How to Start a farm from scratch:Opening an Agribusiness

Few businessmen decide to create a farm, thinking that it is too expensive and unprofitable. However, this opinion is wrong: farming today is one of the most promising areas of entrepreneurship. In this article, we will tell you how to organize an agribusiness from scratch.

Is it profitable to farm

In order to take the first step towards creating your own farm, you need to choose a niche.

Let’s talk about meat and animal husbandry first, the cost of meat in stores is very high, and secondly, the percentage of vegetarians in our country is small. All this guarantees profitability and stable demand for products. Of course, this type of farming requires a lot of investment, especially when it comes to raising cattle. But the net profit of an average farm starts from 100 thousand naira per month. With a proper approach, the payback period will not exceed six years. Starting a business in pig farming will be cheaper, and the event will pay off in 2-5 years. At the same time, the demand for this product in our country is higher due to a more democratic cost than for beef. Another option is poultry farming. Eggs and chicken are the products that are always in the refrigerator of any of our compatriots. In addition, breeding birds do not require too large investments and areas. The payback period can be approximately 2-4 years.

Crop production

It is a kind of seasonal business. However, this does not apply, for example, to cucumbers, tomatoes, greens, and strawberries. They can be grown all year round in greenhouses. This business will be especially profitable in winter when the price of fresh vegetables increases significantly. Business payback is 12-18 months.

Farming: where to start, or Developing a business plan

Once the niche is defined, you need to create a business plan. This point is very important because based on it, you can calculate the cost of creating a farm, the payback period and profitability.

To evaluate the project’s prospects, the business plan should specify the following points:

• funds (will it be your own or borrowed, what kind of start-up capital is needed);
• the plot of land (it can be obtained for free, bought or rented);
• cost of purchasing animals or agricultural crops;
• the cost of building structures (such as livestock sheds or greenhouses for growing vegetables);
• equipment costs (for example, manure removal system, milk pipeline, heating systems);
• staff costs (even a relatively small farm will need it);
• the cost of utilities, taxes;
• marketing expenses;
• product sales markets;
• net profit.

All these points will help you calculate the profitability of your future business. In General, a young entrepreneur needs to make a business plan according to the following scheme:

• summary (a brief description of the future activities, farm and goals that the farmer is aiming for);
• a detailed description of the farm (land area, availability of infrastructure, communications, facilities, equipment, etc., whether these resources are leased or owned);
• summary of financial and production indicators (salary of employees and their number, planned quantity of products produced and sold, profit);
• financial section (sources of financing of the farm, expenditures, plans for the development of the farm and their financial support, payback, profit calculation);
• risk analysis (forecasting risks and describing measures to eliminate them).

Why do you need to draw up a business plan according to a certain scheme and approach the event responsibly? Because it is a kind of business card of the future farmer: it is necessary to receive subsidies from the state, when looking for investors and other sources of funding. If the profitability of the business exceeds the possible risks, and the business plan clearly shows this, then the future farmer will be able to count on material support.

Choosing the form of ownership: LLC or sole proprietor?

Choosing the form of ownership is also an equally important stage. If a businessman decides to open a small farm, then registering as an individual entrepreneur will be quite enough. The undoubted advantages of this form of ownership:

• simplified taxation system;
• there is no accounting obligation;
• cash registers are maintained using the simplified system;
• you don’t have to register a branch (if you plan to);
• you don’t need to report the origin of the hardware;
• you don’t need to log decisions.

At the initial stage of IP, of course, it is convenient. While there is not a large number of clients, while the business is only gaining momentum, you can take advantage of the privileges that an entrepreneur registered as an individual entrepreneur receives. However, this form has its drawbacks. The most significant of them is the difficulty in attracting investments and obtaining loans. If additional funds are needed to start a business, then this lack can play a key role.

If you plan to open a large farm or the business has started to gain momentum, it is worth considering the option of registering an LLC. This form of ownership is taken more seriously in the market. There are no obstacles to obtaining investment funds here. But you will have to maintain a more extensive document flow and pay taxes according to the General taxation system. At the same time, if the reporting can be made by a hired employee, then you can generally make a profit from taxes. For example, you can get VAT deductions. In addition, being a payer of such a tax, the farm will be able to attract large partners to cooperate, who are also interested in receiving deductions.

