What is Value-Added Agriculture?

No matter how one may choose to differentiate their product, doing so can have tremendous benefits.
What is Value-Added Agriculture? - Articles
What is Value-Added Agriculture?

The largest component of American agriculture was, and is, focused on the production of commodities which are sold from the farm to be processed somewhere else before arriving on our dinner plates. A commodity is something that is perceived as being consistent in all characteristics. Many view milk, for example, as the same regardless of how or where it is produced. These products are viewed as being undifferentiated. In the milk example, the commodity is transported to a dairy for processing into fluid milk, cream, cheese, yogurt, ice cream, etc. These products are often branded and eventually sold to consumers as differentiated products.

The fact that others are adding value to commodities is one reason why the farmer's share of the consumer food dollar is smaller than it used to be. In 1950, the farmer received over 40 percent of the consumer's food dollar. That figure has hovered around 20 percent through the beginning of this century. Over that half-century, though, consumer food expenses have increased dramatically. In 2004, US consumers spent nearly $800 billion on food. Our farmers received $156 billion of that. So, while the percentage is smaller than it once was, both are big numbers. To increase profitability, commodity farmers must operate at very low per unit costs. Their income per unit of output is essentially the same as that received by others producing the same commodity. So the only lever they have to raise profits is to lower costs. One other option is to assume the role of one or more of the market players who are capturing the other 80 percent of the consumer's dollar. Doing this requires a very different business model.

Those interested in adding value to their products have many choices. The USDA's definition of value-added includes four components. The first three include differentiating your product. This can be done by producing the product differently. Organic, grassfed, or locally produced are all ways of differentiating products according to the production method. The second way to differentiate is by processing it. Converting your goat's milk into cheese or soaps is an example of processing. Third, one can capture added value through product segregation. Product grading is an example of this type of differentiation. The fourth component has to do with farm-based renewable energy.

No matter how one may choose to differentiate their product, doing so can have tremendous benefits. The returns from a pound of strawberries sold as jelly are much higher than selling a pound of strawberries to a processor. However, all of that extra revenue doesn't come cheaply. It is costly to convert the strawberries from the raw product to jelly. It is also costly, in both dollars and time, to market your jelly.

Think of all the money you'll spend in labeling, promotion and advertising, communicating with buyers, etc. All of that takes a lot of time, in addition to money.

The key to success in value-added agriculture is developing a unique product that is demanded by consumers. Because many consumers increasingly have less time for preparing meals at home, many demand food products that are at least somewhat processed. (Chopped lettuce or peeled carrots are a good examples of minimal processing.) However, many others are searching for fresh, local ingredients that they can include in their prepared dishes. The main point is that there are many consumers with many different preferences. You will succeed if you are able to identify their preferences and provide products that meet their desires.


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