Business Strategies for Nevada Agriculture Producers March 22, 2013

Transcription

1 March 22, 2013

2 Business Strategies for Nevada Agriculture Producers March 22, :00 a.m. What is Risk? Risk Tolerance Types of Risk Nicole Deck, Agri logic Consulting 9:45 a.m. One-Page Business Plan, Staci Emm, UNCE Extension Educator 10:15 a.m. Budgeting Principals, Malieka Landis, UNR Center for Economic Development 10:30 a.m. Managing Your Credit Score, Jennifer Kintz, Project Instructor 11:00 a.m. Financial Record Keeping for Federal Income Tax 11:30 a.m. FSA Program Overview 12:00 p.m. Lunch Provided 1:00 p.m. Crop Insurance DARTS Computing system for AGR Crop programs. Food Safety GAP Audits Nicole Deck, Agri Logic Consulting 2:00 p.m. Building an Enterprise Budget for your operation Estimating Cash Flow Malieka Landis, UNR Center for Economic Development 3:00 p.m. Marketing Concepts Targeted Marketing Consumer Markets & Consumer buying behavior Staci Emm, UNCE Extension Educator 4:00 p.m. Questions

3 Table of Contents What is Risk, Risk Tolerance, and Types of Risk. 1 Business Planning.14 One-Page Business Plan...18 Financial Record Keeping Overview..20 Financial Statement Information 25 Understanding Your Credit Report...31 Financial Record Keeping for Federal Income Tax..37 Income Tax Forms and Information..41 FSA Program Overview Loan Programs Overview 68 NAP Program 69 Micro Loan Application 72 Crop Insurance and DARTS Program..85 Is it Worth It? Building an Enterprise Budget Marketing Concepts..108 Worksheet Page Worksheet Page

4 Risk Management Education Workshop United States Department of Agriculture About the Presentation This presentation was made possible by a grant from the USDA Risk Management Agency Risk Management Education Program In accordance with Federal law and U.S. Department of Agriculture policy, this institution is prohibited from discriminating on the basis of race, color, national origin, sex, age, or disability. To file a complaint of discrimination, contact USDA, Office of the Assistant Secretary of Civil Rights, Whitten Building, 1400 Independence Ave., SW., Washington, D.C., or call Toll Free; or Federal Relay Service; or (In Spanish); or between the hours of 8:30 am and 5:00 pm Eastern Standard Time; or (TDD) USDA is an equal opportunity provider and employer. 2 Risk Management 101 United States Department of Agriculture Business Strategies for Nevada Agriculture Producers 1 1

5 What is Risk? Definition 1: The possibility that something unpleasant will happen in the future. Definition 2: The possibility of adverse outcomes due to uncertainty and imperfect knowledge in decision making. Three issues to consider: o Frequency of Loss (How often?) o Severity of Loss (How bad?) o Overall Dollar Impact (What s it going to cost me?) 4 What is Risk Management? The practice of managing our life and resources, in a manner that provides an acceptable level of risk. Risk management is everything you do to understand and deal proactively with risks. There are two primary aspects of risk management: 1. The first is anticipating that an unfavorable event may happen and acting to reduce the chances that it will happen. 2. The second aspect of risk management is contingency planning taking actions ahead of time to reduce the negative consequences if something bad happens. 5 Agricultural Risk Management Knowing where you are financially Knowing your cost of production Understanding your markets Knowing what risk management tools are available and how they work Seeking input and communicating with family, employees, loan officers, and insurance agents Setting goals, developing a plan, and transitioning farms from one generation to another 6 Business Strategies for Nevada Agriculture Producers 2 2

6 Risk Management Techniques Risk Avoidance o Not participating in the stock market, not pushing either end of planting windows Risk Control o Prevention: Lowers frequency Irrigation o Reduction: Lowers severity Spraying for a visible pest Keeping fences in good repair to control livestock o Diversification: Lowers both by spreading risk Risk Financing o Self Insurance/Retention Using liquid reserves from previous years profits o Transfer through Insurance & Hedging A contractual arrangement to shift and share the risk for a premium 7 What is Risk Tolerance? Risk Attitude Seeking Neutral Averse Low Risk Tolerance Medium High Risk Attitude: o Risk Averse Conservative o Risk Seeking Gambler o Risk Neutral Things that affect risk tolerance: Age Low Medium High Family status Risk Bearing Ability Debt level Psychological makeup Previous experiences 8 Risk Tolerance Evaluation A conservative cautious careful skeptical concerned about the future protect what we have why change? what will someone think? they already tried it there's a lot we don't know let someone else try it quick decisions risk is great willing to try anything go for broke might be fun big profits spontaneous what are we waiting for? if it sounds good try it push the envelope do it and pick up the pieces later B 9 Business Strategies for Nevada Agriculture Producers 3 3

7 Risk Tolerance Evaluation C study things first consider the odds be the first make informed decisions innovator no need to wait this will be a trip! why wait to start? don't need all the answers willing to take a chance rewards of risk are worth the price D get all the answers know all the facts good decisions follow knowing the facts let's not go overboard keep things stable conservative, but realistic keep things in balance is this good for family and community? is this the right thing to do? how will this affect my kid s future? let's plan this 10 Risk Tolerance Evaluation 1. Which of the following statements would best describe how you feel about investments? A. My investments should be completely safe. I do not want to run the risk of losing any principle at any time. B. I want the highest possible return from my investments, no matter what the risk. C. Getting high returns from my investments is like a never ending game. D. I like to thoroughly study prospective investments so that I can balance return with risk. 2. Which of the following statements best describes how you feel about market volatility (big price swings)? A. I wish prices would just stay the same. B. I love the challenge of going for broke with prices that change often and fast. C. If you play your cards right, you can come out the winner when prices change a lot. D. If you study all the angles, you can do OK even when prices change a lot. 11 Risk Tolerance Evaluation 3. There is a 50 percent chance that the price of supplies you definitely need in your business will go up in the future; along with a 50 percent chance that the price of those supplies will go down. How would you react? A. Buy the supplies now when you know what the price is. B. Wait the market out. You want to be the lowest cost producer out there. C. It will be fun to see how this will all turn out. D. Study what is happening in the market and make a decision when I have all the facts. 4. Your family is exploring the need to expand their operation and is considering tripling the size of the business. Which fits the way you feel? A. We're debt free now and doing well. Why change anything? B. There's big money to be made if you have the brains and brawn to make it fly. Let's do it! C. This will be the adventure of a lifetime! D. We need time to talk to other operations that have expanded and plan more thoroughly. 12 Business Strategies for Nevada Agriculture Producers 4 4

8 Risk Tolerance Evaluation 5. Your family is considering the amount of labor needed to run a proposed expansion of your business. How do you approach the subject? A. Let's not make the move until we're positive we have the labor lined up. B. We will find the workers somewhere, don't worry about it. C. We're really going to have some big changes around here. It may be a trip! D. If we do an analysis of what the labor supply is in our area, we should be able to expand with confidence. 13 Risk Tolerance Scoring Add up the number from each column in Part I and place the totals next to the matching letter. From Part II, add up the number of responses for each letter, multiply by 2 and place the number in the line under Part II. 14 Risk Personality Most in A = Avoider Most in B = Daredevil Most in C = Adventurer Most in D = Calculator *Descriptions to be read aloud (included in notes) Source: Matthew Glewen and Larry Swain UWisc Extension February Business Strategies for Nevada Agriculture Producers 5 5

9 Types of Risk Production Risk Anything that hinders the quantity and quality of your production. Market Risk Market uncertainty for your product, price declines, gov t actions to limit imports/exports, input costs. Financial Risk Having the ability to pay your cash obligations in a timely manner, to obtain capital and financing, and to protect or grow your equity. Legal Risk The possibility of being sued, fined, or penalized for violating current or future laws, regulations, or contractual obligations. People Risk Managing people and disruptions that come from any of the 4 Ds: disappearance, death, divorce, or disability. 16 Production Risk 17 Major Sources of Production Risk Weather o Drought o Freeze o Hail o Flood/Excessive rainfall at harvest o Wind/Hurricane Pests o Insect damage o Wildlife Disease Natural Disaster o Earthquake o Volcanic Eruption 18 Business Strategies for Nevada Agriculture Producers 6 6

10 Managing Production Risk Good Farming Practices o Vary by crop and area; follow standards recommended by local experts Diversification o Choose an additional enterprise that is efficient and profitable Excess Capacity o May be excess machinery, labor or feed (reduce risk of loss) Lease Arrangements o Shares production risk with landowner Stay up to date on new information and technology Crop Insurance Federal or Private 19 Managing Production Risk Good Ag Practices Includes IPM, nutrient management planning, rotational grazing, and careful herd health management. Can reduce costs and increase efficiency in the use of pesticides, fertilizer and other inputs, since you only apply materials when and in the amounts necessary for optimum production. Always be careful to minimize spray drift, and to store and dispose of toxic materials properly. o You may need to document pesticide and fertilizer applications. These practices not only limit your legal risk from environmental mishaps, they can reduce costs and improve profitability, thus reducing your financial risk. 20 Managing Production Risk Diversification Diversification refers simply to an increase in the number of enterprises operated on the farm. Lowers frequency or severity of loss by spreading risk exposure and reducing income variability often through separation or duplication. May take several forms: o More than one field crop to spread the work over a longer planting and harvesting season; o More than one enterprise (such as livestock); o Adding value to a crop you currently produce (direct marketing, vertical integration); o Custom planting or harvesting, storing grain for others, or utilizing existing labor or management abilities to their best advantage. 21 Business Strategies for Nevada Agriculture Producers 7 7

11 Managing Production Risk Diversification Enterprise Diversification (cont.) o Effective diversification occurs when low income from one enterprise is simultaneously offset by satisfactory or high incomes from other enterprises. o Diversification can: Reduce large year to year variations in income. Help ensure adequate cash flow for meeting production costs, debt obligations, and family living needs. Can be increasingly costly, as capital investment and management capabilities requirements become greater. o Also includes off farm income and benefits such as spouse employment, etc. 22 Managing Production Risk Excess Capacity Could include machinery, labor, feed, etc. o For example, in areas where weather conditions commonly postpone planting, a farmer with excess machinery or labor capacity will be able to catch up on planting to avoid that risk of production loss. o Similarly, livestock producers with excess feeding capacity can reduce the risk of loss if there is a drought, fire or some other event that makes feed unavailable. NOTE: As with diversification, the cost of maintaining excess capacity should be weighed against the benefits of lowering production risk when making management decisions 23 Managing Production Risk Lease Agreements Utilizing leasing arrangements can also help reduce production risk. With a crop share or livestock share lease, the farmer shares production risk with the landowner. o For example, under a crop share agreement, the landowner receives a portion of the crop yield as rental payment. If production yield is significantly reduced, the landowner also receives a reduced quantity and the burden of the loss is shared between landowner and tenant. 24 Business Strategies for Nevada Agriculture Producers 8 8

12 Managing Production Risk Technology A farmer who is well informed about and follows new and proven production practices can reduce his production risk. Adopting new technologies can also help reduce production risk. Examples: o Biotechnology and the focus of genetic research on improving yield have produced seed varieties that are more resistant to drought and disease and can reduce production risk for farmers. o A crop producer who invests in new machinery or irrigation equipment may lower the risk of equipment or water problems reducing his yield. 25 Managing Production Risk Private Insurance Crop Hail Insurance o Crop hail insurance gives supplemental, acre by acre protection that more accurately covers the true cash value of damage from hail. o Crop hail insurance can fill coverage gaps when part of a crop damaged by hail might be less than the deductible on an MPCI policy. Named Peril Insurance o Designed to cover gaps in coverage, hazards to specific crops, or to cover a processor o Usually supplements MPCI or Crop Hail policies, but may be stand alone Examples: ELS cotton rain, citrus freeze o If you have an idea for a new insurance product, share that with your insurance providers and/or regional RMA office 26 Legal Risk 27 Business Strategies for Nevada Agriculture Producers 9 9

13 Legal Risk Concerns Possibility of being sued, fined, or penalized for violating current or future laws, regulations, or contractual obligations. o Example: Acquiring an operating loan has legal implications if not repaid in the specified manner. o Example: Production activities involving the use of pesticides have legal implications if appropriate safety precautions are not taken. Legal risks associated with agriculture fall into four main categories: 1. Appropriate legal business structure and tax and estate planning, 2. Contractual arrangements, 3. Tort liability, and 4. Statutory compliance, including environmental issues. 28 Structural Entity of Operation Structural Entity of Operation o Sole Proprietor (all risk all reward) o Partnership (shared risk and reward) o LLC (1 or multiple owners with limited liability) o Corporations (Sub S or C having 1+ owners with limited liability) Make it legal in a written document o Once you have an understanding of all the benefits, risks, and limitations, put your business formation in writing 29 Structural Entity of Operation Multiple shareholders need to consider: o Document each owner s fair market value of the contribution o Document each owner s percent share of the profits and losses generated (May or may not be equal to the ownership interest percentages). o Document formal methods for making business decisions. Someone has to be appointed as the final yes or no person. Different areas of the operation could have different decision making owners. o Document a plan of action if there is a death, disability, or divorce of one of the owners. This section of the document will also be used when each partner is doing estate and retirement planning. o Documenting the rights or restrictions an owner has when he/she decides to sell his/her share of the business. 30 Business Strategies for Nevada Agriculture Producers 10 10

