1. Briefly describe your property, using the following characteristics: (a) distance from home; (b) location; (c) access; (f) other pertinent information
2. Describe the long and short-term goals that you and your team hope to achieve by starting this new enterprise.
3. Will you be involved in the enterprise as resident or nonresident landowners? How will that affect your enterprise options?
4. Name up to five enterprises you are considering. Describe your background in or experience with each type of enterprise.
5. List the family members or team members who want to be actively involved. Describe each person’s responsibilities.
6. Specify how much time each week you and your teammates will have available to spend on you new enterprise.
7. How much money can each team member provide now to initiate the enterprise?
8. Check the responses that best characterize your business goals during the next three to five years for you current enterprise. Answer any follow-up questions.
9. • Maintain at about the same level as in the past _______________
   • Expand. How?
   • Cut back some. How?
   • Get out altogether. Why?
   • Other
10. The following information will help you determine your financial goals for any current or new enterprise. List the yearly income you (and your family or teammates) expect from the sources listed below:
11. • Current farm/forest enterprises____________________
    • New enterprise (once it is established) ______________
    • Non-natural-resource employment (current job)________
    • Other _______________
    • Total _______________

The enterprise budget, an essential tool for any NTFC entrepreneur, can also be used as a formal goal statement as it involves listing the production goal, management activities, resource requirements, and economic returns. Dr. Edward Raburn of the West Virginia Extension Service (http://www.caf.wvu.edu/~forage/enterprise/enterprise.htm) identified four primary sections of the enterprise budget which include the following:

1. Production goal
2. Expected market price and gross receipts
3. Planned management activities with required resource inputs and costs
4. Estimated net return and break even price (BEP) for the goal production

Further information on enterprise budgets can be found in Section 4: Product Development and Economic Considerations.

Types of Markets

What Markets Are Out There?

There are a number of market options out there and it is important to understand the pros and cons that are associated with each before you commit yourself and your family to a market. Knowing what kind of market will work best for you is important because each NTFC behaves differently in each market type. Following is a brief overview of the various markets available to you as an NTFC producer. While reviewing this information, reflect on your own goals and consider which of these markets is most likely to help you reach them.

Jim Ochterski in his publication Marketing Special Forest Products in New York State helps answer this question by providing examples from research that he conducted with forest owners and entrepreneurs in 2004-2005. We highlight some of these below, and encourage you to consult this useful document to learn about other possibilities.

• Maple syrup and maple products: gift shops, wholesale, and grocery stores
• Ginseng: colleges or universities with Asian students, farmer’s markets, health food stores, and local agricultural festivals
• Berries: chefs, small scale food processors, and retail customers
• Nuts: chefs, small scale food processors, and retail customers
• Mushrooms: grocery stores, smaller fresh produce stores, ethnic markets, and farmer’s markets

Niche vs. Traditional Markets

An important aspect of developing your agroforestry business is to determine what type of commodity you plan on selling. The two main choices include producing a product to fill a niche or unique market, or producing a more traditional product.

Developing a unique product translates to less competition and therefore higher, more sustainable rewards. However, as more producers enter niche markets, your product may become more mainstream. This eventually translates to lower rewards. Therefore, it is strategic for you, as an agroforestry business owner, to continue to find and fill niche markets . It should be your goal to find and create innovative products.

Seasonal vs. Year Round Markets

Production of seasonal specialty forest products has the advantage of providing higher income during the season in which the product is readily available. However, as a producer of a seasonal product, you will need to plan how to make that income last throughout the year so that you can continue to support your business. Production of seasonal products such as fruit, maple syrup, and nuts can also increase the price volatility of that product. Additionally, you need to consider the time constraints of a production intense season. Do you have the flexibility to devote a large amount of time to your agroforestry business during the production season?

Production of a year-round product such as decoratives, flavorings, and weaving materials has several advantages. First, this type of product market has demand year-round, thereby providing income throughout the year. Additionally, with year-round products, you may be able to avoid a “busy” season which increases demands on your time during that season. Instead, you can establish a steady production system.

Value Added vs. Raw Material Markets

The markets and demands for raw and value added materials vary substantially.

Selling a value-added forest product has several advantages:

• You can charge a higher price for these products,
• Only small volumes of the product are necessary in order to have something to sell.
• You can enter multiple markets,
• These types of products typically have a greater appeal to customers.

