Introduction – Risk
Few businesses deal with as much risk as production agriculture. Farmers, and ag related enterprises – the processors, shippers, dealers and retailers, that support them, all deal with production challenges every season. Agriculture deals with such a multitude of factors that it almost becomes a revolving door of what will happen next. Weather of course plays a big role in the output of growing crops. Too much moisture, too little moisture, cold or hot temperatures or high wind can wreak havoc on production. Adding to this mixture of events is insects, disease and soil fertility. Not only is production not assured, the prices received often ebb and flow with worldwide supply and demand.
As mentioned a business plan is about the analysis of the operation to drive out or minimize as much risk as possible. Because ag related enterprises at all levels are subject to so many variables this makes them inherently risky by their very nature. To minimize the risk of an ag related business you can take several measures that lessen your exposure to adverse events.
Diversify: Enterprises that concentrate on only one segment of the market with only one product or service face the greatest risk. Growing or processing more than one crop each season minimizes the fluctuations that often happen from year to year. Keep your options open to sell to different users or processors. Develop different uses for low priced crops and find ways to enter into new markets.
Modify Production: Crops tend to be grown, harvested and processes in traditional ways. You may find that a change in how things are done is a valuable alternative to the standard practices. You can irrigate if that isn’t being done. Take on additional production operations in areas several miles away. While the travel is greater, often the factors that affect production in one area are less in another.
Utilize labor: Labor whether permanent or seasonal is a significant cost to most operations. Finding ways to utilize the available labor during slower times of the year can spread the cost to different production units. Employees can also be trained to process different products or to operate different pieces of equipment. This makes the transition from one process to another less bothersome.
Expand: One of the greatest challenges in any operation is to match the right equipment to the correct job. In agriculture as in many other production operations sometimes the larger machines are more efficient. Taking on additional production units or additional acres can make sense if the equipment can realistically lower the overall cost of production. Expansion often comes in huge chunks and may require additional financial resources. Expansion only makes sense when the added capacity can be utilized to its fullest potential.