| Date post: | 14-Jan-2015 |
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Risk-Centered Decision-Making in AgritourismTools for the Beginning Agritourism
Operator
Dee Singh-Knights (Ph.D.), Agricultural Economics
SpecialistWVU Extension Service
, 304-23-7606
Cindy Martel, Marketing Specialist
WV Dept. of [email protected]
304-541-9756
Having a good and safe product that consumers want and are willing to pay for?
Marketing your product to the right set of customers?
Selling the right amount to be profitable?
Selling at the right price?
All of the above
Which is Most Important to a Successful Small Agritourism
Business?
What Motivates Farmers to Enter the Agritourism Sector?
Diversify the income stream
Social or economic reasons driven by shifts in family life patterns
Interest in educating consumers
Maintain work at home rather than working off the farm
0
20
40
60
80
100
Rank of Critical Success Factors in Agritourism
(WV Women in Agriculture Program 2012-2013)
Pro
port
ion
(%
)
Lesson 1Assessing your Agritourism Potential
What experience can I offer the public that will make my operation unique and profitable?
Does my region have the necessary characteristics to draw people to the area?
Does my farm have the necessary resources/characteristics to draw people to this enterprise?
Do we have the necessary personal characteristics to make this enterprise successful?
Lesson 1Assessing your Agritourism Potential
Assessing the Agritourism Potential of your Region and Property
How to Evaluate My Potential Agritourism Site
PART A: REGIONAL CHARACTERISTICS SCORE
1. Natural Beauty2. Cultural and Social characteristics3. Recreational Offerings in Your Region4. Shopping and Commercial Characteristics5. Public Infrastructure to Support Tourism6. Attitudes Towards Tourists7. Accessibility of your Region8. Existing Tourism Activity
Max. Score 25Max. Score 25Max. Score 25Max. Score 25Max. Score 25Max. Score 25Max. Score 25Max. Score 25
Gross Total Max. Score 200
Divide Gross Total by Standardizing Factor 20
NET REGIONAL CHARACTERISTIC SCORE MAX 10
PART B: PROPERTY CHARACTERISTICS SCORE
1. Natural or Farm Features2. Built Features and Cultural Artifacts3. Site Infrastructure4. Business Potential and Human Resource Features
Max. Score 25Max. Score 25Max. Score 25Max. Score 25
Gross Total Max. Score 100
Divide Gross Total by Standardizing Factor 10
NET PROPERTY CHARACTERISTIC SCORE MAX 10
Choosing your Marketing Strategy Based on your Tourism Grid Placement
(Partnerships/Collaboration)
The Agritourism Package – Collaborate! Link offerings - The
region is the destination.
Make it easier for travelers to locate options
Make a connection with already established trails, groups, packages, etc.
Collaborate!
Work to create the entire tourism experience or the tourism ―package!!.
Similar businesses or nearby communities aren‘t competition, they are part of your tourism product!
◦ The more there is to do, the more appealing a place becomes.
Lesson 2Assessing your Agritourism
Enterprise Profitability
What is the economic feasibility of this enterprise?
What are the potential returns relative to the costs from this investment?
Are there considerable upfront costs to be incurred?
Do I have the necessary financial resources to make this successful?
When a farm business borrows money it has an obligation to repay debt.
If you invest in this agritourism business:◦ Can I afford the interest (cost of capital)
◦ Can I meet cash obligations when due
◦ Can I make a profit and grow equity
◦ What is my cost of production relative to my revenue - will my business pay for my inputs and give me enough to live on
◦ How many visitors/customers must I pursue to meet financial goals
◦ How much should I charge for my product
◦ What does it take to make a living with this business
Is your Agritourism Enterprise Economically Viable?
Stand Alone versus Integrated Agritourism Operation – What is your PROFIT CENTER?
Farm
Goats
Petting and play area
Gift Shop (clothing,
cheese,
milk, meat)
Sheep
Farm Tours
Agritourism
operation only –
Petting zoo
Sample Enterprise Budget – On Farm Festival/Activity
Sample Enterprise Budget – Christmas Tree Farm
Stand Alone Agritourism Enterprise
Start-Up Costs
Expense Item
Annual Cost Estimate
Graded Parking Lot
$1,500
Kids; Corral (Play Area)
$1,500
Farm Improvements
$2,500
Restricted Area Fencing
$1,000
Wagons, Safety Chains, Steps, Sideboards
$7,000
Picnic Tables $500
Tents $2,000
Portable Toilets $500
Total $16,400
• These are capital or fixed costs (depreciable)
• What is the useful life of these assets
• Maybe 10 years
• Then these costs will be annualized at $1,640/year
Start with Main Enterprise Budget (main profit center)◦ Sweet Corn Enterprise Budget
◦ Maple Syrup Enterprise Budget
◦ Strawberries Enterprise Budget
◦ Meat Goats Enterprise Budget
How will my main enterprise change if I add an agritourism enterprise – Partial Budget◦ Changes in returns
◦ Changes in costs
Integrated Agritourism Enterprise
Partial budgeting is based on the principle that a small change in the organization of a farm business will have one or more of the following effects. Cause additional returns to be received
Eliminate or reduce some costs
Cause additional costs to be incurred
Eliminate or reduce some returns
Using my Main Enterprise Budget and Adding New Agritourism Enterprise
- Partial Budgeting
Compare two
alternatives – 4 questions:
What new or additional costs will be incurred?