Before you decide to produce a value-added product, however, you need to consider a few additional factors:

• Devoting more of your time and your effort to producing the product. This translates to higher production costs, and often heavier investments in production infrastructure.
• Making sure that you can obtain the raw ingredients necessary to produce the product, that you have sufficient labor capabilities to keep up with demand and that you are able to ensure a consistent quality of product.
• Increasing your marketing and advertising to ensure that you are able to effectively reach all of your direct, producer to consumer markets.

Selling raw products also has advantages:

• You can reduce the time and effort necessary to produce your product for sale.
• Often you will not need to make the same significant investments in labor or infrastructure as with value-added processing
• Typically you will have fewer buyers, thus significantly reducing your overall marketing and advertising budget
• Wholesale sales provide a reliable outlet and the least amount of effort.

Other factors to consider in selling raw product are:

• You need to identify a wholesaler or buyer for this product,
• You typically will garner a lower price for the product,
• You will need to produce a larger volume of the product for sale,
• You will need to adhere to stringent quality standards as well as reliable quantities,
• You may be required to sign a contractual agreement, which can provide you with stability, but can also reduce your flexibility in marketing to other customers.

Market Chains

What is a Market Chain and Why Do I Need One?

Forest farmers in North America often are on their own to access markets. Producers are already selling these crops to buyers, but there is little information about how these arrangements are made. Until agroforestry markets are better characterized, it is up to individual producers to forge their own channels, contacts, and marketing practices.

The concept of a "market chain" can exemplify different types of special forest product markets. A market chain is the linked entities that bring a specific product from production to consumer sales. Longer market chains often result in a lower share of revenue generated by the product as the work, and reward, is spread out among many.

Direct marketing of forest crops implies a very short chain producer sells to consumer. Indirect marketing often has an additional link. - producer sells to a retailer or restaurant. Very few, if any, forest-based products have a market chain of more than three links. This makes forest cropping more profitable so long as production costs are kept reasonable.

Longer market chains often diffuse marketing responsibilities to links beyond the producer and result in a greater number of customers, and volume of sales.

Examples of Market Chains in Forest Farming

A basic market chain model is provided below in order to simplify the marketing linkages. This is followed by two real world examples of market chains.

Markets for Different Products

What Kind of Market Would Work Best For My Product?

There are three basic market options to consider; retail or direct market, wholesale market, and niche market. Most NTFCs can easily be sold in all three markets. However, there are some cases where this is not possible. Ginseng, for example, usually cannot be sold in the direct market and instead must be sold through a broker. In the following table, adapted from Jonathan Kays and Joy Drohan, some examples are provided of each of the three basic market types.

• Direct to consumer sales cut out the middleman and return greater profits. More marketing time and a greater variety of value added products are required.
  
  
• Selling products through existing retailers increases the exposure of your product to the public. Partnering with other retailers also eliminates overhead costs and reduces time spent advertising. On the other hand, you will not have access to your entire inventory, as you will provide the retailer with items to sell. You have less control over the conditions in which your product is sold, which can be problematic when your product requires special consideration (such as mushrooms that require refrigeration). Additionally you do not have control over whether your product is actually featured in the retailers advertisements.
  
  
• Consignment is a strategy in between the previous two. Through this strategy, you retain ownership of your product, but the store will advertise, display and sell your product. The retailer will get a percentage of the total sale price.
  
  
• Partnerships with other producers enable you to split some of your marketing costs and reach a wider customer base than otherwise possible.
  
  

Customer Analysis

Who is Your Consumer?

The aim of marketing is to understand consumer needs, desires and motivations. In order to meet the needs of the customer, producers should conduct customer analyses.

There are two primary groups of customers; direct consumers and retailers.

Although documentation of consumer behavior in the NTFC market is not available, it is possible for the producer to conduct his or her own consumer research in order to gain a better understanding of the potential market. First, the producer may gain insight into the buying decision process of his/her customers through the following exercises:

1. Watch and listen as people shop
   - Observe the demographics of purchasing behavior and how they react to different products.
2. Talk to customers
   - Developing a rapport not only creates a relationship, but it also gives you an opportunity to understand where your customer is coming from and get an idea about what kind of products they would be most interested in. Talking with your customers is also a good way to educate them about the benefits of your product.
3. Listen to your customer
   - Rather than overwhelming your customer with information about your product, listening to your customer is a valuable tool as it provides insight into what is important to them, what they think of your product, and how it could be improved.
4. Study your competitors products and marketing strategies
   - Observing your competitors products and marketing approach can give you valuable insight into what works and what doesn’t. Some things to pay attention to include their primary target market, product lines, product quality, packaging, service to middlemen and service to consumers.
5. Check with trade associations and industry publications
   - While there is limited data available for NTFC markets, there are other products that fill a similar niche such as organic and gourmet products. Keeping an eye on the market trends in these niches may provide valuable marketing information.

