Starting a New Agricultural Business

Research to do and questions to ask before starting a new agricultural business.
Starting a New Agricultural Business - Articles

Updated: August 8, 2017

Starting a New Agricultural Business

Define your Farm Business Goals and Objectives

Each farm business is different. Before you jump in take a few minutes to define your goals. This will help you refine your business concept. It is also essential to help you communicate with service providers like the bank and extension.

It is often helpful to think about your goals in terms of the 'triple bottom line': people, profit and planet. Think about:

  • What are your profit goals? i.e. how much income do you need from the farm?
  • What are your goals for enhancing and/or maintaining your quality of life?
  • Do you have goals of how your farm will maintain or improve the natural resources and environment?

Specific questions to consider include:

  • What is your personal goal for your new agricultural business? (I.E. to provide 50% of your income, and contribute positively to my community.)
  • How much do you plan to sell (sales volume)?
  • How many hours do you plan to work?
  • How many people will be working on the farm/ will you have employees?
  • How do you plan to measure customer satisfaction?
  • What is your profit goal?

Each goal must be stated in a quantitative manner that allows you to track progress. You must be able to measure it.

Objectives are specific strategies for reaching goals. A goal may have several objectives and every objective must be measurable. As you define your business you will want to assign responsibility for each objective to individuals within the business.

Researching your new agricultural business

Before you start researching for your new agricultural business, think about your information sources. There is an immense amount of information out there, and especially when we use the internet, not all information is reliable.

Primary and secondary information

One important distinction to consider is the difference between primary and secondary information. Primary information is either research you yourself do or research written by the person or entity that did the study. Publication in a peer-reviewed journal increases the credibility of the information. This means that other experts in that field have examined the research and agree with the methods and conclusions. For example, we get a lot of background information on agricultural trends from the National Agricultural Statistics Service and production information from University scientists.

Secondary research involves looking at information that has been reviewed and interpreted by another individual. This information is often easier to read and more concise. But, keep in mind, the person who read the original research may interpret the research according to their biases. For example, newspapers such as Lancaster Farming can be excellent sources of secondary information.

Internet searches

When you are doing an Internet search there are a few easy ways to filter your information:

  • For production related information, add "Extension" or "Penn State" to your search terms. This will not only get you researched-based information, it will also help you keep the information local and relevant.
  • When you look at a website consider whether it is a (.org), (.edu) or a (.com). In general, (.org) designates a non-profit, (.edu) designates a university. In contrast, (.com) usually designates a business that is more likely to have a stake in convincing you of their information.

Before you start to research, focus on your question. There is an immense amount of information out there. It is easy to get lost as you find more and more information. Write down your question and think carefully about where you might find the answer before you jump on the Internet or the phone.

Laws and regulations for your product or service

Often a good place to start your legal/regulatory search is your local township office. Give them a call and see what rules apply to your area or the product that you hope to purvey. Talking to neighboring farmers can also be very helpful. They may already have dealt with your local inspectors and know what issues may come up later.

Here are a few questions to ask of your local officials:

  • Which political jurisdiction has legal authority over your property?
  • If the land is zoned how is it classified?
  • Are farming and direct marketing allowed as permitted uses on the property?
  • How is farm direct marketing classified, as farm or commercial business?
  • Are you subject to "commercial" standards concerning the design of facilities?

There are a number of resources where you can search for regulations related to your product or service. The Pennsylvania Department of Agriculture has a search tool which is generally easy to use. For example, I searched for raw milk regulations and found their guidance document. Pennsylvania Farm Bureau has fact sheets under farmer resources on labor laws and farm vehicle codes. PA Code is the official source for Pennsylvania legislative code.

If you have employees you must meet consider the following protections and benefits:

  • worker safety, training and educational requirements "Occupational Safety and Health Act - OSHA,"
  • Wage and hour standards, tax withholding
  • Employee financial protections, unemployment and workers compensation
  • Liability standards for work related activities

If you determine that you have employees follow the steps below:

  • Register employees and obtain a federal tax id number.
  • Register as an employer with the state.
  • Comply with minimum wage and other wage and hour requirements
  • Comply with child labor rules
  • Pay the State Unemployment Compensation Fund
  • Obtain Workers Compensation Coverage

Producer organizations will often list regulations that are pertinent to that industry. For example the Pennsylvania State Beekeepers Association has the "Bee Law" posted on their website, as well as a more reader-friendly summary.

Penn State Extension educators will sometimes provide summaries of important rules and regulations. For example John Berry, Penn State Agricultural Marketing Educator, has summarized many meat processing regulations in the "Farmers Guide to Processing and Selling Meat or Poultry".

