Evaluating a Farming Enterprise

By Preston Sullivan, Lane Greer, and Tammy Hinman, NCAT Agriculture Specialists

There is a growing movement within the United States to get back to the land—to start developing hands-on, land-based careers. The faces of new farmers vary widely, from young college graduates to others who are starting a second career or simply retiring into farming. Those in second careers often own land and need help developing an enterprise that works with their property and goals. Those who have recently graduated still want to make a go of farming but often have the added challenge of not owning land. Determining what to grow and how to sell it are the first steps in starting a farm-based
business. This publication will help the reader take these important first steps.

Introduction

There are literally thousands of books, Extension materials, and people who can tell you how to produce something—whether it’s baskets, bison, or blueberries. But those resources can’t help you decide whether such an enterprise is right for you and your farm. Even before you decide on an enterprise, however, it is important to evaluate whether farming is the right career choice. This publication will help the reader assess both: what to take into account when considering a career in farming and how well an enterprise will fit a new or existing farm.

For this updated publication, the author reviewed many enterprise-planning guides, condensed their salient points, and included, in appendices, the worksheets found to be most helpful. Keep in mind that the tools and worksheets in this publication are a compilation of multiple resources on this topic. The publications drawn from are available if you want to expand your research and planning. The details for locating them are included in the Further Resources section below.

Just reading this publication will not be as useful as filling out the worksheets and following up to find answers to any questions you may have.

Most of the enterprise guides reviewed ask readers to assess their personal and family objectives before they go through the process of evaluating an enterprise. They all stress the importance of having a business plan, a financial plan, and a marketing plan. A business plan will outline how the business should work and generate its overarching plans. It also typically includes a financial and marketing plan. Perhaps the best thing about creating a detailed business plan is simply that it causes you to think in detail about what you are getting into. The financial plan outlines expectations in terms of costs and potential revenue for the first few years of your business. Due to the volatility of such unpredictable factors as weather and market conditions, your financial plan may not accurately reflect the reality of your farm business. Still, it is important to have the plan to help you meet your financial goals and to demonstrate to a bank or creditor that you have thought out the financial aspects of your business. A marketing plan outlines the specific markets you intend to pursue and how you intend to enter them. This publication’s Further Resources section provides titles and ordering information for several useful guides on these topics. These guides are the next step in helping you determine the feasibility of your new enterprise.

Who Will Benefit From This Publication?

Whether you want to farm full-time, part-time or as a hobby, this publication will help you determine the size and income goals for your farm. While experts do not recommend skipping the business-planning portion of the process, this publication will get you going on setting goals and narrowing down some enterprise options if you are having a difficult time getting started. This publication is for a range of people:

• Those who are exploring the prospect of starting a farm. If you are considering purchasing a farm or simply starting a farm on rented land, this publication can help you determine which enterprise to pursue; the best location for your enterprise; and what type of farm/farmland would be best-suited for your enterprise. If you have never farmed on your own, this publication can also help you assess what skills you will need to become a successful farmer.
• New farmers who are planning their operation. If you have already purchased a farm and are having trouble deciding what type of enterprise to start, this publication can help you think through which enterprise best suits your land, location, and personality.
• Those who already farm and want to identify a new enterprise. If you are already farming and would like to explore new options or enterprises, this publication can help you think through which enterprise best suits your land, location, and personality.

Choosing a Farm Business that You Like

“It is best to realize that there are some realities that make farming a challenging business. Think about these things (and if you have a family, talk with them) and what you are willing to “put up with” if you decide on a farm based business. Make two lists: What is positive about an agricultural business? What are the pitfalls that you may run into in the future? Are you (and your family) willing to struggle through the possible pitfalls of operating a farm business?”
—Starting an Agriculture Business? A Pre-Planning
Guide, by Steve Richards

The first step in evaluating an enterprise is to determine what your personal goals are. Consider the following questions: Do I want to farm part-time, full-time, or as a hobby? How much money do I want to make from the farm enterprise? Perhaps most important, ask yourself what good things in life farming will help you achieve. Below are a few common answers to that question. If you don’t identify with any of them, what are some other reasons that you might want to start a farming enterprise?

• I love being/working in the outdoors.
• I want a job in which I can work with my family.
• I want to own my own business and be my own boss (and have the flexibility to do things like pick up children from school).
• I grew up farming, and it’s what I know best.
• I see farming mainly as a way to make money.
• I want to grow healthy food for my family and community.
• I want to nurture and improve the natural environment of my farm.
• I want to achieve self-sufficiency/provide my own food.

As you consider your overall reasons for farming, write them down. These can be a starting point as you develop goals for your farm or new enterprise.

Evaluating Your Resources. What Are You Starting With?