14 Contractual Agreements Contract is any agreement (written or verbal) where the parties exchange mutual promises in return for some sort of consideration or benefit. Contracts include: o Financial arrangements, such as promissory notes and mortgages o Leases and crop share arrangements o Many State and Federal farm programs o Sale of agricultural products often completed by contracts for future performance o Crop insurance coverage o Employment arrangements To mitigate contractual risks: o Get agreements/contracts in writing o Enter into agreements with trustworthy parties o Specify how disputes will be handled 31 Tort Liability Arises from the negligent or intentional infliction of damage to a person or to property o Simplest type of tort arises where someone is injured on a farm or ranch property o Typically insured under a general liability insurance policy Wrongful discharge Toxic tort" o Adjacent landowners, public groups, or others assert liability for damage to air and water quality on account of agricultural activity To mitigate the risks associated with tort liability, make sure you: o Have general property and liability insurance and review the policies to see if there are any exclusions or limitations. o If there are exclusions you are concerned about, purchase supplemental insurance. May be a good idea to conduct a cost benefit analysis for the additional coverage. 32 Statutory Laws Variety of statutory mandates apply to agricultural producers. o Tax reporting and payment obligations o Wage, hour and safety requirements o Compliance with nondiscrimination statutes o Termination of employees o Use of pesticides and herbicides o Participation in certain farm programs Environmental liability and pollution laws o Many of the newer liability policies exclude coverage for pollution claims entirely. However, farmers can purchase special pollution insurance policies, if desired. o Liability insurance affords no protection from criminal penalties assessed against a farmer by a regulatory agency. o Farmers can greatly reduce their criminal liability risk exposure by following environmental audit procedures and maintaining records necessary to prove compliance, such as the applications of herbicides, pesticides, and fertilizers. 33 Business Strategies for Nevada Agriculture Producers 11 11

15 Additional Legal Risk Strategies Good practice to visit an attorney prior to entering into significant business matters such as an entity structure or contractual arrangements Preventive actions are often cheaper and less time consuming When contacting an attorney, you should ask for basic information about the attorney's familiarity with the law for particular situations Attorneys are like other professionals in that they often specialize o For example, a good contract attorney may not have much expertise in estate planning or environmental law You should have a good understanding of fee arrangements, billing cycles, expected costs, etc., for any matters that will involve your attorney o Some land grant universities and State cooperative extension services also have lay publications about legal issues 34 People Risk 35 People Risk Seven functions that describe human resource management: o Job analysis and job description o Recruiting and hiring o Orientation and training o Employer/employee interaction o Performance appraisal o Compensation o Discipline Clearly define how business plans and decisions are made o Involving employees and family can create sense of group ownership o Can improve safety performance and reduce legal risks from employee relationships 36 Business Strategies for Nevada Agriculture Producers 12 12

16 People Risk Primary Concern: Losing key owner(s), partners and employees o 4 D s: Disappearance, Death, Divorce, Disability Mitigate by having o Life insurance and disability insurance to offset lost income, hire new employees, and meet cash flow needs o Heath insurance and long term care to offset any new expenses o Cross functional training of employees and owners o Written succession and estate plans 37 Conclusion of Session 1 We will take this time to answer your questions 38 Business Strategies for Nevada Agriculture Producers 13 13

17 3/19/2013 BUSINESS PLANNING One-Page Business Plan Overview WHY ARE YOU DOING THIS? Critical planning need Why we don t plan too complicated, don t like it, too time consuming. Outcome-based planning Begin with the end in mind, then work backward to figure out how to get there Getting it out there Everyone is more likely to do something that is written down Getting it mutual Everyone involved needs to know where we are going THE MISSION STATEMENT If you don t know where you are going, what road will get you there? Business Strategies for Nevada Agriculture Producers 14 1

18 3/19/2013 INSPIRE *UNITE * DYNAMIC Mission Statement Why this is important and how it will help you reach your vision? Guides everything you do Reason for existing Purpose Keep it simple Core denominator that defines your business WHAT IS A MISSION STATEMENT A mission statement describes how we will take ourselves to the future we want to create for our community, family and/or tribe. Why does your land ownership exist What makes you unique What will we (you) be known for.. To whom are we responsible to What need do we fulfill Particular offering of products and services Particular context or value proposition DESIGNING OBJECTIVES Make your objectives general Stay focused do not stretch yourself too thin. Challenge your business What do you want your business to look like in the future? Your objectives are untimed Stay focused on your Mission Statement. Realistic and achievable Business Strategies for Nevada Agriculture Producers 15 2

19 3/19/2013 REACHING GOALS Translate your objectives into SMART goals. Aim at a specific, measurable, attainable, rewarding and timed. Value centered Personal, family, business Ordered by priority What is needed? What is required? What brings the greatest reward? Realistic and achievable. Goals may pertain to more than one objective. ACTION PLANS Every goal must have an action plan. Action Plans are Precise Individually itemized plan for action. Describe Who What When Where How Action Plans detail who will do it, how, where, by when, and how often. Action plan should have predetermined measurable standards with proper corrective action when appropriate. SETTING THE GUIDEPOSTS Major areas of disagreement Family vs. business goals Personal goals Acceptable levels of risk Definition of success Business Strategies for Nevada Agriculture Producers 16 3

20 3/19/2013 SETTING THE GUIDEPOSTS Adequate Communication Records Planning Profit or benefit potential Debt management SETTING THE GUIDEPOSTS Success depends on resources Personal/business resource inventory Physical resource inventory Fiscal resource inventory Business Strategies for Nevada Agriculture Producers 17 4

21 Plan to Succeed Mission: The mission for your business guides everything that you do. Keep it simple by finding the lowest common denominator. Objectives: Objectives are general directions for your business. They outline what you want the business to look like in the future. Stay focused on your Mission Statement. Objective 1: Objective 2: Objective 3: Objective 4: SMART Goals: Remember, a goal without a deadline is just a dream! S Specific M Measurable A Attainable R Rewarding T Timed SMART Goal a): SMART Goal a): SMART Goal a): SMART Goal a): Action Plan: i. ii. iii. Action Plan: i. ii. iii. Action Plan: i. ii. iii. Action Plan: i. ii. iii. SMART Goal b): SMART Goal b): SMART Goal b): SMART Goal b): Action Plan: i. ii. iii. Action Plan: i. ii. iii. Action Plan: i. ii. iii. Action Plan: i. ii. iii. Action Plans: Every goal must have action plans that explain how that goal will be accomplished. Explain who will do what, where, when, how, and how often. Business Strategies for Nevada Agriculture Producers 18

22 INSTRUCTIONS: One-Page Business Plan Mission: The mission for your business guides everything that you do. Keep it simple by finding the most core denominator that defines your business. Objectives: Objectives are general, observable, challenging and untimed directions for your business. They outline what you want the business to look like in the future. Caution! Too many objectives will result in too many priorities to focus on. Stay focused on your Mission Statement. This may result in too much to do, leading to less effective results. Try to establish at least 4 but no more than 8 objectives. SMART Goals: All goals need to share all of these characteristics: Specific, Measurable, Attainable, Rewarding, and Timed. Work on setting goals for one objective at a time. Each objective will have its own set of goals; however, some goals may contribute to more than one objective. Action Plans: Every goal must have action plans that explain how that goal will be accomplished. Action plans (or tactics) are precise and individually itemized plans for action. They describe exactly Who, What, When, Where and How activities will take place in order to accomplish a goal. Action plans detail who will do it, how, where, by when, and how often. Then the key to successful action plans is proper monitoring and comparison to predetermined measurable standards with proper corrective action when necessary. Business Strategies for Nevada Agriculture Producers 19

23 3/19/2013 Financial Record Keeping Overview Malieka Landis, M.S. Research Analyst University Center for Economic Development University of Nevada, Reno Separate financials for business and personal Don t obscure decision-making tools Business: match revenue to expense Personal: maximize savings, minimize expense Ask yourself: Is this a common expense for businesses like mine? Is this expense necessary for business operations? IRS Legal No Co-mingling!! Budgeting Plan for future based on estimates Accounting Recordkeeping of actual expenses and revenue Compare estimate to actual on regular basis Types of Financials Business Strategies for Nevada Agriculture Producers 20 1

24 3/19/2013 Record actual expenses regularly Set recordkeeping rules and stick to them across time and situation Leave some slack in budget Higher expense Lower income Consistency Stay on target toward goal Prepare against risk or for opportunity Control against irrational exuberance Blueprint to Success Increased credit rating Asset accumulation Cash accumulation Cash is KING!!! Build Capital / Reduce Debt Business Strategies for Nevada Agriculture Producers 21 2

25 3/19/2013 Questions? Business Strategies for Nevada Agriculture Producers 22 3

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34 3/19/2013 UNDERSTANDING YOUR CREDIT REPORT BY JENNIFER KINTZ WHAT IS A FICO SCORE? YOUR CREDIT REPORT IS CREATED BY THESE 5 THINGS. 35% PAYMENT HISTORY 30%TOTAL DEBT 15% AGE OF ACCOUNTS 10% NEW CREDIT 10% TYPE OF CREDIT Business Strategies for Nevada Agriculture Producers 31 1

35 3/19/2013 WHY SHOULD YOU CARE? COMPARE COSTS ON THIS NEW VEHICLE CURRENT RATES CREDIT SCORE OF CAR COST $30,000 RATE 2.99 % TERM 60 MONTHS TOTAL COST $32, Business Strategies for Nevada Agriculture Producers 32 2

36 3/19/2013 CURRENT RATES CREDIT SCORE OF 679 CAR COST $30,000 RATE 7.25% TERMS 60 MONTHS TOTAL COST $35, THIS SAME VEHICLE WILL COST YOU $3, WHAT WOULD YOU SPEND AN EXTRA $3, ON? How much will I have saved for a car? At some point you will want to buy a car. If you begin saving now, how much will you have What interest rate? Howl old are you? How old will you be when you buy a car? How much have you saved now? How much will you save each week? How often is interest compounded per year? 6.0% This is the annual rate of interest you get on your savings 10 These two questions are used to find out how long you will be saving 15 $0.00 If you already have some money saved put the amount here $25.00 This is the average amount you will save each week for a car. 12 Usually monthly, put in number of times each year (12 for monthly) How much will you have for a car? $7, Note: Use this calculator to look at saving for a home, car or any situation where you will Total Saved 6500 Interest earned $1, Business Strategies for Nevada Agriculture Producers 33 3

37 3/19/2013 WHERE DO YOU START TO FIX YOUR CREDIT? THREE THINGS TO LOOK FOR. WHAT IS YOUR SCORE? WHAT ARE YOUR BALANCES? IS THERE ANY CREDITORS ON YOUR REPORT THAT YOU OWE, YOU DON T REMEMBER DOING BUSINESS WITH? IF YOU KNOW THERE HAS BEEN I.D. THEFT CONTACT EQUIFAX: ; EXPERIAN: ; TRANSUNION: ; Business Strategies for Nevada Agriculture Producers 34 4

38 3/19/2013 WHAT MAKES UP YOUR CREDIT SCORE? 35% PAYMENT HISTORY PAY ON TIME 30% TOTAL DEPT ON CREDIT CARDS ONLY USE 1/2OF CREDIT CARDS MAX AMOUNT. 15% AGE OF ACCOUNTS THE OLDER THE BETTER 10% NEW CREDIT DON T APPLY FOR MULTIPLE CARDS 10% TYPES OF CREDIT HAVE A GOOD MIX HOME, CAR,CARD WHAT HAPPENS IF YOU CAN T PAY YOUR BILLS ON TIME? CONTACT THE COMPANIES THAT YOU OWE. PAY YOUR HOME AND CAR LOANS FIRST. IF YOU KNOW YOU CAN NOT MAKE YOUR CAR PAYMENT, TRY TO SELL YOUR CAR FIRST DO NOT HAVE IT REPOED IF YOU CAN AVOID IT. HOW LONG WILL A REPO EFFECT YOUR CREDIT? 7 TO 10 YEARS Business Strategies for Nevada Agriculture Producers 35 5

39 3/19/2013 DON T FEEL LIKE THIS GUY THE NEXT TIME YOU GO TO GET A LOAN! Business Strategies for Nevada Agriculture Producers 36 6

40 3/20/2013 Staci Emm, Extension Educator UNCE, Mineral County An efficient record keeping system will assist you in Financial management Tax calculations and liabilities Payroll information Government Information forms Applications for loans and disaster loan programs Applications for insurance and other disaster programs Management decisions Monitoring costs and theft Easy to use Easy to understand Reliable Accurate Consistent Designed to provide information on a timely basis Business Strategies for Nevada Agriculture Producers 37 1

41 3/20/2013 Cash Method Income is recorded when cash is received, and expenses are recorded when cash is disbursed. This method is most commonly used by sole proprietorships, and partnerships when no inventories are kept. Accrual Method Income is recorded when earned, and expenses are recorded when incurred. Must be used by corporations and some partnerships. The records must clearly reflect income, expenses, and net profit or loss regardless of the bookkeeping method used. Small Business Taxes Federal Self employment tax. Income tax. Employer Identification Number (EIN) Partnerships and Corporations = EIN Sole Proprietor = EIN is required if they pay wages to one or more employees or are required to file any excise. Otherwise, a social security number is used. Contact IRS to obtain an application for EIN. State Sales tax = Sale of tangible goods. Filings and payments due quarterly. Use tax = Use of tangible goods which sales tax was not paid at the time of purchase. County Property Tax = Fees paid on real estate and personal property. Social Security Tax = Percentage of gross wages. One half is paid by the employer and remaining half is withheld from employees paycheck. Medicare = Percentage of gross wages. One half is withheld from employees paycheck and other half is the employers responsibility. Federal Income Tax = Based on remittance to the IRS. Unemployment Tax = Paid by the employer for an employee. Business Strategies for Nevada Agriculture Producers 38 2

