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Producers are confronted with changing weather patterns, rising input costs and an uncertain economy.
Therefore, it is better not to place all of your eggs in one basket. Diversification is an effective way to spread your risk and improve your financial stability. There is a variety of ways on how to diversify your business, the most popular ones can be categorised in the following:
On the farm - inside agriculture: This is agricultural activities that utilise assets already available on the farm. On the farm - outside agriculture: Available assets are used for activities outside the usual agricultural practices. Diversification outside of agriculture: The income created by the farm is used outside of agriculture to generate additional income in other economic sectors.
However, the key to success in diversification is in having a specific goal and reason why you decided the specific activity. Below a few examples of each category will be provided. Each option is dependent on every individual's situation.
Diversification on the farm: inside agriculture
Existing agricultural practices can be expanded to contain more than one crop or animal. By planting a variety of crops, the producer is distributing the risk of a bad harvest but also improving the health of the soil through crop rotation.
Value addition is always a great option. It provides the producer with the opportunity to add value to a commodity that he is already producing. This enables the producer to participate in the margins of the value chain, while also moving away from being a price taker. An example of this is instead of just using bees for pollination, the producer can make a profit from add-on products such as honey, beeswax and beauty products.
Due to assets being shared between the different industry branches a skew picture can be drawn. Therefore, it is vital to keep full and fair record to determine the true contribution of each industry branch.
Diversification on the farm: outside agriculture
A farming enterprise does not have to be dedicated to only food production; it can also serve as a tourist destination or a place with recreational activities. Accommodation options such as a guesthouse or camping space can generate income, while walking and bike trails can serve as additional attractions.
For people looking for more adventurous activities, a shooting range can serve as an additional source of income. It can also be used as a marketing instrument for a hunting farm that will support a producer's game farm.
Further the producer can earn an income from renting out a warehouse, establishing a farm implement repair shop or even making the farm available as a film location. It remains vital to keep in mind where your passion lies and what services or products will address needs in the community.
Diversification outside the farm
Producers that want to earn a passive income have a variety of options outside the agricultural sector. Investing in property, JSE-shares and local businesses offer a platform for capital to grow without direct involvement.
In this situation it is very important to have knowledgeable people that advise and support you. It is also very important to evaluate the income on a regular basis because it remains a risk that markets can change and lead to losses. The activities then need to be positioned in such a way that it does not affect the farming enterprise.
How can all of this work together?
Diversification does not necessarily mean the producer only needs to focus on one new enterprise. A cow farmer can, for example, have his own abattoirs and package his meat under his own trademark and supply a local butchery or restaurant. Going further and buying shares in a butchery or restaurant, or even owning it, the producer can have greater power over his product's quality and maybe even receive a better price.
The important part of diversification is that it must be purposeful, with a specific objective and vision.
Hons. in Agricultural Economics. Working for Grain SA as an economist intern. Grade 7 in piano. Currently 23-years old.
