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Abstract
This paper examines optimal business development strategies for rural firms given the
specific characteristics of their rural business environment. An investigation of rural business
strategy informs public policy formation by helping to determine how rural firms would react
to changes in their market and policy environment. Moreover, an explicit rural business
strategy analysis should help rural business managers and advisers to identify appropriate
responses to changes in factors external to the business. A mathematical business
optimisation model, that is set within a spatial market framework, has been developed. The
model incorporates factors such as spatial market orientation and technology use, and
identifies the business strategy that is optimal in different market and policy environments.
The model is applied to a beef and sheep farm that can choose between selling livestock to
meat processors or processing on-farm and selling direct to consumers. Model simulations
reveal when it is optimal for the farm business to innovate in this way and how this decision
is affected by changes in key parameters. The model’s predictions are discussed in the
context of local food supply, which is considered to have the benefits of being traceable,
supporting the local economy and reducing food miles.