42 3/20/2013 List of common small business tax write offs: Salaries & Wages Repairs Insurance Taxes Supplies Utilities Rent Equipment Depreciation (IRS Publication 946) Travel expenses for business (IRS Publication 463) Vehicle for business use leasing, mileage (IRS Publication 463) Home office for business use (IRS Publication 587) Retirement Plans Interest Bad Debt Gifts (IRS Publication 463) QuickBooks or other related computer bookkeeping software. Phone or Computer Applications If nothing else Excel Open a separate bank account Document in your check book register Keep Receipts Shoe boxes Envelopes Business Strategies for Nevada Agriculture Producers 39 3

43 3/20/2013 Insurance is a way to lessen some of the risk by preparing for the worst. Different types of insurance can include: Liability General, Product, Professional, and Employee accidents. Renter/Owners Life Insurance Disaster Risk Management Agriculture Insurance Options, and FSA Insurance options. Could also include flood, drought, etc. Business Interruption Loss of business income if owner becomes ill or business must close. Employees Yourself Business Strategies for Nevada Agriculture Producers 40 4

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71 FACT SHEET UNITED STATES DEPARTMENT OF AGRICULTURE FARM SERVICE AGENCY February 2013 Farm Loan Information Chart The following chart summarizes FSA farm loan information, effective Feb. 1, Additional details are available at local FSA offices and on FSA s website: Program Maximum Loan Amount Rates and Terms Use of Proceeds Direct Farm Ownership (FO) Direct Farm Ownership (FO) Participation Direct Down Payment Farm Ownership Program Direct Operating (OL) Direct Operating Microloan (ML) Direct Emergency Guaranteed Operating Guaranteed Farm Ownership Guaranteed Conservation Loan (CL) Land Contract (LC) Guarantee $300,000 $300,000 The lesser of: 45% of the purchase price, 45% of the appraised value, $225,000 $300,000 Rate based on Agency borrowing costs Term up to 40 years Interest rate 5.0% or less if at least 50% of loan amount provided by other lender Term up to 40 years Rate is direct FO rate less 4% with a floor of 1.5% Term of 20 years Down payment of at least 5% Rate based on Agency borrowing cost Term from 1 to 7 years Purchase farm Construct buildings or other capital improvements Soil and water conservation Pay closing costs Same as Direct FO Purchase of farm by a beginning or socially disadvantaged farmer Purchase livestock, poultry, equipment, feed, seed, farm chemicals and supplies Soil and water conservation Refinance debts with certain limitations $35,000 Same as Direct OL Same as Direct OL 100% actual or physical losses $500,000 maximum program indebtedness $1,302,000 (Amount adjusted annually for inflation) $1,302,000 (Amount adjusted annually for inflation) $1,302,000 (Amount adjusted annually for inflation) The purchase price of the farm cannot exceed the lesser of: $500,000 The current market value of property Rate is based on the OL rate plus 1% Term from 1 to 7 years for non-real estate purposes Term up to 40 years for physical losses on real estate Rate determined by the lender Term from 1 to 7 years Loan guarantee fee is 1.5% Rate determined by the lender Term up to 40 years Loan guarantee fee is 1.5% Rate determined by the lender Term not to exceed 30 years, or shorter period, based on the life of the security Loan guarantee fee is 1.5% Eligibility requirements expanded to include large and financially strong operations Rate cannot exceed the direct FO interest rate plus 3% Amortized over a minimum of 20 years with no balloon payments during the first 10 years of loan Down payment of at least 5% Restore or replace essential property Pay all or part of production costs associated with the disaster year Pay essential family living expenses Reorganize the farming operation Refinance debts with certain limitations Same as direct OL Same as direct FO except loan may be used to refinance debts Implement any conservation practice in an NRCS approved conservation plan May be used to refinance debts related to implementing an NRCS approved conservation plan Sell real estate through a land contract to a beginning or socially disadvantaged farmer Guarantee is with the seller of the real estate The USDA is an equal opportunity provider and employer. To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, S.W. Stop 9410, Washington, DC , or call toll-free at (866) (English) or(800) (TDD) or (866) (English Federal-relay) or (800) (Spanish Federal-relay). USDA is an equal opportunity provider and employer. Business Strategies for Nevada Agriculture Producers 68

72 FACT SHEET UNITED STATES DEPARTMENT OF AGRICULTURE FARM SERVICE AGENCY August 2011 Noninsured Crop Disaster Assistance Program (NAP) for 2011 and Subsequent Years Overview USDA s Farm Service Agency s (FSA) Noninsured Crop Disaster Assistance Program (NAP) provides financial assistance to producers of noninsurable crops when low yields, loss of inventory or prevented planting occur due to a natural disaster. Eligible Producers An eligible producer is a landowner, tenant or sharecropper who shares in the risk of producing an eligible crop and is entitled to an ownership share of that crop. As authorized by the Food, Conservation, and Energy Act of 2008 (2008 Act), an individual s or entity s average nonfarm adjusted gross income (AGI) limitation cannot exceed $500,000 to be eligible for NAP. Eligible Crops Eligible crops must be commercially produced agricultural commodity crops for which the catastrophic risk protection level of crop insurance is not available and be any of the following: Crops grown for food; Crops planted and grown for livestock consumption, including, but not limited to grain and forage crops, including native forage; Crops grown for fiber, such as cotton and flax (except for trees); Crops grown in a controlled environment, such as mushrooms and floriculture; Specialty crops, such as honey and maple sap; Value loss crops, such as aquaculture, Christmas trees, ginseng, ornamental nursery and turfgrass sod; Sea oats and sea grass and; Seed crops where the propagation stock is produced for sale as seed stock for other eligible NAP crop production. Producers must contact a crop insurance agent for questions regarding insurability of a crop in their county. For further information on whether a crop is eligible for NAP coverage, producers must contact the FSA county office where their farm records are maintained. Eligible Natural Disaster An eligible natural disaster is any of the following: Damaging weather, such as drought, freeze, hail, excessive moisture, excessive wind or hurricanes; An adverse natural occurrence, such as earthquake or flood; A condition related to damaging weather or an adverse natural occurrence, such as excessive heat, plant disease, volcanic smog (VOG), insect infestation or; Any combination of these conditions. The natural disaster must occur during the coverage period, before or during harvest and must directly affect the eligible crop. Applying for Coverage Eligible producers must apply for coverage of noninsurable crops using Form CCC-471, Application for Coverage, and pay the applicable service fee at the FSA office where their farm records are maintained. The application and service fee must be filed by the application closing date as established by the FSA State Committee. The service fee is the lesser of $250 per crop or $750 per producer per administrative county, not to exceed a total of $1,875 for a producer with farming interests in multiple counties. This fee is authorized by the 2008 Act. Limited resource producers may request a waiver of the service fee. To qualify for an administrative service fee waiver, the producer must meet both of the following criteria: Earn no more than $100,000 gross income in farm sales from each of the previous two years (to be increased starting in FY 2004 to adjust for inflation, using the prices paid by farmers index as compiled by the National Agricultural Statistics Service (NASS); Have a total household income at or below the national poverty level for a family of four, or less than 50 percent of county median household for both of the previous two years. Limited resource producer status may be determined using the USDA Limited Resource Farmer and Rancher Online Self Determination Tool located on the Limited Resource Farmer and Rancher - (LRF/R) home page at sc.egov.usda.gov/. The automated system calculates and displays adjusted gross farm sales per year and the higher of the national poverty level or county median household income. Page 1 Business Strategies for Nevada Agriculture Producers 69

73 FACT SHEET Noninsured Crop Disaster Assistance Program August 2011 Coverage Period for NAP The coverage period for NAP may vary depending on the crop. The coverage period for an annual crop begins the later of: 30 days after application for coverage and the applicable service fees have been paid or; The date the crop is planted (cannot exceed the final planting date) and ends the earlier of: The date the crop harvest is completed; The normal harvest date for the crop; The date the crop is abandoned or; The date the entire crop acreage is destroyed. The coverage period for a perennial crop, other than a crop intended for forage, begins 30 calendar days after the application closing date and ends the earlier of: 10 months from the application closing date; The date the crop harvest is completed; The normal harvest date for the crop; The date the crop is abandoned or; The date the entire crop acreage is destroyed. Contact a local FSA office for information on the coverage periods for perennial forage crops, controlledenvironment crops, specialty crops and value loss crops. Information Required to Remain Eligible for NAP To remain eligible for NAP assistance, the following crop acreage information must be reported annually: Page 2 Name of the crop (lettuce, clover, etc.); Type and variety (head lettuce, red clover, etc.); Location and acreage of the crop (field, sub-field, etc.); Share of the crop and the names of other producers with an interest in the crop; Type of practice used to grow the crop (irrigated or nonirrigated); Date the crop was planted in each field and; Intended use of the commodity (fresh, processed, etc.). Producers should report crop acreage shortly after planting (early in the risk period) to ensure reporting deadlines are not missed and coverage is not lost. In addition, producers must annually provide the following production information: The quantity of all harvested production of the crop in which the producer held an interest during the crop year; The disposition of the harvested crop, such as whether it is marketable, unmarketable, salvaged or used differently than intended and; Verifiable or reliable crop production records (when required by FSA). When those records are required by FSA, producers must provide them in a manner that can be easily understood by the FSA county committee. Producers should contact the FSA office where their farm records are maintained for questions regarding acceptable production records.. Failure to report acreage and production information may result in reduced or zero NAP assistance. Be aware that acreage reporting and final planting dates vary by crop and by region. Producers should contact the FSA office where their farm records are maintained for questions regarding local acreage reporting and final planting dates. For aquaculture, floriculture and ornamental nursery operations, producers must maintain records according to industry standards, including daily crop inventories. Unique reporting requirements apply to beekeepers and producers of Christmas trees, turfgrass sod, maple sap, mushrooms, ginseng and commercial seed or forage crops. Producers should contact the FSA office where their farm records are maintained regarding these requirements. FSA Use of Reported Acreage and Production FSA uses acreage reports to verify the existence of the crop and to record the number of acres covered by the application. The acreage and the production reports are used to calculate the approved yield (expected production for a crop year). The approved yield is an average of a producer s actual production history (APH) for a minimum of four to a maximum of 10 crop years (five years for apples and peaches). To calculate APH, FSA divides a producer s total production by the producer s crop acreage. A producer s approved yield may be calculated using substantially reduced yield data if the producer does not report acreage and production or reports fewer than four years of crop production. Applying for NAP Assistance When a Natural Disaster Strikes When a crop or planting is affected by a natural disaster, producers must notify the FSA office where their farm records are maintained and complete Part B, (the Notice of Loss portion) of Form CCC-576, Notice of Loss and Application for Payment. This must be completed Business Strategies for Nevada Agriculture Producers 70

74 FACT SHEET Noninsured Crop Disaster Assistance Program August 2011 within 15 calendar days of whichever occurs earlier: Natural disaster occurrence; Final planting date if planting was prevented by a natural disaster; Date damage to the crop or loss of production became apparent; The normal harvest date. To receive NAP benefits, producers must complete Form CCC-576, Notice of Loss and Application for Payment, Parts D, E, and F as applicable, and certify in Part G, no later than the immediately subsequent crop year acreage reporting date for the crop. The CCC-576 requires acceptable appraisal information. Producers must provide evidence of production and note whether the crop was marketable, unmarketable, salvaged or used differently than intended. Amount of Production Loss to Receive a NAP Payment The natural disaster must have either: 100 percent interest or; A shared interest with another producer. How Much Loss NAP Covers NAP covers the amount of loss greater than 50 percent of the expected production based on the approved yield and reported acreage. Information FSA Uses to Calculate Payment The NAP payment is calculated by unit using: Crop acreage; Approved yield; Net production; 55 percent of an average market price for the specific commodity established by the FSA state committee; A payment factor reflecting the decreasing cost incurred in the production cycle for the crop that is harvested, unharvested or prevented from being planted. Payment Limitation which benefits are being requested to be eligible for the Livestock Forage Disaster Program (LFP). More Information Further information on NAP is available from your local FSA office or on FSA s website at usda.gov/nap. Reduced the expected unit production of the crop by more than 50 percent or; Prevented the producer from planting more than 35 percent of the intended crop acreage. Expected production is the amount of the crop produced in the absence of a natural disaster. FSA compares expected production to actual production to determine the percentage of crop loss. Defining a NAP Unit The NAP unit includes all the eligible crop acreage in the county where the producer has a unique crop interest. A unique crop interest is either: NAP payments received, directly or indirectly, will be attributed to the applicable individual or entity and limited to $100,000 per crop year, per individual or entity. Risk Management Purchase Requirement for Other Programs Noninsurable commodities on a farm, except forage crops intended for grazing, are required to have NAP coverage in order for producers on that farm to be eligible for the Supplemental Revenue Assistance Payments (SURE) Program, Tree Assistance Program (TAP) and the Emergency Assistance for Livestock, Honey Bees, and Farm-raised Fish Program (ELAP). Producers are required only to have NAP coverage on the forage crop acreage intended for grazing and for The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all of part of an individual s income is derived from any public assistance program. (Not all bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA s TARGET Center at (202) (voice and TDD). To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC , or call toll-free at (866) (English) or (800) (TDD) or (866) (English Federal-relay) or (800) (Spanish Federal-relay). USDA is an equal opportunity provider and employer. Page 3 Business Strategies for Nevada Agriculture Producers 71