Other methods

Understanding customer behavior can also be simplified by breaking down behavior into four basic segments:

• demographic,
• psychographics,
• behavioral,
• and geographic.

Demographic behavior involves observing the natural divisions in society created by age, gender, income, family characteristics, education, social class and occupation.

Psychographics is the observation of how customers think and react to various products. This observation is made primarily through the observation of lifestyles and personality. This is a fairly complex process and may require the assistance of a marketing professional. The behavioral segment analyzes the customers usage rate, overall knowledge, and attitude towards the product. The geographic segment concerns customer location and population density. Exploring these four segments of customer behavior will provide a clearer picture of how best to meet the demand of your customers and ultimately improve the success of your business.

References

Green, Sarah H, A.L. Hammett, and Shashi Kant. 2000. Non-Timber Products Marketing Systems and Market Players in Southwest Virginia: Crafts, Medicinal and Herbal, and Specialty Wood Products. Journal of Sustainable Forestry, Volume 11(3) 2000.

Kays, Jonathan and Joy Drohan. 2004. Forest Landowner’s Guide to Evaluating and Choosing a Natural Resource-Based Enterprise. Natural Resource, Agriculture, and Engineering Service. Ithaca, New York.

Ochterski, Jim. 2005. Marketing Special Forest Products in New York State: A Practical Manual for Forest-Based Enterprises. Cornell University Cooperative Extension. Ithaca, New York.

Brainstorming

What is the First Step in Product Development?

Once you have outlined your goals, gained a rough idea of what kind of market you are interested in, and considered who it is you are marketing to, it is time to generate creative product development ideas. Often referred to as the father of brainstorming, Alex Osborn has developed brainstorming techniques often used in the product development process. By Osborn’s approach there are four guidelines for the brainstorming process:

1. Criticism is ruled out: Negative comments must be withheld until later.
   
   
2. Freewheeling is welcomed: The wilder the idea, the better, it is easier to tame down than to think up.
   
   
3. Quantity is encouraged: The greater the number of ideas generated, the greater the likelihood of finding an idea worth pursuing.
   
   
4. Combining and improving ideas is encouraged: Participants should suggest how other people’s can be joined in more ideas.
   
   

Generating creative ideas for your NTFC is an essential part of finding your market niche. New innovative ideas are needed in order to create a successful product.

Set-up Costs

What Kind of Set-up Costs Can I Expect?

While start up costs vary by product, there are a few general approaches you can use to determine the costs specific to your enterprise. All costs, one-time and ongoing, should be considered. One-time costs may include equipment, licenses, or signs while ongoing costs may include utilities, hourly or seasonal labor, and insurance. More information about set-up costs can be found on the US Small Business Administration website

Understanding the difference between variable and fixed costs when estimating total production costs can also give you a better idea of how your costs will behave with respect to time and rate of production. Variable costs vary with different levels of output such as labor, packaging, and transportation of goods. Conversely, fixed costs remain the same regardless of the level of output such as taxes, salaried labor, and insurance.

Once you have calculated your anticipated total costs and anticipated yield you can then complete a breakeven analysis. Your breakeven price is the price per unit needed in order to pay all your costs of production and can be found by dividing your anticipated total costs by your anticipated yield.

Enterprise budgets [link section 2 on enterprise budgets] are particularly helpful in identifying both production costs and break-even production costs. Two such budget enterprises can also be found on the Maryland Cooperative Extension website.

Choosing Options

How Do I Know Which Option Is Best For Me?

If you have a variety of NTFC options it may be difficult to decide which to invest in. A cost-benefit analysis (CBA) can be used to clarify the anticipated gains from each. Using a discount rate is helpful in accounting for time and uncertainty when evaluating costs and benefits in the future by allowing you to turn all future values into present value.

First decide what discount rate to use. A high discount rate means that you place less importance on future costs and more importance on present benefits. If, for example, you were to buy a bond for $100 that would be paid back in one year. What is the minimum amount the bond would have to pay in order for it to be worth your money? Suppose your answer is $110. This is to say that you do not feel that there is a big difference between $100 dollars today or $110 dollars a year from now. From this exercise we have learned that you discount rate is 10%.