How to get land for a farm

The choice of a plot of land for a farm depends on what scale of business the entrepreneur plans to organize. Some farmers start doing business on existing plots, gradually expanding their holdings. In General, to create, for example, a rabbit farm, you do not need large land, while for breeding cattle or growing potatoes, you need to have significant areas.

There are several options for obtaining land:

• purchase;
• rent;
• free receipt.

Buying an allotment, of course, requires certain expenses. However, in some regions, significant areas are empty, so plots can be purchased at attractive prices.

Land lease involves monthly or quarterly payments. They are not comparable to the purchase price, but it is necessary to correctly calculate the profit, especially at the initial stage, so that the payment is possible.

There is an option to get land for free. To do this, you need to contact the local government authority, which, if possible, will make a decision on the allocation of allotments. After submitting the appropriate application, the future farmer must take measurements of the plot and make a cadastral passport, which must be transferred to the administration. In case of a positive decision, it will only remain to register the received allotment as property or under a lease agreement.

Who has the right to receive land for free? 

Since January 1, 2014, all Nigerian citizens who have reached the age of 18 and want to engage in farming can do so.

Measures for organizing the production process

After receiving the land, it is necessary to carry out a number of measures to ensure that the farm is fully operational. A novice farmer needs to purchase resources depending on the area of production:

• animals or plants (vegetable seeds, trees, livestock or poultry);
• equipment (drinkers, milk lines, lighting and heating systems, tractors, etc.);
• related products (animal feed, plant fertilizers);

In addition, you need to think about the production facilities. If there are any buildings on the ground, they probably need to be converted or repaired. If not, then you need to build structures. These can be warehouses for storing products, premises for keeping animals, greenhouses for plants, buildings for storing inventory. All this needs to be taken care of before production starts.

Equally important is the search for personnel. Large farms may need, for example, an accountant. Livestock farms usually require a veterinarian and animal technician.

 

Documents required for starting a farm business

In order to officially open your business, you must register it. The documents that need to be submitted to the registration authority are not complicated at all. This:

• passport of a Nigerian citizen with permanent registration at the place of residence (original and copies of all pages);
• TIN.

Here, in principle, is the entire list. We have already discussed possible forms of ownership for the future farm business. So then the documents differ. To register as an individual entrepreneur, in addition to the above, you must provide:

• application for state registration of an individual as an individual entrepreneur in the form no. R21001;
• a receipt for payment of state duty in the amount of 8000 naira;
• application for switching to the USN (the simplified tax system) if necessary.

To register an LLC, you will need:

• application for state registration of LLC in the form P11001;
• Charter of LLC (2 copies);
• receipt for payment of state duty in the amount of 4000 naira;
• letter of guarantee for providing a legal address;
• the decision of the sole founder to create an LLC or minutes of the General meeting of founders of an LLC;
• if there are several founders — an agreement on the establishment.

To register a farm, you must submit an application for state registration of a peasant (farm) farm in form no. P21002. If there are two or more founders, then an Agreement on the establishment of a farm will also be required.

In addition to the documents that must be submitted to the registration authority, there are also accompanying documents. They are also important for the successful and legitimate conduct of business. These include, for example, permits issued by the fire inspection service, the sanitary and epidemiological service, and others.

How much money will you need and how to get it

Whatever direction of farming a businessman may choose, he will still need initial capital. Consider an example of a pig farm. For example, it is planned to open a farm for 200-250 heads. The initial funds to be invested will be approximately 3-4 million naira. These include:

• equipment and buildings (approximately 1.5-2 million naira);
• purchase of pigs (approximately 800 thousand–1.3 million naira);
• salary of employees (5 people, approximately 175 thousand naira);
• purchase of feed for a year (approximately 100-500 thousand naira).

If your own funds are not available or not enough, then you can attract investments or use a loan.

Finding an investor is a very good option. Such a person can be attracted by a competent business plan and a good presentation. If you show all the benefits of the business to the investor, then your funds may not be needed.

Investors can be found among foreigners who have funds and are interested in supplying quality products. The project will be interesting for retail outlets (hypermarket chains, for example) or public catering outlets. You can also simply attract businessmen who have money and who plan to try themselves in a new niche.

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There are some disadvantages to working with an investor: the farmer will not own the business alone, and you will also have to consult with your partner on most issues and share the profits with them.

