Mitigating Risk in Agritourism Enterprises

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Mitigating Risk in Agritourism Enterprises

• Dawn Thilmany,
• Martha Sullins and Megan Phillips
• Colorado State University
• April 2009

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Overview

• The Projects Goals and Programs
• Identifying and Prioritizing Regulatory Barriers
  and Risks
• Mitigating Market Risks Evaluating
  Cost-Effective, Social Promotional Strategies
• Connecting your message to the appropriate type
  of marketing materials and media
• Characterizing the Risk-Return Trade-off for
  Agritourism Operations

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Growing Agritourism in Colorado

• Understanding the landscape
• Producer inventory, 2005 Colorado Dept of
  Agriculture
• Agritourism directory on-line, 2007 Colorado
  Dept of Agriculture
• Producer inventory, 2007 Colorado Dept of
  Agriculture CSU

Photo Nat Coalson
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Growing Agritourism in Colorado

• Understanding Colorados agritourists
• Consumer survey, 2007 Colorado Dept of
  Agriculture CSU
• Provided research results on traveler behavior

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Growing Agritourism in Colorado

• Supporting businesses communities
• 7 producer workshops (Steamboat, Akron)
• Presented to over 200 producers and members of
  tourism communities
• Numerous community outreach presentations
• Several regional projects gained new energy
• 4 fact sheets and more to come for tech. asst.

Photo Mary Erlenborn
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Economic contribution

• Overall, 13.2 million visitors engaged in some
  agritourism in 2006
• Total contribution to economy estimated at 2.2
  billion with 1.26 billion in direct activity
• 1.7 billion from out of state ? bigger impact
• 14 of total tourism by CTO estimates
• 14,665 in direct employment (7 of tourism)
• Will these numbers be maintained or grow
• in 2007 and beyond?

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Looking ahead to Partnerships networks
Of 398 in-state 500 out-of-state
travelers. Multiple responses given
54 used 1 information source 18 used 2
sources 11 used 3 different ones.
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Looking ahead to Community-level considerations
Ave. satisfaction w/activities1.58 (scale 1-5)
less satisfaction w/some infrastructure
No. times mentioned across all respondents
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Planning forProducer concerns
Source 2007 Producer Survey, Colorado Dept. of
Agriculture. N91
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Partnerships to Address Challenges

• Colorado Tourism Office
• Expand information and promotion through these
  popular planning resources
• Colorado Department of Agriculture
• Directories, MarketMaker
• Other Partnerships
• USDA Rural Development programs, Division of
  Wildlife, County Ag Boards and Economic
  Development agencies

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Workshops

• Agritourism and Diversification Positioning your
  Business for Success
• Market Planning
• Skill Building
• Resource Development
• Workbook

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www.coloradoagritourism.com
For Consumers
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Risk Management A Road Map
Business Environment
Monitor and Review
Define Risks
Assess Risks
Manage Risks
Adapted from Hardaker et. al.
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How can we manage risk?

• Avoidance-this may limit the opportunities you
  can pursue
• Reduction-regulatory/policy compliance,
  minimizing capital outlays
• Transfer-insurance and contracting for
  food/guides/other risky services
• Assumption-with understanding the increased
  returns are worth the new risk

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So, how do producers

• understand
• mitigate
• regulatory risk(s) encountered by agritourism
  businesses in Colorado?

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Agritourism businesses in Colorado
Ag Products
Services
Guided hunt
U-pick
Childrens camp
Farmers market
Harvest festival
Dude ranch
Pumpkin patch
Farm museum
Wine tasting
Farm tours
Cooking classes
Farm stand
Fishing
Farm dinners
Bird-watching
Fairs
Rodeos
Photography
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The implications for selling an agritourism
experience in CO

• Given the diversity of business types across 64
  counties, there is no clear path to understanding
  managing regulatory risk
• Many regulatory agencies may need to be
  consulted, depending on the product/service mix
  of the business
• Nearly every aspect of agritourism is regulated
  because of consumer health safety concerns

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The implications for agritourism

