Traveling Tobacco Road: Diversifying Risk in Traveling Tobacco Road: Diversifying Risk in a Post –Tobacco Eraa Post –Tobacco Era

Presented By:Presented By:Ben BealeBen Beale

Extension EducatorExtension EducatorSt. Mary’s Co St. Mary’s Co

Overview of ProgramOverview of Program Southern Maryland Farm Viability Grant ProgramSouthern Maryland Farm Viability Grant Program

    The purpose of the Southern Maryland Farm Viability Enhancement     The purpose of the Southern Maryland Farm Viability Enhancement Program ("Program") is to improve the economic bottom lines and Program ("Program") is to improve the economic bottom lines and environmental integrity of participating farms through the development environmental integrity of participating farms through the development and implementation of Farm Viability Plans ("Plans"). These and implementation of Farm Viability Plans ("Plans"). These comprehensive, yet focused farm plans, which are to be developed by comprehensive, yet focused farm plans, which are to be developed by teams comprised of farmers and other agricultural, economic and teams comprised of farmers and other agricultural, economic and environmental consultants, will be aimed at suggestion ways for farmers to environmental consultants, will be aimed at suggestion ways for farmers to increase their on-farm income through such methods as improved increase their on-farm income through such methods as improved management practices, diversification direct marketing, value-added management practices, diversification direct marketing, value-added initiatives and agro-tourism. initiatives and agro-tourism. 

Tri-County Council of Southern Tri-County Council of Southern MarylandMaryland

The ProcessThe Process

Administered by the Tri-County Council, with Administered by the Tri-County Council, with grant funds from the tobacco buyout programgrant funds from the tobacco buyout program

My Role: Provide leadership in development My Role: Provide leadership in development of plans, provide information and education in of plans, provide information and education in subject areas, identify other resources, and subject areas, identify other resources, and work as a team in overall review of submitted work as a team in overall review of submitted plans.plans.

Overall objective-profit

Strengthof Plan

Success of Execution

Plan not good

Execution not goodFigure 1

Why Plan?Why Plan?

Components of a PlanComponents of a Plan

Executive SummaryExecutive Summary VisionVision MissionMission Define objectivesDefine objectives Market and Competitive AnalysisMarket and Competitive Analysis SWOT analysisSWOT analysis Marketing plan Marketing plan Production or operational planProduction or operational plan Financial planFinancial plan Supporting DataSupporting Data

First Step: Vision and MissionFirst Step: Vision and Mission

VISIONVISION We are a family farm whose work is a reflection of ourselves. We are known for our practical We are a family farm whose work is a reflection of ourselves. We are known for our practical

involvement in producing quality products for a demanding customer. Our farm provides food for a involvement in producing quality products for a demanding customer. Our farm provides food for a growing community, income to support a growing family, and the values to enable the next growing growing community, income to support a growing family, and the values to enable the next growing generation.generation.

MISSION/OBJECTIVESMISSION/OBJECTIVES The following goals are integral to achieving our mission:The following goals are integral to achieving our mission:Operational Goals:Operational Goals: Increase our level of efficiency, especially with regard to grain and beef production through Increase our level of efficiency, especially with regard to grain and beef production through

increased economy of scale and management.increased economy of scale and management. To be completely transitional within the next five-year period, meaning the farm has a viable future To be completely transitional within the next five-year period, meaning the farm has a viable future

and each member has the opportunity to earn a fair income.and each member has the opportunity to earn a fair income. To position greenhouse operations and management capacity to stand on its own. Aggressively To position greenhouse operations and management capacity to stand on its own. Aggressively

pursue relationship with Bell and look for opportunity to expand.pursue relationship with Bell and look for opportunity to expand.Financial Goals:Financial Goals: Maintain low debt load, especially in reference to fixed assets. Maintain a debt-to-asset ratio of less Maintain low debt load, especially in reference to fixed assets. Maintain a debt-to-asset ratio of less

than .25.than .25. Aggressively expand new operations, with stability of income reaching the point existing before the Aggressively expand new operations, with stability of income reaching the point existing before the

buyout.buyout. Produce average net income of $25,000 for each farm operator without reliance on tobacco buyout Produce average net income of $25,000 for each farm operator without reliance on tobacco buyout

funds within six years.funds within six years.

Market AnalysisMarket Analysis

Identifying areas of competitive advantage that can be Identifying areas of competitive advantage that can be exploited in order to meet objectives of the mission statementexploited in order to meet objectives of the mission statement

Market research is thus critical to the processMarket research is thus critical to the process Direct marketing requires target market segments, identify Direct marketing requires target market segments, identify

key attributes of those segments and form strategy around the key attributes of those segments and form strategy around the needs of that segmentneeds of that segment

SWOT analysis:SWOT analysis: The SWOT analysis is simply a tool for organizing your thoughts and The SWOT analysis is simply a tool for organizing your thoughts and

determining areas of competitive advantage.determining areas of competitive advantage.

