Mitigating Risk in Agritourism Enterprises

1. Mitigating Risk in Agritourism Enterprises Dawn Thilmany, Martha Sullins and Megan Phillips Colorado State University April 2009

2. 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

3. 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

4. Growing Agritourism in Colorado • Understanding Colorado’s agritourists” • Consumer survey, 2007 – Colorado Dept of Agriculture & CSU • Provided research results on traveler behavior

5. 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

6. 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?

7. 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.

8. Looking ahead to… Community-level considerations Ave. satisfaction w/activities=1.58 (scale 1-5); less satisfaction w/some infrastructure No. times mentioned across all respondents

9. Planning for…Producer concerns Source: 2007 Producer Survey, Colorado Dept. of Agriculture. N=91

10. 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

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

12. www.coloradoagritourism.com For Consumers

13. Risk Management: A Road Map Business Environment Monitor and Review Define Risks Assess Risks Manage Risks Adapted from Hardaker et. al.

14. 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

15. 1 2 So, how do producers: understand mitigate regulatory risk(s) encountered by agritourism businesses in Colorado?

16. Agritourism businesses in Colorado: Ag Products Services •Guided hunt •U-pick •Children’s camp •Farmers market •Harvest festival •Pumpkin patch •Dude ranch •Farm museum •Wine tasting •Farm tours •Cooking classes •Farm stand •Fishing •Farm dinners •Bird-watching •Fairs •Rodeos •Photography

18. 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

19. 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

20. Where and how do we start to advise producers on managing regulatory risks??

21. 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

22. 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

23. 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)

24. 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?

25. 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

26. 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

27. 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

28. 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

29. 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

30. Examples of regulatory risk management by Colorado agritourism producers

31. 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

32. 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

33. Mitigating Marketing Risks

34. Marketing Product Price Place Promotions • Advertising Sales • Incentives • Personal Public Relations • Selling & Publicity

35. 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.

36. 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?

37. 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

38. 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

39. Source: Local Harvest Transfering Risk by UsingExisting Promotional Resources to Serve Niche Markets

40. 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

41. 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

42. 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.

44. Social Networking Services Transferring Risk: Promoting through Visitor’s Word of Mouth and Social Networks

45. 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

46. 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)

47. 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!

48. 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).

50. 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.”