• Regulations sometimes appear to be haphazard for
  niche businesses (or reactive)
• Often untested as new business types emerge
• For example, micro-cheeseries are a food
  processing facility, but also have tourism
  appeal, so what are requirements for visitors to
  the operation?
• Multiple agencies often involved
• Obtaining information is costly
• No one-stop shopping for information on
  regulations for agritourism in Colorado
• This leads to increased risk due to the
  uncertainty in the regulatory environment
• Affects producers abilities to plan

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Where and how do we start to advise producers on
managing regulatory risks??
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First, identify

• The source (s) of the risk, primarily (but not
  exclusively)
• land use planning/zoning issues
• occur mostly at county or municipal level
• 2. permitting/licensing
• occur at federal, state, local levels
• many may apply concurrently
• their application will change as the agritourism
  product/service mix changes
• 3. employment federal state local
• wages
• tax liability

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1. Land use planning/zoning issues

• Key issue How is production agriculture defined
  in the county master plan?
• Influences how zoning impacts the types of
  commercial enterprises you can have on your land
• Need to understand zoning/land use code and the
  performance standards
• What commercial uses are permitted? What
  structures are allowed?
• Is the activity compatible with surrounding uses?
• Urban fringe businesses encounter significantly
  greater land use issues than rural, remote ones

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Land use considerations

• The enterprise may be evaluated on
• Access to the property (traffic, noise, dust,
  parking)
• Activity on the property (food service, events)
• Any construction/development of site (building,
  water, waste, wildfire)
• General issues regulated might include
• Signage (permit, size, permanence, setback)
• Lighting (may specify whats illuminated, whos
  impacted)
• Noise (no adverse effect vs. precise levels)
• Parking design standards (accessibility, size,
  number)
• Geologic hazards (mud, flood-study, mitigation)
• Structures (lodging, farm stands, food service
  area)

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2. Permitting/licensing

• Services
• where they can be conducted (private vs public
  land)
• who can conduct them
• range of lodging accommodations possible
• Products
• sales (specific licensing), especially for foods
  considered hazardous
• sales tax levies
• total rate calculation based on location of sale
• exempt vs taxable
• ongoing sales vs special events
• what changes are foreseen for the future of
  the operation? E.g., transition from camping to
  guest cabins, trail rides through National Forest?

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Second, understand

• The nature of these risks
• they are external to agricultural businesses BUT
• they affect the activities producers can conduct
  on their property or products they can offer

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Third, evaluate

• The consequences of not mitigating known risk(s)
• how big is the risk ??
• If the risk is non-compliance or adverse impact
  on consumers, look to reduce it to near zero
• Build it now, ask questions later is not a good
  business management strategy in this case
• Irreversible capital investments can be risky
• how to quantify what it will mean for the
  business, in terms of
• time
• financial cost
• following the business plan
• other resource use

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Fourth, prioritize

• Assess potential impacts (e.g., cost, time,
  personnel) BEFORE starting a project so producers
  can rank which risks to address, based on goals
  objectives in strategic business plan

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Fifth, manage

• Step 1 Integrate compliance into business plan
  with long and short-term goals
• Step 2 Meet with the local planning department
  to understand how land use code impacts business
  plans for agritourism (now in the future)
• Step 3 Meet with local health department to
  understand food safety, food service, drinking
  water issues

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Fifth, keep managing

• Managing regulatory risk requires ongoing
  management, for example
• ? check tax rates annually
• ? attend local planning meetings to stay
  apprised of any zoning changes
• ? review safety measures regularly
• ? keep good records of all safety checks on
  equipment working conditions for employees, all
  health inspections, any forms that visitors sign
  waiving liability, payroll records sales
  transactions

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Examples of regulatory risk management by
Colorado agritourism producers
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Example 1 Country Inn Special Events

• Wanted to operate bunkhouse as inn use historic
  ranch for weddings special events. Base around
  cultural, heritage tourism.
• Applied for received special use permit, began
  work to bring facility to code, but difficulties
  with sewage system compliance.
• In 1 year, spent 8,900 in upgrades
• 7,900 on permit application
• permit fees-2,250
• electrical repairs-3,727
• plumbing-820
• window installation-670 other code conforming
  expenses
• new application for sewage system 1,000-2,000

