In order to develop a complete agribusiness plan, it is necessary to recognize all the potential risks. The uncertainties are not limited to production, but to all facets of a business. A comprehensive manual on how to write an agriBusiness Plan was developed by Extension Agricultural Economist of Texas A&M University System. The manual gives a complete overview of the importance of agribusiness planning and how each issue should be addressed. Each topic includes a publication for reference, necessary worksheets for completing that lesson and a case study application. A farmer interested in doing an AgriBusiness Plan is advised to read and understand the manual, and then follow each step in the manual to write down his own business plan. Having a written AgriBusiness Plan has many potential uses, but overall it would help you to understand better your risks, have a plan for each one of them, and react accordingly.
The following components of an AgriBusiness Plan include:
The purpose of the executive summary is to combine all the components of the business plan into its principal points in one summary document. It must cover the information in the report in enough detail such that the reader can quickly formulate a picture of the operation. The executive summary is written after all the parts of the business plan have been completed. Follow this link to know more about the steps to consider when writing the business plan.
The business plan begins with a summary of the pertinent information regarding the operation. This includes names and contact information of all involved in making decisions, managing risk for the operation, and/or providing counsel. It provides a combined list of all the necessary information to contact the owners, managers, and others that have an impact on the operation in one central location.
If you are new to farming, you might not have a Business History, which can be omitted. However, if you have farmed, as it is the case for most Small Acreage Farmers in South Texas, then you will benefit from writing it. In this component, you should briefly describe how the operation came to be and how you came to be its owner and/or manager. This would include when and how was the operation started, the location of the operation, the source of the land, equipment and other resources, and was it inherited or purchased or is it rented. How
was and is the operation financed? What management changes have occurred over its history? What were the defining moments or events that caused you to control the operation?
Every operation has a reason for taking on the risks associated with agricultural production. The purpose of the mission statement is to precisely and emphatically state why your operation exists. It should focus each person involved in the operation each day. Anyone working within the operation should, upon reading the mission statement, know how his or her daily tasks, once completed, have helped to fulfill the operations mission. The mission statement should answer three key questions:
- What are the opportunities or needs that we exist to address? (The purpose of the organization)
- What are we doing to address these needs? (The business of the organization)
- What principles or beliefs guide our work? (The values of the organization).
Agricultural producers use resources such as land, labor, machinery, breeding stock, management and financial capital to produce commodities for sale. An accurate inventory of these resources is important for the evaluation of the current health of the operation
and planning as well as a preliminary method for evaluating new enterprises. The use of an up-to-date resource inventory can help to:
- Provide a current overview of the operation
- Complete a balance sheet
- Provide a summary of collateral that can be used for a loan
- Identify the status and condition of your assets and liabilities
- Evaluate options for growth and diversification
A SWOT analysis is a term used to describe a tool that is effective in identifying your Strengths and Weaknesses, and for examining the Opportunities and Threats you face. While it is a basic, straightforward model, it has been a popular business practice for many years because it helps provide direction and serves as a basis for the development of business plans. It accomplishes this by examining the strengths (what an operation does well) and weaknesses (what an operation does not do well) in addition to opportunities (potentially favorable conditions for an operation) and threats (potentially unfavorable conditions for an operation). Once completed, the SWOT analysis can help determine if the information indicates something that will assist the operation in achieving its objectives (a strength or opportunity), or if it indicates an obstacle that must be overcome or minimized to achieve desired results (weakness or threat).
Contemplating the prospects of legal action against your farming or ranching operation can be unnerving. The assorted unknown variables can make the planning process frustrating, while the threat of enormous adverse judgments generates an emotional response. Planning for the loss or withdrawal of a key member of your management team can also be unpleasant. The business planning process will help identify risks and assign resources to manage these risks. A large number of potential legal and liability issues will be identified with a thorough SWOT analysis. Similarly, a resource inventory will help identify the individuals and tools necessary to manage these risks. It will be impossible to list all potential liability risks as well as to completely eliminate all of the legal and liability risk from an activity as inherently risky and uncertain as agriculture. The completed business plan will address specific action plans for dealing with identified risks, as well as outline contingencies for the unforeseen risks.
One of the most important aspects of business planning is the setting of goals. Properly defined goals can assist the operation’s management team in determining whether the operation is moving forward. Goals can be either short term or long term, however, each short term goal should correspond to a long term goal, and each of these should move the operation towards fulfilling its mission statement. Goals should be incorporated into each of the financial, production and marketing components. One common theme found in most business planning publications regarding goals is the concept of SMART goals. This concept suggests that goals must be Specific, Measurable, Attainable, Rewarding and there should be a Time-frame specified for reaching each goal.
The production plan conveys the type and quantity of commodities to be produced. The production plan pairs information from the resource inventory and financial records to serve as a realistic estimate of current activities and their anticipated financial results. A thorough production plan should detail all enterprises on an operation (crop, livestock, and other) so that scheduling of labor and financial resources can be easily examined. The production plan should provide a basis for projecting future operational activities and alternative enterprises. While changes will occur, the production plan serves to document historical performance and project the future direction of the business. Crop production plans should include the estimated acreage and yield for each crop. Estimated production levels can then be combined with anticipated prices to generate some of the figures needed for the financial component. The livestock production plan must clearly identify all related production information, including the size of the herd, cull rates, weaning rates, weaning weights, rates of gain, purchase price, sales prices, etc. In addition, details regarding the replacement herd and breeding herd should be described.
10. Financial Plan
The financial plan component of the business plan serves as the heart of the overall plan and has three main objectives. The first is to identify where the operation is financially (Financial Position). The second objective is to determine how the operation performed during the previous year (Financial Performance). Finally, the third objective is to provide an analysis of where the operation will be in the future (Financial Projections). These three objectives are discussed further in this link.
11. Marketing Plan
It is essential for an agricultural producer to have a written marketing plan. Developing a good marketing plan will help you identify and quantify costs, set price goals, determine potential price outlook, examine production and price risk, and develop a strategy for marketing your crop. While producers have traditionally done a good job of producing, they have often neglected marketing. In the past, farm loan programs and deficiency payments allowed producers to neglect or ignore the marketing side of their businesses. Now, with the possible elimination of farm programs and increased volatility in the markets, producers will have the right and the obligation to determine their own financial security. In this more uncertain and risky future, failing to plan may be the same as planning to fail.
When you start writing you Agribusiness Plan, follow the example provided in the manual to guide your work.