Agribusiness Enterprise Selection Guide
An agribusiness enterprise or an enterprise in agricultural sector is any producing unit that combines resources to achieve its strategic objective(s). An enterprise could be a unit producing a particular crop, livestock and processing any raw resources to consumable goods.
At this point, a rationale individual will face the question of what to produce as any business operates in a changing and dynamic society, which opportunities as well as goals change over time making periodic reassessment and adjustments in the business necessary Ebong (2007) and Kay (1981).
However, Klonsky (2011) in his farm management series maintained that the selection of enterprises is critical in determining whether or not the goals will be met through farming or agro-related activity.
When this question occurs it becomes necessary for the individual to be guided by steps required to engage in enterprise selection process. The steps include the following:
1. Setting of Goals
Every individual has his or her own view of goals. These goals need to be more specific and action oriented. Furthermore, these goals should be measurable in some way and have a time frame associated with them.
When writing down your goals, also write down the time frame and ways you can measure their achievement. This will help in evaluating the success of your business and in developing an implementation plan.
The following is a list of questions that can be used to help develop your list of goals:
Is your primary reason for farming to maximize income, to have a rural lifestyle, to provide income for family members, or other reasons?
What other activities are you involved in, and what are the priorities of these activities relative to the farm business?
Do you want to devote full-time effort to the farm or would you prefer farming to be a part-time activity?
How much are you willing to be restricted by time and capital demands of your farm business?
Do you want to eventually transfer the ownership of the farm to a partner or family member?
Is income from the farm and/or sale of the farm an important part of your retirement plan?
What is the desired period between initial investment and cash returns?
Do you want to learn new skills through self-study or formal training?
2. Establish an Inventory your Resources
The availability of resources will ultimately limit your choice of enterprises simply because the resource requirements among enterprises vary.
A list of resources typically includes land, labor and capital. But there are other factors to consider such as climate, access to information, management skills, and markets.
Access to markets is the most commonly overlooked factor in the enterprise selection process. But in fact it can be your most limiting constraint.
Simply because you can grow something does not mean you can sell it. And just because you can sell a product does not mean that it will be profitable.
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A third possibility is that you will be able to sell a product at a money making price but that you will only be able to sell a limited amount of the product; that is, less than the total amount that you are able to produce.
Consider your market potential carefully. If it is a product that has never been tried before in your area plan to take several years to get established. Be realistic about your cash flow situation and plan accordingly. For each of the areas listed below create a list of the resources available.
This will be compared later to the resources required by each enterprise you are considering. A written list will enable you to easily check off the requirements on the enterprise resource requirement list later on.
1. Physical Factors
1. Land
How much land do you have available?
What is the physical profile and topography of the land?
What is the soil texture, drainage capability and nutrient levels?
Which types of weeds are growing on the soil?
Which other crops have been grown on the land?
What is known about variety adaptability in your area?
About the effects of spacing on yield and quality?
What is your personal experience with the crop?
What is the research base for the crop under consideration?
Where else is the crop grown?
Is acreage increasing or decreasing?
2. Climate
What is the average rainfall in your area and when are the rainy periods?
When are the first and last frost dates and how much have the actual dates varied historically?
What are the high and low temperatures for your area and when do they occur?
What is the average daily temperature?
What is the day/night temperature variation?
What is the direction and strength of winds?
3. Irrigation Water
Where does your water come from and what is its cost?
What is the water quality?
Do you have water rights?
Are you within an irrigation district?
When is irrigation water available to you and in what amount?
What type of irrigation system do you have?
What are the differences in cost and efficiencies for alternative systems?
3. Farm Structures
What type of buildings do you have on the property and what is their condition?
Do you have structurally sound fences?
If you feel you need additional buildings or fences, have you checked into the cost of their construction?
4. Machinery and Equipment
What type of farm power machinery do you have? What farm implements do you have?
What is your transportation equipment: truck, pick-up, or trailer?
Consider capacity and efficiency. Have you considered leasing/renting some equipment?
What are the possibilities of contracting with custom operators in your area?
2. Financial Factors
How much capital are you willing/ able to invest?
Are you able or willing to borrow capital?
What is your cash flow situation?
Is a high rate of return on your investment important to you?
Are you willing to consider risky enterprises?
3. Management Factors
1. Personal Skills
Management skills: record keeping, personnel management, budgeting, familiarity with tax and other relevant laws;
Do you consider these to be adequate?
What are your mechanical skills?
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Which are your knowledge strong points: plant physiology, animal health, pest management, greenhouse production, etc.?
Would you prefer handling a diversified farm or would you prefer one or two major enterprises?
2. Information Access
Are you familiar with the agricultural information delivery systems?
Are you able to access the resources of these systems?
Is sufficient information available for the enterprises in which you are interested?
Are you willing to learn new skills if they are required?
4. Labor Factors
What are your labor needs on a monthly basis?
Are you planning to use mostly family or mostly hired labor?
Have you checked out the regulations of the California Labor Law?
Have you considered the opportunity cost of using your own labor?
5. Marketing Factors
Do you have a preferred marketing method?
Broker, retailer, direct (roadside stand, farmers market, U-pick), cooperative, contract with processor?
What is your proximity to various potential markets?
Have you contacted potential markets for their advice on crop selection?
How much time are you willing to spend marketing your products?
Do you have cooling facilities for perishable products?
Are you familiar with marketing regulations for the enterprises you are considering?
3. Develop a List of Possible Enterprises
After identifying your goals and resources, develop a list of possible enterprises. The following set of questions and the list at the end of this publication should help;
Which enterprises are predominant in your area?
Are there enterprises which interest you that have been successful in other areas in similar soil and climate conditions (i.e., 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 with which you feel more personally compatible: livestock, field crops, orchard crops, small fruits, vegetables, ornamentals, growing transplants, raising seed?
4. Determine Which Enterprises Are Compatible With Your Resources
Carefully evaluate the potential for each of the enterprises on your list. This can be done by systematically comparing the resource needs for each enterprise to the resources available.
Determining the resource requirements for each enterprise will probably require a good deal of homework.
A good place to start is by talking to other growers in your area or elsewhere about their experience with the enterprise you are considering.
Your state agricultural extension agent in your area is also a good place to start. Of course, there is nothing like a nearby library at a local college campus.
To the extent possible, answer the following questions for each enterprise and check for compatibility to your resources as you go along. Also make note if the resources are not available but are obtainable should the enterprise be selected. An example would be specialized harvest equipment.
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