Alternative Enterprises:Opportunities, Challenges, and Resources

2002 Rental survey

%

Deer hunting 10.3

Quail hunting 6

Turkey hunting 6

Dove hunting 3

Waterfowl hunting

3.5

Fishing 2.5

Camping 0.8

Hiking 0.2

Bird watching 0.3

Alternative ag products Tree fruits and pecans Small fruits, vegetables Greenhouse and nursery stock, turf Christmas trees Recreational farm enterprises, hunting and fishing

leases Aquaculture, goats, other small animals Mungbeans, sunflowers, popcorn Native or improved grasses grown for seed

production

Alternatives (continued)

Niche marketsUnique products with specific attributes

Value-addedEnterprises that are different to youNew ways of doing “old” things

Free range chickensCorn mazes

Good judgment comes from a lot of experience and a lot of that comes from bad judgment.

Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

Personal Considerations

Your investment goalsTime availableKnowledge and interestAvailable fundsAbility to handle a lossPresent financial situationRisk tolerance

What are your goals?

Business vs. personalShort run vs. long run

Goal Setting for Farm/Ranch Families:

http://pods.dasnr.okstate.edu/docushare/dsweb/Get/Document-1674/AGEC-244web.pdf

Do you have the resources? What is needed?

Land Labor Management Capital, equipment, buildings Time Entrepreneurial skill

Where can I attain these resources? If I purchase new capital, will it be useful in another

enterprise? What is the seasonality of labor required?

Resources

Use those resources to which you already have access

Lending institutions for capital needsUse of budgets previously mentioned will be

very helpful from lender’s viewpoint

Land

Is the soil type correct?Is irrigation required?Is the land located close enough to

market?

Labor

Fruit & vegetable crops are labor intensive Is there enough trained hired labor available

when you need it?Are they employees or contract labor?

Capital

Can you finance the enterprise yourself?

Is the banker aware of what you are doing?

How much of an operating loan will be required before the product is sold?

Management

Do you have the necessary skills to manage this operation?

You may be good at running a cattle operation, but poor at running a vineyard.

Time

Many alternative enterprises are time hogs.Easy to spin your wheels when you aren’t

sure what you should be doing.Are you already fully employed when this

enterprise needs your full attention?

Evaluation Is it technically feasible? Is it economically feasible?Are your management skills sufficient?Can you get the needed financing?Do I have the time? Is there a market available?Can you stand the risks?What are the infrastructure needs?Does this match with your personal interests?

MarketingWhere can you sell your product?How can you effectively advertise?How much product loss will you have? Is the product already oversold in your

area?How do you set the price?

Should be the first step, not the last!

PRIMER for evaluating enterprises: Profitability Resources Information Marketing Enthusiasm Risk

www.uky.edu/Ag/AgEcon/extpubs, Series Number 2000-13

Profitability and feasibility

Will it cash flow?What will be my total cost and returns in an

average year?At what price will this enterprise become

unprofitable?What will be my return on my assets?How long will it take for this project to pay for

itself?

Profitability and feasibility

Business planning Enterprise budgeting Cash-flow budgeting Partial budgetingSensitivity analysis Investment analysis

Business Planning Internet Resources

InformationWho can provide information on the

enterprise?What will be the costs associated with

obtaining this information?Will the information be reliable?Are there any trade organizations, producer

groups, or publications already established in this area?

Information sources University/Extension Specialists Oklahoma Food and Ag Products Center Oklahoma Department of Agriculture Oklahoma Department of Commerce Oklahoma Department of Health Career Tech Small Business Administration Small Business Development Centers SCORE Trade/Industry Associations Publications and World Wide Web Private sector, other similar businesses

Organizing information

Identify specific objectives Prioritize objectives

Chronological Urgency

Good news Tons of information and help available

Bad news Tons of information available Not much is specific to your needs

Never ask a barber if he thinks you need a haircut.

Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

Marketing

Where will I sell my product? What is the demand for it? Are there seasonal or cyclical factors? What kind of price will I receive and how much

influence can I have on that? Can I enter into any contractual agreements? Are there form, quality or grade standards? How can I differentiate my product? Are there any barriers to entry?

Market Structure

Determine the number of competitors you face.

Determine the size that will keep you competitive.

Determine the geographic effect on business.For niche markets, estimate the “thinness” of

the market.

Product Differentiation

Determine how you can produce something different than competitors

Provide services that competitors do not

Enthusiasm

Why should I get into this enterprise?What are my goals for this endeavor?Why would I get out of this project?Am I letting enthusiasm play a larger role

than it should in my decision-making?Will this be something that will provide a

good experience for a family?

Over-enthusiasm

Make sure you will like what you will be doing.

More likely to manage successfully if you do.Do not let emotion play a larger role than it

should in evaluating alternative enterprises.

Solvin’ problems is like throwin’ cattle. Dig your heels in on the big ones and catch the little ones ‘round the neck.

Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

Risk

What are my ProductionMarketFinancialLegalSafety risks?

How can I offset some of these risks?Am I a risk taker… or avoider?

Risk/Return Tradeoffs

7 % rate of return

10-15% rate of return

20-25% rate of returnHigh

Risk

Low

Time

Lower rate of return. Lower volatility.

Higher rate of return. Greater volatility.

Risk Responses Financial responses among most important

Managing leverage and liquidity Production responses most common

Diversification very popular Insurance

Market responses can be technical Contracting Pricing strategies Advertising strategies

When you’re tryin’ somethin’ new, the fewer people who know about it, the better.

Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

10 Steps to Investment Failure1. Procrastination2. No specific goals3. No plan4. Lack of commitment5. Lack of interest, knowledge6. Do not track financial position and performance7. Follow ill-advised tips8. Unfamiliar about tax laws9. Lacks diversification10. Expect to get rich quick

How to become a savvy investorRead, read, readStart simpleBe disciplinedMake some mistakes, but limit them to

amounts you can afford to loseGet help when you need it

Net Income ($/Cow)

$140

$38

($30)

($181)-$200

-$100

$0

$100

$200

Income Quartile

Dol

lars

Top 25% 2nd 25% 3rd 25% Low 25%

New ways of doing “old” things

The Solution

PRIMER method for selecting new enterprises for your farm:ProfitabilityResources InformationMarketingEnthusiasmRisk

Alternative Enterprises?

Non-traditionalRiskyLabor intensiveLow productionHigh cost

http://pearl.agcomm.okstate.edu/agecon/

Farm Management Goal Setting for Farm/Ranch Families Oklahoma Agricultural Linked Deposit Program Using Enterprise Budgets in Farm Financial Planning Developing a Cash Flow Plan IFMAPS: A Partner in Planning And more…!

Resources

Jayson Harper, Penn State University http://agalternatives.aers.psu.edu/

Alternative Farming Systems Information Center http://www.nal.usda.gov/afsic/

Alternative Crops and Enterprises for Small Farm Diversification http://www.nal.usda.gov/afsic/AFSIC_pubs/altlist.htm#list

Alternative Ag Enterprises, Texas A&M University http://aggie-horticulture.tamu.edu/alternatives/alternativelinks.htm

l Small Farms Alternative Enterprises, Univ. of Florida

http://smallfarms.ifas.ufl.edu/

The quickest way to double your money is to fold it over and put it back in your pocket.

Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

IFMAPS

A free, confidential service assisting Oklahoma farmers and ranchers with financial planning since 1985

Trained financial specialists work with families one-on-one to develop financial statements and evaluate alternative plans

1-800-522-3755

http://pearl.agcomm.okstate.edu/agecon/farm/AGEC-239.pdf