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February 13, 2019

Items to Consider When Diversifying Your Ag Operation

Find out how diversifying your farm can benefit your bottom line and discover the steps to take when embarking on a new ag venture.

Many farmers look to diversification when searching for ways to boost their revenue and/or continue to remain economically viable, especially those who are engaged in only one enterprise. Diversification can provide farmers not only a higher earning potential, but also reduce risks, such as low crop production.

In this article, we discuss the benefits of diversification, the different options to consider, and the steps to take to position your operation for long-term success.

Benefits of Diversifying Your Ag Operation

Diversification can protect farmers against downside risk and cash flow problems, as well as enhancing business operations by making better use of your land, labor, and capital.

Rather than putting all your eggs in one basket, diversification enables you to spread the potential risks and successes associated with your farm over a greater base. Additionally, if you can keep your income level in a state of increase – something that’s far more achievable with diversification – you are better positioned to withstand setbacks or disasters if, and when they arise.

Farmers who implement crop diversification can experience several benefits, too, such as breaking pest cycles (including plant diseases, insects, and weed infestation), reducing erosion, improving soil structure, and conserving soil moisture.

Diversifying your operation allows you to rely on multiple commodities for a source of income, when one commodity isn’t performing to your expectations. Furthermore, crop diversification can help protect farmers when commodity prices dip, and can ensure their operation remains stable during tough times like crop failure or extreme weather conditions/natural disasters that result in damaged or destroyed crops.

Tip: Experts recommend planting small grains before row crops, which may enable farmers to produce two crops on the same land within a 12-month period, as well as adding a legume crop to a rotation to help raise soil nitrogen levels and increase the organic matter within the soil structure.

Unique Diversification Options

If adding more crops to your operation isn’t in the cards, consider tourism-based diversification in agriculture, which can include seasonal offerings such as corn mazes and pumpkin patches, farm-to-fork dinners, and/or petting zoos. The on-farm wedding market has also increased within the last 5 years and could potentially be a good fit, if your operation has a barn or another structure that could accommodate large groups.

Those with dairy farms can diversify their operation by producing products such as ice cream and cheese, and opening an on-farm store, while farmers with ample timber on their land may consider delving into the forestry industry.

Lastly, the growing craft beer industry also provides opportunities for farmers to diversify their operations, with many producers opting to grow hops they can sell to brewers -some eventually opening their own brewing businesses as well. If beer doesn’t interest you, consider contributing to your local wine market by growing grapes, or tapping into the new market of hemp, if the land and weather allow.

Steps to Diversify Your Farming Operation

  1. Identify a revenue-generating opportunity for your operation.
  2. Conduct research into that new opportunity – whether it’s entering into a new market and adding a new commodity to your mix or welcoming the idea of agritourism.
  3. Build your network. Once you’ve identified and conducted research into a possible diversification venture, begin to network with producers in that market to learn the intricacies of your new venture, and to understand the costs and challenges associated with it. Not only will you have to master the production of your new enterprise, but you’ll also have to promote and publicize it, particularly if you’re embarking on value-added enterprises that require direct marketing.
  4. Create a business plan. Your business plan should be realistic, simple and specific, beginning with a mission statement that reflects your overarching purpose. Next, you’ll want to list both short- and long-term goals, compile background information and formulate a farm strategy. Your business plan should also include a marketing strategy and plan, a management summary, and a financial analysis that details your new venture’s operating expenses, expected income and overall return on investment.
  5. Secure finances. You’ll want to ensure you have enough capital for your new venture, holding planning discussions with your financial team to determine what your short-term and long-term options look like financially for your operation.
  6. Be prepared for errors. Chances are you won’t execute your new venture perfectly right away. Rather than expecting smooth sailing, assume you’ll hit some roadblocks. You may need to hire additional employees to help your venture get off the ground, or you may realize you need more capital than you originally anticipated.

Diversifying Your Farm Operation with AgAmerica

As the agricultural industry evolves, so should your operation. Diversifying your operation can provide you opportunities to increase revenue and efficiencies with your land, as well as minimize risks. AgAmerica offers custom agricultural land loan packages that are designed to meet the unique needs of a farmer, rancher, or landowner. Our professionals can work with you to determine the best financial approach to diversify your operation that positions you for growth and long-term financial success.

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