Mitigating Risk in Agritourism Enterprises

Dawn Thilmany, Martha Sullins and Megan Phillips

Colorado State University

April 2009

Overview The Project’s 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

Growing Agritourism in Colorado

1. 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

Growing Agritourism in Colorado

2. Understanding Colorado’s agritourists” Consumer survey, 2007 – Colorado

Dept of Agriculture & CSU Provided research results on traveler

behavior

3. 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.

Growing Agritourism in Colorado

Photo: Mary Erlenborn

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?

0%

10%

20%

30%

40%

50%

Past experience

Recommendation

Personal Web /m

edia search

National travel w

eb sites

Travel associatio

n

Colorado Tourism Offic

e

None of the above

Park brochures/website

s

Visitor /

Welcome Center

Travel arranged by employer

Regional / community W

eb site

Travel-based magazin

es and books

All Other

In-state

Out-of-state

Looking ahead to… Partnerships & networks

Of 398 in-state; 500 out-of-state travelers.Multiple responses given54% used 1 information source; 18% used 2 sources; 11% used 3 different ones.

Looking ahead to… Community-level considerations

0

50

100

150

200

250

300

350

Scenic

appea

ranc

e

Overa

ll qu

ality

Value

Custo

mer

serv

ice

Proxim

ate t

o oth

er at

trac

tions

Lodgin

g quali

ty

Lodgin

g ava

ilabili

ty

Direct

ional

signag

e

Inte

rpre

tive s

ignag

e

Most satisfed

Least satisfied

No. timesmentioned across all respondents

Ave. satisfaction w/activities=1.58 (scale 1-5); less satisfaction w/some infrastructure

Planning for…Producer concerns

Source: 2007 Producer Survey, Colorado Dept. of Agriculture. N=91

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Insurance

Zoning & Land Use

Signage

Employment issues

Licenses & Permits

Identifying Markets /Market Planning

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

Workshops Agritourism and Diversification:

Positioning your Business for Success Market Planning Skill Building Resource Development Workbook

www.coloradoagritourism.comFo

r C

onsu

mers

Risk Management: A Road Map

Adapted from Hardaker et. al.

BusinessEnvironment

Define Risks

AssessRisks

ManageRisks

Monitor and Review

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

understand

mitigate

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

1

2

So, how do producers:

Agritourism businesses in Colorado:Ag Products Services

•U-pick

•Farm stand

•Guided hunt

•Dude ranch•Farm

museum

•Fishing

•Harvest festival

•Bird-watching

•Fairs•Rodeos

•Wine tasting

•Photography

•Farm dinners

•Cooking classes

•Pumpkin patch

•Farm tours

•Children’s camp

•Farmers market

The implications for selling an agritourism experience in CO:

1. Given the diversity of business types across 64 counties, there is no clear path to understanding & managing regulatory risk

2. Many regulatory agencies may need to be consulted, depending on the product/service mix of the business

3. Nearly every aspect of agritourism is regulated because of consumer health & safety concerns

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

Where and how do we start to advise producers on managing

regulatory risks??

First, identify:The source (s) of the risk, primarily (but not

exclusively):1. 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

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

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 what’s illuminated, who’s 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)

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?

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

Third, evaluate:The consequences of not mitigating known risk(s)

1. 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

2. how to quantify what it will mean for the business, in terms of

time financial cost following the business plan other resource use

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

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

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

Examples of regulatory risk management by Colorado

agritourism producers

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

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

Mitigating Marketing Risks

Product Price Place Promotions

Advertising Sales

Incentives

Personal Public Relations

Selling & Publicity

Marketing

Promotional Objectives Stimulate sales Differentiate product offerings in varying

markets

Share information

Accentuate value of product

Stabilize seasonal demandSource: Lou Pelton, David Strutton, & James Lumpkin. 1997. Marketing Channels: A Relationship Management Approach, pp 99-109.

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?

Mitigating Risks:Target 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

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

Transfering Risk by UsingExisting Promotional Resources to Serve Niche Markets

Source: Local Harvest

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

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

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.

Social Networking Services

Transferring Risk: Promoting through Visitor’s Word of Mouth and Social Networks

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

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)

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!

2. Reach out to your audience: Cure Organic Farm

YouTube views of the farm (http://www.youtube.com/watch?v=wbF1W2qsUaw).

An avian center linked a nest camera to Facebook (http://www.suttoncenter.org/eaglecam.html).

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 writes:

“We would never have gone into the winemaking business if we couldn’t have made wine from Colorado grapes,” says owner John Garlich. “We wanted to grow them ourselves.”

3. Create your materials: Google.calendar Flickr.com Photobucket Smilebox

4. Encourage your audience to make contact and create:

Coupons Prizes for people who use/make up

content that is meaningful

Remember:You can show agritourism in an entirely new

way and make it seem valuable and as if visitors will enjoy it.

Response to blog posting

“Once again, I’m 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 haven’t given much thought to - and I’m realizing that it is just one more way to think “greener.” ”

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

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

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

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)

Characterizing Agritourism Enterprises

Risk can be financial investment, liability exposure, economic conditions

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?

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

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?

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

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

Appendices & Add. Materials

Goal Action needed to achieve goal

Promotion techniques

Promotional resources needed, delivery method, etc.

Promotional cost (annual vs monthly vs intermittent?)

Timeline for implement-ation

Increase direct revenues from birding visits

Target mailings to previous visitorsSend materials to share for “word of mouth”

Spring mailers, Join Birding

Associations,Provide better

signage

Professional-looking cards, brochuresCross-promotion with Birding Assn.Access to signage programs, Welcome Centers

More off-season weekend visitors

Strategic Marketing Actions: Evaluation of Marketing Activities

Goal Any Incomplete Actions/Modified Activities?

Outcomes of Marketing Activities/Promotion (sales change, target audience gained)

New Goals/Tools to monitor Marketing Activities/Promotion

Cost Effective Ideas to Expand Marketing and Promotion Activities

Increase direct revenues from birding visits

Did not send materials to share for “word of mouth”

One birding association organized visit to the ranch

Directly viewed 10 visitors carrying spring mailer (out of 130 sent)

Website will provide coupon for free bird id sheet to track new birders who find the ranchFacebook established to increase word of mouth (rather than mailer)

Start “fan club” within Social online marketing instead of mailingsDevelop simple bird id handout, and offer it with online coupon to track referrals from Web