Below you will find the equation for finding present values where r = discount rate, t = time in years, and FV = future value.

The Net Present Value (NPV) is defined as “the sum of present values of annual cash flow minus the initial investment”. Comparing the NPV of various NTFC options can give you a good idea of what you can expect in the future in terms of economic considerations.

NPV = initial investment + cash flow (year 1) x (1+r)-1 + cash flow (year 1) x (1+r)-1 + ...

Cash flow = revenues – costs

CBA can also be used to evaluate intangible values such as the satisfaction you receive from working the land, the value of improving the health of your forest, or the existence value of your property. One approach to the valuation of intangible costs and benefits is to consider how much you would be willing to pay to have a healthy forest or to use someone’s land for NTFC production. Including such benefits in your CBA will provide a more accurate appraisal of each proposed project.

Pricing

What Should I Charge For My Product?

The lowest possible unit price was found in the breakeven analysis. This is to say that production costs ultimately set the lowest possible price you can charge and still break even. Because there is little data concerning past unit prices and quantities sold for NTFCs, producers must take more responsibility for their own market research than producers of more traditional commodities. Instead of looking to market statistics, producers can use two different approaches to determine the demand curve. One approach is to conduct price experiments, such as charging different prices in a similar region and observe the changes in demand. The second approach is to take a consumer survey by asking buyers the quantity of goods they would purchase at various unit prices.

It is helpful to know how elastic demand is in relation to price. Demand is considered to be inelastic if consumer demand changes vary little with respect to price. Conversely, demand is considered to be elastic if consumer demand changes significantly with respect to small changes in price. Demand tends to be less elastic in the following situations:

• little or no product substitutes or competitors
• the higher price is not noticed by consumers
• consumer buying habits are slow to change
• buyers consider price increases to be justified by improved quality or inflation

In addition to market considerations for setting prices, you also must consider a variety of other factors when deciding upon the final price for your product.

• Seasonal versus year-round product. Prices may fluctuate seasonally.
• Fresh versus packaged and preserved. Fresh products demand a higher price.
• Wholesale or retail sales. Through a wholesaler you will accept a lower price.

References

Burkhart, Eric and Mike Jacobson. 2004. American Ginseng. Nontimber Forest Products (NTFPs) From Pennsylvania. The Pennsylvania State University. University Park, Pennsylvania.

Greaser, George L. and Jayson K. Harper. 1994. Agricultural Alternatives. Enterprise Budget Analysis. The Pennsylvania State University. University Park, Pennsylvania.

Kahn, James. 1998. The Economic Approach to Environmental and Natural Resources. Dryden Press. Forth Worth, Indiana.

Kays, Jonathan and Joy Drohan. 2004. Forest Landowner’s Guide to Evaluating and Choosing a Natural Resource-Based Enterprise. Natural Resource, Agriculture, and Engineering Service. Ithaca, New York.

Kotler, Philip. 1997. Marketing Management: Analysis, Planning, Implementation, and Control. Prentice Hall, Upper Saddle River, New Jersey.

Odellion. 2006. www.odellion.com

US Small Business Administration. 2006. http://www.sba.gov/

How do I get my product out there?

Important consideration when preparing to market your product include required licenses, state and federal regulations, packaging, labeling, promotion and commercialization.

Regulations

What regulations will I need to follow?

Licenses and regulations will vary according to your product. If your NTFC is a food product, begin your research with the US Food and Drug Administration website. The production of jams, jellies, and preserves, for instance, is regulated by Title 21, Volume 2 of the Code of Federal Regulations. This information is easily obtained through their website and provides a detailed outline of required production procedures such as proper ingredients, food handling, and packaging.

In addition to federal regulations each state also has its own set of regulations. For example, the Food Safety and Inspection Division of the New York Department of Agriculture and Markets regulates the manufacture, distribution and sale of maple sugar and syrup under Article 17. Regulations included in Article 17 address such things as packaging, standards of grading, and purity requirements. Under 276.1 of the New York state regulations all food product processors are required to abide by the requirements of the good manufacturing practices. If a processor does not purchase maple syrup or honey from other producers and repackage the product nor does he/she add other substances to the maple syrup or honey, an exemption from section 276.1 may be granted. Exemption from section 276.1 also requires that a number of specified conditions be met.

