil-izer New market opportunities may arise as aresult of changing demographics in your areathere may be an increase in immigrant familieswho want specialty foods or of affluentbusinesspeople who commute to a metropolitanarea (Grudens-Schuck and Green 1991)

One very important change in national demo-graphics is the number of people who have be-come dissociated from the land Few of the babyboomer generation and almost none of Genera-tion X have lived on and worked the land In aneffort to re-establish that bond young consum-ers are often eager to support small farms andtheyre willing to put their money where theirmouth is The huge increase in the number offarmers markets around the country not onlymeans that consumers are interested in fresh pro-

duce it also reflects their desire to have a differ-ent kind of food shopping experience For simi-lar reasons community supported agriculture ar-rangements (CSAs) have become popular Bothfarmers markets and CSAs bring shoppers closerto farmers and to the land an experience that islargely lacking in todays urban society An ex-tension of these encounters is a farm visitwhether its for a hay ride to go to a petting zooor to attend an apple festival Consumers like tofeel that they are helping to keep small familyfarms alive This kind of experience requiresfarmers to learn new skills how to deal with thepublic the ability to assess unique opportunitieson the farm and the vision to produce a feelingas well as a product

In his 1998 book You Can Farm Joel Salatin rec-ommends ten enterprises that he considers ex-cellent pastured poultry eggs salad bar beef agrass-based dairy a market garden a home bak-ery a bandsaw mill and a you-pick small fruitorchard His criteria for recommending theseenterprises are

Low initial start-up cost relative to the abil-ity to generate income

High gross profit margin Relatively low maintenance requirements High cash flow relative to expenses History of high success rates among new en-

terprises High demand low supply in the current mar-

ketplace High product distinctiveness Relatively size-neutral profit potential

The goal here is to examine what the profitablealternatives are in the current paradigm and howyou can fit in the picture (Salatin 1998)

There are lots of places to find out more aboutspecific enterprises The Missouri AlternativesCenters website provides many links to specificproduction information for various alternativeenterprises This website is extensive and up-to-date lthttpagebbmissouriedumacgt Ad-ditionally we have listed many valuable re-sources below

EVALUATING A RURAL ENTERPRISEPAGE 8

REFERENCES

Grudens-Schuck Nancy and Judy Green 1991Farming Alternatives A Guide to Evaluatingthe Feasibility of New Farm-Based EnterprisesNortheast Regional Agricultural EngineeringService Cornell University Ithaca NY 88 p

Kay RE and WM Edwards 1994 Farmmanagement 3rd edition McGraw Hill IncNew York NY 458 p

Nation Allan 1998 Allans ObservationsStockman Grass Farmer Vol 56 No 6 p 13

Nation Allan 1997 Paddock Shift GreenPark Press division of Valley PublishingCorp Jackson MS 184 p

Salatin Joel 1998 You Can Farm PolyfaceInc Swoope VA 480 p

Savory Allan and Jody Butterfield 1999Holistic Management A New Framework forDecision Making Island Press WashingtonDC 550 p

Schermerhorn Richard W No date Is YourAgribusiness Project Feasible University ofGeorgia Cooperative Extension lthttpwwwcesugaedupubcdb1066-whtmlgt

Zimmerman K and E Villanueva 2001Fresh sweet corn direct marketed (FraserValley) Planning for Profit British ColumbiaMinistry of Agriculture Food and Fisheries 8 p

RESOURCES

Publications and Videos

Salatin Joel 1998 You Can Farm TheEntrepreneurs Guide to Start and Succeed in aFarm Enterprise Polyface Swoope VA 480 p

Perhaps the best single resource for beginningfarmers this book also provides good informationon enterprise differentiation and evaluation

Available for $30 from the author at

Polyface IncRt 1 Box 281Swoope VA 24479540-885-3590

The book is also available for $2450 fromhttpwwwamazoncom

Grudens-Shuck N and J Green 1991 FarmingAlternatives A Guide to Evaluating the Feasi-bility of New Farm Based Enterprises Farm-ing Alternatives Program Cornell UniversityIthaca NY 88 p

This publication uses a step-by-step process toassess goals resources markets etc Includesworksheets Available for $8 from

Media Services Resource Center7 Business amp Technology ParkCornell UniversityIthaca NY 14850607-255-2080FAX 607-255-9946httpwwwcornelledupublicationscataloghtml

Farming Alternatives Innovation on NortheastFarms A 14-minute video produced in 1988

Explores the issues involved in the developmentof farm-based enterprises such as deer farms farmmarkets bed and breakfast inns herb gardens petting zoos and farm-processed foods Availablefor $1895 from the Cornell address above

Woods Tom and Steve Isaacs 2000 A Primerfor Selecting New Enterprises for Your FarmCooperative Extension Service University ofKentucky Agricultural Economics - ExtensionNo 00-13 28 p

Covers profitability resources information mar-keting enthusiasm and risk Has many usefulworksheets from which accurate information canbe generated to guide your decision makingAvailable online athttpwwwukyeduAgAgEconpubli-cationsext2000-13pdf

Scharabok Ken 1996 How to Earn Extra Moneyin the Country A Country Living ResourcesGuide

EVALUATING A RURAL ENTERPRISE PAGE 9

Contains over 300 descriptions of enterprises thatcan be pursued by rural residents Each descrip-tion contains information on what the marketwould be how to start the business and additionalresources on that particular business Containsmany innovative business ideas Available inelectronic form only by e-mailingltscharaboaolcomgt

Humphrey Shirley (ed) 1994 Small FarmHandbook Publication SFP001 Small Farm Pro-gram University of California 170 p

Somewhat regionally specific to California butcontains good information on finances market-ing enterprise ideas growing crops raising ani-mals postharvest handling alternative agricul-ture labor management and keeping the familyfarm healthy Available for $20 from