If the investment option is not interesting, you can use a loan. Today, it is provided by most of the country’s major banks, which are interested in the development of agriculture. Credit can be obtained for the purchase of machinery and equipment (sometimes the required initial payment is only 10%), for the purchase of livestock (with a 20% down payment). As a rule, loans are given for a period of up to 5 years, but it is possible to grant them for a longer time (up to 15 years). Also, some banks, for example, “Access Bank”, provide a grace period of repayment of the principal amount of debt-12 months. The interest rate on such loans varies between 10-20% per annum, depending on the term and collateral.

To get a loan you must submit a standard set of documents to the Bank:

• loan application form;
• a copy of all passport pages;
• a copy of the registration certificate and business license;
• information about your financial status (for example, your income statement).

In some cases, the Bank may request information about the machinery or equipment being purchased, as well as ask you to provide a business plan for the farm.

Preferences from the state

In 2016, the state allocated 258.1 billion naira for the development of agriculture. The main areas of subsidization include, in particular, reimbursement of part of the interest on loans for the development of farms. To participate in the program, it is enough to spend funds for their intended purpose, register all expenses and pay monthly payments. A set of documents for granting a subsidy must be submitted to local authorities. The amount of assistance from the state depends on who (farm or legal entity) and when received the loan, as well as for how long.

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For your information

Agricultural producers can switch to the unified agricultural tax (UEC). Its average rate is 6%. This method of paying taxes is characterized by simplified balance sheet management and a reduction in the number of taxes. However, for large companies, the system is not entirely convenient, since it does not allow you to use the right to receive a tax deduction.

Search for sales markets

Depending on the registered form of ownership, a young farmer can choose different sales markets for the products produced.

Retail sales channels

Individual entrepreneurs can use retail sales channels for their products.

• Participation in fairs of the day. Such events attract a large number of buyers. Therefore, the method of selling products is very profitable. Note that, for example, the Moscow Government provides free retail space for farmers, as well as assumes organizational costs. Manufacturers from the regions can also use the right to get a place at the Moscow fair.to do this, you need to submit an application on the portal of public services of the city of Moscow.
• Trading on the market. Its own retail outlet on the market is also a worthy option. Many customers today are suspicious of products from a mass producer from a supermarket, so they are increasingly paying attention to environmentally friendly farm products. According to the law, the market management company is obliged to provide owners of private farms and farms with half of the trading places on the market. The quota of places on the universal market is determined by municipalities.
• Opening your own store. A cost-effective marketing method, but one that pays off. In addition, a small store with quality products does not need advertising: word of mouth will do everything for it. You can also create an online store, so you don’t have to pay for the rental of a retail outlet, but you need to think about a delivery system for goods.

Wholesale sales channels

Entrepreneurs who have registered LLC companies (large farms) can use wholesale sales channels. The main consumers of farm products wholesale:

• resellers;
• retailers;
• non-chain stores;
• public catering outlets.

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There are also several options for selling large volumes of products:

• Participation in exhibitions and thematic events: Usually, only interested buyers gather at such events, so a competent presentation of your products will help you get favorable contracts with buyers.
• Participation in state, regional and commercial tenders: This is a somewhat expensive option. The winner of the tender is determined on a competitive basis. However, this is one of the best ways to find a reliable and profitable buyer for large volumes of goods.
• Selling on wholesale markets: An option to arrange deliveries to supermarkets, hypermarkets, and other stores. Cooperation with them will ensure long-term, permanent and profitable sales of products.
• Registration on an electronic sales platform for agricultural products: For example, state — Rosagrotorg.of the Russian Federation or regional — of Saratovka. Selling through online platforms is convenient, cost-effective and fast. Buyers can always find the nearest supplier.
• Membership in a marketing agricultural consumer cooperative:It is a kind of Association of farmers that allows them to sell their products together.

Thus, creating your own farm – although not easy, but quite a solvable task. Many areas of agribusiness do not require large expenditures, and their payback comes in a year. The prospects of this direction also lie in the fact that consumer demand for high-quality agricultural products is growing every year. This means that your chances of creating a successful business are also high!

Farming today is a profitable activity. First of all, our country has all the possibilities for this. Secondly, the policy of import substitution creates favorable conditions for the development of farms. Third, there are programs of state support for young farmers.