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Example 2 Multi-use Events Center
Entertainment Venue

• Owner researched operations developed his
  business plan.
• Realized he would need flexibility in zoning for
  diversity of operation (events center, farmers
  markets, corn maze, fishing pond).
• These operations could have negative impacts on
  surrounding land uses.
• Developed definition of agritainment with
  county commissioners for
• Use by right (permitted uses)
• Special exceptions
• Special review

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Mitigating Marketing Risks
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Marketing
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Promotional Objectives

• Stimulate sales
• Differentiate product offerings in varying
  markets
• Share information
• Accentuate value of product
• Stabilize seasonal demand

Source Lou Pelton, David Strutton, James
Lumpkin. 1997. Marketing Channels A
Relationship Management Approach, pp 99-109.
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Promotional Methods Assessing Risks

• Broadcast and Published Media Television,
  newspapers and radio
• Costly and uncertain effectiveness
• Print Media Residential mailers and brochures,
  mail coupons
• More easily targeted
• Electronic Media Websites and Internet
  advertising, Social Networking
• Most cost effective and easy to track?

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Mitigating RisksTarget Marketing as an
Alternative

• Mass Marketing
• One message targeted at average or representative
  consumer
• Broadcast media effective, but expensive and
  risky in terms of uncertain impacts
• Target Marketing
• Customer Segments motivated by different claims,
  messages or stories
• Some media (Internet, targeted ads in radio,
  television and publications may work)
• There are more cost effective (or free!) methods

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What works with Niches?

• For Agritourism, CSU studies find that word of
  mouth and recommendations from friends/family are
  major influencers for trip planning
• What are the Risks of this being effective
  promotion?
• Each visitor is an opportunity (or risk) to earn
  good reputation (or negative opinions)
• What does this mean for your marketing?
• You need to encourage and stimulate word of
  mouth?
• Provide as much direct marketing, educating,
  promotion as you can handle yourself

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Transfering Risk by UsingExisting Promotional
Resources to Serve Niche Markets
Source Local Harvest
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New Resources for Promotion

• Market Maker is a free tool to
• Help Consumers find Producers
• Help Producers Promote their Operations and
  Products
• Assess the food and agriculture of an area
  Providing an inventory and great networking
  resource
• Nine states online, none in the West, but
  Colorado online soon

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Internet Options to Interface with Market Maker

• The benefits of internet advertising are the 24
  hours a day and 7 days a week availability of
  your product and its message
• The drawbacks are the potential lack of expertise
  and experience in this type of marketing and
  promotion development
• Internet service providers (ISPs), such as
  Earthlink.net, offer hosting and shopping cart
  services for various monthly fees

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An example of Internet Options

• We Build Pages, has an agriculture template
  available for around 60
• http//www.webuildpages.com/web-design/agriculture
  -web-templates.htm
• Agriculture World
• http//www.agricultureworld.net/
• A complete site offering links to breeders,
  agricultural businesses, and agriculture
  information.

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Social Networking Services

• Transferring Risk Promoting through Visitors
  Word of Mouth and Social Networks

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Why Social Networking?

• Cost Effective
• Minimum financial or time investments
• Impactful
• Evidence from CSU studies is that word of mouth
  and recommendations are paramount
• This facilitates and accelerates the information
  shared among family and friends
• and their extended networks

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Using New Media

• You can be interactive engage people (not just
  an online brochure)
• Expand your community beyond geography to topics
• Let the tools you use be guided by who your
  target audience is (i.e., how will you reach
  birders vs. wine buffs)

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How to get started

• 1. Listen/observe/investigate
• ? use blogsearch.google.com
• ? search flickr.com, Facebook
• Blogsearch lets you
• Create an email alert for Prairie chickens
• Add a blog search gadget for Prairie chickens to
  your Google homepage
• Subscribe to a blog search feed for Prairie
  chickens in Google Reader New!

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2. Reach out to your audience

• Cure Organic Farm
• YouTube views of the farm
• (http//www.youtube.com/watch?vwbF1W2qsUaw).
• An avian center linked a nest camera to Facebook
• (http//www.suttoncenter.org/eaglecam.html).

