"Mandatory" social media platforms for agricultural businesses

By Dr Kathy Kelley, Professor of Horticultural Marketing and Business Management, and Dana Ollendyke, Extension Associate

Through an internet survey conducted by researchers at Penn State, Rutgers, Cornell, and New York University in 2013, 1,183 participants answered questions concerning their wine purchasing and consumption attitudes and behaviors and their demographic and socioeconomic status. Panelists were screened for being at least 21 years old, residing in one of the targeted mid-Atlantic states (New York, New Jersey, or Pennsylvania), and for having purchased and drank wine at least once within the previous year.

This survey may be focused on wineries, but the data collected can be of use to many agricultural business types. Marketing is an integral part of doing business.  Using social media to inform consumers about your products and events is an excellent way to build relationships.

John Gillespie, founder and CEO of Wine Opinions, a wine research company, stated in the article "Who’s Drinking Wine? A Look at the Wine Market Council’s Latest Survey" that 66% of core wine drinkers (those who drink wine at least once a week) and 40% of marginal wine drinkers (those who drink wine less frequently than once a week) use the internet to get information about wine. The article also said that more than half of all wine drinkers are on Facebook.

Consumers who participated in our internet survey were asked to select from a provided list of social media platforms they felt were mandatory for a winery to offer.  As you can see by Figure 1, Facebook is the significant front-runner.  Over 40% of participants believed that this social media tool is "mandatory" for a winery to implement.  Other platforms like Twitter, Pinterest, Instagram, and YouTube were significantly less important to respondents.

Figure 1. Social media platforms that survey respondents believed were "mandatory" for a winery to implement.

More information about the survey results can be viewed in the video series "Consumer Attitudes and Behaviors Towards Wine Purchases".

To learn more about social media marketing and the survey data, please see video 5 in the series.

As an agricultural business owner, what social media platforms do you use?  Which one(s) seems to drive the most interaction with your customers?

Marketing "Sustainable Farming" to Consumers: A Research Review

A recent journal article by Hillary Sackett, Robert Shupp, and Glynn Tonsor includes results that may benefit some readers who are marketing products with a "sustainable" label.  I'll provide the short version here but you may be able to obtain a copy of the work from one of the authors.

Research Motivation & Background

Sustainable agriculture is often described as a farmer working to not only be profitable but also do no harm to the environment and the broader society.  This so-called "triple bottom line" is sometimes referred to as "Profit, People, Planet."  While many in the agriculture industry debate the term, sometimes strongly, it's clear that a segment of consumers make purchases based on their perceptions of sustainability and the practices that make a farm sustainable.  Food marketers need to understand these consumers in order to target promotional efforts accurately.

The researchers used an internet survey to gather feedback from 1,002 people in 2010.  There were two different versions of the survey; one for apples and one for beef.  For each, ten different characteristics of sustainability were defined.  These characteristics reflected 6 production practices, some of which were different between apples and beef.  (For example, one practice for beef was "prohibited use of antibiotics" and one practice for apples was "limited herbicide use.")  Using a method called "Best-Worst Scaling," the researchers repeatedly asked respondents to choose the most and least important options from a group that included six of the ten total characteristics.  By answering this type of question a number of times, with different groupings, the respondent's preferences become clear.

The researchers analyzed the data to determine the relative importance of each of these characteristics.  They did this first for the entire group of respondents and then they used a tool called "latent class cluster analysis" to group similar types of respondents.  The benefit of this type of tool is that the data naturally group themselves rather than the researchers providing their best judgment to group the respondents.  The researchers then explore the clusters to understand the factors that differentiate the clusters.  The results for both types of analysis are useful for marketers!

Primary Findings

Overall, the size of the farm was ranked significantly higher than any other characteristics for both apples and beef.  The factor related to "locally-grown" was ranked 2nd for beef and 4th for apples.  A full set of results is shown below.