75 Instructions for Form FSA2330 REQUEST FOR MICROLOAN ASSISTANCE Used by the FSA to obtain information on applicants applying for services. Submit the original of the completed form in hard copy to the appropriate FSA office. Customers who have established electronic access credentials with USDA may electronically transmit this form to the FSA office, provided that the customer submitting the form is the only person required to sign the transaction. Features for transmitting the form electronically are available to those customers with access credentials only. If you would like to establish online access credentials with USDA, follow the instructions provided at the USDA eforms web site. All applicants complete Part A. Individual applicants complete Parts B, D, F and G. Entities complete Parts C, D, F and G; Part E if applicable. FSA completes Part H. ld Name / Item No. Instruction PART A Applicant Items 1 3 are completed by all applicants. 1 Exact Full Legal Name 2 Address 3 Contact Information Enter the applicant s exact full legal name, and list all names the business is currently using. Enter applicant s complete mailing address, physical address if different from mailing address. If operating as an entity, list where incorporated or otherwise registered. Enter the applicant s home or cell telephone number, as applicable, and address. PART B Individual Applicant Information Items 1 9 are completed by the applicant. *Items 7-9 are voluntary. Item 10 is for FSA use only. 1 Enter applicant s Social Security Number (9-digit number). Social Security No. 2 Enter applicant s date of birth. Birth Date 3 Enter the county where the operation headquarters is located. County of Operation Head- Quarters 4 Check YES if applicant is a veteran and enter the appropriate dates Veteran Status of service and branch of the military. Check NO if not a veteran. 5 Check the appropriate block depending on whether the applicant is Business Strategies for Nevada Agriculture Producers 72 file:///c /...mms/desktop/2013%20business%20strategies%20march%2022/fsa%20instructions%20for%20microloan%20application.htm[3/20/2013 1:38:56 PM]

76 Marital Status 6 Citizenship 7 *Ethnicity 8 *Race 9 *Gender married, separated or unmarried. Check Citizen if applicant is a U.S. citizen. Check Non-citizen National if applicant is a non-citizen national. Check Qualified Alien if applicant is a qualified alien. If non-citizen national or qualified alien, applicant must provide a copy of appropriate documentation of immigration status. Check the appropriate box indicating applicant s ethnicity. Check the appropriate box indicating the applicant s race. More than one box may be checked. Check the appropriate box indicating the applicant s gender. Item 10 is for FSA Use Only. PART C Entity Applicant Information Items 1 5 are applicable to entities. Informal entities may leave Items 2-4 blank, if not applicable. 1 Check the appropriate box indicating the entity type. Entity Type 2 Enter the State where the entity is registered. State of Registration 3 Enter the entity s registration number. Registration No. 4 Enter the entity s Tax Identification number (9-digit number). Tax ID No. 5 Enter the exact full legal name of the primary entity contact. Exact Full Legal Name of Primary Entity Contact PART D Financial Statements of Applicant Individual applicants and entities will fill out this part. Entity members will provide their financial statement information on Part E. 1A Income Description 1B Amount 2 Total Annual Farm Income 3A Expenses Description 3B Amount 4 Total Annual Farm Expenses Describe the projected farm income source (type of crop(s), livestock, etc). Enter the projected annual dollar amount for each source. Enter the total dollar amount of projected annual farm income. Describe the projected farm expenses. Enter the projected annual dollar amount for each of the farm expenses listed in Item 3A. Add the amounts entered for 3B and enter the total amount here. Business Strategies for Nevada Agriculture Producers 73 file:///c /...mms/desktop/2013%20business%20strategies%20march%2022/fsa%20instructions%20for%20microloan%20application.htm[3/20/2013 1:38:56 PM]

77 5 Net Farm Income 6 Total Annual Non- Farm Income 7 Total Annual Family Living Expenses 8 Net Non-Farm Income 9 Net Total Annual Income 10A Assets Description 10B Value 11 Total Assets 12A Creditor 12B Payment 12C Balance 13 Total Debts 14 Total Assets 15 Total Debts 16 Net Worth Subtract Item 4 from Item 2 above and enter dollar amount here. This is your total projected net farm income. Enter the dollar amount of total annual projected non-farm income (do not include farm income in this estimate). Enter the dollar amount of total projected annual family living expenses (do not include farm expenses in this estimate). Subtract Item 7 from Item 6 above and enter dollar amount here. This is your total projected net non-farm income. Add Item 5 to Item 8 and enter dollar amount here. This is your total projected net annual income from farm and non-farm sources. Enter description of assets owned by applicant. Enter the dollar value of each asset listed. Add the value of each asset listed in Item 10B above and enter the total dollar value here. List the name(s) of creditors. Enter the annual dollar amount of payments due to each of the creditors listed. Enter the total balance due (as of Balance Sheet Date) to each of the creditors listed. Add the balance due for each debt listed in Item 12C above and enter the total dollar value here. Enter the dollar amount from Item 11. Enter the dollar amount from Item 13. Subtract Item 15 from Item 14 and enter the dollar amount here. PART E Entity Applicant Information Items 1A 10 are applicable to entity members. *Items 1J 1L are voluntary. Each entity member will complete Part E. Part E can be duplicated as needed. 1A Enter the individual member s exact full legal name. Exact Full Legal Name of Entity Member 1B Enter the individual member s social security number (9 digit number). Social Security Number 1C Enter the individual member s birth date. Birth Date 1D Enter the individual member s complete address. Address Business Strategies for Nevada Agriculture Producers 74 file:///c /...mms/desktop/2013%20business%20strategies%20march%2022/fsa%20instructions%20for%20microloan%20application.htm[3/20/2013 1:38:56 PM]

78 1E Enter the individual member s contact numbers. Contact Numbers 1F Enter the individual member s percentage of ownership in the entity. Percent of Ownership 1G Enter the individual member s gross annual non-farm income in U.S. Annual Non Farm dollars. Income 1H Check the appropriate box to indicate the individual member s marital Marital Status status as married, separated or unmarried. 1I Check the appropriate box to indicate the individual member s status as Citizenship a citizen, non-citizen national or qualified alien. 1J Check the appropriate box to indicate the individual member s *Ethnicity ethnicity. 1K Check the appropriate box to indicate the individual member s race. *Race 1L Check the appropriate box to indicate the individual member s gender. *Gender 1M - FSA Use Only. FSA to complete this item. 2A Enter description of assets owned by the individual member. Assets Description 2B Enter the dollar value of each asset listed. Value 3 Add the value of each asset listed in Item 2B above and enter the total Total Assets dollar value here. 4A List the name(s) of creditors. Creditor 4B Enter the annual dollar amount of payments due to each of the Payment creditors listed. 4C Enter the total balance due (as of Balance Sheet Date) to each of the Balance creditors listed. 5 Add the balance due for each debt listed in Item 4C above and enter Total Debts the total dollar value here. 6 Enter the dollar amount from Item 3. Total Assets 7 Enter the dollar amount from Item 5. Total Debts 8 Subtract Item 7 from Item 6 and enter the dollar amount here. Net Worth 9 Enter the individual member s signature to indicate that they have read Signature the statements and certifications on Pages 3 through Enter the date the individual member signed the form. Date PART F General Information Items 1 6 are completed by all applicants. 1 Counties Being Farmed Enter the names of the counties which are being farmed by the operation. 2 Enter the number of acres that the individual/entity owns. Business Strategies for Nevada Agriculture Producers 75 file:///c /...mms/desktop/2013%20business%20strategies%20march%2022/fsa%20instructions%20for%20microloan%20application.htm[3/20/2013 1:38:56 PM]

79 Acres Owned 3 Acres Rented 4A Purpose of Loan 4B Amount Requested 5 Description of Operation 6 Description of Training Enter the number of acres that the individual/entity rents. Enter the purpose the loan funds will be used for. Enter the amount of loan funds requested. Enter a description of the operation. Enter a description of the applicant s farm training and experience. Include number of years farming, involvement with agriculture-related organizations, and details of apprenticeship, if applicable. PART G Notifications, Certification and Acknowledgement Items 1 17C are completed by all applicants. 1 Business Under Other Name provide names used in Item 8. 2 Previous FSA or FmHA Loans 3 Debt Forgiveness 4 Delinquent on Federal Debt 5 Pending Litigation 6 Bankruptcy 7 Employee Relationship 8 Additional Answers 9 16 Statements 17A Signature 17B Title/relationship 17C Check YES if you or any member of the entity ever conducted business under any other name, otherwise check NO. If YES Check YES if you or any member of the entity ever obtained a direct or guaranteed farm loan from FSA or the Farmers Home Administration; if not check NO. If Item 2 is YES, check YES if the government ever forgave any debt through a write-down, write-off, compromise, adjustment, reduction, charge-off, paying a loss on a guarantee, or bankruptcy. If YES, provide details in Item 8; otherwise check NO. Check YES if you or any member of the entity is delinquent on any federal debt (i.e. Federal Debt includes but is not limited to education loans, delinquent taxes, obligations at Natural Resources Conservation Service, obligations to FCIC, etc.) If YES, provide details in Item 8, otherwise check "NO". Check YES if you or any member of the entity or the entity itself is involved in any pending litigation. If YES, provide details in Item 8, otherwise check NO. Check YES if you or any member of the entity has ever been in receivership, been discharged, or filed a petition for reorganization in bankruptcy. If YES, provide details in Item 8, otherwise check NO. Check YES if you are an employee, related to an employee, or closely associated with an employee of the Farm Service Agency. If not, check NO. If YES provide details in Item 8. Provide explanations to any YES responses for Items 1 7. Use additional sheets as necessary. Read statements and certifications in Items Enter the signature of the individual applicant or the authorized entity representatives. Enter the title/relationship of the individual if signing in a representative capacity. Enter the date the applicant signed. Business Strategies for Nevada Agriculture Producers 76 file:///c /...mms/desktop/2013%20business%20strategies%20march%2022/fsa%20instructions%20for%20microloan%20application.htm[3/20/2013 1:38:56 PM]

80 Date Part H FSA Use Only Business Strategies for Nevada Agriculture Producers 77 file:///c /...mms/desktop/2013%20business%20strategies%20march%2022/fsa%20instructions%20for%20microloan%20application.htm[3/20/2013 1:38:56 PM]

81 This form is available electronically. Form Approved OMB No (See Page 7 for Privacy Act and Paperwork Reduction Act Statements. FSA-2330 ( ) U.S. DEPARTMENT OF AGRICULTURE Farm Service Agency Position 3 REQUEST FOR MICROLOAN ASSISTANCE Instructions: All applicants must complete Part A. Individual applicants complete Parts B, D, F and G. Two or more persons applying jointly, including married persons, are considered an entity. Entities must complete Parts C, D, F and G. Entity members must use the sheets provided on Part E. Nonnationals and qualified aliens must provide appropriate documentation under Federal immigration law. *Race, ethnicity, and gender citizen information is requested by the Federal Government to monitor FSA's compliance with Federal laws prohibiting discrimination against applicants. Applicants are not required to furnish this information, but are encouraged to do so. Failure to provide this information may result in not receiving targeted funds for which the applicant may be eligible. One or more boxes may be selected for race. This information will not be used to evaluate the application. FSA is required to note race, ethnicity and gender on the basis of observer identification if you do not furnish it. PART A APPLICANT 1. Exact Full Legal Name 2. Address 3. Contact Information: A. Home Telephone No. (Include Area Code) B. Cell Telephone No. (Include Area Code) C. Address PART B INDIVIDUAL APPLICANT INFORMATION 1. Social Security Number (9 digit No.) 2. Birth Date (MM-DD-YYYY) 3. County of Operation Headquarters 4. Veteran Status YES NO 5. Marital Status Dates: Branch: 6. Citizenship *7. Ethnicity *8. Race *9. Gender 10. FSA Use Only Married Citizen Hispanic or Latino American Indian/Alaskan Native Male Provided Separated Unmarried Non-citizen National Qualified Alien PART C ENTITY APPLICANT INFORMATION Not Hispanic or Latino Asian Black/African American Native Hawaiian/Other Pacific Islander White Female Observed NOTE: Individual liability will be required regardless of the entity type. Informal entities may leave Items 2 through 4 blank, if not applicable. By signing in Part E you certify that you have read and understand the statements and certifications on Pages 4 through 6. Balance Sheet provided in Part E for entity member use. 1. Entity Type Cooperative Corporation Joint Operation (Including married filing together) Limited Liability Company Partnership Trust 2. State of Registration 3. Registration Number 4. Tax Identification Number (9 Digit No.) 5. Exact Full Legal Name of Primary Entity Contact Initials: Date: Business Strategies for Nevada Agriculture Producers 78

