Many farmers have challenges staying profitable when there’s a bad harvest or the main season is over. In modern farming, diversification is vital if you want the farm’s continued success as a business.
In fact, many farmers consider diversification when looking for ways to improve their revenue and stay economically viable, especially those committed to only one venture. Taking this approach can protect your income, with the opportunity to invest in various assets and reduce the risk of your investments.
Diversification allows you to use your land and farming property for more than one purpose, provides you with another income stream to fall back on in difficult times, boosts your earning potential, and spreads the downside risk over more than one enterprise. In this article, we’ll discuss the importance of diversification in modern farming and the steps to take to position your farming operation for long-term success.
What is the Importance of Diversification in Modern Farming?
Diversification allows farmers to make better use of their farm’s physical and natural resources. By diversifying, you can secure your farm’s long-term success, prosperity, and income. This adds stability to your farming business in times of uncertainty and optimizes your assets. The importance of diversification in modern farming also includes:
- Increased revenue: The extra income made for new farming activities could improve your quality of life. However, you can reduce economic uncertainty by investing in more than one farming business or cultivating more than one crop type. Furthermore, diversification lets you take advantage of the farming markets in your region.
- Adaptability: Diversification allows you to change and look out for new opportunities. By venturing into a new farming activity, you will learn what works for you and your farm and be better able to make further changes when required and respond to new opportunities as they arise.
- Security and risk spreading: Diversification provides you with a long-term future and better stability by moving into new farming activities. By diversifying, you will increase your farm’s sources of revenue, ensuring that you are less exposed to any one-income source that will let you down and spread the downside risk over more than one enterprise.
- Tradition: Diversifying lets you carry on your farming tradition. While diversifying may be on increasing income, reducing risk, and securing a future, it can also provide the means of subsidizing and continuing the traditional activities you value and enjoy.
- Develop new farming skills: Starting a new venture will provide the opportunity to increase your skills and expand your business network of contacts. In addition, diversifying will develop your business flair, from marketing to management and finance to customer service.
- Improved food supply: Diversifying a farm can help improve the food supply by providing a variety of food options for the population. This is especially important in territories where food supply is a concern.
How to Diversify in Modern Farming
Diversification requires a great consideration of what you think would be the most beneficial to your farming business if this were something you plan to explore. But first, you must focus on your farm’s assets and use them. There are several questions to ask when contemplating if diversification is right for your farming business:
- Are you making the most of your farm resources, waste products, and equipment?
- Could you work with other farmers or engage with your local community?
- Who will choose/buy your products, and why will they buy from you?
- Will you be competitive on price?
- Is this a growth farming market, and how big is the future?
- What elements are driving future needs?
- How much will it cost you to start up?
- Can you create a solid business strategy that works with current farm activity?
- Have you got the energy, drive, and ability to deliver success?
If you have provided a positive answer to these questions, here are steps to diversifying your farming operation:
- Determine a revenue-generating opportunity for your farming operation.
- Next, conduct market research into that new opportunity – whether it’s entering a new market, welcoming the idea of agritourism, or adding a new product.
- Build a network of people. Once you’ve identified and researched a potential diversification venture, start networking with people in that market to learn the intricacies of your new venture and understand its challenges and costs.
- Create a business plan. Your business plan should be realistic, simple, and specific, starting with a mission statement that reflects the reason for your diversification. Next, list your goals, gather background information, and formulate a farm strategy. Finally, your business plan should include a management summary, a marketing plan, and a financial analysis fully explaining your new venture’s operating cost, expected income, and overall ROI.
- Secure your finances. Make sure you have enough capital to fund your new venture and discuss with your financial expert to determine your operation’s long-term or short-term financial options.
- Be ready for errors. Chances are high that you won’t manage your new venture correctly right away. So assume you’ll hit some roadblocks rather than expecting a smooth process. For example, you may realize you need more capital than you initially predicted or may need to hire more employees to help your venture get off the ground.
It’s a good idea to start something new if you are struggling with your current farming business. But you’ll need to learn all the new practices and methods to be profitable. So start small, and grow the enterprise as you develop.
Diversify Your Farming Operation With Us
With so much uncertainty and growing financial pressure on farmers, diversification offers an easy way to smoothen your returns. Here at United Farm Mortgage, we provide loans designed to meet the unique needs of a farmer, landowner, or rancher. Our loan experts can work with you to determine the best financial approach to diversifying the farming operation that positions you for growth and long-term financial success.
Let us help you today so that you can ensure you’re making enough money as you’d like in your farming business.