Ranked preferences for measures of sustainability on apple and beef farms

The numbers in parentheses show the level of the preference among all respondents.  These can be compared against each other.  Therefore, small farms is nearly twice as important than the second option for both apples and beef.

The latent-class cluster analysis then provided four distinct groups of respondents for apples and five distinct groups for beef.  These are described below.

Apple Cluster Groups

1. Localvores - 14% of respondents fell into a grouping that heavily valued local production.  These also valued minimal herbicide use and preventive/cultural pest control.
2. Small Business Enthusiasts - 30% fell into a group that placed heavy value on farm size and financial stability of the farm.  These also valued several of the production practices roughly evenly.
3. Price-Savvy Shoppers - 10% were consistently most concerned with food prices.
4. Sustainably Indifferent - 46% placed roughly equal weight on the characteristics.  It is not possible to discern whether these respondents care little or greatly about these characteristics; only that they care roughly equally about them.

Beef Cluster Groups

1. Animal Rights Activists - 15% place a great amount of weight on animal safety and pasture-based feed.
2. Nutrition Buffs - 24% place a great deal of importance on limited antibiotic use, growth hormones, and pasture-based feed.
3. Price-Savvy Shoppers - 10% indicate that price is the leading concern.
4. Sustainably Indifferent - 41% fell into this group, as described above.
5. Say No to GMOs - 10% placed full weight on the prohibition of genetically modified livestock.

Putting These Results to Work

The results of this work provide a bit of insight for the food marketer.  Assuming the apple-related results are applicable to other fruits, or maybe produce in general, you can see that themes of "small farms," "Integrated Pest Management," "local," and other production-oriented descriptors could be used in your marketing and promotional materials/websites/social media outlets.  The same could be done for beef (and possibly other meats) based on the beef results.

The research also does a nice job of segmenting the markets.  Based on my readings, I suspect that most of those in the "Sustainably Indifferent" groups are not actively seeking sustainably-grown products.  Of course, the "Price-Savvy Shoppers" are also not in the target market.  Therefore, the article provides some insights into why the others are in the market for sustainably-produced foods.  For apples, some consumers are most interested in buying local.  Others want to support small businesses, whether local or not.  For beef, some are most concerned about animal rights or non-GMOs while others view sustainable products as more healthy.

Use these and other related phrases on your labels as well as your promotional materials.  It should help you connect more deeply with your customers as you hone in on what concerns them the most.  Good luck!

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"Consumer Perceptions of Sustainable Farming Practices: A Best-Worst Scenario." (2013) Agricultural and Resource Economics Review. 42(2) pp. 275-290.

How to Get Started with a Written Business Plan

by Lynn Kime, Senior Extension Associate

Business planning is an on-going practice that most agricultural businesses try to avoid. It takes time away from working in production of crops or livestock, which is what most producers enjoy. That is one reason you started farming, to work with your hands in the field or with your livestock. However, with the changing times, more producers are being asked for business plans, especially when applying for loans from your lender.

Business planning can be an eye-opening experience for most producers. It makes you realize that you are not an island in a large ocean. You will look at your industry from a several perspectives global, regional, local, and your own operation. The research you conduct to write the plan will enrich your view of your industry and your own operation.

When you think of writing a business plan, think of the process of preparing to take a family vacation. What steps do you take when planning the vacation? You get family consensus on where to go, decide on the travel method (auto, plane, bus, train), map the route or rely on your GPS unit, take the trip, and then you evaluate the enjoyment of the trip.  Was it an enjoyable vacation form the entire family? When planning your trip, you can use a vacation planner to do the work. Business planning is much the same as planning a vacation; you are providing a map of your business for the future.  You will complete the same steps as taking the trip. When developing a business plan, you can also hire someone to write the plan. However, it becomes their interpretation of the business, not yours.

Your business should be enjoyable for the entire family as all members are impacted by the business. All family members may not work within the operation but will be impacted by the business with the owner(s) being away from the family at times. During several times of the year; planting, harvesting, calving, or when livestock are having young, the owner(s) may not be home for very long. Are all family members on board for this?