82 FSA-2330 ( ) Page 2 of 7 PART D FINANCIAL STATEMENTS OF APPLICANT PROJECTED ANNUAL INCOME AND EXPENSES 1. INCOME: A. DESCRIPTION (Include income from crops and livestock): B. $ Amount Crop(s): Livestock: 3. EXPENSES: 2. Total Annual Farm Income: A. DESCRIPTION: B. $ Amount 4. Total Annual Farm Expenses: 5. Net Farm Income (Subtract Item 4 from Item 2): 6. Total Annual Non-Farm Income: 7. Total Annual Family Living Expenses: 8. Net Non-Farm Income (Subtract Item 7 from Item 6): 9. Net Total Annual Income (Add Item 5 to Item 8): ASSETS AND DEBTS (Farm and Non-Farm) as of: 10. ASSETS: 12. DEBTS: A. DESCRIPTION B. $ VALUE A. CREDITOR B. $ PAYMENT C. $ BALANCE 11. TOTAL ASSETS: 13. TOTAL DEBTS: 14. Total Assets from Item 11: 15. Total Debts from Item 13: (-) 16. Net Worth (Subtract Item 15 from Item 14): Initials: Date: Business Strategies for Nevada Agriculture Producers 79

83 FSA-2330 ( ) Page 3 of 7 PART E ENTITY APPLICANT INFORMATION Instructions: Two or more persons, including married persons, who are applying jointly and do not have an entity name or Tax ID Number, will be considered a joint operation. In Part C, married persons applying jointly check the Joint Operation box. Complete Items 1A through 1I for each entity member. *Items 1J through 1L are voluntary. Provide balance sheet information for each entity member. Signature and Date blocks below must be completed for all entity members. Use separate Part E pages for each entity member. NOTE: Individual liability will be required regardless of the entity type. By signing below in Item 9 you certify that you have read and understand the statements and certifications on Pages 4 through 6 1A. Exact Full Legal Name of Entity Member 1B. Social Security No. (9 Digit No.) 1C. Birth Date (MM-DD-YYYY) 1D. Address 1E. Contact Numbers 1F. Percent of Ownership % 1G. Annual Non-Farm Income $ 1H. Marital Status 1I. Citizenship *1J. Ethnicity *1K. Race *1L. Gender 1M. FSA Use Only Married Citizen Hispanic/Latino American Indian/Alaskan Native Male Provided Separated Unmarried Non-citizen National Qualified Alien Not Hispanic/ Latino Asian Black/African American Native Hawaiian/Other Pacific Islander White Female Observed Complete balance sheet below for entity member listed above in Item 1A. ASSETS AND DEBTS (Farm and Non-Farm) as of: 2. ASSETS: 4. DEBTS: A. DESCRIPTION B. $ VALUE A. CREDITOR B. $ PAYMENT C. $ BALANCE 3. TOTAL ASSETS: 5. TOTAL DEBTS: 6. Total Assets from Item 3: 7. Total Debts from Item 5: (-) 8. Net Worth (Subtract Item 7 from Item 6): 9. Signature 10. Date Initials: Date: Business Strategies for Nevada Agriculture Producers 80

84 FSA-2330 ( ) Page 4 of 7 PART F GENERAL INFORMATION 1. Counties Being Farmed 2. Acres Owned 3. Acres Rented 4A. Purpose of Loan 4B. Amount Requested $ 5. Describe your existing or planned operation, including a description of your existing or planned production: 6. If not provided previously, describe fully all your farm training (include any applicable education such as animal husbandry, record-keeping, financial analysis, crop production, extension or other seminars, workshops, internships, or mentorships) and experience (include all past and present types of operations, duties and responsibilities). Include number of years farming, if you have ever operated farm. If you have or have had any involvement or membership with any agriculture-related organization (such as 4-H, FFA, National or State Grange organization, or an established community/urban farm initiative), please include details on how this experience will contribute to your operation. If you are working with a mentor for your operation, provide their full name, and describe the process of how this working relationship will provide the skills and knowledge you need to be successful in your farm operation. If you need additional space, use sheets of paper the same size as this page and write applicant s name on each individual sheet. PART G NOTIFICATIONS, CERTIFICATIONS AND ACKNOWLEDGMENT 1. Are you currently or have you ever, and in the case of an entity any member of the entity, conducted business under any other name? If "YES," list names in Item Have you ever, or in the case of an entity any member of the entity, obtained a direct or guaranteed farm loan from FSA or Farmers Home Administration? 3. If Item 2 is "YES," did you receive any debt forgiveness through write-down, write-off, compromise, adjustment, reduction, charge-off, paying a loss on a guarantee, or bankruptcy? If "YES," provide details in Item Are you, or in the case of an entity any member of the entity, delinquent on any Federal debt or have any outstanding Federal judgments? If "YES," provide details in Item Are you, or in the case of an entity any member of the entity, involved in any pending litigation? If "YES," provide details in Item Have you, or in the case of an entity any member of the entity, ever been in receivership, discharged in bankruptcy, or filed a petition for reorganization in bankruptcy? If "YES," provide details in Item Are you, or in the case of an entity any member of the entity, an FSA employee or related to or closely associated with an FSA employee? If "YES," provide details in Item Additional answers. Write the Item number to which each answer applies. If you need additional space, use sheets of paper the same size as this page and write the applicant's name on each additional sheet. YES NO Initials: Date: Business Strategies for Nevada Agriculture Producers 81

85 FSA-2330 ( ) Page 5 of 7 9. SPECIAL PROGRAM INFORMATION: Certain FSA programs are, by law, designed to reach targeted applicants. If you are interested in any of the programs described here, or have questions about these programs and whether you may qualify for a specific program, the FSA office processing your application will help you. A. SOCIALLY DISADVANTAGED APPLICANTS: A portion of FSA farm ownership, operating, and conservation loan funds are, by law, targeted to applicants who have been subjected to racial, ethnic or gender prejudice because of their identity as a member of a group, without regard to individual qualities. Under the applicable law, groups meeting this condition are: American Indians/Alaskan Natives, Asians, Blacks or African Americans, Native Hawaiians/Other Pacific Islanders, Hispanics and women. In addition, FSA has a down payment program, which receives special funding. B. BEGINNING FARMER ASSISTANCE: FSA has the authority to assist beginning farmers through the farm ownership, operating, and conservation loan programs. A portion of FSA farm ownership, operating, and conservation loan funds are, by law, targeted to beginning farmers. In addition, FSA has a down payment program, which receives special funding. In some States, FSA has agreements with State beginning farmer programs to help meet the credit needs of beginning farmers. C. LIMITED RESOURCE LOANS: Limited resource farm ownership and operating loans are available to qualified applicants. This program provides loans at reduced interest rates to low-income farmers whose operations and resources are so limited that they cannot pay the regular rates for FSA loans. The program is also intended to provide beginning farmers the opportunity to start a successful farming operation. 10. RIGHTS AND POLICIES: A. RIGHT TO FINANCIAL PRIVACY ACT OF 1978 (Public Law ): FSA has a right of access to financial records held by financial institutions in connection with providing assistance to you as well as collecting on loans made to you or guaranteed by the Government. Financial records involving your transaction will be available to FSA without further notice or authorization but will not be disclosed or released by this institution to another Government Agency or Department without your consent except as required by law. B. THE FEDERAL EQUAL CREDIT OPPORTUNITY ACT: Prohibits creditors from discriminating against applicants on the basis of race, color, religion, sex, national origin, marital status, age (provided the applicant has the capacity to enter into a binding contract), because all or a part of the applicant's income derives from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. C. FEDERAL COLLECTION POLICIES: Delinquencies, defaults, foreclosures and abuses of mortgage loans involving programs of the Federal Government can be costly and detrimental to your credit, now and in the future. The mortgage lender in this transaction, its agents and assigns as well as the Federal Government, its agencies, agents and assigns, are authorized to take any and all of the following actions in the event loan payments become delinquent on the mortgaged loan described in the attached application: (1) Report your name and account information to a credit bureau; (2) Assess additional interest and penalty charges for the period of time that payment is not made; (3) Assess charges to cover additional administrative costs incurred by the Government to service your account; (4) Offset amounts owed to you under other Federal programs; (5) Refer your account to a private attorney, collection agency or mortgage servicing agency to collect the amount due, foreclose the mortgage, sell the property and seek judgment against you for any deficiency; (6) Refer your account to the Department of Justice for litigation; (7) If you are a current or retired Federal employee, take action to offset your salary, or civil service retirement benefits; (8) Refer your debt to the Department of the Treasury for cross-servicing and offset against any amount owed to you by any Federal Agency such as an income tax refund; and (9) Report any resulting written-off debt to the Internal Revenue Service as taxable income. All of these actions can and will be used to recover debts owed to the Federal Government when in its best interests. 11. RESTRICTIONS AND DISCLOSURE OF LOBBYING ACTIVITIES: A. The applicant: (1) Certifies that if any funds, by or on behalf of the applicant, have been or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant or Federal loan, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, or loan, the applicant shall complete and submit Standard Form - LLL, "Disclosure of Lobbying Activities," in accordance with its instructions. (2) Shall require that the language of this certification be included in the award documents for all sub-awards at all tiers (including contracts, subcontracts, and subgrants, under grants and loans) and that all subrecipients shall certify and disclose accordingly. Initials: Date: Business Strategies for Nevada Agriculture Producers 82

86 FSA-2330 ( ) Page 6 of 7 RESTRICTIONS AND DISCLOSURE OF LOBBYING ACTIVITIES: (CONTINUED) B. This certification is a material representation of fact upon which reliance was placed when this transaction was made or entered into. Submission of this statement is a prerequisite for making or entering into this transaction. Any person who fails to file the required statement shall be subject to a civil penalty imposed by 31 U.S.C CONTROLLED SUBSTANCES: The applicant certifies that as an individual, or any member of an entity applicant, has not been convicted under Federal or State law of planting, cultivating, growing, producing, harvesting, or storing a controlled substance within the previous 5 crop years. See the Food Security Act of 1985 (Public Law ). The applicant also certifies that as an individual, or any member of an entity applicant, is not ineligible for Federal benefits based on a conviction for the distribution of controlled substances or any offense involving the possession of a controlled substance under 21 U.S.C DISQUALIFICATION DUE TO FEDERAL CROP INSURANCE FRAUD: The applicant certifies that as an individual or any member of the entity, has not been disqualified for Federal benefits as provided in Section 515(h) of the Federal Crop Insurance Act (FCIA). Applicants who willfully and intentionally provide false or inaccurate information to the Federal Crop Insurance Corporation (FCIC) or to an approved insurance provider with respect to a policy or plan of FCIC insurance, after notice and an opportunity for a hearing on the record, will be subject to one or more of the sanctions described in Section 515(h)(3) of FCIA. 14. TEST FOR CREDIT: The applicant certifies that the needed credit, with or without a loan guarantee, cannot be obtained by (1) the individual applicant; (2) in the case of an entity, considering all assets owned by the entity and all of the individual members. 15. PERMISSION TO FILE FINANCING STATEMENT, ORDER A CREDIT REPORT, AND VERIFY CREDIT INFORMATION: Under the Uniform Commercial Code, you do not have to sign the financing statement which allows FSA to obtain a security interest in your property. If the loan is approved and funded, FSA will file a financing statement at the earliest possible date, before you enter into a SECURITY AGREEMENT. BY SIGNING BELOW OR PART E, I GIVE FSA PERMISSION TO FILE A FINANCING STATEMENT PRIOR TO THE EXECUTION OF THE SECURITY AGREEMENT AS WELL AS TO FILE AMENDMENTS AND CONTINUATIONS OF THE FINANCING STATEMENT THEREAFTER. I FURTHER AUTHORIZE FSA TO ORDER A CREDIT REPORT AND VERIFY ANY OTHER CREDIT INFORMATION. 16. CERTIFICATION: I certify that the information provided is true, complete, and correct to the best of my knowledge and is provided in good faith to obtain a loan. (WARNING: Section 1001 of Title 18, United States Code, provides for criminal penalties to those who provide false statements to the Government. If any information is found to be false or incomplete, such finding may be grounds for denial of the requested action). 17A. SIGNATURE OF INDIVIDUAL APPLICANT OR AUTHORIZED ENTITY REPRESENTATIVES 17B. TITLE/RELATIONSHIP OF THE INDIVIDUAL IF SIGNING IN A REPRESENTATIVE CAPACITY 17C. DATE PART H - FSA USE ONLY 1. Date FSA-2330 Received 2. Amount of Credit Report Fee and Date Received $ Business Strategies for Nevada Agriculture Producers 83

87 FSA-2330 ( ) Page 7 of 7 NOTE: The following is made in accordance with the Privacy Act of 1974 (5 USC 552a as amended). The authority for requesting the information identified on this form is 7 CFR Part 761, 7 CFR Part 764, and the Consolidated Farm and Rural Development Act (Pub. L ). The information will be used to determine applicant or entity eligibility for microloan assistance. The information collected on this form may be disclosed to other Federal, State, and local government agencies, Tribal agencies, and nongovernmental entities that have been authorized access to the information by statute or regulation and/or as described in the applicable Routine Uses identified in the System of Records Notice for USDA/FSA-14, Applicant/Borrower. Providing the requested information is voluntary. However, failure to furnish the requested information may result in a determination of applicant or entity ineligibility for microloan assistance. According to the Paperwork Reduction Act of 1995, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid OMB control number. The valid OMB control number for this information collection is The time required to complete this information collection is estimated to average 90 minutes per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. RETURN THIS COMPLETED FORM TO YOUR COUNTY FSA OFFICE. The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all or part of an individual s income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA s TARGET Center at (202) (voice and TDD). To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC , or call toll-free at (866) (English) or (800) (TDD) or (866) (English Federal-relay) or (800) (Spanish Federal-relay). USDA is an equal opportunity provider and employer. Business Strategies for Nevada Agriculture Producers 84

