Market Potential for Outputs
Considerations in Determining
the Feasibility of a New
Enterprise (Part II)
Rodney B. Holcomb
Oklahoma State University
Food & Agricultural Products Center
Primary Objectives of
Identify key planning steps for feasibility
Determine the required resources for an
Setting stop/go points
Assistance programs for helping fund
What are my/our goals/objectives?
– Better price for my/our commodity?
– Add value to my/our commodity?
– Business development in my/our community?
How much can I/we put into this venture
and still keep food on the table?
– Sweat equity, start-up costs, and eventually
A Venture Should...
Be deemed worthy/unworthy on economic
Be taken under consideration as a business
completely separate from the farm/ranch.
Not be pursued just because of political
Be funded by at least 50% owners equity.
Now, What To Do?
Several factors to be considered for
determining a course of action.
– Assessment of all possible processing
possibilities for a commodity.
– Catalogue all needed resources for processing.
– Market research for all processing possibilities.
Growth, trends, advertising/promotion.
Competition, market share, acquisitions/mergers
Market Potential for Outputs
Universe of Marketable Product
– Retail, foodservice, exports, fundraisers
Determinants of Market Quality
– What characteristics are deemed most desirable
by customers and how can you provide them?
Wholesale Product Value
– Don’t focus on retail prices.
Geographic Market Potential
Potential Local Buyers
Potential Regional Buyers
– Build in expenses/steps for exporting products.
– Potential for large volumes, low margins.
– Market generation (e.g. ethanol)
– Where they are, where they distribute products,
what brands they manufacture, etc.
Businesses that have ceased operations
– Why did they cease operations?
– Are their facilities/equipment for sale?
– Companies, countries, barriers.
– Brand vs. co-packing, retail vs. foodservice
Strategies for Market Approach
– 4 P’s of marketing
Barriers to Market Entry
– Regulatory barriers
– Industry concentration
– Co-product barriers
Raw Product Supply
– Captured supply through investor/members?
– Proximity/concentration of the commodity?
Complexity and Variability
– Collection/delivery system
– Quality specifications
– Year-to-year variation
Raw Product Costs
– e.g. verification and certification
– Picking a location that makes the most sense
from an economic standpoint.
– Functionality, flexibility, expandability.
– Thinking through the processing steps.
Further Processing Components
– Making sure all the pieces fit.
Facility: Location Factors
Availability/costs of land and utilities
Access to inputs and markets
– Roads, rail, barge, and even air
Availability of service providers
Labor and labor training
Taxes and community attitude
Facility: Design Factors
Much will depend upon regulations
associated with a processing venture
– walls, ceilings, floors, storage facilities
Ambient vs. cold storage
Suited for processing system
– Not always best to fit the system to a building
Facility: Further Processing
Flexibility in further processing
Competent engineering design
Do all pieces of equipment “speak the same
Common equipment or specialty?
Location and reputation of equipment
CIP or other sanitation programs
– How many products? (Co-products?)
– Suggestion: Start with less than 6.
Customers and Value
– Always the basis for what gets produced
Estimated Product Values and Margins
– Check with an “expert”
Further Processing (cont.)
– Space, prep, consolidation of activities
– Shrinkage, remix, waste, product loss, etc.
Necessary Equipment, Costs, and Staffing
– Start shopping around
– Ask around for names of potential key staff
Build “phases” into feasibility and business
planning, stop/go point at the end of each.
– Phase I: Market and industry overview
– Phase II: Determination of physical needs
– Phase III: Assessment of “what you have” and
“what you can get”
– Phase IV: Business plan
Land-grant universities and extension specialists
– Value-added centers, food technology centers
– Through established assistance programs
– Through your legislator
USDA Value Added Product Market Development
– $40 million/year through 2007
– Requires a minimum $-for-$ match
Do your homework
Base all decisions on economic rationale
Think like a processor, not a producer
Don’t get caught up chasing “free money”
“Expect it to cost twice as much to start,
take twice as long to get going, and lose
twice as much as expected in the first year.”