When creating a written business plan, get input from all family members as the owner(s) may fall into the rut of doing things a certain way because they have always been done that way. Other members may see ways to better the business that you do not. Also, having a business team will assist in the alternative view of the business. This business team should consist of your accountant, attorney, insurance salesperson, and any trusted mentors you have.

When writing your business plan you will develop goals and objectives to accomplish those goals and research the past, present, and probable future of the industry. You will decide if your current business structure is appropriate for the present and future of the business and which structure will assist with the transition to the next generation. Your risk management plan should also be included within the plan. This assures the reader that you have considered what may go wrong and the steps you plan to take if they do.

The marketing plan is a very important section of the plan, even if you wholesale your production. It does not matter how well you produce anything if there is no market for your production.  Having a strong market for production is critical to any business. If you are retailing or direct marketing your production, who is your customer and do they want what you produce? Your market research will determine your first and best customer. Also if you are in the retail market, what are you planning to do with the percentage of production that is not the highest grade? Having a plan for your “seconds” is something to consider as not all production is fit for your best customer.

Another important section of the plan is to create the financial documents to support your plan and to evaluate the success of the business. Your financial documents should include a balance sheet, income statement, and cash flow statement. Your lender will closely review these statements when considering your loan application. These statements may be the most difficult to develop as you should construct several scenarios for each. Your actual statements may be provided by your accountant but you should try to project two to three years out if at all possible. You should also develop best and worst case scenarios. Again, this will show the reader you have considered several possibilities.

After the plan is constructed, you will write the executive summary section of the plan. This executive summary is what the lender reads first as you will use this section to determine if the business is viable and provide the supporting information. Most lenders will read the executive summary and review the financial documents to make their recommendation concerning the loan.

There are several places to learn more about business planning. The Agricultural Alternatives series contains a publication titled Agricultural Alternatives:Developing a Business Plan. Penn State Extension has a course this winter titled Your Future in Focus. The course will be offered via live webinars on Tuesday evenings beginning January 14, 2014 from 6:30 to 9:00 pm. There are also two face-to-face sessions included in the course. 

Starting a Farm? Get Prepared!

by Lynn Kime, Sr. Extension Associate

When beginning any new enterprise, many decisions need to be made prior to planting or purchasing the first animal.  These decisions require research and developing an enterprise budget to be sure the venture will be profitable.  Depending on the scope of the enterprise, a business plan will assist with the decision making process, especially if this is your first venture into production agriculture.  To make the transition easier, think about what you have a passion to do.  Having a passion for the production makes the entire process more enjoyable.  A list of topics to consider prior to beginning include:

• Marketing
• Production
• Harvesting and storage
• Risk management
• Environmental regulations
• Where to find information

 Before beginning any production, you need to know if there is a market for what you plan to produce and where that market may be.  Another marketing decision is whether you are going to market wholesale or retail.  Wholesale marketing may be the easiest, but may not provide enough income to sustain your enterprise.  Retail marketing will take more time to develop as you will need to develop relationships with potential customers or find a farmers' market that has enough traffic to market you production.  One recommendation is to start small and grow into your market.

There are usually several production options for any livestock or crop you plan to produce.  For example, if considering producing beef cattle, will you raise grass-fed or a more conventional grain and hay program?  For horticultural crops, will you use plasticulture or be organically certified?

Do you have the time to produce and harvest what you plan to produce?  Even one acre of some crops requires 30-40 hours to harvest and many more to produce.  The production will need to integrate into your proposed schedule.  Also, will you need to store a portion of the crop prior to marketing and do you have these facilities?

Any production contains risk.  You are at the mercy of the weather, markets, and inputs that you cannot control.  There are insurance products you can take advantage of to help alleviate some of these concerns.

All municipalities have regulations that may impact your plans and production.  The first step for you is to contact your local municipality to determine if what you are planning fits into their regulations.  Another place to visit is your local Conservation District office to see if there are any environmental regulations that will impact your plans.

