Sensemaking, Entrepreneurship and Agricultural Value- Added Businesses

Agricultural producers have been experiencing significant income pressures, leading to a search for alternative sources of income. One of such is value-added agricultural businesses that allow the farmers to stay on the farm and undertake entrepreneurial ventures to improve their finances. How do farmers make sense of their environment as they consider their options for value-added business ventures? This paper presents a sensemaking model and links it to entrepreneurship decisions, allowing us to explain how producers may make such decisions. As far back as 1979, Shaw (1979) argued that farmers who have not adequately transitioned to take advantage of scale economies are more financially at risk in the then emerging global economy. However, strategies that increase scale economies are a function of the abilities, skills and risk aversion characteristics of the decision-maker. Mishra and Goodwin (1997) found that if farmers are risk averse, then greater farm income variability should lead to an increase off-farm employment. Agreeing with their observations would lead to the conclusion that risk aversion is high among producers because the share of total farm family income emanating from agriculture declined from about 50 percent in 1960 to less than 15 percent in 2005 (USDA 2006). It is not surprising that the number of farmers in the U.S. has been declining. After all, if more farmers are making their living from off-farm income, they will invariably choose to leave farming all together. This trend has been a concern in policy circles because both federal and state level policies are constantly being implemented to enhance producer on-farm incomes. The 2002 Farm Bill, for example, specifically identified value-added agriculture as an option to stem the financial problems of 1 Agribusiness professor, Department of Agricultural Economics, Kansas State University and Executive Director of Innovative Solutions, Manhattan, KS. 2 producers by providing them with incentives to earn income from farm-related activities, allocating about $40 million per annum towards programs. These programs encompassed direct financial support, such as value-added producer grants, and in-kind support in the form of education and technical services, such as the Agricultural Marketing Resource Center (www.agmrc.org) and the various agricultural innovation centers financed by USDA. The Natural Resources Conservation Service also expanded its mandate to include value-added agricultural initiatives such as agritourism, so that it can help producers utilize their natural resources to generate alternate incomes so they will stay on the farm (NCRA/USDA 2005). These federal and state level incentives influenced and continue to influence some producers to launch value-added ventures to enhance their family income instead of taking off-farm employment. Does this imply that their risk aversion coefficient has declined (Mishra and Goodwin 1997) or that they were already oriented towards entrepreneurial ventures? What are the factors motivating those who do choose to launch these ventures instead of take off-farm employment as a solution to their family income situation? And what process do these entrepreneurs go through en route to their decisions about engaging in value-added ventures? This paper attempts to answer these questions drawing on the entrepreneurship and sensemaking literature. We illustrate the concepts we develop in this paper using a case example of agritourism entrepreneurs who are also primary producers. We are hoping to increase our understanding of the processes involved with recent entrepreneurial activities on farms by producers engaging in value-added businesses. We are also hoping that the results of this research contribute in some way in guiding policy