Natural Resources Alternative Income Enterprises - presented by Bob Beyfuss, Cornell Cooperative Extension of Greene County, HCR 3, Box 906, Cairo, NY 12413 - 9503

Author: Jonathan S. Kays, University of Maryland, Cooperative Extension Service


See attached article. This article is one of dozens of articles in a 270 page proceedings on Natural Resource Income Opportunities for Private Lands. Copies of the proceedings are available through the University of Maryland Cooperative Extension Service. For more information contact:

Confernce Proceedings
Attn: Don Schwartz
Washington County Extension Office
1260 Maryland Avenue
Hagerstown, MD 21740
Phone (301) 791 – 1304

$20 per copy for the proceedings on Natural Resource Income Opportunities for Private Lands. Make check payable to "Washington County Extension Advisory Committee"

Natural Resources Income Opportunities:
Considerations for Forest Owners

JONATHAN S. KAYS, Regional Extension Specialist - Natural Resources, University of Maryland Cooperative Extension Service, 18330 Keedysville Road, Keedysville, Maryland 21756

Abstract:

Increasing numbers of nontraditional farm and forest owners are buying property and looking for ways to generate some level of income from the property. Unfortunately, many of these enterprises are not well-thought out, and other enterprises that may be more appropriate are never considered. In many cases, assumptions are made about family involvement or available skills and labor, that can lead to wasted time, effort, and money. A process of discovery should assess the risks and opportunities a number of enterprise options, focus on self-education and accessing available information, and select the enterprise(s) most compatible with personal and physical resources, and family goals. This paper will provide a framework and an example that can be used by all families considering a natural resource income enterprise.

Keywords: natural resources, forest landowner, enterprise options, discovery

 Introduction

Changes in land ownership, demographics, and niche markets have increased the attractiveness of natural resources income opportunities for forest landowners. More than 80 percent of the private ownerships hold fewer than 50 acres of forest land, with most holding less than 10 acres. Practicing traditional forest management on these smaller parcels can be difficult, but the development of niche markets for many nontraditional products and recreational services has provided additional options. The increasing cost of taxes, controlling access, and regulatory compliance have many landowners, large and small, reevaluating the income potential of underutilized resources.

Hunting leases are a common income option, but the income potential for small landowners is questionable The greatest barrier to the development of other natural resources income opportunities is the lack of good technical, financial, marketing and business information. Many forest owners want to be entrepreneurs, but their chance of success is reduced because of inadequate information when deciding to start or abandon an enterprise. Many find out too late that the time, family considerations, capital, and return did not even warrant being involved. Christmas trees provide an excellent example of an enterprise started by many landowners, and then abandoned. The landowner may have assumed that assistance with pruning, sales, marketing and other tasks would be supplied by family members, but the family members were never asked. The result is a poorly run operation or a densely spaced plantation.

What are possible natural resource income opportunities

While there is an endless list of possibilities, we can group them into two main areas: forest farming and utilization and recreational access and tourism.

Forest farming and utilization: growing ginseng, goldenseal or other medicinal plants; mushrooms; collecting native plants or materials; crafts; choose 'n cut Christmas trees; maple syrup; deer farming; pine straw; custom sawmilling and kiln drying; managing and marketing high-quality forest products.

Recreational access and tourism: fee hunting and fishing; hunting preserve; sporting clay; guiding service for hunting, wildlife viewing, photography, etc.; outdoor sports such as biking, hiking, and skiing; high-risk recreational activities; bed 'n breakfast; vacation cabins; and weekend skill workshops in conjunction with local accommodations.

Assessing the risks and opportunities

Most alternative forest enterprises are a type of home-based business and require the consideration of all family members and a sound discovery process. Successful enterprise development can be thought of as sieve with a number of steps (Figure 1). After establishing family goals and objectives, enterprise options are identified, evaluated, and a few seriously considered. While many people may start this process, few will emerge with compatible and profitable enterprise ideas. Let's take a look at each of these steps.

Evaluate Personal and Family Considerations: Seek Out Educational Opportunities

What business qualities do you or each family member posses that can be an asset? One person may be better at keeping the books, while another is better with dealing with customers. Other family members such as children may not be available due to another job or lack of interest. Many enterprises require letting customers on your property or in your home and this may not be acceptable to family members. After considering all these factors, set goals and objectives for the new enterprise (Table 1). These may range from paying the taxes to providing a specific amount or percentage of income within a certain time period. This step alone helps to narrow your options. Seeking our educational programs and materials from University Extension Services, forestry organizations and others should be a priority during this discovery process.

Assessing Different Resources

Assessing Your Physical Resources

Now is the time to pin down 5-7 enterprise ideas that fit with your goals and objectives. For each enterprise idea, determine the limitations and opportunities by developing a resource inventory.

Physical resources include the land, buildings, and equipment. Many forest owners may have a good handle on timber resources, but fail to notice the potential value of special forest products such as mushrooms, medicinal plants, floral products, grapevines, and few consider the potential value of underutilized water and wildlife resources.

Table 1. Smith Family goals and objectives for a natural resource income enterprise
Property & family description: 50-acre farm 1.5 hours from large city includes a 1/2-acre pond, rented 10-acre soybean filed. Live 50 miles from land; barn & liveable cabin on site. Family members include: Father, mother, son (12) and daughter (14)
Family members involved: Dad, mother, son, and daughter
Types of business considered: Vacation cabin, grapevine wreaths, aquaculture, hunting lease & Christmas trees
Role of new enterprise over next 3-

5 years in income & employment:

Provide $3,000 annual income to supplement day job. Development enterprise for retirement income.

For example, a pond or spring may have potential for fee fishing or aquaculture, while wildlife habitat improvements could attract more game and improve lease rates.

