Are Value Added Products Right for you?
Direct marketing and value-added products are two of the best strategies farmers can employ to improve net profitability. Value-added products can open new markets, enhance the public's appreciation for the farm, and extend the marketing season. In fact, adding value to agricultural products beyond the farm gate usually has several times the economic impact of the agricultural production alone. This offers the farmers a much larger potential to capture a larger share of the food dollar.
Most Agricultural producers receive a much smaller portion of the consumer’s dollar than do food processors, especially processors who produce brand name items (e.g., Sunkist, Del Monte). Capturing those additional dollars by adding value to farm or ranch products is a goal of many producers in the United States today.
What is Value Added?
At the most basic, a value-added product simply means any product or action that helps you raise the value of your products or business or something you can add to a product that enables you to increase your profit margin. You also may hear the term "value-added opportunities," which relates more to actions you can take, such as making jam from your organic berry harvest, making a unique cheese on your dairy farm, fire roasting your vegetable crops for the Farmers' Market, packaging organic products together in a special way that may increase their value, hosting farm tours or educational workshops, the list could go on infinitely.
Many growers are inviting the public onto their farms to harvest their own produce. These farms known as pick-your-own, or PYO, and these are attractive to farmers because there is reduced labor required for harvesting and they can sell produce that is too fragile to ship. PYOs do, however, require long working hours and more liability insurance. With the right location and crop offerings, PYOs offer an opportunity to diversify existing farm businesses.
Value-added might mean something slightly different to nearly every person that owns a farm that is hoping to raise or make products from the items they are growing. The breadth of crop production — from grains and oil seeds to fruits and vegetables; from nursery and landscape crops to herbs and handcrafting items like pine needle baskets, or grapevine wreaths. It is different for every farm. You don’t always have to farm a large number of acres to have a value added product either.
Increasing Profits and Enjoyment with Value-Added Products
At best, value-added endeavors increase profit, but value-added products and opportunities have other perks as well, such as:
- Personal fulfillment. Maybe there's a hobby you've always wanted to pursue or a product you've always really wanted to produce. Considering this hobby or this product as something value-added for your business can help you both fulfill that personal dream and make more money.
- Excitement. Okay, it's not as if making jam is akin to skydiving, but growing the same crops year after year can result in boredom. Anything gets mundane and routine if you do it often enough. Value-added endeavors can add some diversity and excitement to your work routine.
- Marketing value. Never underestimate how cool niche products can look to consumers. Organic veggies are available everywhere, but if consumers can also pick up organic cut flowers or dried herbs at your farm stand, then you start to stand out. The same goes for organic jam made from your organic berries.
- Fun and learning. It's fun to try new things, and value-added products can increase your organic knowledge in a new niche area.
- Eco-friendly aspects. Value-added items and opportunities are very eco-friendly for the most part because they usually utilize the resources you already have, and keep new land use and new raw material use to a minimum, or both.
Starting a Value-Added Enterprise
One of the first things you should do when considering a value-added business is to decide on the products you want to create, the implications of creating these products, and the steps involved in beginning the business. These steps will vary depending on your skills and your location and which overseeing agency you will need to work with. The National Sustainable Agriculture Assistance Program’s publication; Adding Value to Farm products: An Overview is a good place to begin.
The United States Department of Agriculture Rural Development has a list of resources you should review when considering a new value-added venture. The information included contains topics and articles from several Universities with information covering a value-added enterprise. There are grants you could possibly apply for on this website as well for small producers that want to do value added products. Just go under Value Added Producer Grants. If you do research online look for articles from the Extension Service and other educational sources to find trusted sources to get info from.
Producers wanting to start doing Value Added products need to research the buying habits, tastes, income levels and proximity of their potential customers. Knowing customer needs can help producers decide what to sell. Advertising can be as simple as a roadside stand, selling at a couple of different farmers markets or they could go as far as to do a direct mail flyer or putting ads in local papers.
Building a new business is difficult and takes hard work. But, for all the uncertainty, there are ways to craft a successful value-added business strategy. The key factors in a detailed business plan are:
Operations plan — flow of the business, quality and cost control
Personnel plan — needs, skills and training
Sales plan — including challenging but realistic goals
Management plan —strengths, weaknesses and resources
Investment and financial plan — cash flow planning
Summary
Beyond business planning and market research to get to know the customer, the essential elements for success in a value-added business can be boiled down to four key ingredients for business managers:
- Adapt to market changes
- Be open to exploring new ideas
- Operate more as a resource manager than as a producer
- Realize the importance of networking and the need to develop alliances
Managing resources and exploring new ideas means you will constantly need to be looking a new ideas of ways to increase your profits. That may seem tedious, but that is precisely what adding value is all about.
The sky is the limit if you can just find the right products and markets to match. There are many resources online for you to search for new ideas as well as ways to manage.
The Alabama Cooperative Extension System (Alabama A&M and Auburn Universities), is an equal opportunity employer and educator. Everyone is welcome!