Market Potential for Outputs



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
Feasibility Preview
Identify key planning steps for feasibility
 Determine the required resources for an
 Setting stop/go points
 Assistance programs for helping fund
feasibility studies
Pre-Feasibility Questions
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
 International Markets
– Build in expenses/steps for exporting products.
Government Programs
– Potential for large volumes, low margins.
– Market generation (e.g. ethanol)
Market Competition
Existing Businesses
– 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?
Import/Export Market
– Companies, countries, barriers.
Market Opportunities
Best-Fit Opportunities
– 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
Supply Markets
– 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
Commodity value
 Transaction costs
– e.g. verification and certification
Storage costs
 Transportation costs
 Tax costs
Facility Specifications
Location Factors
– Picking a location that makes the most sense
from an economic standpoint.
Design Factors
– 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
 Transportation infrastructure
– 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
 Expandable
 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
Further Processing
Value-Added Outputs
– 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.)
Manufacturing Requirements
– Space, prep, consolidation of activities
Production Throughput
– Shrinkage, remix, waste, product loss, etc.
Necessary Equipment, Costs, and Staffing
– Start shopping around
– Ask around for names of potential key staff
Stop/Go Points
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
Available Assistance
Land-grant universities and extension specialists
– Value-added centers, food technology centers
State funds?
– Through established assistance programs
– Through your legislator
USDA Value Added Product Market Development
Grants (VADG)
– $40 million/year through 2007
– Requires a minimum $-for-$ match
Final Comments
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.”
Any Questions?

Similar documents