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Business Modeling and Farming

02/02/2009


People can easily relate to each other when they work in the same industry. They are able to commiserate about their businesses because the players share comparable experiences. This happens to be true for most businesses within the same industry because they tend to have similar business models.

For years, modeling principles have been studied, understood and applied to businesses. The fundamentals of business modeling, which sound a lot like farming, include:

  • The value proposition
    • What’s being offered to the market?
  • Customer segments 
    • Who are the customers? What are their buying preferences?
  • Distribution channels
    • How to manage and exist with suppliers, processors, distributors and retailers.
  • The structure of operations
    • How and what is being produced?
  • Investment
    • Who are the investors – lenders and/or equity partners?
  • Revenue and costs


Businesses typically take inputs and produce economic outputs within an explicitly understood model. Farmers use inputs (i.e. fertilizer, seed, feed and fuel) and produce bushels of grain and pounds of meat. The only difference is that farmers do it without fully understanding the model in which they are conducting business. However, the status quo is being challenged.

Why is understanding modeling important to farmers? There are many pressure points that can play a role in changing the face of your business such as narrow profit margins, increasing capital and operating investment costs, growing operations and change within the industry. It is too risky to be making investment and management decisions without having a better understanding on the way the model is affecting how the farm is, will be or should be conducting business.

Some of the existing models in agriculture (mixed farms, diversified or specialized farms) have been around for a long time and are implicitly well understood. Others, such as extremely large scale, value-add or organic farms are newer and less understood. There are even more leading-edge models that are being explored such as purchasing a farm in another country, taking on investor equity partners and pooling capital and/or merging farms to name a few.

Applying a business model to a farm can have additional challenges that make business model communication strategy even more important. The relationships between family, management and ownership can also create potential for conflict of opinion on risk, investment and management decisions.

Here is a business model process that a family could apply to farming:

1. Gain agreement on the future vision for the farm – say, five to 10 years

  • Engage shareholders (owners) and stakeholders (other family members who have a vested interest in the farm) in determining the appropriate vision and related strategy for the farm.

2. Determine the farm’s existing model

  • Examine the farm’s business functions and determine which model applies to your situation (see summary descriptors above).

3. Analyze the existing model

  • Critically examine the ownership structure and management organization to assess how well they are functioning within the existing model.

4. Evaluate the model

  • Is the model appropriately aligned with where the family sees the farm business in the future?
  • Getting into some value-add production and significantly increasing the size of the farm can be counter-intuitive. Increasing the focus on a particular enterprise in a multi-enterprise, or diversified, farm can also create challenges.
  • If not, then determine what corrective actions need to be taken to align the existing model, or adopt a different model that will yield the desired longer term outcomes.


    Investment and management decisions made today by farmers and farm families will have a significantly greater impact on the future of a farm than in previous years. Making ad hoc or ‘in-the-moment’ decisions have and will continue to be an increasingly risky approach, which will impact your farm’s investments and management strategies. There is no way to guarantee the future viability of a farm; however gaining a better understanding of the strategy and associated model from which your farm is conducting business will be beneficial.

    Terry Betker is a partner with Meyers Norris Penny LLP, working out of the Winnipeg, Manitoba office. He is director of practice development in Agriculture – Government & Industry.