Before committing to a new farm or a new enterprise on an existing farm, have you determined what resources you and your farming partners bring to the operation? Resources are not just financial—they also include your experience, your land, and your marketing capabilities. The worksheet in Appendix 1 of this publication can be used as an evaluation tool to help you to make decisions on your next steps.

Experience

Have you worked on a farm before? If not, this may be the best place to start. As you decide on an enterprise, talk with other farmers and, if possible, get as much experience as you can in the enterprise areas that you decide on. Many farms offer apprenticeships or internships for a season. These work well if you can afford to take some time off and learn about the trade. They often do not pay well, just enough to get by, but they can be a great way to learn about a specific farm enterprise that you may be exploring. The ATTRA Internship Hub is a good place to start to find a farm in a specific location.

If apprenticing is not a possibility for you, many states have formal mentoring programs. The leader in these programs has been Minnesota Farm Beginnings Programs. It matches beginning farmers with experienced exemplary farmers with similar enterprises. This program has been such a success it has been adopted in many other states throughout the United States. For a list of state programs that offer mentoring programs, see the Further Resources section.

Land Resources

If you have not purchased land but intend to buy or rent with a farming enterprise in mind, it is important to evaluate the land’s productivity potential. This can be done initially by identifying its soil capabilities through the Natural Resources Conservation Service (NRCS) Land Capability classification system. The classification is based on national soil-survey data, and it is helpful if you are looking at property.

You can also go to your county NRCS office to look at a paper copy; this can be easier initially, unless you are computer savvy and have a high-speed connection.

If you already own land, the land-capability classification will give you a general overview of what the land is capable of, but a semi-annual soil test to gauge its basic nutrients, pH, and organic matter is also important.

Markets

Marketing is an often overlooked aspect of developing a new enterprise. Before considering a market for your enterprise, it is important to evaluate your location, your personality, and the kinds of production that interest you. For example, are you in a rural area? Do you enjoy interacting with people? If you are in a rural area with very few farmers markets or other direct markets, you may need to consider Internet-based value-added enterprises or wholesaling. If you are close to an urban area and enjoy working with people, farmers markets, restaurants, and Community Supported Agriculture (CSA) markets might be a good option.

Choosing an Enterprise

What Factors Constitute a Successful Enterprise? In his 1998 book You Can Farm, Joe Salatin suggests developing a “centerpiece enterprise” around which other income-generating enterprises can be built. For example, broiler chickens could be a centerpiece enterprise, but pastured hogs, turkeys, and eggs could be sideline enterprises that work with the infrastructure of the broiler-chickens enterprises. According to Salatin, the following are criteria for determining a centerpiece enterprise:

• Low initial start-up cost relative to the ability to generate income
• High gross-profit margin
• Relatively low maintenance requirements
• High cash flow relative to expenses
• History of high success rates among new enterprises
• High demand and low supply in the current marketplace
• High product distinctiveness
• Relatively size-neutral profit potential

Fickle Creek Farm

Ben Bergmann and his partner, Noah Rannell, operate Fickle Creek Farm in Efland, North Carolina. Their original goal was to start a market garden. After assessing the land that was affordable for them at the time, however, they realized it could not accommodate intensive vegetable farming.

Fickle Creek Farm has used livestock to amend its
soils while generating revenue for the farm. Photo:
Fickle Creek Farm

Bergmann and Rannell describe their initial farm operation as being time-friendly but financially and soil-nutrient poor. They addressed these challenges by using animals instead of mechanical and chemical inputs. Goats help to clear the land while pigs and chickens add manure to improve the fertility of the soil and remove weed seeds. The animals essentially pay for themselves while amending the soil; Bergmann and Rannell consider all the pig and chicken feed to be “fertilizer.”

They started with 12 laying hens; these led to the egg mobiles that they now rotate among their pastures. They typically follow the layers with pigs grazing and turning over rocks.

Bergmann and Rannell focused first on paying off the farm by working off-farm jobs. They started with three goals that have become guideposts for the farm: being environmentally sustainable; treating livestock humanely; and not going into long-term debt as they develop and grow the farm. They still refer to these general goals when making farm decisions, especially when it comes to debt.

The small livestock farm has grown into a 145-acre diversified livestock business. After six years of livestock grazing and manure amendments, Bergmann and Rannell are finally able to grow some specialty vegetable crops. Eventually the animals will be de-emphasized, and the market garden aspect of the farm will be stronger. Bergmann describes the process as utilizing livestock to improve their land resource as a way to reach their ultimate goal of market gardening.

What Factors Constitute a Successful Enterprise?