88 Crop Risk & Crop Insurance United States Department of Agriculture I have sometimes thought that it might be well to establish an office of insurance for farms against damage that may occur to them from storms, blight, insects, etc. A small sum paid by a number would repair such losses and prevent much poverty and distress. Benjamin Franklin, October 24, Basic Components of the Industry (Most agents work for more than one company) Responsible for sales and explaining insurance products to producers Responsible for program delivery issue insurance coverage, premium collection, and loss adjustment Responsible for policy development, rating, reinsurance, and administrative expense support (as negotiated and contracted by the Standard Reinsurance Agreement) 41 Business Strategies for Nevada Agriculture Producers 85 1

89 RMA Website ( RMA Website (www. rma.usda.gov) 44 Business Strategies for Nevada Agriculture Producers 86 2

90 Livestock Gross Margin (LGM) Covers higher feed costs or low prices Available in all NV counties for Cattle, Dairy Cattle, and Swine Producer selects a deductible amount, not a coverage level (no CAT coverage) Indemnity based on: o Loss of Gross Margin (Gross margin guarantee minus Actual gross margin) Cattle: Gross margin is the market value of livestock minus feeder cattle and feed costs) Dairy Cattle: Gross margin is market value of milk minus feed costs Swine: Gross margin is the market value of livestock minus feed costs o Prices are based on Future prices, not actual prices Livestock Risk Protection (LRP) Covers market price declines Available in all NV counties for Cattle, Fed Cattle, Lamb, and Swine Indemnity based on posted prices LRP Lamb participation in 2012 o Elko, Washoe, and White Pine Counties USDA RMA Video 47 Business Strategies for Nevada Agriculture Producers 87 3

91 AGR-lite Crop Insurance Whole farm revenue plan providing protection against reduced revenues due to unavoidable natural disasters and market fluctuations. Maximum liability of $1 million annually. Uses a producer's 5 year historical farm average revenue, as reported on IRS tax returns (Schedule F or equivalent forms) to determine guarantee. The AGR Lite plan can stand alone or be used in conjunction with most other federal crop insurance plans. It provides insurance coverage for multiple agricultural commodities (crops and livestock)under one insurance product. 48 AGR-lite Crop Insurance Program Benefits and Requirements Available in all Nevada counties, Premiums are subsidized at 48%, 55%, or 59% for coverage levels of 80%, 75%, and 65%, respectively. Covered causes of loss are broad and include unavoidable natural occurrences and/or market fluctuations. AGR Lite covers a range of commodities, including organic and directly marketed commodities, that are otherwise generally uninsurable. Producers must select a coverage level (65%, 75%, or 80%) and a payment rate (75% or 90%) which determines the payout in time of loss. To participate, a producer must submit five years of continuous, verifiable tax returns for the same entity. NOTE: Participation at the 80% coverage level requires substantial production of three or more commodities. 49 DARTS Software Tool Diversified Agriculture Revenue Translation System (DARTS) Downloadable software application designed to assist producers in maintaining sound financial records and to ease the administrative burden of participating in either the Adjusted Gross Revenue (AGR) or AGR Lite crop insurance programs. Overall goal is to assist agriculture producers in enhancing their risk management practices through better recording keeping practices and, if applicable, participation in the AGR or AGR Lite crop insurance programs. Download the free software at: 50 Business Strategies for Nevada Agriculture Producers 88 4

92 DARTS Software Tool DARTS Software Introduction Tutorial 51 DARTS Software Tool DARTS AGR Identification Wizard Tutorial Videos Video 1/5 Getting Started 52 DARTS Software Tool DARTS AGR Identification Wizard Tutorial Videos Video 2/5- Farm Description Video 3/5 Tax Return Entry and Conversion Video 4/5 Commodity History and Post-Production Operations Video 5/5 Special Case Adjustments and Finishing Up 53 Business Strategies for Nevada Agriculture Producers 89 5

93 DARTS Software Tool DARTS Accounting Software Starter Wizard Tutorial Video 54 Pasture, Rangeland, Forage Covers vegetative loss in Nevada on pastures, rangelands, and forage land o Grazed or Hayed land o Available in all counties o Sales Closing Date: November 15 CAT coverage not available Pasture, Rangeland, Forage Started in 2012 How it works: o For a grid (location), producers select coverage levels, protection factor and the intervals (months of coverage) o Payments issued if the vegetative index indicates a loss, regardless of actual conditions. Business Strategies for Nevada Agriculture Producers 90 6

94 Pasture, Rangeland, Forage Grids o 4.8 miles by 4.8 miles o Land may be in multiple grids Coverage Levels may vary by grid o All land within a grid must have the same coverage level 70%, 75%, 80%, 85%, 90% Protection Factor o Operation s forage productivity relative to the average 60% to 150% (100% represents average) Interval o 3 consecutive months o Cannot overlap o Not all months are available. Pasture, Rangeland, Forage Use the Grid Locator tool to find the grid o o Quick Links: Rainfall/Vegetation Indices Pasture, Rangeland, Forage Use the Grid Locator tool to find the grid o o Quick Links: Rainfall/Vegetation Indices o Vegetative Index (VI): Pasture, Rangeland, Forage (PRF) Business Strategies for Nevada Agriculture Producers 91 7

95 Pasture, Rangeland, Forage Use the Grid Locator tool to find the grid o o Quick Links: Rainfall/Vegetation Indices o Vegetative Index (VI): Pasture, Rangeland, Forage (PRF) o Vegetative Index (VI): Grid ID Locator, Decision Support Tool, Historical Indices Pasture, Rangeland, Forage Use the Grid Locator tool to find the grid o o Quick Links: Rainfall/Vegetation Indices o Vegetative Index (VI): Pasture, Rangeland, Forage (PRF) o Vegetative Index (VI): Grid ID Locator, Decision Support Tool, Historical Indices prf/maps Pasture, Rangeland, Forage Business Strategies for Nevada Agriculture Producers 92 8

96 Pasture, Rangeland, Forage Pasture, Rangeland, Forage Pasture, Rangeland, Forage Summary o Choose Grid(s) where land is located o Select Coverage Level, Protection Factor, and Intervals o Loss determined by Vegetative Index o NOTE that the insured can select the amount of acreage and not all has to be covered. Business Strategies for Nevada Agriculture Producers 93 9

97 Why Buy Federal Crop Insurance? May help manage previously discussed risks including: o Production Risks, Market Risks, Financial Risks May be required to secure operating loans. FSA programs may have minimum insurance requirements. Crop insurance is Federally subsidized and Federally reinsured because would otherwise be too expensive for farmers and insurance companies to participate. 66 What to Look for in an Agent Personal integrity Knowledge of agribusiness environment Understanding of crop insurance Good communication skills Team player Up to date on changing nature of Federal programs Provides guidance Is available Computer savvy In it for the long haul 67 Resources For more information on federal crop insurance programs and how they apply to your operation, contact a local crop insurance agent. An online listing can be found at: or, visit your local FSA Office for a list of agents. Business Strategies for Nevada Agriculture Producers 94 10

98 Good Agricultural and Handling Practices 69 Good Ag and Handling Practices GAPs: o Farming practices that minimize microbial contamination GHPs: o Handling practices that minimize microbial contamination Both are voluntary programs utilized by growers to satisfy contractual requirements with buyers and/or consumers Origination of GAPs and GHPs Series of produce related outbreaks in mid 90s 1998 FDA created voluntary guidelines after wholesaler (buyer), consumer and industry demanded some kind of assurance: o The Guide to Minimize Microbial Food Safety Hazards for Fresh Fruits and Vegetables (GAPs) 2002 Growers and shippers approach USDA to develop and audit system Multi state outbreaks associated with spinach and tomatoes (2006), basil (2007), cantaloupes (2008), peppers (2008), cantaloupes (2011) organic baby spinach? (2013) 2010 Federal legislation passed by Congress o Food Safety Modernization Act (FSMA) o 0: Federal legislation passed by Congress (FSMA) Business Strategies for Nevada Agriculture Producers 95 11

99 Importance of GAPs/GHPs Four factors: o Market access and risk management o Costs of foodborne illness o Nature of produce consumption and distribution o Growth rate and habit of human pathogens o Government regulation Food Safety Modernization Act (FSMA) Market Access and Risk Management Risk to farm business: o Loss of brand reputation o Compensation o Legal costs and fines liability o Loss of production o Cleaning and renovation o Loss of sales when consumers avoid product o Loss of business Market opportunities o Gain market access. Buyers often require certification. o Expand direct market opportunities and build trust with consumers. Costs of Foodborne Illness Nationally o 48M people get sick, 128,000 hospitalized, and 300 die annually due to foodborne disease o Estimates of 10s of billions of $/year o Include costs of investigation and medical insurance costs Affected Population o Loss of income and productivity o Cost of healthcare o Cost of death Farm Business o Legal costs o Loss of sales o Loss of brand reputation Business Strategies for Nevada Agriculture Producers 96 12

100 Nature of Produce Consumption and Distribution Distribution: o Produce travels 1,000s of miles to reach the consumer o Produce is often highly aggregated o Potential for contamination from farm to fork Consumption o Produce is often eaten raw no kill step involved o Eaten by young, old and other susceptible populations FSMA Applied to fruits, vegetables, and processed food Does not apply to meat, poultry or dairy Proposed rule came out January 2013 o Open for public comment until May o o Click on the docket number and provide your comments to shape public policy For more information on FSMA: FSMA Tester Hagan Amendment of FSMA exempts small farms from food safety if they meet ALL of the following criteria: o 50% direct market to consumers, stores or restaurants o Direct market in the same state or within 275 miles o Total farm sales less than $500,000 o Name, address and phone # provided to customer Those producers that do not meet criteria will be subject to regulation. Business Strategies for Nevada Agriculture Producers 97 13

101 What can I do to reduce risk? Develop a food safety plan for your farm Conduct a self audit Become a certified GAP/GHP producer o Nevada Department of Agriculture offers independent audits for certification o UNCE offering GAP/GHP trainings later this year o Nevada Department of Agriculture has cost share assistance available Program does not guarantee against contamination. o It does provide a framework for reduced risk for contamination and liability Areas to Reduce Risk of Contamination Environmental Risk Assessment Water: Pre and Post harvest Waste: Manure and Compost Wildlife: Intrusion and Fecal Matter Workers: Hygiene and Training Record Keeping Traceability How to Request an Audit 1. Determine what type of audit you need. 2. Call NV Dept. of Ag or download an audit request form 3. or fax your completed Audit Request Form to the Nevada contact: Ashley Jeppson NV Dept. Of Ag phone fax ajeppson@agri.nv.gov *The office will contact you and confirm the receipt of your request, give you more information about the program procedures, and schedule your audit. Business Strategies for Nevada Agriculture Producers 98 14

102 Good Agricultural Practices (USDA-GAP) & Good Handling Practices (USDA-GHP) Operations with passing results are acknowledged with an official USDA certificate valid for one year. Operations that pass an audit can be posted on USDA s Web site and are accessible to growers and customers. Food Safety Resources Cornell Produce Safety Alliance UC Davis Postharvest Technology Center USDA Agricultural Marketing Service GAP Information FDA Food Safety and Modernization Act UNCE Seth Urbanowitz urbanowitzs@unce.unr.edu NV Dept. of Ag. Ashley Jeppson ajeppson@agri.nv.gov *For more information about the Produce GAPs Harmonization Initiative, please contact Erin Grether at egrether@unitedfresh.org Resources For further coverage information call us or look up addition information on our website: This presentation was made possible by a grant from the USDA s Risk Management Agency 83 Business Strategies for Nevada Agriculture Producers 99 15

103 Nicole Gueck, AgriLogic Consulting Phone: Thank you for your attention We will take this time to answer your questions 84 Business Strategies for Nevada Agriculture Producers

104 3/19/2013 Is it worth it? The Importance of Enterprise Budgets Malieka Landis, M.S. Research Analyst University Center for Economic Development University of Nevada, Reno Can you break even? What s your number? Net revenue = gross revenue operating or variable costs fixed costs Per Square Foot or Per Acre + = Enterprise Budgets Use this information to estimate outcomes from future activities Not necessarily recordkeeping Guesstimation is O.K. Business Strategies for Nevada Agriculture Producers 101 1

105 3/19/2013 Purpose Help with decision making Crop choice Extent Equipment purchase or custom work Labor Added benefits AGRONOMICS DETERMINES ECONOMICS Where do I start? What equipment do I need? Investment Summary Is this a perennial crop? Establishment Costs What are my revenues & expenses? Costs & Returns What if I need a loan? Monthly Cash Flow Business Strategies for Nevada Agriculture Producers 102 2