Registration and Licensing

The Pennsylvania Department of Agriculture offers a list of registrations required in Pennsylvania.

If you are considering organic production, Pennsylvania Certified Organic offers an overview of certification requirements. Keep in mind that you will always have to ask your certifier about individual practices.

Amount of work to produce a product

Penn State Extension production guides for agronomic, fruit, berry and vegetable crops provide a comprehensive resource describing the soil management, seeding, irrigation and pest management requirements of individual crops. Even if you plan to use organic practices, these guides are very helpful to give you a basic overview of what you may encounter. Cornell recently produced a set of organic production guides. They are not available for every crop, but are available for some vegetables and fruits.

Penn State Extension and producer newsletters cover current considerations for many production areas. Subscribing to these newsletters before you begin production will give you a preview of what may be in store for you.

Experience is the best teacher. Working or volunteering on another farm is still, by far, the best way to learn what is required to raise a crop and livestock.

Cost to raise or produce a product

In order to compare the cost of production for a number of possible enterprises, it is useful to complete an enterprise budget. If you are not familiar with enterprise budgets, an excellent place to look for help is Agriculture Alternatives, a service of Penn State. They provide sample budgets for a wide range of products. It is important to use these sample budgets as a template and insert your own costs of production which are likely to be different than those entered in their samples.

Financing an operation

Conservation Districts and the Natural Resources Conservation Service offer cost share programs that may help you pay for fencing, integrated pest management, and other conservation efforts.

Find your local conservation office by visiting the Pennsylvania Association of Conservation Districts or contacting them at 717-238-7223. For the National Resource Conservation service visit their directory of regional conservationists. They can give you the most up-to-date information on cost shares and conservation opportunities available in your county.

For example:The Environmental Quality Incentives Program (EQIP) provides financial and technical assistance to agricultural producers in order to address natural resource concerns and deliver environmental benefits such as improved water and air quality, conserved ground and surface water, reduced soil erosion and sedimentation or improved or created wildlife habitat.

The Farm Service Agency operates several farm loan programs.

Operating loans may be used to purchase items such as:

  • Livestock and feed
  • Farm equipment
  • Fuel, farm chemicals, insurance and other operating costs, including family living expenses
  • Minor improvements or repairs to buildings
  • Refinance certain farm-related debts, excluding real estate

Microloans are direct farm operating loans with a shortened application process and reduced paperwork designed to meet the needs of smaller, non-traditional, and niche type operations. Apprentice and mentorship programs, non-farm business experience, and farm labor experience are acceptable alternative solutions for helping to meet farm experience and managerial requirements.

FSA's Direct Farm Ownership loans provide farmers and ranchers the opportunity to:

  • Purchase farmland
  • Construct and repair buildings
  • Make farm improvements

A specific portion of their funding is designated for women, African-Americans, Alaskan Natives, American Indians, Hispanics, Asians, Native Hawaiians and Pacific Islanders.

Contact your local financial institutions about mortgages and commercial loans. In our area a few that work more often with farmers are:

Pennsylvania Association for Sustainable Agriculture lists grant and loan opportunities.

The Northeast Sustainable Agriculture Research and Education program offers grants for farmers interested in testing new ideas and farm techniques.

Alternative Farming Systems Information Center (AFSIC) has an index of federal grant and loan programs for agriculture and rural development. It is titled "Building Better Rural Places".

The National Congress for Community Economic Development can help you locate community based organizations such as Community Development Corporations in the area you plan to farm. These local organizations often have financing programs for small businesses.

Case studies can be a great way to see how other farmers found innovative ways to acquire the start-up costs for their farms. One place to listen to farmers tell their stories online is Cornell's "Voices of Experience Videos" as part of their Beginning Farmer Program.

Marketing strategies

Doing your own research is often necessary. When you are starting out, it is often best to limit the depth of research that you do. Try to focus on who your customers might be, how much you think you can produce, how much you think you can sell, and what is the revenue potential.

Case studies can be a great way to get ideas about potential marketing strategies. Remember to evaluate whether the strategy that works in the case study fits your goals, comfort with risk, personal and family constraints. A number of websites list case studies including Penn State Ag Marketing.

Direct Marketing - ATTRA overviews direct marketing with a section on market research and developing a marketing plan.

Organic Marketing Resources - ATTRA also offers a Resource list of publications, websites and organizations about the marketing of organic products and organic market resources.

Growing for Market - Magazine for small growers, with monthly wholesale price reports on herbs and cut flowers, along with articles on market gardening. There are many articles on legal, liability and management issues.

Instructors

Agricultural Economics, Sociology, and Education

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