Agriculture enterprises range from the extensively well planned to the shoot-from-the-hip plan on the go business. In fact, while there are no real statistics to back this up, it wouldn’t surprise most in agriculture to estimate that probably ¾ of the farmers and Ag processors either do most of their planning at the last minute, or do the exact same thing from year to year. There actually is a pretty logical explanation for some of this. For many production enterprises (farmers and such) the planning may actually go on for months, but the decision waits until the last minute. Sometimes weather makes adjustments necessary, at other times prices influence the production schedule. Other issues can come to the forefront at influence the process. There are times when seed or fertilizer isn’t available, sometimes equipment can’t be made ready, and at other times money is tight and the decision is made because it is the least costly option. Making on-the-go decisions, last-minute decisions is never the best way to plan, but unfortunately sometimes that is the only option available.
Unfortunately when decisions have to be made quickly with less-than-perfect information the reader of your business plan will be concerned that there are increased odds that the wrong decision will be made. This then increases the risk of the plan and makes the outcome less certain. While this may be the nature of the business, that doesn’t give lenders or investors much consolation when reviewing your proposal.
All the forces of nature, price fluctuations and fickle consumer demand will always be a part of the agriculture enterprise, but with a little forethought and planning the manager of the program can take steps to mitigate the dangers.
1) Diversify – the old saying of “don’t put all your eggs in one basket”. For production operations this is pretty commonplace due to logical crop rotations and the division of labor. For Ag processors, this is an entirely different situation. They are often set up to function efficiently handling one type of crop or processing one style of vegetable. Some of these enterprises have specialized equipment that isn’t easily converted to another use. Yet, without some sort of diversification the risk of a low crop production year looms as a very high risk.
2) Mobile operations or flexible processing. Custom harvesters may carry different heads for different crops. Some facilities can be configured to handle different crops as they come in. Having flexibility or mobility built into the system offers the chance to capitalize on different products as the production changes.
3) Shared equipment, facilities or labor. Some operations have found that sharing equipment and/or labor to be a logical answer to expensive machines. Farming and processing equipment keeps getting bigger, but they can cover lots of acres in a day. When several operations share each can purchase percentage of the total and minimize the cost.
In conclusion the cost of producing and processing agriculture related products and getting them through the system to the end consumer is getting to be a more costly venture every year. Due to the nature of the business being flexible and willing to adapt is a common practice. Yet, just because there are a lot of variables doesn’t mean that good short-term and long-term planning isn’t necessary. It is especially important to consider the financial reserves needed to get all the way through to the point where the operation can get paid. This can sometimes be a whole year.