High Tunnel Fruit and Vegetable Production

High Tunnel Fruit and Vegetable Production Lesson Ten: High Tunnel Business Planning and Marketing

Objectives • Identify the key components of a complete business plan. • Develop strategies for business and marketing planning. • Recognize the most ideal methods of organizing and marketing a high tunnel operation based on your individual situation.

Business Planning • More to starting a business venture than coming up with the idea and jumping in feet first • The success of a new venture is often predetermined before project is ever started • Reasonable chance at succeeding depends on careful and thoughtful planning

Business Planning • Steps to Business Planning: • Idea • Organization • Feasibility • Planning • Capital • Marketing • Each step requires thoughtful examination • Allocate adequate resources of time and money

Idea • Is the operation worth the effort necessary to turn it into an enterprise? • Getting started is not worth the effort if you can’t figure out how to make a profit! • Depends on: • Level of basic knowledge about the business • Ability to turn that knowledge into a profitable business venture.

Idea • If viewed purely as a business venture: • Early and accurate self-assessment of business climate is critical • Builds confidence and knowledge of the enterprise • Helps secure partners, financing and customers • Build strong understanding of enterprise • Most affordable risk management available • Detailed plans and strategies come later

Organization • Structure is one of most important decisions • Choice can be wise move or costly mistake • Initial legal business structure • Important to periodically re-examine • May achieve optimum results at start-up phase • May require adjustment as business matures

Organization • Common types of formal business structures: • Sole Proprietorship • Cooperative • General Partnership • Limited Partnership • Limited Liability Partnership • Limited Liability Company • Corporations • Selection depends on several factors

Organization • Sole Proprietorship • Easiest and least costly way of starting a business • Find location and open the door for business • Fees to obtain business licenses • Attorney’s fees for starting less than other forms • Less preparation of documents required • Owner has absolute authority over business decisions

Organization • Cooperative • Belongs to people who use it (member/owners) • Share in control of the cooperative • Meet at regular intervals • Review detailed reports • Elected directors from among themselves • Directors hire management • Oversee day to day affairs • Serve member interests

Organization • General Partnership • Can form simply by oral agreement • Legal partnership agreement highly recommended • Drawn up by an attorney • Legal fees are higher than for a sole proprietorship • Can be helpful in solving disputes • Partners are responsible for other partner’s business actions, as well as their own

Feasibility • Offers a reality check on merit of a business idea • Review of an individual enterprise differs greatly from review for a large start-up production facility • For accuracy, remove personal emotion • Utilize or engage an independent third part • “Getting a second opinion” • Develop an exhaustive set of questions to help validate the core business principles

Feasibility • Identify opportunities, unexpected hurdles and other impacts that may be encountered • Typically includes 5 areas of impact: • Local Impact • Market • Technical Resources • Final Projections • Management

Feasibility • Local Impact • Are adequate local resources available to support a high tunnel business? • Will there be negative impact/resistance to operation? • Market • Is there a clearly identifiable and measurable market? • Will business location appropriately serve the market? • How far and how often will you have to travel? • What are the transaction costs?

Feasibility • Technical Resources • Access to quality equipment and service? • Can the infrastructure needs be met? • Financial Projections • Do market projections and production assumptions match, and at a profitable level? • Adequate resources for different business climates? • Can all potential costs be identified through detailed production budgets?

Feasibility • Management • Enough experience to manage the operation? Are all area of the operation adequately covered? • Are adequate support services available to assist management?

Planning • Develop a written business plan with all details • Helps secure financing • Provides road map to keep project on track • Good business plan should, at minimum: • Describes business, structure, products and goals • Explain the roles and responsibilities of all involved • Outline the marketing plan and strategies • Illustrate the financial plan • Include assumptions and goals used to reach profitability

Capital • Takes time and effort to research the right sources • Examine needs, plan how funding will be utilized, and study what is available • Securing sufficient funds • Need enough to start and grow enterprise • Requires significant preparation • Capacity to manage funds efficiently and effectively

Capital • Inadequate or ill-timed financing large reason for business failures • If financing is required, check for local funding first. • Many rural development groups • Local lenders • Some level of local participation • When exploring options, don’t limit the search.

Marketing • Marketing is a “first, last and always” consideration • Have a established market before production starts • Good marketing program is essential to realizing fullest potential and profit • Best strategy will yield whatever level of sales it take to make business profitable • Thoroughly understand needs of potential buyers • Ability to differentiate and diversify as market changes

Marketing • High tunnel marketing strategy should capitalize on one or more of the benefits over traditional production methods • First to Market • Multiple Crops • Quality • Unique Crop • Scalability

Marketing • Critical to have a marketing plan that is adaptable • Customers ‘needs’ change • Make marketing plan changes systematically • Avoid negatively impacting ability to stay profitable • Ongoing evaluation process including: • Identification • Analysis • Strategy • Action • Evaluation

Marketing • Identification – Constantly scan marketplace for areas of threat or opportunity • Analysis – Priorities are set based on ‘potential’ customer demands. • How quickly will opportunity/threat develop? • How will it impact our products and operations? • Is it likely to become of major importance? • How would our investors expect us to act? • What is our ability to react to opportunity/threat? • What are the costs of not reacting to it?

Marketing • Strategy – Develop written strategy to address changes in market place that directly impact or change the original plan. • Action – Marketing activities are a synchronized and integrated response to the nature of marketplace. • Evaluation – Regularly monitor and measure any change to the original strategy to evaluate the impact of those changes on profitability.

Market Diversity • Strategy should not be highly dependent on one venue or market outlet • Can make the difference between profit and loss • Develop and participate in multiple markets • Provides significant risk management as well as market research • Consider a variety of marketing strategies/outlets • Key to ensuring the right option is selected

Market Outlets for High Tunnel Growers • Farmers Markets • Well suited for small, individual lots of mixed produce • Relatively easy markets to access • Rental fee may be required • “U-Pick” (Pick Your Own) Sales • Popular for perishable vegetables • Not capital intensive, but advertising essential • Accident liability insurance may be required • Challenge: Coordinating harvest frequency and customer volume

Market Outlets for High Tunnel Growers • On-Farm or Roadside Markets • Works well in areas with high traffic volume • Not capital intensive and easy to access • Packaging and grading stricter than farmers markets • Rules and regulations must be considered • Wholesale Produce Auctions • Shareholders provide startup capital for auction • Most buyers purchasing for small supermarkets, roadside stands or restaurants • Commonly commission is deducted from sale price

Market Outlets for High Tunnel Growers • Restaurant and Institutional Sales • Selling to chefs and institutional services • Most market targets are independently owned and operated restaurants • Institutional services include schools and care facilities • Marketing Cooperatives • Growers who produce similar products or have similar growing practices • Can share input costs, labor, equipment • Requires marketing agreement between members

Market Outlets for High Tunnel Growers • Supermarket Sales • Regional wholesale to chain or independent markets • Harvest scheduling is crucial • Community Supported Agriculture (CSA) • Economic partnership between growers & consumers • Consumers may pay at purchase or for whole season • Stabilize incomes and minimize risk • Usually used to diversify funding sources

Pricing • Setting price is crucial component to success • Producer can set the price, consumer controls price • What is your total cost of production? • What is the competitor’s price? • Closer to consumer = more control over price • Gauge the level of competition and consumer demand • Pricing Methods • Relative Pricing – Acquire price info from competitors • Cost-Oriented Pricing – Best method, must know costs of production

High Tunnel Fruit and Vegetable Production