We often hear from farmers who are thinking about diversifying their farm in some way. They’re interested in creating a new revenue stream or they have a passion for another type of business – whether ag-related or not. Or an opportunity may come up that provides a unique chance to expand the farm business.
They may hope to make their operation less dependent on swings in the ag economy or a particular part of the ag economy. The competition for acres in their area may be fierce and diversifying the farm could be a different way to grow.
Ways to diversify
There are several ways a farm might go about this. One is to expand within your current specialty – maybe you already grow corn and soybeans, but you’re thinking about also growing hay. If you’re currently a grain farmer, you could vary your focus within agriculture and begin raising livestock – such as producing specialty beef – which will require new skills and assets.
Maybe a service-based ag business is more your style, such as selling seed or fertilizer, or starting a tiling business. The final way would be to differentiate your farm by expanding outside of agriculture. You’d get into a completely different business sector and revenue stream – one that’s not associated with ag.
Ask the questions
Whichever way you choose to go, there are a few questions to think through. That will help you determine whether or not adding a side business will be the right move for your overall operation.
First, ask yourself: Why do I want to diversify my farm? Do I want to make my operation less dependent on swings in commodity prices? Do I already own assets or equipment that I could be using in an additional way?
Then, you’ll want to ask: Is there a market for this? For example, if you decide to get into drain tiling or dirt work, what’s the demand for that type of work in your local area? What’s the capital requirement to get started?
Consider your long-term goals and desires for your business. Take a look at your farm’s overall business plan and how your idea for a side business fits in – or doesn’t. If you determine that it’s a good fit, then you can start moving toward more detailed planning.
Put together a business plan to analyze the viability of your potential business. You’ll also want to determine how you’ll know whether the business is succeeding. How will you know – and what will you do if it doesn’t work out?
Making it happen
A couple more questions to ask yourself are:
• What skills will I need to develop if I choose to do this?
• If I decide to do this, what will I not be able to do? What are the trade-offs?
• Who else do I need to enlist to make this work?
If you want to talk through your ideas to diversify your farm or would like some help with putting together a business plan, you might discuss that with a farm business advisor.
Read the new issue of the Smart Series publication, bringing business ideas for today’s farm leader. This issue features a pre-harvest legacy checklist, how to build your farm’s team, and ideas on planning for your farm’s future. Get your free online issue here.