10 questions to answer

Before you start diversifying your farm answer these 10 important questions:

1. What is your farming lifestyle?

Diversifying requires a commitment of time and resources. If your primary reason for living on a rural property is for lifestyle enjoyment then serious consideration needs to be given to the resources that will be required to invest in a new enterprise. Specific things to consider include whether you will be away from the property for extended periods of time; do you have the time to commit to producing the product; are you physically able to do the work, especially in the years to come; and would you enjoy the work?

 2. What personal interest do you have in the proposed enterprise or venture?

Many farmers who have successfully diversified into a new plant, animal or other venture had a personal interest in their chosen enterprise. A personal interest or other driving force helps you to stay motivated to undertake research, establish agronomic/husbandry practices and in some cases, source buyers and develop a market for the product.

3. Can you afford to lose the money invested in a new enterprise or venture?

Entering into a new enterprise or venture generally requires financial investment that may not return a profit for many years. In some cases, it may never provide any financial return. The high cost of production, climate and environmental factors, poor management, difficult market access and changing markets are just some of the reason an enterprise may fail. You should only gamble what you can afford to lose.

4. Are you comfortable with taking risks?

Trying a new enterprise can be a risky business, especially if it is a new or developing industry. A new enterprise should be approached in the same way as any new business venture and the same commercial business principles and practices should be applied. Many farmers have tried a new enterprise, only to find that it failed to return a profit and had to be abandoned. Entering into a new business involves risk and you may need to be prepared to cut your losses and walk away.

5. If you have decided upon a specific industry or venture, do you have easy and free access to research and information?

Successful diversification requires research, research, research. Before you plant a crop, purchase an animal or make any serious investment you should understand what the product is that you are selling, how to grow and farm the plant or animal, what the market demands and access are, what the regulatory requirements are and the time and money required. Farmers who have been successful at diversifying their enterprise have undertaken extensive research on their chosen new industry and educated themselves appropriately before acting.

6. Can the proposed enterprise/venture be produced in your area?

If the new enterprise is well established in your area, then knowledge on how to produce it is probably well developed. However, if this information is not clear, you will need to investigate the conditions (e.g. environment, infrastructure, logistics) under which it is successfully commercially produced to see if these requirements can be met in your area. For new crops and animals, trials are often used to determine if it can be grown in a new area, even if the environmental conditions are similar.

7. Can you describe the proposed end-product to be sold?

If you can describe the product/s accurately and identify the markets for the product/s, then some of the hard work may be done. If you are unable to describe the product/s accurately, then its marketability may not yet be determined. Although the range of possible products from a new enterprise may be exciting, if there is no established demand or market, or the pathway to market is unclear, then substantial work may need to be done to cultivate these markets. This can take years, financial investment and personal commitment.

8. Is there an established market or demand for the proposed product?

Researching and understanding the markets for a new enterprise is essential. If the market is not established, you may need to develop demand for your product in order to sell it. If it is an established market, you will need to understand any regulations, such as product standards, that govern the trading of the product. Some questions to guide research on markets include:

  • Who is the customer (agent, wholesaler, retailer, consumer)?
  • Is the product currently traded here or overseas?
  • Where are the existing markets for the product?
  • What type of markets are these, in terms of size?
  • Where is the target market for the intended new product?
  • Are there any limitations imposed by the market?
  • What is the product used for, leading to identification of substitutes for the product and the nature of the substitution?
  • What is the estimated market price (price point) that is required for the venture to be viable, taking into account the cost of production, possible prices of substitutes, and import/export prices? Is the price point achievable and sustainable?
  • What packaging is required and is there a distribution mechanism available?
  • What is the estimated future demand (taking into account economic and demographic factors and factors which may affect this demand)?
  • Are there existing and accessible supply chains for the proposed product?
  • What marketing and/or promotional strategies will be required, and do you have the experience to deliver these?

9. Is there an established industry and industry body?

If there is an established industry body, they will be an invaluable resource for information about the new enterprise and they should be one of the first points of contact in considering diversifying. If there is no industry body, then the industry may be quite small and difficult to enter; information may be limited and difficult to source and the enterprise may carry increased risk.

10. Are there other things that you would rather be doing?

Finally, if all this sounds exhausting and there are other things you would rather do, then you may want to reconsider whether investing in a new enterprise is the right option for you.

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