How to start a profitable farming business - What you need to know

The must learn before you earn - that is what profitable farming business is all about!

Before you start profitable farming business, you must learn first.

In this article, I will explain what one needs to know and do before deciding to venture into farming with a goal of making profit.The must learn before you earn - that is what profitable farming business is all about! 

In last few months, I was contacted by four individuals who had accumulated some savings and they wanted my advice to make investment decision in agriculture with a guarantee of quick returns.

During the past two yearsKenya has witnessed five nationwide scandals where thousands of Kenyans were conned money under pretext of lucrative agribusiness investments.
Also over the past four years I have seen tens of Nairobi middle-class earners install greenhouse structures in their rural homes (far from Nairobi) with the hope of making fortunes.

As a consultant in agribusiness, I believe I have higher responsibility to educate Kenyans about agriculture for the greater good of humankind. It is of paramount importance that people unlearn a few things that have been divulged by some malicious individuals with the objective of conning people money through sugarcoated agribusiness investment projects.

First, people need to understand that agriculture is a sector of knowledge and not a lottery for gambling. Agriculture is too technical for anyone to become a farmer without the requisite knowledge. This means that before you put your money into any agricultural project be it a greenhouse or open field maize farming, you must educate yourself about  the technical aspects involved in the life cycle of the entire project. This will shield you from two main things:
  1. Doing the wrong things: By learning what is required for a crop to grow, you become an expert in right decision making,
  2. Being conned: In the event where you decide to work with a consultant, you will have some level of knowledge to prevent yourself from being misled.
What I see with many people is the lack of willingness to learn. There is a highly solicited desire by people to make QUICK decisions in agriculture even before learning the art of the game. Having said that, making quick decision is in itself not a bad thing, in fact, there in no correlation between quick decision making and failure. 

Actually, the quicker you make the right decision the better, and this is where a credible agribusiness consultant can assist in fast-tracking your decision-making process. If you are not in a position to learn the technical aspects of the farm project, you can get yourself a credible consultant for advice. How to vet a consultant is a story for another day.

In addition to being technically knowledgeable, any aspiring agribusiness investor must take time to study and understand the downstream activities related to the value chain in question, and in particular the access to market. Thinking forward on how you will sell your 10kgs of tomatoes from a greenhouse located in your interior rural home can caution you from making the wrong investment. 

On the other hand, it can make sense if there are several farmers in your area farming greenhouse tomatoes because you can pull together your produce and sell them collectively in a nearby market.

 Can small farms become profitable farming business?

Farming must operate at a certain scale for it to make business sense. There are two ways to achieve scale in agriculture:

  1. Natural large scale farms: This involves large scale farming whereby one farmer is enough to constitute a complete supply chain,
  1. Integration: This concerns small scale farmers. They can apply to join the already existing supply chains to help them achieve economies of scales.

Given that Kenya is essentially a stallholder farming nation, people looking forward to invest in small agribusiness activities have more work to do than they think, and they have less money to earn than they imagine. The flip side of integration is that supply chains are longer, and profit is divided among the many players, nonetheless, integration into formal supply chains can guarantee consistency regarding access to market for smallholder farmers. A perfect case in point is how dairy farmers sell milk to processors in Kenya. The route to market is always clear but the profit is compromised.

Just to clarify, technically speaking, natural large-scale farming does not necessarily refer to cultivating big chunks of land. It simply means that you can consistently meet the demand of your customers alone. Similarly, you are a small-scale farmer if what you produce alone cannot service a market consistently.

The bottom line is, do not be in a hurry to spend your hard-earned money into ANY agricultural project because even banks do not insure agriculture due to the associated high risk. Here, uncertainty is more certain than anything else.

To wrap it up, you need to take-home these two things if you are considering to invest in agriculture at whichever scale:
  1. Agriculture is a knowledge driven sector. You must learn before you earn.
  2. Agriculture is a school of patience. You don’t plant a seed and harvest the following day.
Wambugu is a consultant in agribusiness
Follow him on LinkedIn

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