In his 1998 book You Can Farm, Joe Salatin suggests developing a “centerpiece enterprise” around which other income-generating enterprises can be built. For example, broiler chickens could be a centerpiece enterprise, but pastured hogs, turkeys, and eggs could be sideline enterprises that work with the infrastructure of the broiler-chickens enterprises. According to Salatin, the following are criteria for determining a centerpiece enterprise:

• Low initial start-up cost relative to the ability to generate income
• High gross-profit margin
• Relatively low maintenance requirements
• High cash flow relative to expenses
• History of high success rates among new enterprises
• High demand and low supply in the current marketplace
• High product distinctiveness
• Relatively size-neutral profit potential

Which Enterprise Fits with Your Goals and Resources?

It may be helpful as you get started to know what enterprise possibilities exist. The Alternative Farming Information Center has developed a long list of alternative enterprises. Many of these enterprises may not suit your lifestyle, your land resources, your personal resources, or your goals. A list of these enterprises is available in Appendix 2 of this publication.

Decide which enterprises look promising to you and, if possible, answer the following questions for each. Also check the enterprises to see if they are compatible with your resources as you go along. Make a note if the resources are not currently available but could be obtained should the enterprise be chosen. An example could be specialized harvesting or processing equipment. These questions are from the Rural Advancement Foundation International (RAFI) publication The Farmers Guide to Developing a New Farm Enterprise:

• Which enterprises are predominant in your area?
• Are there enterprises that interest you and have been successful in other areas
  in similar soil and climate conditions or enterprises that have potential in your
  area but have not yet been established?
• What crops or livestock have been raised on your land in the past?
• Which are the enterprise types you feel more personally compatible with: livestock, field crops, orchard crops, small fruits, vegetables, ornamentals, growing transplants, or raising seed?

While there is no recipe for success in nontraditional, high-margin farm enterprises, there are some important considerations that you should make before investing time and energy in any given enterprise. In the past, an enterprise budget may have provided all the information a farmer needed to be successful, but data may not be available to completely evaluate a new market opportunity. No two farms are alike, and a customized budget is necessary to determine the profitability of an enterprise on a particular farm (Grubinger, 1999). Most new, innovative ideas must be researched, evaluated, and, if possible, tested to find out whether they are profitable. Enterprises that show potential for success today require farmers to do their own market and cost research to determine whether they will actually work (Roehrig, no date).

Another approach is to carefully evaluate the potential for each of the enterprises you are
interested in. This can be done by systematically comparing the resource needs for each enterprise to the resources you have available. Determining the resource requirements for each enterprise will probably require a good deal of homework. A good way to start is to talk with other growers in your area or elsewhere about their experience with the enterprise you are considering. Your county Cooperative Extension office also is a good source of information.

The University of Kentucky has developed a method called the PRIMER Guide to Selecting a Farm Enterprise. The letters in PRIMER represent the basic factors to consider when making a decision about new or expanded enterprises for the farm. P stands for profitability; R for resources; I for information; M for marketing; E for enthusiasm; and R for risk. The authors say that these six factors—profitability, resources, information, marketing, enthusiasm, and risk—are the basic elements
that should drive any decision to adopt a new enterprise on the farm. Their guide walks you through a series of worksheets that help determine these factors for enterprises you may be considering (Woods and Isaac, 2000). The guide is available for download (see Further Resources section).

Talk With Farmers

The Carolina Farm Stewardship Association holds an annual summer series of farm tours for farmers. Check with your local agriculture organization to see if
such tours are available in your area. Photo: NCAT

An excellent way to find out about different enterprises and how well they are working on farms is to conduct interviews with people in agricultural businesses that interest you. First consider people you know, or whom you may be able to get connected to through service providers within your region. Keep in mind that the farmers’ time is precious, and it might be helpful to ask if you can help with farm tasks or provide another service in exchange for their time and expertise. Come prepared with a series of questions (Hayes, 2009). The New England Small Farm Institute (NESFI) book Exploring the Small Farm Dream has a series of questions that can get you started. It also has several worksheets on the planning and exploring aspect of starting a small farm. If formal interviews are not possible, consider going on farm tours. Many agricultural organizations conduct summer farm tours.

Is Your Enterprise a Profitable One?

As you consider new enterprises for your farm, it is important to consider their profitability. Even if profitability is not your central motive or goal, it is important to know what the costs and returns will be from your enterprise. Profit is the amount of revenue left over after overhead expenses and the cost of the goods being sold have been paid.

The Minnesota Department of Agriculture Compass Guide to Selecting a New Farm Enterprise suggests estimating and accounting for your costs for two years because some costs are incurred up front and others come along a year or so into the operation. Consider ways of offsetting the initial cost, such as custom work or equipment rentals. Also consider how much income will need to be generated, or saved, within the first two years to offset your expenses.

