Mitigating Risk in Agritourism
Enterprises
Dawn Thilmany,
Martha Sullins and Megan Phillips
Colorado State University
April 2009
Overview

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The Project’s Goals and Programs
Identifying and Prioritizing Regulatory
Barriers and Risks
Mitigating Market Risks: Evaluating CostEffective, 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
Understanding the
landscape
1.



Producer inventory, 2005 –
Colorado Dept of Agriculture
Agritourism directory online, 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
Growing Agritourism in
Colorado
3.
Supporting businesses & communities
7 producer workshops (Steamboat, Akron)

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Numerous community outreach presentations

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Presented to over 200 producers and members of
tourism communities
Several regional projects gained new energy
4 fact sheets and more to come for tech. asst.
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



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$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?
Looking ahead to… Partnerships & networks
50%
40%
In-state
30%
Out-of-state
20%
10%
0%
s
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T
Re
a ve
Of 398 in-state;
Tr
500 out-of-state travelers.
54% used 1 information source; 18% used 2 sources; 11% used 3 different ones. Multiple responses given
Looking ahead to…
Community-level considerations
Ave. satisfaction w/activities=1.58 (scale 1-5);
less satisfaction w/some infrastructure
350
300
Most satisfed
250
Least satisfied
200
150
100
50
No. times
mentioned
across all
respondents
Pr
ox
im
na
ls
ig
In
na
te
ge
rp
re
tiv
es
ig
na
ge
D
in
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ire
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av
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V
C
y
ra
ll
qu
al
it
O
ve
Sc
en
ic
ap
pe
ar
an
ce
0
Planning for…Producer concerns
Identifying Markets
/Market Planning
Licenses & Permits
Employment issues
Signage
Zoning & Land Use
Insurance
0%
5%
10%
15%
20%
25%
30%
Source: 2007 Producer Survey, Colorado Dept. of Agriculture. N=91
35%
40%
45%
Partnerships to Address Challenges

Colorado Tourism Office
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Colorado Department of Agriculture

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Expand information and promotion through
these popular planning resources
Directories, MarketMaker
Other Partnerships
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USDA Rural Development programs,
Division of Wildlife, County Ag Boards and
Economic Development agencies
Workshops

Agritourism and Diversification:
Positioning your Business for Success

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Market Planning
Skill Building
Resource Development
Workbook
For Consumers
www.coloradoagritourism.com
Risk Management:
A Road Map
Business
Environment
Monitor and Review
Define
Risks
Assess
Risks
Adapted from Hardaker et. al.
Manage
Risks
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
So, how do producers:
1
understand
2
mitigate
regulatory risk(s) encountered by agritourism
businesses in Colorado?
Agritourism businesses in Colorado:
Ag Products
•U-pick
•Farmers
•Farm
stand
•Guided hunt
market •Harvest
festival
•Wine tasting
•Pumpkin
patch
Services
•Children’s camp
•Dude ranch
•Farm museum
•Farm tours
•Cooking classes
•Fishing
•Farm dinners
•Bird-watching
•Fairs
•Rodeos
•Photography
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)
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Multiple agencies often involved
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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?
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

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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

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wages
tax liability
1. Land use planning/zoning issues
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Key issue: How is production agriculture defined in the
county master plan?
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Need to understand zoning/land use code and the
performance standards
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Influences how zoning impacts the types of commercial
enterprises you can have on your land
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:
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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:
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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
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Services ~
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where they can be conducted (private vs public land)
who can conduct them
range of lodging accommodations possible
Products ~
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sales (specific licensing), especially for foods considered
hazardous
sales tax levies
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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 ??
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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

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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
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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
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$7,900 on permit application
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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
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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:
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Use by right (permitted uses)
Special exceptions
Special review
Mitigating Marketing Risks
Marketing
Product
Price
Advertising
Place
Promotions
Sales
Incentives
Personal
Selling
Public Relations
& Publicity
Promotional Objectives

Stimulate sales

Differentiate product offerings in varying
markets
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Share information
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Accentuate value of product

Stabilize seasonal demand
Source: 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
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Print Media: Residential mailers and
brochures, mail coupons
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Costly and uncertain effectiveness
More easily targeted
Electronic Media: Websites and Internet
advertising, Social Networking
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Most cost effective and easy to track?
Mitigating Risks:
Target Marketing as an Alternative
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Mass Marketing
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One message targeted at average or representative
consumer
Broadcast media effective, but expensive and risky in
terms of uncertain impacts
Target Marketing
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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?
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For Agritourism, CSU studies find that word of
mouth and recommendations from friends/family
are major influencers for trip planning
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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?
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You need to encourage and stimulate word of mouth?
Provide as much direct marketing, educating,
promotion as you can handle yourself
Source: Local Harvest
Transfering Risk by Using
Existing Promotional Resources to
Serve Niche Markets
New Resources for Promotion
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Market Maker is a free tool to:
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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
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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
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We Build Pages, has an agriculture
template available for around $60
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http://www.webuildpages.com/webdesign/agriculture-web-templates.htm
Agriculture World
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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
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Minimum financial or time investments
Impactful

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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:

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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
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(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:
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Google.calendar
Flickr.com
Photobucket
Smilebox
4. Encourage your audience to
make contact and create:

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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
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Virtual social circle

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Seeks ways to connect you with like minded
or historically connected people
Schools, cities, interest groups, similar
friends, fan clubs
Only visible to members

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Pros and cons to this
Very rapidly growing membership
Questions to Evaluate Ask?

What approaches work best with social
networking?

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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

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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?


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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:

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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


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Optimize current resources and assets that
may be underutilized

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Partnering with lodging partners
No new capital investments or employees
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?

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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
Strategic Marketing Actions:
Evaluation of Marketing Activities
Goal
Action needed to
achieve goal
Increase direct
revenues from
birding visits
Target mailings to
previous visitors
Send materials to
share for “word of
mouth”
Promotion
techniques
Spring mailers,
Join Birding
Associations,
Provide better
signage
Promotional resources
needed, delivery
method, etc.
Promotional
cost (annual vs
monthly vs
intermittent?)
Timeline
for
implement
-ation
Professional-looking cards,
brochures
Cross-promotion with
Birding Assn.
Access to signage
programs, Welcome
Centers
More off-season
weekend visitors
Goal
Any Incomplete
Actions/Modifie
d Activities?
Increase direct
revenues from
birding visits
Did not send
materials to share
for “word of
mouth”
Outcomes of
Marketing
Activities/Promotio
n (sales change,
target audience
gained)
One birding
association
organized visit to
the ranch
Directly viewed 10
visitors carrying
spring mailer (out
of 130 sent)
New Goals/Tools to
monitor Marketing
Activities/Promotion
Cost Effective Ideas to
Expand Marketing and
Promotion Activities
Website will provide
coupon for free bird id
sheet to track new
birders who find the
ranch
Facebook established to
increase word of mouth
(rather than mailer)
Start “fan club” within
Social online marketing
instead of mailings
Develop simple bird id
handout, and offer it with
online coupon to track
referrals from Web