What current costs will be reduced or eliminated?
What new or additional returns will be received?
What current returns will be reduced or lost?
Example
Using my Enterprise Budget to manage Production and Financial Risk - Partial Budgeting
Partial Budgeting - Adding agritourism enterprise to existing sheep, goat and value-added farm
Increases in Net Income Decreases in Net Income
Increase in Income Decrease in Income Entrance fees $10,000 $0 Gift shop sales $4,000 $0
Total Increase $14,000 Total Decrease $0 Decrease in Cost Increase in Cost Eliminate need for one employee
$3,000 Adding seating, washrooms, signs $500
$0 Play area for kids $500 $0 Construction and utilities for gift shop $1,000
$0 Liability insurance $100 $0 Employ one part-time employee $6,160
Total Decrease $3,000 Total Increase $8,260 Increase in Net Income $17,000 Decrease in Net Income $8,260
Change in Net Income $8,740
Lesson 3Assessing your Agritourism
Enterprise Market FeasibilityWhat is the economic feasibility of this enterprise?
Can I deliver this product at a reasonable cost?
Can I attract enough people to my enterprise to make it profitable?
Example: How many 1-hour farm tours do I need to offer in order to break-even on my
investments in farm infrastructure?
Total Fixed Costs (TFC): $4,000 Insurance - $1,000
Parking Lot Improvements - $1,000
Farm Market Improvements - $1,500
Child play area - $500
Break-Even Point (BE) = TFC/(P - VC)
BE = $4000/($120 - $80)
BE = $4000/$40Total Variable Costs (VC): $80
Wages/hour (5 workers @ $7/hr) - $35
Desired proprietor income - $40
Giveaways/Promotion - $5
Cost charged per tour (P):
$120
Break-Even Point (BE) = TFC/(P - VC)
BE = 100 farm tours
Sensitivity Analysis Example: How will my number of farm tours change as I
make other changes?
Changes in Cost per Tour:◦ Cost per Tour $100 = need 200 tours
◦ Cost per Tour $120 = need 100 tours
◦ Cost per Tour $140 = need 67 tours
Changes in Proprietor's Income:◦ Proprietor's desired Income/Tour $20 = need 67 tours
◦ Proprietor's desired Income/Tour $40 = need 100 tours
◦ Proprietor's desired Income/Tour $60 = need 200 tours
Lesson 4Assessing your Agritourism Cash
Flow
Will I be able to generate enough cash on a regular basis to pay daily operating expenses?
Can I pay my bills when they come due - Liquidity?
◦Provides information on the farm’s ability to meet financial obligations when they come due
◦Helps to identify the sources and uses of cash in the business
◦Early warning system for cash flow shortages
◦Does NOT provide an estimate of profitability
◦Helps plan for cash fluctuations in the business
Financial Statements – Projected Cash Flow Statement
Remember: If it won’t work on paper, chances
are it won’t work at all!
Lesson 5:Should I
Develop a Farm/Food
Safety Plan?
Uncertainty due to legal actions. Civic responsibility – serious health issues, even
fatal Required in some instances What regulations apply depends on:
◦ Type of product,
◦ What market are you going to
◦ Who is the end customer
‘Another petting zoo, another e-coli outbreak’◦ http://www.foodpoisonjournal.com/tags/e-coli-lawyer/
Why you Need a Farm/Food Safety Plan
Developing a Farm/Food Safety Plan
www.familyfarmed.orghttp://onfarmfoodsafety.org/
Food Safety Plan Sample Food Safety Plan
http://onfarmfoodsafety.org/wp-content/uploads/On-Farm-Food-Safety-Plan-SAMPLE.pdf
Next Step: From Plan to Checklist & Records
5. All refrigerators and freezers are checked/cleaned daily and a log is
kept.
Date
Thermometer
Calibrated
(See Log)
Date
Recorded temperature
Corrective actions if necessary:
Result of corrective actions and date
accomplished Initials
AM PM
10/20/13 10/19/13 37°F 38°F Pulled cooler out from wall to improve circulation; cleaning
Compare temperature in AM
CAM
10/21/13 10/20/13 36°F 36°F Maintain distance from wall for consistent temperature; cleaning
Cooler temperature is now consistent
CAM
COOLER TEMPERATURE LOG
Location: Farm Theater Drink Cooler
Storage Cooler number: #5 Thermometer number: #10
Please see the OFFS Project Resources section for thermometer calibration instructions at http://onfarmfoodsafety.org/resources/risk-assessment-resources/.
Forms Link
http://onfarmfoodsafety.org/forms-and-templates/