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http//coloradowinecountryinn.blogspot.com/

• Saturday, March 21, 2009
• Up Close with BookCliff Vineyards
• Between their new Boulder tasting room and
  Palisade grape vines, BookCliff Vineyards is an
  up and coming young winery that applies
  sustainable farming practices, and minimizes the
  use of herbicides or pesticides. The owners of
  BookCliffs believes a component of their success
  is using only local grapes.Under the headline,
  "'Colorado Grown' Appeals to Consumers Seeking
  Local Wines," Practical Winery Vineyard
  Reporter Don Neel writesWe would never have
  gone into the winemaking business if we couldnt
  have made wine from Colorado grapes, says owner
  John Garlich. We wanted to grow them
  ourselves.

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3. Create your materials

• Google.calendar
• Flickr.com
• Photobucket
• Smilebox

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4. Encourage your audience to make contact and
create

• Coupons
• Prizes for people who use/make up content that is
  meaningful

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Remember

• You can show agritourism in an entirely new way
  and make it seem valuable and as if visitors will
  enjoy it.

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Response to blog posting
Once again, Im totally jealous. I think it is
so cool that you guys are writing about this - it
definitely inspires me to think differently about
being more green - as I have a lot of
opportunity. Eating locally is honestly something
I havent given much thought to - and Im
realizing that it is just one more way to think
greener.
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Facebook

• Virtual social circle
• Seeks ways to connect you with like minded or
  historically connected people
• Schools, cities, interest groups, similar
  friends, fan clubs
• Only visible to members
• Pros and cons to this
• Very rapidly growing membership

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Questions to Evaluate Ask?

• What approaches work best with social networking?
• Case with simple page
• Case with Fan or Friend page that encourages
  current fans to tag to their friends
• Case with directed invitations to join a Fan
  page, maybe with coupon, tied to specific event

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Future work at CSU

• Pace and total draw for operations that establish
  Web presence and social networks
• Effectiveness of Personal page vs. business page
  vs. Fan page
• Differential impact of more and less aggressive
  viral approaches
• Impact of targeted event invites and coupons

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Risk Return Tradeoff

• What are the Financial Risks of Agritourism?
• Can extend and fully utilize existing assets and
  resources with little additional investment
• Can create new revenue stream with a minimal
  investment in reversible human and operating
  resources.
• Can create new revenue stream with a significant
  capital investment (lodging, facilities)

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Characterizing Agritourism Enterprises
Risk can be financial investment, liability
exposure, economic conditions
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Risk/Return Examples

• Low risk, low return Birding, photography,
  education on-farm
• Midrisk, moderate return On-ranch recreational
  and food events, refurbishing heritage assets
• High risk, high return Guest stays, Guided
  wildlife activities/events, Wineries
• Are these always aligned? Are there low risk,
  high return strategies?

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How might you mitigate risk?

• Minimize irreversible, costly investments
• Partnering with lodging partners
• No new capital investments or employees
• Optimize current resources and assets that may be
  underutilized
• More activity in slow production season
• Provide natural recreation services on high
  amenity lands scarce to travelers
• Complement existing enterprises
• Create new customer base

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Questions to Ask to Assess Financial Risk and
Return

• What share of total assets committed to
  agritourism enterprise?
• Or, any new investments? And if so, how much
  relative to real estate/asset values?
• What share of total operating costs and/or staff
  time to agritourism?
• Or, what additional costs do you incur to run
  events/host visitors?

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Questions continued

• What share of total (gross) revenues are
  agritourism?
• Do any of these activities complement or augment
  your traditional ag activities?
• Sales of foods, ag products
• If so, about what share of your sales would you
  attribute to visitors?
• Do you consider these revenues as a
  diversification strategy?
• Not just additional income, but more consistent
  or countercyclical to farm revenues

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Summary

• Strategic Planning is essential to identify your
  enterprise by its values, mission and intended
  product/message
• Marketing entails several major steps and
  decisions
• All should be consistent with your mission
• Promotional goals are the first step in
  understanding what tools will be effective
  marketing

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Appendices Add. Materials
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Strategic Marketing Actions Evaluation of
Marketing Activities