Fields used for traditional row crops and livestock could produce high-value horticultural crops, or other possibilities. While existing barns may have sentimental value, renovations necessary to make most barns usable for a business may not be practical. Finally, realistically assess the utility of your equipment for different tasks.

Assessing Money. Management, and Labor Resources

Lack of money can be a real problem, since many small entrepreneurs start out using their own capital. Even when start-up capital is adequate, cash must be available for the 3-5 years it may take to make a profit.

The time needed to manage a new enterprise must not create unworkable conflicts with existing operations, your family, or day job. Whether or not you live on the property is another consideration. Absentee landowners may have security concerns that will not allow leaving any valuable onsite inventory. Many production enterprises will require additional labor at key times, and you must be sure family members or outside workers will be available.

Choose an Enterprise and Get Serious

Now that you have a list of ideas and an assessment of your resources, rethink your idea list. Take your best 5-7 ideas, make an idea evaluation chart (Table 2), and pick the highest rated idea(s) and proceed.

Marketing or Will It Sell?

Marketing a product or service is often more important than producing it. First, describe the product or service you are selling in your own words and the benefits to the user. Then in less than 50 words communicate the basic concept of the enterprise. Completing some market research is needed to understand your market competition, target audience, and consumer trends. You need this information to project potential sales, prices, and profitability. There are number of tools to accomplish this including do-it-yourself surveys, visiting other operations, and using existing data on demographics and market trends.

For example, if the Smiths were interested in making grapevine wreaths for sale, they would need to check prices being paid by the wholesalers, competitors, local retail outlets, when deliveries would be required, and other information. Likewise, developing a vacation cabin(s) on their property would require gauging demand and supply for these facilities.

Production or Can It Be Done?

This gets down to the nitty gritty of what is required from your physical, money, management, time, and marketing resources to accomplish a given enterprise. Consideration of other factors such as legal, regulatory, and liability factors is critical to protect yourself and other assets. This is where sources of production and marketing information from Cooperative Extension, trade organizations, and other sources are useful.

Profitability and Feasibility: Will It Make Money and Can I Afford To Do It?

Surprising, many landowners start an enterprise without determining if they will make money or how long it will take to make a profit. The two financial tools commonly used are the enterprise budget and cash flow analysis. The enterprise budget is a listing of your estimated gross income and costs which can be used to determine the expected net income. This budget is calculated on a per unit basis, such as an acre of land, for one year or one production period. Costs can be variable for those that depend on the level of production (materials, labor, etc.) or fixed (insurance, buildings, etc.).

Many people don't consider the cost of land or their labor, thereby overestimating their return. The cash flow analysis breaks down the business into monthly or yearly increments to determine when additional capital is required for expenses and when revenues can be expected. Most enterprises take 3-5 years to show a profit and a lack of adequate cash flow is a major reason for failure. Most natural resources income opportunities such as ginseng production, Christmas trees, and sporting clays will require years to recoup costs and start making a profit.

Table 2. Idea evaluation chart for Smith family to help prioritize their ideas based on objectives.

List five ideas. Rate on a scale of 1-5 to the extent it fulfills goals listed below. A rating of 1 for an enterprise means it is least preferred, and a 5 is an enterprise that is most preferred.

   

Enterprise Ideas

 
  Choose 'n cut Christmas trees Pond aquaculture production Grapevine wreaths Hunting lease Vacation & hunting cabin
Enterprise preferred by family

1

3

5

4

5

Has special features preferred

2

2

5

5

3

Makes use of physical resources presently underutilized

5

5

5

4

4

Has a potential market

1

3

4

5

5

Makes use of underutilized management and labor resources

5

4

4

4

4

Uses by-products of forestry operations

0

0

4

0

3

Family financial resources can cover start-up costs

3

3

5

5

3

Total Points

17

20

32

27

27

Decision time: Yes, No, or Back to the Drawing Board!

By now, landowners will have adequate information to determine if they should start or abandon an enterprise. For some enterprises a few years of small-scale test production and marketing may be wise. In our example, the Smiths may start producing grapevine wreaths using the barn for storage and assembly. Income generated from sales could supplement personal funds to improve the cabin to rent to family vacationers, with use of the cabin increasing hunting lease income for that time of year.

Conclusion

Many successful enterprises start as hobbies and take years to develop. While many ideas are considered, few will make it out of the sieve process, but those initiated will be informed decisions based on good information.

Act on your ideas and dreams, but start out small and invest no more than you can afford to lose.

Many efforts are underway to educate forest landowners and the professionals that work with them about natural resources income opportunities. Contact your local Cooperative Extension office, state forester, or other organizations to seek out educational programs and information.

REFERENCES

Birch, T.W. 1996. The private forest-land owners, 1994. Resource Bulletin NE-134. Radnor, PA; USDA Forest Service Northeast Forest Exp. Stat.

Grafton, W., A. Ferrise, D. Colyer, D.K. Smith, and J.E.Miller. 1989. Proceedings on the conference on income opportunities for the private landowner through the management of natural resources and recreational access. West Virginia University Extension Service, Morgantown, WV.

Schuck, N.G., W. Knoblauch, J. Green, and M. Saylor. 1988. Farming alternatives: a guide to evaluating the feasibility of new farm-based enterprises. Northeast Regional Agricultural Engineering Service, Ithaca, NY. Send a check for $6 payable to the University of Maryland, Ag Duplicating Service, 6200 Sheridan Street, Riverdale, MD 20737.

Thomas, M.G. and D.R. Schumann. 1993. Income opportunities in special forest products: self-help suggestions for rural entrepreneurs. Agric. Infor. Bull. 666. USDA Forest Service, Washington, D.C.

 

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