Looks internally at:Looks internally at:

Strength Strength

WeaknessesWeaknesses

Looks externally at:Looks externally at:

Threats Threats

OpportunitiesOpportunities

Internal Strengths: Strong local recognition of name Excellent internal efficiency with

management, communication and humanrecourses

Good communication skills and publicrelations

Very flexible horizontal structure Ability to specialize and customize each

product to customer needs Close to consumers Very good financial standing, low

debt/asset ratio Enjoys raising beef Internal production synergies through

feeding grain products through beef Facilities used for tobacco easily converted to beef

barns

External Opportunities Local Population base expanding offering

more customers Regional population base (within 4 hour

drive) represents 2/3 of total US population Disposable income very high in

surrounding area Large # of specialty restaurants and shops

in area Government subsidies and grant programs

for farmers direct marketing Tobacco conversion program provides

financial support for switching to otherenterprises

Limited competition in direct sales ofdifferentiated beef products

Consumer loyalty to local farm products Foreign disease scares increase value of

domestic beef

External Threats Local population base expanding-more

expensive land, large farm operations notcompatible with urban settings (noise,odors)

Traffic congestion prevents movement oflarge equipment

Unemployment low in area Farm industry very segmented and

specialized suited to large economy ofscale-leave little room in profits for smallproducer

Tobacco production not expected to last inlong term future

Internal Weaknesses: Production inefficiencies compared to

larger farms Most expertise in area of tobacco

production Marketing culture of farm based on

wholesale, commodity markets Limited experience in marketing

management

Strengths: Facilities drastically increase throughput and efficiencyAble to increase efficiency through feeding own grain

Beginning of custom beef will add value to existing lineGood at finding high quality feeders at low cost

Use of silage and haylage, alternative feeds will further reduce costsUse of ration consultant provides for accurate feed production

Existing reputation and brand value to Russell nameCapability to produce high quality animals

Weaknesses:Limited to current production given local land base

Limited ability to harvest forage economicallyTime constraints with focus on production limit time available marketing

Opportunities:Local sale of beef to expanding metro customer baseAvailability of dairy operations for potential alliances

Expanding beef production in area allows for alliances for reduced input costProximity to feeder cow/calf operation reduces cost of feeders

Threats:Traffic and population concerns over odor

Nutrient management regulations-CAFO potentialProfit margins require excellent management

Consolidation of industry

Areas of market differentiation:Areas of market differentiation:

PricePrice

ProductProduct

PromotionPromotion

DistributionDistribution

Operation and Production PlanOperation and Production Plan

Farm Execution Plan: Short and Long term Action ItemsFarm Execution Plan: Short and Long term Action Items

Beef:Beef: 2003: Finish 230 head. Sell 220 through Truth and 10 as Freezer Beef. Begin to harvest more haylage and reduce feed cost. 2003: Finish 230 head. Sell 220 through Truth and 10 as Freezer Beef. Begin to harvest more haylage and reduce feed cost.

Begin to play along with forward contracts.Begin to play along with forward contracts. 2005: Expand to 250 head--235 to Truth and 15 freezer beef. Look at another barn conversion. Begin to implement forward 2005: Expand to 250 head--235 to Truth and 15 freezer beef. Look at another barn conversion. Begin to implement forward

contracting or futures market.contracting or futures market. 2007: Complete herd expansion to 275 head with 255 to Truth and 20 to freezer beef. Seek alliance with other producers to 2007: Complete herd expansion to 275 head with 255 to Truth and 20 to freezer beef. Seek alliance with other producers to

further reduce input cost.further reduce input cost.

Greenhouse:Greenhouse: 2003: Add hanging baskets and additional house. 2003: Add hanging baskets and additional house. 2005: Maintain production2005: Maintain production 2007: Maintain production2007: Maintain production

Asparagus:Asparagus: 2003: Begin first harvest and negotiate a constant market2003: Begin first harvest and negotiate a constant market 2005: Evaluate mature harvest and markets. Decide on acreage expansion and time commitments.2005: Evaluate mature harvest and markets. Decide on acreage expansion and time commitments. 2007: Maintain production2007: Maintain production

Grain:Grain: 2003: Increase production to 1200 acres. Work on marketing program. initiate alliances with seed companies.2003: Increase production to 1200 acres. Work on marketing program. initiate alliances with seed companies. 2005: Maintain production at 1200 acres. Have defined marketing plans for entire crop.2005: Maintain production at 1200 acres. Have defined marketing plans for entire crop. 2007: Renew Lease for next cycle. 2007: Renew Lease for next cycle.

Hay/Straw:Hay/Straw: 2003: Look to increase actual harvestable yield through haylage. Seek sales to dairies. Continue with sales to contractors. Buy 2003: Look to increase actual harvestable yield through haylage. Seek sales to dairies. Continue with sales to contractors. Buy

in straw if neededin straw if needed 2005: Evaluate contractor market. Maintain production. Look for advantages in winter and summer annuals2005: Evaluate contractor market. Maintain production. Look for advantages in winter and summer annuals 2007: Maintain production based upon demand2007: Maintain production based upon demand

FinancialsFinancials Pro-forma income statementPro-forma income statement Statement of Net WorthStatement of Net Worth

any investmentsany investments show level of risk involvedshow level of risk involved show who has a stake in the businessshow who has a stake in the business

Planned cash flow statementPlanned cash flow statement determine the need for short- term operating loansdetermine the need for short- term operating loans demonstrate long term cash flow-ex)vineyard and orchardsdemonstrate long term cash flow-ex)vineyard and orchards

Financials should show different enterprisesFinancials should show different enterprises Where and when money will be neededWhere and when money will be needed

So get ready, hold on and enjoy the ride. The trying is half the fun.

And after all the hard work, you get to reap the benefit of your efforts!

The End