In response to declining net farm income, many farmers are being advised to engage in “value added activities” to survive. However, considering a new enterprise in your business comes with risks and time must be spent assessing and planning to determine if integrating value added activities is right for you.
Edward Evans, Assistant Professor, Food and Resource Economics Department, Tropical Research and Education Center; UF/IFAS Extension, tackle this question and provide the following preliminary questions to help you determine the feasibility of value added products.
- Can I describe the nature of the value added initiative in plain and simple language? The easier it is for you to describe what you have in mind, the better grasp you will have of what you want to do.
- Will anybody want what I intend to offer and be willing to pay for it? Before answering this question, you might need to do some scouting for yourself without giving the idea away if it is a new one. Remember that it does not matter who pays as long as somebody will.
- Is the potential payoff big relative to its costs? As discussed earlier, an initiative is only considered to add value if it covers more than the costs, so as to make it worthwhile. Furthermore, the whole reason of undertaking this initiative is to improve the overall farm income.
- Does the initiative have staying power and the potential to grow? Depending on the level of financial commitment needed, it is important, even at this stage, to assess whether the initiative contemplated has the potential to be sustainable or is just a fad.
- Do I have the required resources or access to them?
- Is this something I will enjoy doing?
- Can I cope with the downside if things do not turn out the way they should?
If the answer to all seven questions is “yes”, then proceed to the second step, which is preparing a written business plan. In brief, writing a business plan helps demonstrate that you have fully researched the proposed value added initiative, that you know what to do, and that you can manage the financial risks.
You can read more by clicking here: http://edis.ifas.ufl.edu/fe638