Introduction – Detail
Agriculture Business – Adding the Details
This outline is a blend of business and agriculture. Production agriculture, what we would typically call farming, is one aspect of it – from the farm to the consumer is another. In between the farmer and the consumer may be a number of steps. This can include cleaning, sorting, shipping, storage, grading, processing, packaging, and retailing. In this outline we refer to farmers, growers, and even fish producers as production agriculture. Every step from the farm to the end consumer is then grouped into descriptive names such as; ag business, agribusiness, or ag enterprises. It is difficult to consider each of the many diverse functions individually, so we lump them all together knowing full well that great differences abound.
Production agriculture people worry more about the weather, insects and price than things like consumer packaging and sales promotions. That’s because much of production agriculture has a ready established market for commodities such as corn, wheat, peanuts and cotton. Even products like fruits and vegetables have some established distribution outlets that the producer can sell to. Most farmers will not engage in the planting of a product unless there is a ready and willing market for the product at harvest time.
Ag processors on the other hand are required to deal the advertising and promotion of the product because of the changing demands of the consumer. They must consider things like market segment, industry trends, and fluctuating prices. Whether the business plan is for a production agriculture enterprise or a value added ag processing firm good business practices should be followed.
Agriculture enterprises have often been treated differently than manufacturing, sales, or services, but today we find that the simple self-sustaining family farm has for the most part been replaced by sophisticated enterprises that monitor worldwide supply and demand. These monster farms or multi-national agribusinesses are true corporations. Yet, many farm enterprises are still quite small. Some are sidelines or hobbies, some are small but utilize concentrated production techniques, and some are an alternative lifestyle. Whatever their size, in order to be successful in today’s economy these enterprises should adopt some modern business practices to be profitable.
This business plan layout targets the farm producers or agribusinesses that are smaller than the huge corporations, yet still provides an important income for the owner(s). Farms have traditionally used a cash basis for accounting and income tax. Many still do, so we have provided a spreadsheet that allows the enterprise to budget using a cash basis. We have also included a spreadsheet that is designed for a traditional business accrual accounting system. They are similar in many ways, but the cash basis spreadsheet does not use a Cost of Goods Sold based on an inventory system. Is the business plan different depending on how the accounting is done? Only slightly; both contain all the same categories and address the same issues. If a production ag enterprise uses a cash basis, products can be held over from one year to the next depending on the market and storage capacity. Thus, expenses and income may not match in the same year. For people using accrual accounting this seems like an odd way to do it, but it is traditional in production ag.