Considerations In Enterprise Selection
- Determine Your Goals
- Inventory Your Resources
- Physical Factors
- Financial Factors
- Management Factors
- Develop a List of Possible Enterprises
- Determine Which Enterprises Are Compatible With Your Resources
- Growing Considerations
- Analyze Compatibility Among Enterprises
- Partial Listing of Enterprise Possibilities For Small Farms
by Karen Klonsky, Extension Specialist Department of Agricultural Economics UC Davis, and Patricia Allen, Agroecology Program, UC Santa Cruz
Every farmer faces the question of what to produce. The selection of enterprises is critical in determining whether or not the goals of your family will be met through farming.
The purpose of this publication is to provide a step by step guideline to the enterprise selection process. The first step is to determine the goals or objectives of your farm family. The next step is to find out whether or not they are feasible. This is accomplished by taking an inventory of the resources available and the resource requirements of each enterprise you are considering. Next, realistically compare the resources required to the resources available and cut back the list of alternatives. Finally, select the enterprises you wish to pursue and design a plan for implementation.
This approach is appropriate for farmers who are already engaged in farming as well as the beginning farmer. It is a helpful exercise to repeat periodically to keep the farm on a forward looking course and to keep all alternatives open. Any business operates in a changing and dynamic society. Opportunities as well as goals change over time making periodic reassessment and adjustments in the business necessary.
You are encouraged to keep written records or notes on each step of the process. It forces you to give clear and concrete answers to each of the questions and will serve as a useful record for making decisions in the future.
Each individual has their own view of success. Most people will answer yes when asked if they have personal goals. Yet very few people will answer yes if asked if they have ever put these goals to paper.
Most people have the broad objectives of achieving financial security, health and safety, and personal growth. But we also have goals that are more specific and involve some sort of action. 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.
In some cases the goals of family members may conflict. In other cases the goals may be the same but the means for achieving them may not be compatible. It is important for each person involved in the farm to record their goals individually before the goals of the business as a whole are formulated. You may be pleasantly surprised to find out that the goals of individuals seemingly in conflict may be very similar.
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?
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. 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.
- 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 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?
- 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?
- 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?
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?
- 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?
- 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?
- 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?
- 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?
- 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?
- 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?
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?
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 county Cooperative Extension office 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.
General Crop Situation
- 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?
- What is the crop's adaptability to the climate during the intended growth period?
- What is the crop's tolerance for rainfall, frost, high temperatures?
- How will the climatic conditions during the planned cropping period affect the physiology of the crop?
- How does the crop fit into rotation with other crops planned?
- How much time from planting through total harvest period?
- What will be the effect of weed management practices used on the crop under consideration on following crops?
- Is the crop susceptible to the same soil-borne diseases as rotation crops?
- Is there a need for special materials or equipment (cultivation or harvesting equipment, storage facilities)?
- What will be their cost and availability?
- How much water is needed?
- How often do you need to irrigate?
- What type of irrigation systems are recommended?
- Does the quality of water effect production?
- Pollination problems for fruiting crops need to be considered.
- How many hives will be needed?
- How will you determine hive quality?
- What will the rental cost be?
- What are the important pest problems for the crop?
- Are there control measures available which are registered for use in California?
- Are there varieties available which are resistant to important diseases of the crop?
- If so, do they have good yield and quality characteristics?
- How many acres of the crop can you handle with the amount of labor that you have available?
- Would it be more economical to buy or rent labor-saving systems, i.e., mechanical transplanter versus hand planting, selective herbicide versus hand weeding, picking cars which carry several containers, etc.?
- Is seasonal labor available?
Operation and Investment Capital
- How much money will need to be invested in growing the crop?
- Where will this capital be obtained?
- What will be the terms of any loans (length, interest, equity requirement, collateral)?
- How many harvests are required to obtain an economic yield?
- How is the harvest interval affected by temperature?
- How long will it take with your available labor to harvest your planting each time?
- How is the crop packaged for market? What will be the cost of containers?
- Are you thoroughly familiar with the market quality standards for the crop?
- Have you studied the market history and market trends of the crop? (Crop selection should not be based only on recent high market prices.)
