BUSINESS PLAN. For small vegetable producers in the Rio Grande valley. Setting goals for your production and marketing plan

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1 BUSINESS PLAN For small vegetable producers in the Rio Grande valley Setting goals for your production and marketing plan Samuel D. Zapata, PhD Assistant Professor & Extension Economist Felipe Peguero, PhD Extension Associate Source:

2 Industry % Still Operating after 4 years Motivation Finance Insurance and Real Estate 58% Education and Health 56% Agriculture 56% Services 55% Wholesale 54% Mining 51% Manufacturing 49% Construction 47% Retail 47% Transportation, Communication and Utilities 45% Information 37% Statistic Brain/ Univ. of Tennessee

3 Why small farmers fails? 46% of the causes are Emotional pricing Living too high for the business Nonpayment of taxes Non knowledge of pricing/finance/record keeping Lack of planning 30% of the causes are Poor credit granting practices Expansion too rapid Inadequate borrowing practices 11% of the causes are Carry inadequate inventory No knowledge of suppliers Wasted advertising budget Source: Statistic Brain/ Univ. of Tennessee

4 The components of business planning What is business Planning? Why is it important? 1. Executive summary 2. Business Organization 3. Business History 4. Mission Statement 5. Resource Inventory 6. SWOT 7. Legal and Liabilities Issues 8. Setting Goals 9. Production plan 10. Marketing Plan 11. Financial Plan

5 Strategy of differentiation (high value) Strategy on efficiencies (low cost) Profit = Price Quantity Cost As Ag-Economics we want to help farmers Maximize their profit subject to their limited resources.

6 Resource Inventory Why to do an inventory of productive assets? It helps to know your production capacity Do you have excess and limiting resources? Determine the future direction of your operation Evaluate options for growth and diversification Determine the health of your operation Provide summary of collateral than can be used for a loan Identify the status and condition of your assets and liabilities

7 Resource Inventory What to consider? Physical/Natural Resources Human/personnel resources Equipment Resources Crop Resources Financial resources

8 Expand production Do I have enough resources to Diversify production Adopt a new production system (organic, greenhouse) Qualify for a new loan

9 S.W.O.T. Analysis Identifying your Strengths, Weakness, Opportunities, and Threats It provides a brief summary of your competitiveness It doesn t require special training It only require you being truly honest about your own operation Completing a SWOT analysis allows you to immediately see where you can take action to improve you weak areas, capitalize on your strengths and opportunities, and defend against threats

10 S.W.O.T. Analysis for specialty crop production and marketing Source: Surviving-the-Farm-Economy-Downturn: Things to Consider when Looking at Alternative Specialty Crops

11 Setting Goals Aspects to consider Goals must comply with the concept of SMART Increase profit Specific: by reducing variable cost Measurable: by $10.00 per acre Attainable : Relate: Time-framed: can be accomplish Relates to the mission without reducing yields by the end of the commodity cycle

12 Setting Goals Example

13 Production plan Major aspects to plan production Acreage and yield per crop chosen Expected price Input requirements and its cost/acre Production calendar Cash flow timing Historical yield and costs The production plan should allow you to schedule the resources (labor, cash, inputs, custom, etc.) needed for the crops chosen.

14 Production plan for a steady income

15 Production plan, Planting Calendar Source: Alex Hitt. Title: Planting Record

16 Production plan for steady income Revenue Jan Jun Dec

17 Production plan, Example

18 We could help if requested. Example for corn Production plan, Cost Structure Variable Costs Fixed Costs

19 Enterprise Budgets Resources Production plan Build your own budget tool: bit.ly/cropbudgets18

20 Production Records Used Grand Average: All records Rolling Average: Value Most recent Value Olympic Average: Eliminate top and Value bottom Production Cycle

21 Use of Enterprise Budgets Analyze the financial impact of production decisions Price estimation Identify the major sources of production cost Identify the most profitable crops Support credit applications

22 Marketing plan Marketing encompass all activities and efforts conducted to understand your customers' needs and to develop a business plan based on those needs. Historically farmers have neglected marketing Grow what the market wants, not what you can produce

23 Who is your customer? Individuals consumers Institutions and organizations: Retailers, wholesalers, schools, etc.

24 Target Market Target customers are those who are most likely to buy from you. Reduced group of customers Limited marketing resources Better target = less efforts wasted

25 Marketing Mix Four P s Four key factors that influence purchasing decisions: Product Price Place Promotion

26 Four P s: Product What are you going to sell? Tailor your product to meet your customers needs. Conventional or organic Locally grown products Fresh products

27 Four P s: Price How much can you charge for your product? Production cost Customers willingness to pay Competition price Breakeven price Profit margins

28 Breakeven price: Minimum price per unit required to cover all projected costs Breakeven Analysis Breakeven price = Breakeven yield: Expected cost Expected yield Minimum yield required to cover all projected costs Breakeven yield = Expected cost Expected price

29 Breakeven Analysis

30 Four P s: Place Where will your customers buy your product? Direct sales: Community Supported Agriculture (CSA) Farmer s Markets Pick your own Indirect sales: Grocery stores, retailers, wholesalers, etc.

31 Four P s: Promotion How will your customers find out about your product? Traditional advertising: Newspaper, TV, Radio Producers organizations Word-of-Mouth Electronic Marketing: Internet, social media, farm website

32 Electronic Marketing e-marketing is the marketing of products and services using the Internet. e-marketing includes the use of: Websites Social Media s

33 Access to a vast number of potential customers Why Using the Internet? Two way interaction tool with almost immediate feedback digital word of mouth Low cost

34 Internet Adoption Among Americans 89% Source: Pew Research Center surveys,

35 Free e-marketing resources Producers Buyers Number of Users Number of Users (1000)

36 Conclusions Lack of business planning is one of the main reason why small farmers fail Making a business planning could help you succeed There are resources at your disposal facilitated by Texas A&M Agrilife Extension Service

37 Acknowledgment Funding provided by USDA s Office of Advocacy and Outreach

38 Thank you! Samuel D.