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Finance First: Diversify to hedge risk, boost profitFinance First: Diversify to hedge risk, boost profit

4 potential paths for diversification on the farm.

Darren Frye

June 27, 2018

2 Min Read

Any advice for diversifying our farm? We have struggled to grow the farm by adding acres and are looking at different ideas. — R.H., Ohio

Before starting down the path to diversify, you’ll want to ask yourselves: Why do we want to diversify? What will it do for our operation? What are we trying to create? What are some of the trade-offs?

Is it because others are diversifying? Is it because your core business isn’t having the level of success you want? Or do you want to learn new skills and tackle a challenge? Maybe you just want to hedge some of your risk.

Once you’ve figured out why and whether you’ll move forward, here are some thoughts on how to diversify. I think of four different potential paths when it comes to diversification: whether it will be inside or outside of your “core competency” (your main work) of farming, or inside or outside your industry of agriculture.

The first area is both inside your core competency and industry. That would be activities such as custom farming — doing what we already do, but for others. Or it might be raising seed corn or some other type of value-added crop.

The second is still inside the industry, but moving outside of your core competency — selling seed corn, being a technology supplier for farmers, or building bins for other farmers. None of those ventures are entirely related to your core competency of farming, but they are all still within agriculture.

The third is outside your industry but inside your core competency. Maybe you’re mechanically inclined and own equipment that can be used in additional ways, such as excavation work or snow removal.

The fourth is a venture outside of both your core competency and industry, such as taking on a winter job, or buying a car wash or a self-storage facility as a passive income opportunity.

Take some time to consider, first of all, why you want to diversify your farm, and then determine which avenue of diversification will be best for your operation.

Frye is president and CEO of Water Street Solutions. Send your questions to [email protected]


About the Author(s)

Darren Frye

CEO, Water Street Solutions

Darren Frye grew up on an innovative, integrated Illinois farm. He began trading commodities in 1982 and started his first business in 1987, specializing in fertilizer distribution and crop consulting. In 1994 he started a consulting business, Water Street Solutions to help Midwest farmers become more successful through financial analysis, crop insurance, marketing consulting and legacy planning. The mission of Finance First is to get you to look at spreadsheets and see opportunity, to see your business for what it can be, and to help you build your agricultural legacy.

Visit Water Street Solutions

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