Division of Agriculture andNatural Resources (DANR)University of California6701 San Pablo AveOakland CA 94608-1239800-994-8849510-642-2431

Small Farm Center 1998 Specialty and MinorCrops Handbook 2nd ed University of Califor-nia Division of Agriculture and Natural Re-sources Oakland CA 184 p

Compiled and edited by scientists University ofCalifornia Cooperative Extension advisors andgrowers this handbook profiles 63 specialty andminor crops including information on produc-tion and marketing Available for $35 fromDANR at the University of California (see ad-dress above)

Thompson Nancy C 1994 Sustainable Agri-culture Enterprises Opportunities for Employ-ment and Economic Development in a Sustain-able Agriculture System 21 p

Available for $8 ppd from

Center for Rural AffairsPO Box 406Walthill NE 68067402-846-5428httpwwwcfraorg

Olson Michael 1991 Metro Farm The Guideto Growing for Big Profit on a Small Parcel ofLand TS Books Santa Cruz CA 520 p

Contains information on marketing selectingcrops organizing a business selling and produc-tion Available for $2995 plus $5 SampH from

Schatz Publishing Group11950 W Highland AveBlackwell OK 74631888-474-6397 (toll-free)httpwwwagventurescom

Savory Allan and Jody Butterfield 1998 Ho-listic Management A New Framework for De-cision Making Island Press Washington DC550 p

Provides valuable information for goal setting fi-nancial planning and farming in tune withnatures principles Available for $30 (softcover)or $50 (hardcover) from

The Allan Savory Center for HolisticManagement1010 Tijeras NWAlbuquerque NM 87102505-842-5252505-843-7900 faxhttpwwwholisticmanagementorg

Periodicals

AgVentures The Magazine of Agricultural Op-portunities is published bi-monthly It featuresnew and unusual crops and livestock to raise Itis available for $21year from

AgVentures11950 W Highland AveBlackwell OK 74631580-628-4551580-628-2011 faxhttpwwwagventurescome-mail agventuresaolcom

Ag Opportunities is a newsletter published bythe Missouri Alternatives Center (MAC) that isdevoted to the latest ideas and opportunities forthose who want to begin farming diversify theircurrent operations or find ways to profit from

EVALUATING A RURAL ENTERPRISEPAGE 10

small amounts of acreage Subscriptions cost$10 a year (free to Missouri residents) An on-line version is available free at MACs websitelt httpagebbmissouriedumacgt ContactMAC at

Missouri Alternatives Center531 Clark HallColumbia MO 65211573-882-1905800-433-3704 (MO only)httpagebbmissouriedumace-mail kelldumsystemedu

Small Farm Today published bi-monthly fo-cuses on small farming rural livingsustainability community and agripreneurshipThe editor and staff hold an annual conferencein Columbia Missouri (around the first week ofNovember) that concentrates on topics of con-cern to small farmers considering diversificationstrategies The periodicial is available for $2395year from

Small Farm Today3903 W Ridge Trail RdClark MO 65243-9525800-633-2535573-687-3525e-mail smallfarmsocketnet

Organizations

Center for Rural AffairsPO Box 406Walthill NE 68067402-846-5428httpwwwcfraorg

The Center for Rural Affairs a non-profit or-ganization publishes The Beginning Farmera free quarterly newsletter They also pub-lished a 118-page book entitled ResourcefulFarming A Primer for Family Farmers writ-ten in 1987 available for $7

Community Food and Agricultural Program (CFAP)216 Warren HallCornell UniversityIthaca NY 14853607-255-9832httpwwwCFAPorg

The mission of CFAP is to support Agricultureand Food Systems-based Community Develop-ment in New York and the Northeast throughintegrated and multi-disciplinary teachingresearch and extension programs

NxLevels Alternative Agriculture series Till-ing the Soil of OpportunityA Training Course(No physical address)e-mail Infonxlevelorg800-873-9378

The NxLevel agriculture program is designed tohelp a broad range of small to mid-sized farmersranchers food processors distributors retailersfood professionals and others working in the agri-cultural sector take their business to the nextlevel Educators in each region adapt the courseto meet local needs The materials used in the 10-session course are specifically designed for thosesearching for innovative ideas and better market-ing opportunities in the area of agriculture

Web Sites

Fact Sheets on Operating a Profitable SmallFarm University of Marylandhttpwwwagnrumdeduusersfrederickpubs

Planning for Profit British Columbia Ministryof Agriculture Fisheries and FoodNumerous two page enterprise budgetshttpwwwfbminetcabcbudgethtm

Alternative Enterprises for Your Forest LandForest Grazing Christmas Trees HuntingLeases Pine Straw Fee Fishing and FirewoodThis is a 1988 publication from the University ofFlorida Extension ServicehttpwwwsfrcufleduExtensionpubtxtcir810htm

Missouri Alternatives Center Links to specificproduction information for numerous alternative en-terpriseshttpagebbmissouriedumac

EVALUATING A RURAL ENTERPRISE PAGE 11

Enterprise Budget Analysis Penn States Agri-culture Alternatives websiteSample formats are givenhttppubscaspsueduFreePubsua258html

Economic Analysis of a New BusinessDoingit Right Kansas State University CooperativeExtension Servicehttpwwwoznetksuedulibraryagec2MF2184PDF

By Preston Sullivan and Lane GreerNCAT Agriculture Specialists

Edited by Paul Williams and Richard EarlesFormatted by Cynthia Arnold 062305

The electronic version of Evaluating a RuralEnterprise is located atHTMLhttpwwwattrancatorgattra-pubevalruralhtmlPDFhttpwwwattrancatorgattra-pubPDFevalruralpdf

EVALUATING A RURAL ENTERPRISEPAGE 12