106 3/19/2013 Example Assumption Hoop house Part of 5 acre operation Travel in summer months to market Sell on-farm and locally in winter Investment Summary What will I need to conduct this operation? Lists all tools & equipment needed Cost at time of purchase How long it will last Investment Summary for Field Produce Production Widget Farms 1.25 Acres 2012 Annual Equipment Costs Annual Annual Es tim ated Purchase Useful Life Capital Annual Annual Pers. Prop. Ownership Descr iption Price % Use % Use Price (Yrs) Recovery Repairs Taxes Insurance Interest Buildings, Improvements, and Equipment House & Land $ 325, % 81, $ $ 1, $ $ $ $ 5, $ Fencing 2, $ 50% 1, $ $ $ $ 8.33 $ $ Implements 1, $ 80% $ $ $ 8.00 $ 5.33 $ $ Irrigation System 7, $ 100% 7, $ $ $ $ $ $ Equipment Shed 2, $ 80% 1, $ $ $ $ $ $ - Field Establishment 13, $ 100% 13, $ , $ - $ - $ - $ Sub Total Pre-Establishment t 337, $ 92, $ $ 1, $ $ $ $ 5, $ 5, Sub Total Post-Establishment 351, $ 105, $ 2, $ 1, $ $ $ Machinery and Vehicles Rototiller $ % $ $ $ 7.50 $ 5.00 $ $ $ ATV 9, $ 75% 6, $ $ $ $ $ $ /2 Ton Pick-up 25, $ 50% 12, $ , $ $ $ $ $ Trailer 7, $ 75% 5, $ $ $ $ $ Sub Total $ 41, $ 25, $ 3, $ 1, $ $ $ 1, Total $ 393, $ 117, $ 4, $ 3, $ 1, $ $ 7, mi/gal mi/mo mi/yr $/gal annual tot Business Strategies for Nevada Agriculture Producers 103 3

107 3/19/2013 Establishment Costs What will I need to do the first year of planting the crop? First year of perennial Higher costs / less returns Bottom line capitalized over life of crop Widget Farms 1.25 Acres 2012 Operating Establishment Costs Total Cost/Value % of Total Price/Cost Total Per Square Budget Units Unit Per Unit Cost/Value Foot Category OPERATING COSTS Soil Testing 1.00 Each $ $ 0.00 $ 0.62% $ 2.67% Custom Discing 0.62 Acre $ $ 0.01 $ 0.46% Soil Amendments 5.00 lb 7.50 $ $ 0.00 $ 13.29% Trees Each $ 1, $ 0.04 $ 0.02% Survey/Mark 0.62 Acre 3.00 $ 1.86 $ 0.00 $ 0.01% Training/Staking/Suckering 0.62 Acre 0.75 $ 0.46 $ 0.00 $ 0.01% Budding 0.62 Acre 0.85 $ 0.53 $ 0.00 $ 0.59% Insecticide oz 1.50 $ $ 0.00 $ 0.20% Herbicide Acre 1.00 $ $ 0.00 $ 0.91% Irrigation 9.00 acin 8.25 $ $ 0.00 $ 1.83% Utilities 0.62 Annual $ $ 0.01 $ 31.99% Operator Labor Hours $ 2, $ 0.10 $ 1.91% Accounting & Legal 0.62 Annual $ $ 0.01 $ 1.60% Fuel & Lube 0.62 Annual $ $ 0.00 $ 27.52% Maintenance 0.62 Annual 3, $ 2, $ 0.08 $ 14.47% Miscellaneous 0.62 Annual 1, $ 1, $ 0.04 $ 1.91% Operating Capital Interest 2, $ $ 6.50% $ 0.01 TOTAL OPERATING COSTS $ 8, $ 0.30 OWNERSHIP COSTS CASH OVERHEAD COSTS Liability Insurance 0.62 Annual $ $ 0.01 $ 3.81% $ 1.91% Office & Travel 0.62 Annual $ $ 0.01 $ 5.96% Annual Investment Insurance 0.62 Annual $ $ 0.02 $ 6.37% Annual Investment Taxes 0.62 Annual $ $ 0.02 TOTAL CASH OVERHEAD COSTS $ 1, $ 0.05 NONCASH OVERHEAD COSTS (Capital Recovery) Buildings, Improvements, & Equipment 1.00 Annual $ 0.04 $ 12.00% $ 40.42% Machinery & Vehicles 1.00 Annual , $ 0.12 TOTAL NONCASH OVERHEAD COSTS $ 4, $ 0.16 TOTAL OWNERSHIP COSTS $ 5, $ 0.21 TOTAL COSTS $ 13, $ 0.51 YEAR ONE INCOME 0 lbs 3.00 $ - $ - $ 0.00% TOTAL GROSS INCOME $ - $ - TOTAL ESTABLISHMENT INVESTMENT $ 13, $ 0.51 Costs & Returns How much can I expect in returns? What costs do I have? Gives the bottom line Bottom line will change with scale of operation Business Strategies for Nevada Agriculture Producers 104 4

108 3/19/2013 Widget Farms 1.25 Acres 2012 Field Produce Production Costs and Returns, 1.25 acres (54,450 sqft) Sq. Ft Total Units Unit Total Cost/Value % of Price/Cost Total Per Square Budget Per Unit Cost/Value Foot Category GROSS INCOME Annual 10,950 10,000 lb 2.00 $ 20, $ 1.83 $ 34.04% $ 65.96% Perennial 27,000 15,500 lb 2.50 $ 38, $ 1.44 $ TOTAL GROSS INCOME 58, $ 1.55 OPERATING COSTS Seed 1.0 bulk $ $ 0.01 $ 0.92% $ 0.57% Starts ea 1.00 $ $ 0.01 $ 0.31% Fertilizer lbs 1.00 $ $ 0.00 $ 0.22% Pest Control 1.0 Yards $ $ 0.00 $ 0.43% Irrigation 21.0 acin 8.25 $ $ 0.00 $ 59.15% Operators Labor 12.0 Monthly 2, $ 24, $ 0.63 $ 19.72% Hired Labor Hourly $ 8, $ 0.21 $ 0.59% Utilities 12.0 Monthly $ $ 0.01 $ 0.52% Fuel & Lube 1.0 Annual $ $ 0.01 $ 8.89% Repairs & Maintenance 1.0 Annual 3, $ 3, $ 0.10 $ 1.23% Packaging Boxes 1.00 $ $ 0.01 Advertising/Signs g 1.0 Annual $ $ 0.01 $ 0.86% $ 4.68% Miscellaneous 37, Sq Ft 0.05 $ 1, $ 0.05 $ 1.91% Interest on Operating Capital $ 11, % $ 0.02 $ TOTAL OPERATING COSTS 40, $ 1.07 INCOME ABOVE OPERATING COSTS 18, $ $ 0.48 OWNERSHIP COSTS CASH OVERHEAD COSTS Accounting & Legal 1.0 Annual $ $ 0.01 $ 1.54% $ 1.54% Office & Travel 1.0 Annual $ $ 0.01 $ 46.99% Interest Expense 1.0 Annual 7, $ 7, $ 0.20 $ 7.90% Liability & Property Insurance 1.0 Annual 1, $ 1, $ 0.03 $ 7.23% Annual Property Taxes 1.0 Annual 1, $ 1, $ 0.03 $ CASH OVERHEAD COSTS 10, $ 0.28 INCOME ABOVE CASH OUTLAY 7, $ $ 0.20 NONCASH OVERHEAD COSTS (Capital Recovery) Buildings, Improvements, & Equipment 1.0 Annual 2, $ 2, $ 0.06 $ 14.55% $ 20.25% Machinery & Vehicles 1.0 Annual 3, $ 3, $ 0.09 $ NON-CASH OVERHEAD COSTS 5, $ 0.15 TOTAL OWNERSHIP COSTS $ 16, $ % TOTAL COSTS $ 56, $ 1.50 NET PROJECTED RETURNS $ 1, $ 0.05 Monthly Cash Flow Shows income and expenditures by month Just for operation costs Useful for knowing when operating loans will be needed and when they can be paid back Usually required to obtain loan Widget Farms 1.25 Acres 2012 Monthly Summary of Returns and Expenses Description January February March April May June July August September October November December Total Production: Annual $ - $ - - 2, , $ 4, $ 4, $ 4, $ - 20, $ - $ - $ - $ $ $ $ $ 38, Perennial $ $ - $ - $ 5, $ 5, $ 7, $ 7, $ 7, $ 1, $ $ $ $ 58, Total Income $ $ - $ - $ 5, $ 5, $ 9, $ 12, $ 12, $ 5, $ 5, $ $ Operating Inputs: Seed $ - $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ Starts $ - $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ Fertilizer $ - $ - $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ Pest Control $ - $ - $ - $ - $ - $ $ $ $ - $ - $ - $ - $ Irrigation $ - $ - $ $ $ $ $ $ $ $ - $ - $ - $ Operators Labor $ 2, $ 2, $ 2, $ 2, $ 2, $ 2, $ 2, $ 2, $ 2, $ 2, $ 2, $ 2, $ 24, Hired Labor $ - $ - $ $ $ $ $ $ $ $ $ $ - $ 8, Utilities $ $ $ $ $ $ $ $ $ $ $ $ $ Fuel & Lube $ $ $ $ $ $ $ $ $ $ $ $ $ Repairs & Maintenance $ $ $ $ $ $ $ $ $ $ $ $ $ 3, Packaging $ - $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ Advertising/Signs $ - $ - $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ Miscellaneous $ $ $ $ $ $ $ $ $ $ $ $ $ 1, Operating Capital Interest $ $ $ $ $ $ $ $ $ $ $ $ $ Total Operating Costs $ 2, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 2, $ 40, Net Operating Returns $ (1,786.02) $ (2,891.02) $ (3,949.66) $ (3,474.66) $ 2, $ 2, $ 6, $ 8, $ 8, $ 2, $ 1, $ (1,786.02) $ 18, Operating Inputs: Accounting & Legal $ - $ - $ - $ $ - $ - $ - $ - $ - $ - $ - $ - $ Office & Travel $ - $ - $ $ - $ - $ - $ - $ - $ - $ - $ - $ $ Equipment Interest Expense $ $ $ $ $ $ $ $ $ $ $ $ $ 7, Liability & Property Insurance $ - $ - $ - $ - $ - $ - $ $ - $ $ - $ - $ - $ 1, Annual Property Taxes $ - $ - $ - $ - $ - $ - $ - $ - $ 1, $ - $ - $ - $ 1, Total Income $ $ $ $ $ $ $ 1, $ $ 2, $ $ $ $ 10, Net Total Returns $ (2,421.45) $ (3,526.45) $ (4,710.09) $ (4,360.09) $ 1, $ 1, $ 5, $ 8, $ 5, $ 1, $ 1, $ (2,546.45) $ 7, Business Strategies for Nevada Agriculture Producers 105 5

109 3/19/2013 Now the fun begins! Thank You For Coming! Questions? Business Strategies for Nevada Agriculture Producers 106 6

110 Widget Farms 1.25 Acres 2012 Field Produce Production Costs and Returns, 1.25 acres (54,450 sqft) Sq. Ft Total Units Unit Price/Cost Per Unit Total Cost/Value Total Cost/Value Per Square Foot % of Budget Category GROSS INCOME Annual 10,950 10,000 lb $ 2.00 $ 20, $ % Perennial 27,000 15,500 lb $ 2.50 $ 38, $ % TOTAL GROSS INCOME $ 58, $ 1.55 OPERATING COSTS Seed 1.0 bulk $ $ $ % Starts ea $ 1.00 $ $ % Fertilizer lbs $ 1.00 $ $ % Pest Control 1.0 Yards $ $ $ % Irrigation 21.0 acin $ 8.25 $ $ % Operators Labor 12.0 Monthly $ 2, $ 24, $ % Hired Labor Hourly $ $ 8, $ % Utilities 12.0 Monthly $ $ $ % Fuel & Lube 1.0 Annual $ $ $ % Repairs & Maintenance 1.0 Annual $ 3, $ 3, $ % Packaging Boxes $ 1.00 $ $ % Advertising/Signs 1.0 Annual $ $ $ % Miscellaneous 37, Sq Ft $ 0.05 $ 1, $ % Interest on Operating Capital $ 11, % $ $ % TOTAL OPERATING COSTS $ 40, $ 1.07 INCOME ABOVE OPERATING COSTS $ 18, $ 0.48 OWNERSHIP COSTS CASH OVERHEAD COSTS Accounting & Legal 1.0 Annual $ $ $ % Office & Travel 1.0 Annual $ $ $ % Interest Expense 1.0 Annual $ 7, $ 7, $ % Liability & Property Insurance 1.0 Annual $ 1, $ 1, $ % Annual Property Taxes 1.0 Annual $ 1, $ 1, $ % CASH OVERHEAD COSTS $ 10, $ 0.28 INCOME ABOVE CASH OUTLAY $ 7, $ 0.20 NONCASH OVERHEAD COSTS (Capital Recovery) Buildings, Improvements, & Equipment 1.0 Annual $ 2, $ 2, $ % Machinery & Vehicles 1.0 Annual $ 3, $ 3, $ % NON-CASH OVERHEAD COSTS $ 5, $ 0.15 TOTAL OWNERSHIP COSTS $ 16, $ % TOTAL COSTS $ 56, $ 1.50 NET PROJECTED RETURNS $ 1, $ 0.05 SqFt % of Acre Tot 54, % Planted 37, % Business Strategies for Nevada Agriculture Producers 107

111 3/20/2013 Staci Emm, Extension Educator Kynda Curtis, Utah State University Marketing is anticipating the needs and wants of targeted customers and managing the process through which these needs and wants are satisfied Anticipating Needs & Wants Targeted Customers Management Process Customer Satisfaction Profitability 1. Customer 2. Costs 3. Competition Business Strategies for Nevada Agriculture Producers 108 1

