Taking a calculated risk
One of the fears that earlier generations of farmers and ranchers faced was the inability to accurately measure the potential costs and benefits of diversification before diving in. Today, a variety of tools and resources are available to help weigh the pros and cons of making changes to the business.
Apps can provide data from detectors in equipment to measure soil moisture levels, environmental conditions in animal habitats, and more up-to-date, region-specific data from reliable sources.
• React quickly to changes in their current conditions. For example, a detector in an irrigator identifies areas that are drier or wetter than others in the field, automatically adjusting the water flow to match the need.
• Adjust market plans based on anticipated yield and market demand. With accurate and timely estimates of potential margin for your cattle, you can make informed decisions about how many and/or when they go to market.
• Better identify and mitigate risk in a planned scenario. Suppose you are anticipating adding a new revenue stream, such as another type of row crop or livestock, to your current operations. In that case, AI can help you measure potential risks in areas like pests, disease, soil health, or weed management.
“Taking advantage of the available data and technology resources is one way you can help reduce the risk in diversifying your farm or ranch operations,” says Aaron Miller. “New software and technology can also support enhanced ways to interact with new or existing audiences. For example, purchases through your website or a self-checkout for a ‘pick-your-own’ with a credit card processor.”
One step at a time
In addition to using available resources, consider testing the waters with a focused, small rollout. Initially, you want to invest a minimum amount of time and dollars and make a profit without risking your primary business:
• Look to sell your current products packaged differently for a new audience. Focus on just one product offering or audience, such as a creative corn grower did one season when he decided to sell bags of corn prepped for hunters through small retailers.
• Plan to plant a small field or raise a limited number of an alternative breed of livestock. It can be tempting to go full force into a new endeavor that looks like it has potential, but until you see what it takes to produce successfully that first season/growth cycle, you won’t really know if this will work.
• Reach out to audiences (consumers and/or businesses) that are not necessarily local. Typically, most agricultural areas have “specialties” based on the natural resources of the region, including the weather, soil, etc. Many of your neighbors are producing similar products to the ones you produce. Look to sell to other locations in your state, region, and/or country. Do your research and look at regions where what you have to offer is less available than it may be closer to home.
• Use no- or low-cost ways to market your new offering. Using online resources, such as social media, can help you target your potential customers and introduce them to what you have to offer.
• Create new “products” from a commodity. “Corn is corn. Whether used in livestock feed, human food, ethanol, or bourbon, it’s all #2 yellow corn. A farmer took some of his corn and installed a “vending machine” for corn. This device allowed for drive-up, credit/debit card-only payment options, providing patrons with easy access 24 hours a day. Some of the target audience included hunters who could go by on their way home from work to grab a bucket (or truck full) of corn for deer hunting,” says Aaron.
• Create new audiences. One of our customers decided to try a direct-to-consume model for their beef. He took a small segment of his herd and sold it directly to consumers, bypassing the usual marketing channel.
• Work closely with your trusted advisors to assess the opportunity. It’s always good to have your trusted advisors weigh in on business plans. They can be the fresh eyes and informed business minds that can give you recommendations as you look to take on new challenges.
Once your first season of selling your new offering is underway and you can start measuring the results, you can determine if it makes sense to:
• Take the next step to grow this new sector and/or add a new one on top of what you’ve already done.
• Keep “as is” in size and scope for another round, or,
• Wrap it up, considering it a lesson well learned – and look for an alternative revenue stream to test.
Next steps: If you are a farmer or rancher considering diversifying your agricultural offerings, take your ideas and talk to your advisors. They can help you research and build an approach that will not only help you grow your business but also reduce risk. If technology has not been a key factor in your work, consider adding an advisor to your team that can help you evaluate and innovate new approaches. Lenders like to hear that business owners like yourself are thinking ahead and looking for ways to grow while reducing the inherent risks of having all your eggs in one basket. Aaron recommends you “leverage the relationship with lenders to help you put the financial plans in place to take action and diversify.”
Aaron Miller is a Loan Officer at First Financial Bank
