As part of a series on crafting the perfect business plan, Food For Mzansi takes a deeper look at planning the production for your new farming venture. Certified business advisor Willem van Jaarsveld gives us some professional advice on the process.
Whether you wish to grow crops or farm with livestock, you need to have a solid plan on how your production process will run.
First, Van Jaarsveld recommends that new farmers choose a farming pursuit that aligns with their passion, and is something about which that already have some knowledge.
“Plan for something you know how to produce, something that has a secure market, and is adapted for the climate conditions in your area. So, three things to remember: something you know, a secure market, adapted for climate conditions in your area. That’s the best advice I can give.”
Acquiring relevant knowledge
Of course, as an aspiring farmer, you may not already have all the knowledge you will need for your venture. Fortunately there are plenty of avenues you can take to gain more knowledge, which Van Jaarsveld suggests you acquire before you lay out the plan.
“Don’t try to learn [during] the planning process. Rather learn and re-learn and learn again, before you start the planning process, otherwise you will plan and re-plan without a proper base. Knowledge is the foundation on which you build your planning process.”
He emphasises that aspiring farmers have a wealth of learning options these days.
“Nowadays there are so many of our specialised commodity organisations that are more than willing to help a new farmer with the tricks of the trade.”
Van Jaarsveld says there’s no reason for farmers who are really interested in learning, to struggle finding help, whether it’s from Google, the commodity organisations or experienced farmers. “And I think [it is] still the best learning material: the vast experience and knowledge of farmers in the region where you want to farm.”
The question of machinery
While putting together your production plan, you will no doubt stumble on some aspects of the operation that leave you with more questions than answers. One of those is the question of mechanisation.
Mechanisation is expensive, and many aspiring farmers wonder whether to hire or purchase their machinery. Van Jaarsveld says that, in a start-up, capital is always scarce. This is why hiring machinery is generally the most cost-effective route to take.
“Firstly, you don’t need to employ so much capital to get productive use of the equipment. For that reason, it is safer.”
Farmers should just make sure to hire trustworthy contractors.
“When it is a trustworthy contractor, you get the knowledge of a well-trained operator coming with a machine or machines. Also, when you hire and you have to make a change in future on your production plan, you are not the owner of the machine, so you just hire a different piece of equipment. It makes it so much easier and so much cheaper capital-wise.”
Create a partial budget
Van Jaarsveld outlines the importance of partial budgeting in this article, as this helps a new farmer determine the best practice for every commodity. “There is usually more than one way to produce a product. Partial budgeting will show you which way is the most profitable.”
Partial budgets usually include the following factors:
Income: This part of your budget includes yield and product prices. It needs to be as accurate as you can make it, and you need to be realistic and honest with yourself. If you are unsure, it is best to underestimate your income.
Expenses: Your expenses need to line up with what your expected income yield is. You cannot increase your yield without adjusting your input quantities and the cost of your production. If you are unsure, it is best practice to overestimate your expenses.
To create a partial budget, you create an “income statement” for each of your possible production methods. Create two columns for each method: “income” and “expenses” and calculate the nett loss or profit.
The statement with the highest nett profit is the method you want to choose for that commodity. Once you calculated the most cost-effective method for each commodity on your farm, remember to include a partial budget for each of them in your final production plan.
Note: Using inaccurate quantities and prices in your partial budgets could be disastrous. Check when annual increases occur for certain inputs and adjust your current prices, depending on when you plan on purchasing inputs.
All farming ventures include the risk of under-pricing, and that risk increases the further you plan into the future.
When planning your income, the budget lines will include time, quantity and price. In other words, you need to plan for when you are going to sell, what the quantity will be, and what the unit price would be.
The budget lines for your expenses tend to range broadly, and can include the cost of land, irrigation costs, fertiliser, seed, chemicals, labour costs, packaging, transport, and electricity. This list is not exhaustive and is dependent on the type of venture you will be starting.
There are also other additional capital improvements to consider, like a pack house, irrigation network, etc. These can become non-viable commodities for a new business, and must be included in your final production plan.
Your final production plan (is often not final!)
The most favourable partial budgets for each of your commodities will make up your final production plan.
By adding up all of the amounts – on the same budget line from your different partial budgets – you will end up with the total costs for that particular item. Remember to create a production timeline so you know when you will need what. A spreadsheet usually comes in handy for this purpose.
It is very important to note that the total production costs you have in your final plan may not be your actual total cost.
Final costs include both your overhead costs and direct costs, and depending on which expenses you included in your final plan, your plan may only reflect the direct costs.
And finally, your final cost of production is very likely to change as you move through the next stages of your business plan. This is a normal process and shows that you are being thorough in your planning.
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