112 3/20/2013 Who are you selling to? Market Analysis Segmentation Prioritizing target markets What is important to targeted customers? Customer analysis Make sure you are distinctively different from competition in areas of importance to target customers. Competitive analysis Reallocation of resources if necessary Positioning Market intelligence Loyal segments are return customers that are less worried about costs. They want a relationship. Value segments are hardest to keep happy but do recognize and value quality. Convenience segments are those you can get to make impulse buys. They are less price sensitive. Price segments is not too attractive unless you compete entirely on price. Demographics Age, location, education, etc. Psychographics Health, food safety, nutrition, environmental, support local growers, etc. Needs/Preferences Product characteristics, variety, delivery location, etc. Business Strategies for Nevada Agriculture Producers 109 2

113 3/20/2013 One of the most important factors in evaluating the economic viability is market size Too small: not enough sales to cover startup, capital, and operating costs Too large: not a niche market, direct competition from commodity markets will likely prevail Examining current and historical consumption patterns can be helpful Average annual consumption levels for hundreds of foods in the US can be found on USDA s Economic Research Service (USDA-ERS) website At right is an example of consumption data for fresh fruit by farm weight for strawberries ov/data/foodconsump tion/ census.gov/hom e/saff/main.html Info for Window Rock, AZ (zip code 86505) Can click on the maps to see this information shown on a map (next slide) Business Strategies for Nevada Agriculture Producers 110 3

114 3/20/2013 Consider the example of a strawberry producer thinking about turning 3 acres of his operation into a U-pick field Estimates that each acre will yield 10,000 berries ERS data shows that for the most recent year, the average annual consumption of strawberries per person was 6 pounds Can use the following equation to determine the appropriate market size: 30,000 (Acres in operation)*(output per acre) Market size required (Average consumption per person/year)/(52 weeks/year) 260, This means the producer will need a market size of 260,000 consumers to make the project economically viable When performing this calculation, consider that the product may be sold at a discount (relative to supermarket price level) Therefore consumers might buy more than their average consumption levels Selling at a discount allows consumers to purchase more of the product for the same amount of money Imperative to consider whether or not enough consumers can be found to meet the market size requirement Also important to note that ERS data is for standard, conventional products Market for a differentiated product will likely be different Demographic characteristics a key aspect in assessing a niche market In the U-pick strawberry example, the producer may be interested in targeting families Would be helpful to know if the farm area has families enough to make up a generous portion of the 260,000 consumers needed to make the U-pick operation feasible Demographics from the most recent U.S. Census can be searched online by state and by zip code Ages of people in the area, household and family size, income, ethnicity, etc. All of which can provide information as to the characteristics of potential customers in the local and surrounding area Business Strategies for Nevada Agriculture Producers 111 4

115 3/20/2013 In your workbook, find Worksheet 4.9 out of the Building a Sustainable Business Guide, (2003). Lets take a few minutes to fill in the workshop per product you are producing. Business Strategies for Nevada Agriculture Producers 112 5

116 Building a Sustainable Business: A guide to Developing a Business Plan for Farms and Rural Business, 2003 Business Strategies for Nevada Agriculture Producers 113

117 3/20/2013 Know variable costs of producing your product Realize there are fixed costs that must be paid, whether you produce your product or not Use variable and fixed costs to calculate the break-even point where costs are covered Compare break-even with industry standards What to consider in a competitive marketbased economic system Be a low cost producer Have a market monopoly Market to a specialized segment Always know and control your costs Control only what you can quantify and measure Measure costs through accounting and budgeting Complete financial statements consistently prepared In your workbook, find Worksheet 4.9 out of the Building a Sustainable Business Guide, (2003). Lets take a few minutes to fill in the workshop per product you are producing. Business Strategies for Nevada Agriculture Producers 114 1

118 Building a Sustainable Business: A Guide to Developing a Business Plan for Farms and Rural Businesses, 2003 Business Strategies for Nevada Agriculture Producers 115

119 3/20/2013 Evaluating the market size of a niche agricultural product and/or farm experience is fundamental to the financial success and growth of the business If market size is too small it will be unable to cover costs investments, and will not be economically viable If market size is too large will likely meet competition from other competitors Unless the product is differentiated or truly targeted at a niche market segment Starting relatively small with new products and variations in products can be a good way to test the waters and verify consumer response and feedback Farmers Markets Roadside Stands/U-pick Community Supported Agriculture Programs Institutional Farm-to-School/College Farm-to-Hospital Restaurants Increasing demand for local foods Consumer food safety, environmental, energy usage, ag land preservation concerns Consumers willing to pay more for local, organic, natural and other labeled foods Higher return, product pricing Build relationship with customer/local business Opportunity to grow special varieties Business Strategies for Nevada Agriculture Producers 116 1

120 3/20/2013 Distributors Bonanza, etc. Retail Grocery Raley s, Scolaris, Safeway Brewery/Winery Let s move to an example of a product! Local Beef Nevada Study Respondents represented all regions of Nevada, but slight majority were from Southern Nevada 56% Southern Nevada (Las Vegas, Henderson, etc.) 40% Northern Nevada (Reno, Carson City, etc.) 2% Eastern Nevada (Elko, Winnemucca, etc.) 2% did not specify Nevada Study Respondents were asked how many times their household eats meat each week 50% eat meat 1 to 5 times/week 32% eat meat 5 to 10 times/week 14% eat meat more than 10 times/week 4% do not eat meat on a regular basis Business Strategies for Nevada Agriculture Producers 117 2

121 3/20/2013 Nevada Study Respondents were asked to rank the stores/outlets they purchase meat from according to which they visit most: Rank Outlet % Ranked #1 1 Grocery store 77% 2 Specialty meat store 3% 3 Natural foods store 6% 4 Direct from farmer <1% 5 Internet <1% 6 Other 11% Majority of respondents who chose "other" specified warehouse stores, such as Costco Nevada Study Average lbs consumed per Cut type household per month Fillet 3.65 lbs Rib eye 4.62 Top loin 4.60 T-bone steak 4.35 NY steak 4.41 Prime rib 5.95 Preformed beef patties/meatballs 5.04 Ground beef 6.89 Beef roast 7.13 Tri-tip 7.31 Stew meat 3.37 London broil 4.21 Misc. beef cuts 4.69 Nevada Study 58% Do not use direct marketing or did not specify a method 26% Use word-of-mouth as a direct marketing technique 5% Market at farmer's markets 4% Market using the Internet or mail 7% Use other methods: Booths at fairs, rodeos, etc Advertise in trade magazines Market at auctions or through a broker Business Strategies for Nevada Agriculture Producers 118 3

122 Description GROSS INCOME Weight Per Unit of Animal Measure Total Units Price/Cost Value/Cost Your Per Unit Total Value Per Head Ranch Cull Cows lbs $ 0.48 $ 36, $ Cull Bulls lbs 5.00 $ 0.52 $ 4, $ Yearling Replacements lbs $ 0.80 $ 13, $ Heifer Calves lbs $ 1.15 $ 64, $ Steer Calves lbs $ 1.25 $ 150, $ TOTAL INCOME $ 269, $ OPERATING COSTS Grass Hay (Meadow Hay) Ton $ $ 48, $ Tubs Tub $ $ 30, $ Alfalfa Hay Ton $ $ 9, $ Federal Grazing (BLM) AUM $ 1.57 $ 5, $ Horse (Shoeing, Vet, Feed, etc.) Head $ $ 4, $ 9.00 Veterinary/Medical Head $ $ 10, $ Marketing (Brand, Video, Commission) Head $ $ 5, $ Checkoff Head $ 1.00 $ $ 0.79 Salt & Minerals Ton $ $ 3, $ 6.60 Hauling $ $ 2.50 $ $ 1.98 Hired Labor Monthly $ $ 4, $ 9.60 Operator Labor Monthly $ 2, $ 24, $ Accounting & Legal Fees $ 1.00 $ 2, $ 2, $ 5.00 Maintenance (Buildings, Vehicles, etc.) $ 1.00 $ 16, $ 16, $ Fuel & Lube $ 1.00 $ 13, $ 13, $ Utilities $ 1.00 $ 5, $ 5, $ Miscellanous Head $ 5.00 $ 2, $ 5.00 Interest Operating Capital $ $ 148, % $ 4, $ 9.65 TOTAL OPERATING COSTS $ 190, $ INCOME ABOVE OPERATING COSTS $ 78, $ OWNERSHIP COSTS Capital Recovery (Depreciation): Buildings, Improvements, & Equipment $ 1.00 $ 9, $ 9, $ Machinery & Vehicles $ 1.00 $ 14, $ 14, $ Purchased Livestock (Bulls & Horses) $ 1.00 $ 10, $ 10, $ Cash Overhead: Liability Insurance $ 1.00 $ 3, $ 3, $ 6.00 Office & Travel $ 1.00 $ 3, $ 3, $ 6.00 Interest on Retained Livestock $ 1.00 $ 3, $ 3, $ 6.83 Annual Investment Insurance $ 1.00 $ 11, $ 11, $ Annual Investment Taxes $ 1.00 $ 16, $ 16, $ TOTAL OWNERSHIP COSTS $ 71, $ TOTAL COSTS $ 262, $ NET PROJECTED RETURNS $ 7, $ /20/2013 Nevada Study Most Important 1.Freshness 2.Taste/Flavor 3.Safety 4.Tenderness 5.Leanness 6.Price Important 1. Cut type 2. Humane treatment of animal 3. Environmentally friendly 4. Marbling 5. Naturally raised 6. Feed type 7. Packaging Concepts in Business Plan What are you producing that will be purchased/sold to your customer. What are your product characteristics Quality, Availability and Uniqueness, etc. What are your service characteristics Friendliness, reliability, trustworthiness What are your costs of production? Fixed Costs (i.e. overhead) Costs associated with directly producing a product that are set or unchanging no matter what and how much you are producing. Land rent, equipment payments Variable Costs Costs associated with directly producing a product that changes depending on what and how much you are producing. Fuel, electricity, seeds Revenue The amount received for selling your product. Profit Any revenue greater than your breakeven point is profit. 1. Simple Formula for Breakeven Analysis (Curtis, 2010) Revenue Variable Costs - Fixed Costs = Profit Business Strategies for Nevada Agriculture Producers 119 4

123 3/20/2013 Direct marketing to consumer: Formula: (Price * Q) (VC * Q) FC = Profit Trick to increase profit: Add the profit you want to your fixed costs. ($2200 *8 steers)-($800 * 8 steers) - $10,000 = ($17,600) ($6,400) - $10,000 = $1,200 Profit You can always adjust your costs and quantity after evaluating your options. Price = $2,200/steer Quantity = Number of steers selling Variable Costs= Costs associated with directly producing a product that changes Fixed Costs = Loan payment for Farm & Equipment and Insurance What does this scenario not consider? Features What makes your product different? Benefits What will that difference do for your consumer? Business Strategies for Nevada Agriculture Producers 120 5

124 3/20/2013 Does the food product affect the health of my family? Does the production of the food product treat animals in a humane way? Are the production processes environmentally safe or friendly Social Responsibility: Are others affected by producing this product Does the consumption of this product conform to my religious beliefs. See Certification and Labeling Considerations for Agricultural Producers, Western Extension Marketing Committee Name, term, design, symbol, or feature that identifies one seller s good or service as distinct. Think of how we still brand our cattle. Take it a step further Today branding is done with labels, packaging, and other materials. Generally privately owned & managed Focus on product attributes that are desired by a company s target markets Successful at local or regional level if consumers associate brand/label with desirable quality attributes Example include Kleenex, Coke, etc. Others? Business Strategies for Nevada Agriculture Producers 121 6

125 3/20/2013 Leann Saunders (IMI Global) says- A true brand of beef has three essential elements: (a) traceability (i.e., source verification), (b) a story (i.e., a set of value propositions) and (c) quality control (i.e., process verification). Consumers who purchase and eat Natural, Grass-Fed or Organic beef want to: (a) feel connected to the source of that beef, and (b) believe that someone, some specific farmer or rancher, personally actually watched over and provided oversight of the raising system. What is your story? Your values Your world view What do you stand for.. Where do you come from.. Why are you producing this product Business Strategies for Nevada Agriculture Producers 122 7

126 3/20/2013 Consumers must be able to associate brand with quality, trust, or other valued food characteristics. Certification provides an alternative that allows individual producers to be included under an established umbrella program and label (UOA, 2005). Certification sets standards. Government Agencies FDA, USDA: FSIS, NRCS, AMS, etc. Majority of US consumers trust government certifiers (85%) Government accredits private and non-government organizations Non-Government Organizations (NGOs) World Wildlife Fund, The Food Alliance, Greenpeace, Organic Consumers Association, Certification Monitoring Network, etc. Private Companies Quality Assurance International, Scientific Certification Systems (Nutriclean) A tool allowing producers to enter a recognized market using an established umbrella program or label Certified products provide consumer assurance that products meet certain extra-sensory or production/process attributes Third-party certification implies that certifying party does not directly benefit from sale of the good Examples include USDA Organic, Nevada Grown, Certified Angus Beef, Fair Trade, etc. Business Strategies for Nevada Agriculture Producers 123 8

127 3/20/2013 CSAs Food Co-op Directly to consumer If we have the product, quantity of product, and quality desired there could be larger markets. Whole foods, grocery stores, restaurants, etc. Business Strategies for Nevada Agriculture Producers 124 9