8 Things to Think About – Farm Diversification and Enterprise Analysis
Have you ever had a dream about adding of changing something on your farm, homestead, or business? Here’s what you need to consider.
Have you ever made a decision without making a budget first? Have you ever planted or grown or raised something without knowing who you were going to sell it to? Have you ever implemented a dream that went terribly wrong? Or a dream that went terribly right?
I’m guessing that you said “YES” to at least one of these things! When conversations about farm diversification come up, I always bring it back to our shared experiences…as dreamers, as doers, as innovators, as people who say “Well, that could have gone better”. Specifically, to take this hot topic and break it down, here are my 8 considerations that (I think) are universal in conversations about farm diversification.
- Farm diversification comes in many shapes and sizes. Farm diversification is the act of increasing the number of enterprises on your farm. In this case, enterprises is just a fancy word for “things to do or sell”. Farm diversification could be adding new products to sell, changing how you sell those products, and/or implementing new ways to make products. This is a great example of not putting all of your eggs in one basket (pun fully intended).
- Diversification reduces income variability. We all know that farming is act with a lot of inherent risk. Farm diversification can help reduce production risk on your farm in several ways. As you add and sell additional enterprises to your farm business, you can reduce cash variability. For example, let’s say you sell produce every summer at the farmers market. Your cash inflows are quite variable as you see a spike in the market season and little to no income the rest of the year. If you added selling eggs, for example, that’s a product that would be available to sell, and earn cash from, throughout the year. You also have the opportunity to spread fixed costs over more commodities – instead of that new tractor just plowing corn fields, it can also plow pumpkin fields. With farm diversification, you can additional utilize resources throughout the year and have a larger range of products to help increase market access.
- Increasing or changing enterprises is added risk. When considering adding any new farm enterprise, it’s important to consider the possible consequences to your business. A new venture is risky with typically high first year losses, particularly if it’s something that you’ll need to gain new skills to master. There’s also questions about market access if you’re new to the game and the longevity/sustainability of new ventures, especially if they’re jump on the bandwagon type crops (I’m looking at you goat yoga, hops, and hemp). Additionally, farm diversification can take you from specialized and efficient production (I only milk cows) to “mile-wide, inch deep” inefficiencies (I milk cows, grow pumpkins, process cheese, train oxen, harvest cut flowers, and go to farmers markets every week). None of these unintended consequences are deal breakers, but they’re all important considerations.
- Clarifying your farm goals will help determine viability. I haven’t met a farmer yet who got into the business of farming because they loved paperwork and planning. But, you should be sure that a new business venture fits into your farm’s business plan. Don’t have a business plan? No worries – we’ve got loads of resources to help you build one that will work for you! Having a business plan in place will help you to clarify your personal and farm goals to verify your new venture will fit in.
- Leverage existing resources before paying for new ones. Your farm is filled with resources, even if it sometimes feels like those resources are running thin. These can be categorized into physical, financial, and human resources. If you’re planning for a new venture that will require the purchase or addition of several new resources, you should first consider if your farm has any underutilized resources that already exist that could be the foundation for a different enterprise.
- Develop an enterprise budget to determine breakeven. Who doesn’t love budgets?! An enterprise budget is a slice of your whole farm budget pie. This looks at the incomes and expenses associated with a specific enterprise on the farm, taking into account variable and fixed costs. Having an enterprise budget (don’t worry – we have resources to put those together, too) will help you determine a breakeven price and the financial viability of a new venture.
- Identify your market, and its capacity, beforehand. Don’t do anything without knowing who you’re going to sell to. Don’t do anything without knowing who you’re going to sell to. Don’t do anything without knowing who you’re going to sell to. That’s a marketing plan in a nutshell. You shouldn’t start a new venture on your farm without first knowing where/who/what your market is and verifying that there’s room for you.
- Revisit, analyze, pivot, and improve. But also – have an exit plan. When you decide to embark on a new farm enterprise, be sure to hold yourself accountable for checking in on how things are going. Revisit your budget, your business plan, and your books often. Analyze if the new enterprise is serving you and your farm positively – have you seen an improvement in profitability? Cash flow? Is the new venture providing your farm with benefits that outweigh the cost and your time? If the answer to any of these questions is “no”, don’t be afraid to pivot! Schooch some things around, change markets or tactics, and see if you can make it improve. If you do these things without success, don’t be afraid to enact your exit plan and try something new.
For more information about farm diversification, contact Katelyn Walley-Stoll at 716-640-0522. This article was written as part of Cornell Cooperative Extension’s “Diversifying Your Dairy” initiative. This material is based upon work supported by USDA/NIFA under award number 2021-70027-34693.
This article originally appeared on the Cornell Cooperative Extension Southwest New York Dairy, Livestock & Field Crops Program website.