Producers should investigate if diversification will strengthen their overall operation
Successfully diversifying a farming operation requires much more than adding another enterprise to the existing business or expanding marketing strategies. Diversification works most effectively when producers start by developing a plan aimed at strengthening their operation overall. “Farmers and ranchers should try to strike a balance, and if they diversify, make sure it’s part of a strategic plan,” Courtney Bir, Ph.D., assistant professor in the Department of Agricultural Economics at Oklahoma State University, said.
An adage passed down through generations holds true when it comes to diversification in farming and ranching operations. “We have all heard the phrase, ‘Don’t put all of your eggs in one basket.’ This is specifically true for small and beginning farmers,” Dr. Bir shared. On the other hand, it is also easy to become stretched thin. So, finding a proper balance is key.
Diversification Strategies – Agricultural economists add many times diversification includes different strategies. One approach to broadening operations is incorporating multiple enterprises. One example of this diversification tactic would be producers who are already selling a product at a farmers market decide it is beneficial to add another product to their offerings. For instance, if they’re taking vegetables to sell at the farmers market now, then they expand their operation to sell vegetables and eggs.
Additionally, integrating new ventures within the business can take other avenues as well. “Diversification can also include selling animals at different stages of production,” Dr. Bir explained. “For example, a cow/calf operator may sell some calves at weaning, may background or precondition others, or even feed out some animals for direct-to-consumer sales.”
Evaluate Operation – Before producers start to mix things up agricultural economists recommend producers assess how much time they have to dedicate to a new part of an operation as well as evaluate their strengths and weaknesses. “For example, if someone is not a people person, and does not like interacting with consumers, direct-to-consumer sales may not be for them,” Dr. Bir stated. In addition, she advises producers to meet with their employees or other stakeholders to discuss potential diversification opportunities; keeping in mind there is no one-size-fits-all answer.
Create a Plan – Prior to making any changes to an operation, producers should document a complete plan. If producers take the time upfront to map out what they plan to do, then it can save them headaches in the future and, even more importantly, prevent financial loss.
When developing a plan producers need to make sure they consider not only additional supplies that may be needed, but also time and space requirements. According to Dr. Bir, the following are some questions producers may want to ask themselves if they are considering holding some calves longer for backgrounding or preconditioning. Do they have the dedicated space? Does the operation have the labor to care for the calves? Is the cost of feed and labor going to be worth the premium? Does the producer even have a potential buyer lined up? Taking the time to thoroughly evaluate all aspects of the diversification will benefit the producer in the long-term.
Lastly, producers pondering diversification strategies for their operation should keep in mind whether diversification is an economically advantageous move depends on both what producers are considering, and the market conditions.
“Coming up with a strategy and asking questions when needed may be a boring first step, but it is necessary,” Dr. Bir said.