When determining whether your business will be profitable, you will need to have an idea of what the costs will be to start and run it. Consider the differences between start-up costs and operating costs. The start-up costs will be incurred before your product is sold. They can include the money you spend on infrastructure and permits. Operating costs include the costs that go into whatever you are producing, including labor, raw materials, and overhead such as land rent and insurance (Richards, 2004).

There are several tools and model budgets that can help you determine the costs of starting an enterprise, but you have to determine the costs specific to your area because they vary by region. The worksheets in Appendix 3 of this publication will provide you with a list of various start-up and operating costs. It is up to you to research the specific costs for your region and enterprise.

As your costs become clear, you will be able to determine the revenue you need to generate in order for your farm business to be profitable. In the beginning of a farm business, some off-farm income may offset living expenses, such as mortgage and insurance payments and food. Every farm is different, but having a profitability goal will help determine how much revenue you will need.

What are your income goals for the farm? Choose all of the following that apply:

• 

  Martin and Christa Stosiek have found a lucrative restaurant
  market in their region. They have responded to this market by providing a consistent and high-quality product. Photo: Courtesy of Markristo Farm

  I want to break even in my first year.

• I want farming to supply all of my income.
• I want to provide supplemental income while holding a full-time job.
• I want the farm to supply enough income to work only part-time.
• I want farm income to support my family in the present and the long term (e.g., retirement income and college tuition).
• I want to make enough money farming to bring my children into the farm eventually as partners.
• I want the farm to supply enough money for health insurance.

You may have multiple answers to these questions as you start your farm. You may eventually want farming to supply all of your income, but want to break even the first year. One way to answer these questions is to put a timeline on the goals listed above that you most identify with, then fill out the second worksheet in Appendix 3 to determine the revenue you will need to generate in the short term.

Marketing Your New Enterprise

Marketing may take many forms, ranging from wholesaling to marketing a retail product directly to consumers. The marketing method you choose will have a profound effect on the price you will get for your product. How you choose a market depends on your product, your location, and your personality. If you are a smaller grower, selling directly is the ideal choice because you do not have to compete on a wholesale level with larger growers. However, this type of marketing needs to fit an individual’s personality, crop mix, and available time. If you are in a rural area with little market potential, for example, you may need to consider selling value-added products over the Internet or wholesaling. If you are close to an urban area and enjoy working with people, farmers markets might be a good option. Farmers markets can be a low-risk marketing tool in the right area, but growing competition as they get more popular with farmers makes it difficult to find a niche.

The Appalachian Sustainability Agriculture Project (ASAP) has developed a market assessment for farmers who are evaluating new markets. The questions in the assessment should help you get started in narrowing down market options. The assessment is available in Appendix 4 of this publication. For more information on entering new markets, see the ASAP publication Marketing your Farm, listed in the Further Resources section. Most small farms have multiple markets just as they have multiple crops. This helps to spread risk. Keep this in mind as you assess the markets in your area.

Markristo Farm
Markristo Farm is a family-run vegetable farm in the upper Hudson Valley of New York. Martin and Christa Stosiek started a 2-acre, you-pick berry farm more than 20 years ago. Their goals are based on maintaining a lifestyle that allows for time with family. The lucrative restaurant market has enabled them to maintain their lifestyle goals. After trying to market their bumper crop of blueberries to nearby restaurants, they quickly realized that their proximity to restaurants in the Berkshire tourist-destination area could be a potential marketing opportunity for their farm. After talking with area chefs, they began focusing their production on specialty vegetables, mainly lettuce mixes and herbs. They have refined this business into a bit of an art form. Their lettuce mixes are impeccably packaged, and their communication system has been refined into a weekly supply list for chefs to order from. Their tenets of marketing are to provide a quality product; to deliver the product clean and professionally packaged; and to have a delivery radius that makes it worthwhile for their farm.

As their business has grown, so have such other marketing directions as farmers-market sales and selling cut flowers and organic bedding plants. They have also invested in a used bean harvester and started wholesaling larger quantities of organic green beans to grocery stores. These marketing strategies are complementary to their restaurant business, however.

Conclusion

Farming can be a rewarding occupation and lifestyle, but it is not without challenges. First, it is important to understand your lifestyle goals and what is possible on the land you intend to farm. Then, with the aid of the worksheets in this publication, you will be able to narrow down enterprise options to one that fits your personality, location, and land capabilities. With some experience, planning, and enthusiasm for your enterprise, you will be well on your way to realizing your small-farm goals.

This publication is produced by the National Center for Appropriate Technology through the ATTRA Sustainable Agriculture program, under a cooperative agreement with USDA Rural Development. ATTRA.NCAT.ORG