- Have you explored various types of market outlets?
- What are the total production costs?
- What kinds of yields can you expect?
- What is the expected gross and net income? What variation in net income can you expect?
- How does this crop compare to other crops? How does this crop compare to livestock returns?
Before making any final decisions, you must consider the relationships among enterprises. You may have enough labor to produce one enterprise as long as you don't also select another labor intensive enterprise.
Obviously, the timing of the resource requirement can be as critical as the amount of the resource required. A monthly chart of resource needs for each enterprise may be helpful.
There are several advantages to having several enterprises within one farm business. First of all, you are reducing risk. The chances of production failure and/or poor prices are lower when spread out over several commodities. Your cash flow and profit will probably be less variable from year to year in a diversified operation.
Next, diversification done correctly will mean spreading fixed costs out over more commodities. It will also mean using resources more evenly throughout the year. This may be helpful if you are relying on hired labor and can offer an employee work for a longer period of time.
A range of products may increase your access to markets. Quite often a buyer is more interested in a grower that can supply a number of commodities rather than having to buy from a number of different growers.
Finally, crop rotation and crop mix done properly have been shown to be effective methods of pest control and increasing soil fertility. These production practices include such things as inter-cropping, cover crops and green manure crops.
After you have developed a final list go back and review your goals. Make sure that the long run and short run goals are going to be met with your plan. Do not be discouraged by how demanding this process is. Enterprise selection for a farm should not be any simpler than a major decision for any business. The effort put into research should be directly related to the amount of capital at risk and the potential rewards. Remember that playing what if on paper is always less risky and less time consuming than experimenting in the field when you are not well prepared.
Note: Inclusion of an enterprise on this list does not imply endorsement of the enterprise as a good prospect for a California small farm. Each enterprise under consideration should be carefully evaluated using enterprise selection tools and in consultation with appropriate advisors.
- Bees (honey, pollinators, queen rearing, etc.)
- Beneficial Insects
- Birds (exotics, game birds)
- Bull Frogs
- Chickens (eggs for eating, hatching)
- Ducks (rare breeds)
- Fish (food fish, bait, pets, fingerlings for stocking)
- Goats (milk, meat, wool)
- Pigeons (for squab)
- Rabbits (meat, pelts, pets)
- Sheep (meat, wool)
- Christmas Trees
- Fuel wood Trees
- Specialty Lumber Trees
- Windbreak Trees
- Citrus (less common varieties)
- Dwarf Fruit Trees
- Figs (dried, fresh)
- Pears (Asian)
- Cane Berries (blackberries, raspberries, etc.)
- Beans (Any fresh shelling)
- Black-eyed Peas
- Cabbage (special varieties)
- Carrots (special varieties)
- Corn (sweet, India)
- Dandelion Greens
- Endive or any chicory, i.e., raddichio, frissee Fennel
- Garlic (regular, elephant, braids)
- Jerusalem Artichokes
- Kale - colored types
- Leeks - baby
- Lettuce (leaf and bib types - baby, gourmet)
- Melons (special varieties)
- Mustard Greens - Japanese variety
- Onions (green, special varieties)
- Oriental Vegetables (see "Glossary of Oriental Vegetables")
- Peppers (bell, chili) - unusual ethnic varieties
- Radishes (including special varieties)
- Squash (summer, winter - baby, blossoms)
- String Beans (french or Blue Lake)
- Tomatoes (fresh market, cherry)
- Watermelons -unusual varieties
Ornamental and Nursery Crops
- Cut Flowers (especially varieties not grown by large scale growers)
- Dried Ornamentals for Arrangements
- Nursery Stock (especially rare varieties)
- Seasonal Ornamentals (e.g., Indian corn)
- Seedlings (ornamentals, vegetables)
- Fiber Crops
- Hay (small bales)
- Mushrooms (exotic varieties)
- Oil Crops (sunflower, safflower, jojoba)
- Seed (commercial, rare varieties)
- Custom Machine Operation
- Farm Management Services
- Specialized Services
- Vacation Farms
- Trucking for Self & Neighbors
Back to Farm Management