Penn State's Agricultural Alternatives publication series is an excellent place to start your research into a new venture.  There are now 64 publications in the series and we cover many topics targeting the small-scale and part-time farming community.  These publications are between four and twelve pages long and any topic covering production of livestock or crops has a budget included.  The publications are not in-depth production guides, as indicated by the length, but are designed to allow the reader to make a better informed decision about the potential of the enterprise.

We have an extensive listing of livestock, fruits, vegetables, and farm management publications.  The farm management publications cover business start-up, business planning, marketing, and risk management topics.  These should be viewed first when considering a new farming venture.  The information contained in these publications is necessary when starting a business.  They will guide you through the process of the new venture and provide the information to allow you to become successful.  There is also a section covering where to find much more in-depth information into the topic covered.

You can access these publications here.  There is a link to a PDF file for easy printing on the web pages that do not link directly to a PDF.  I encourage you to check out the website and discover what the project has to offer.  By using these publications and the included budgets you will be better informed about the time, capital, and equipment needed for the enterprise; all issues you need to consider when starting a new venture or enterprise.

Price Competition: Shoppers Value a Bargain!

Do you know a bargain hunter? You know, the type of person that is drawn to a "SALE" sign like a moth to a flame...  Most of us know one or two, I'm sure.  I learned a little more about these people last week, thanks to a paper presented at a conference by some researchers from Washington State University (Li, McCluskey, and Mittelhammer).

The research team analyzed the responses to "permanent" price drops (that is, those that were due strictly to supply and demand conditions) versus promotional, or short-term, price drops.  They used data from supermarket scanners, so they were able to analyze real transactions under real market conditions.  They did this for several different types of vegetables.

Guess what they found...  Consumers were more responsive to short-term price decreases than they were to permanent ones.  This suggests that promotions may be a better method to generate increased sales than being viewed as having low prices all the time.  On the other hand, it also means that promotions that happen too frequently may cause customers to pull back when a promotion isn't underway.

This phenomenon doesn't really surprise me.  I may or may not be related to a bargain hunter and I have come to understand that the purchase is more than the purchase.  Getting a bargain is a badge of honor; a story to tell friends, family, and co-workers.  I get that.  But there may be other factors at play.  In a stagnant economy like this one, we see shows like TLC's "Extreme Couponing" become popular.  To get these types of bargains, it often means buying in bulk.  So hoarding, or "stocking up" is a factor that drive sales during promotions.  (For something like vegetables, this may mean freezing or canning, so be sure to offer tips on how to do that.)

There's good science and economics behind pricing strategies that include short-term promotions.  Business owners should think about using them frequently, but not so much that they become the norm.  Watch sales (in dollars and quantities) to see how effective the promotions are.

Some Research Updates

One of the things we professors do is review manuscripts being considered for publication in academic journals. This morning, I reviewed two papers. One was on the application of business management techniques to identify new opportunities on farm operations. The other was on the benefits of diversifying farm enterprises. In that paper, they showed that those farms in a region in Kenya that had higher levels of diversification also had lower levels of food insecurity (being able to feed the family).

These papers point out some pertinent economic/managerial concepts. First, the farm is a business, no matter what is produced. In the first paper, they reported the results of walking a Slovenian dairy farmer through alternative opportunities, finally settling on breeding livestock. How many of our farmers could benefit from a systematic review of current or emerging opportunities? Nearly 100%! Always look to improve operations or go down a different path, if needed.

Second, diversification is important. The paper focused on enterprise diversification, but market diversification can be just as important. Enterprise diversification allows you to smooth income over several alternative enterprises, taking advantage of high prices or yields in one to compensate for low prices or yields in another. Market diversification, selling to more than one buyer, helps protect you should one market go sour.

These simple concepts underscore the need to plan for business success. We at Penn State Cooperative Extension have a number of programs to help you develop a business plan. Other states have some great resources, as well. Just be sure to take time to plan for business success and to carefully think through all management options.