| | When it comes to evaluating options for diversifying farming operations, Alberta farmers must deal with a number of questions. Many farmers are looking for the perfect solution to apply to their situation that will bring immediate profitability. The search for "what" to produce has led many farmers to experiment with a variety of different crops, livestock or value-added products with varying degrees of success. Rather than focusing on "what" to produce more emphasis should perhaps be placed on "how" to select the right enterprise.
"Every farm family situation is different and there is no "one size fits all" solution," says Janice McGregor, new venture business specialist with Alberta Agriculture, Food and Rural Development, Stony Plain. "The first factor to consider is profitability. Evaluate whether the enterprise being considered has the potential to deliver enough revenue relative to the investment required."
Many entrepreneurs tend to be overly optimistic about potential returns. It is wise to develop three scenarios including best and worst cases and somewhere in between. Plan for eventualities such as lower than expected sales of products, adverse weather, unexpected labour or equipment costs, and regulatory issues that can prohibit development.
Some agricultural enterprises have short production cycles; others may require months or years to achieve profitability. Significant cash outlays in the initial establishment phase, without realizing immediate returns, can also put pressure on other areas of the business.
"It is helpful to identify a competitive advantage when weighing the alternatives of choosing one enterprise over another," says McGregor. "If a farm retail store or a u-pick operation is being considered, location will play a role. If the farm is located miles from a paved road or a potential client base near a large city or town, the operation may not attract enough customers to make that option a wise choice. However, if there is access to a good water supply, adequate labour is available and the operation is located right down the road from a large city or on the road to a busy lake, some type of farm retail or agri-tourism opportunity might be something to look at."
A brand new enterprise may require investment in machinery, buildings or land. Labour and management requirements will be different for the new enterprise, and may put a strain on existing enterprises. The best resource situation for a new or expanded enterprise is when existing resources can be used or adapted, or when the new enterprise is complementary to the present development and activities being carried out.
"Managerial ability in creating and operating a new enterprise may be vastly different from the skills presently needed in running the current business," says McGregor. "Agri-preneurs need to ask themselves whether they have the time and interest in developing the necessary skills, and how they would go about acquiring them. It usually takes some time to develop the management expertise necessary to bring an enterprise to its potential profit level."
The more unusual the enterprise being considered, the less likely that conventional sources of information will be available to help make sound technical or economic decisions. A web search will often yield a surprising amount of information and can provide a good place to start when considering business options.
"Other up-front investigation and research can include visiting similar operations in Alberta or other provinces to see how they operate, joining local associations, attending workshops or trade shows, subscribing to trade publications, and, asking lots of questions," says McGregor. "There will likely be a mountain of potentially useful information to sift through. The time spent at the out-set can be very beneficial steering new agri-preneurs toward better decisions about which option to choose."
Contact: Janice McGregor (780) 968-3553 |
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