There are also a number of regulations for the propagation and sale of certain medicinals, particularly those plants which are considered to be vulnerable such as ginseng and goldenseal. Special care should be taken when dealing with these medicinals to ensure that you are abiding by the federal regulations designed to prevent over harvesting.

One of the most important acts to affect the collection and sale of ginseng and goldenseal was the 1982 “Wild Resources Conservation Act”. Under this act, Pennsylvania’s Department of Environmental Resources was required to identify and regulate threatened, endangered and vulnerable plant species. Those species that were identified as vulnerable include goldenseal, ginseng, and yellow lady-slipper orchid. Before buying, trading or bartering these species in Pennsylvania, one must obtain a vulnerable species license. Below you will find an example of the “Vulnerable Plant Commercial License”.

Both ginseng and goldenseal are regulated in the Convention on International Trade in Endangered Species (CITES) by the US Fish and Wildlife Service (USFWS). According to the USFWS, goldenseal sales need only be recorded in the event of international trade. All goldenseal sales within the US are not subject to these requirements. On the other hand, ginseng regulations are much more stringent. According to USFWS, ginseng must be no less than five years of age before it can be exported in addition to a number of other guidelines that must be followed when trading with ginseng.

Packaging

How important is packaging?

Most consumers who are interested in purchasing specialty products are more easily persuaded by the packaging of a product than by the brand name. Shelf appeal will award you first time buyers and product quality will keep them coming back for more.

Customers are usually drawn to containers that appear clean and attractive, as well as easy to use and easy to store. Much of what you choose to contain your product in will also be determined by what market you are targeting. If your aim is to sell in local grocery stores, place more emphasis on durability and utility. If you intend to target the gourmet market you may want to look into glass wares that are more visually appealing.

The following links may be helpful in finding a packaging supplier:

Labeling

How can I use labeling to attract customers?

Marketing along with labeling create first impressions High quality advertising is necessary to reflect that the product you are marketing and is also of high importance.

Certain words and phrases can be used to attract customers such as natural, sustainable, native, original, local-regional, and traditional. Other positive attributes of many NTFC products that should be promoted include health, well being, and gourmet. The following list provides some good rules of thumb when designing your label.

• Focus on 3 to 5 key benefits of your product
• Color printing (4) is best, can use 2 color (or even 1 color) printing with good quality paper.
• Use photos or drawings that catch the eye
• Write 5 to 15 words sentence and include action verbs.
• Use personal pronouns
• Visibility. It is important for you to make sure that your business and your product is visible to your targeted consumers. Even if you have the best product in the world, you will be unsuccessful if you aren’t able to increase the visibility of the product in the eyes of your market.
• Choose a venue that will make sense with the product that you are selling.
• If you are marketing directly from your home, you will want to put up a road sign identifying your location and the product you sell

Marketing Ideas

Where else can I find markets?

Setting up a selling opportunity requires ingenuity and hard work. As a business owner, if you have the energy and perseverance, there are many different venues available for selling specialty forest products (see Cornell publication). The following list provides a number of helpful marketing ideas to get you started:

• News (media) releases
• Websites
• Fundraisers
• presentations to civic groups
• teaching a class
• media food segment
• Product brochure
• county extension and educators
• tour or open house
• farm market
• winery
• u-pick
• educational display
• local shop (hospitality, gift shop, nature center, museum)
• special sale or promotion for a club
• local institutional food service personnel or art instructors(Cornell)
• E-mail signature (cornell)
• shopping center event
• health food or whole food store
• marketing cooperative
• product tasting
• local college
• contractors and real estate
• charitable auction
• supply other forest product growers/collectors
• supply store for beer and wine makers
• microbrewery (cornell)

References

Burkhart, Eric and Mike Jacobson. 2004. American Ginseng. Nontimber Forest Products (NTFPs) From Pennsylvania. The Pennsylvania State University. University Park, Pennsylvania.

Uva, Wen-fei. Marketing Specialty Jams and Jellies to Gourmet Consumers. Cornell University. Ithaca, New York.

Ochterski, Jim, Robert Beyfuss, and Monika Roth. 2005. Marketing Special Forest Products in New York State: A practical manual for forest-based enterprises. Cornell University Cooperative Extension. Ithaca, New York.

Roth, Monika. Marketing Non-timber Forest Products. Cornell Cooperative Extension. Ithaca, NY.