presentation - agritourism risk management from wv university and wv dept. of agriculture

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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

Dosingh-knights@mail.wvu.edu

, 304-23-7606

Cindy Martel, Marketing Specialist

WV Dept. of AgricultureCmartel@wvda.us

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!

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/

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/

Dee Singh-Knights, WVUESDosingh-knights@mail.wvu.edu

(304-293-7606)

Cindy Martel, WVDAcmartel@wvda.us

(304) 541-9756

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