AUBURN, Ala.— Producers make farm diversification an important part of their farm business plans because diversification helps spread the risks that come from production agriculture.
Diversification helps to increase the producer’s profits and reduce their risks.
What is Diversification?
Ken Kelley, a regional farm and agribusiness management agent with the Alabama Cooperative Extension System said that diversification is “the attempt to capture market gains and reduce risk by having multiple enterprise opportunities as part of my business plan.”
Farm diversity is important because it spreads the risk of crop failures and market fluctuations over multiple enterprises said Kelley.
Ben Ingram row crop producer in Lee County, Ala, said that raising one crop is not a good idea because it puts the producer at the mercy of that one particular.
Ingram began diversifying his operation when the peanut quota program dissolved. This allowed him to expand his cotton production to peanuts.
Mitch Lazenby, producer in Auburn, Ala., currently has an extensive row crop program, a cow-calf operation, a bull development program and hosts different agritourism events.
Lazenby makes farm diversifity a priority.
He said that diversification helps him to stay ahead of the curve and be relevant in agriculture.
Lazenby said that most producers have a primary enterprise, such as row crops. Diversifying is smart because it will supplement the income generated from the primary enterprise.
If the row crop production brings in 75 percent of the producer’s annual income, adding agritourism should add an additional 25 percent.
Best Ways to Diversify
“Every farm is different,” said Kelley.
The different goals and needs of each farm makes diversification different for each producer.
Lazenby suggests looking to mentors and neighbors for new ideas and to constantly look for new ways to diversify.
Row crop producers will typically add different crops to their rotation. Livestock producers, such as cattle producers, will add complementary livestock, sheep or hogs, to reduce risk.
“It is important to remember that diversification doesn’t mean just growing different things,” said Kelley. “It means reducing risk and increasing profit opportunities by choosing enterprises that have somewhat different production and marketing structures in order to avoid natural disasters, disease threats, and market fluctuations.”
Too Much of a Good Thing
Producers can over and under diversify their operations.
“Producers should evaluate the sustainability of their operation as it exists and consider new opportunities as they arise,” said Kelley.
Lazenby said that it is more advantageous to improve current enterprises instead of adding too much.
Diversification should be part of the business plan from the beginning.
Kelley said that there are opportunities for diversification in most agricultural operation and each one is different and each producer has to decide what is best for them.
Farm diversification is a smart business decision for producers because it helps relieve producers from the stress that comes from relying on only one commodity market.