Adding Value to Farm Products: An Overview
1 like541 views
This document discusses adding value to farm products through various means of processing and marketing. It distinguishes between capturing value through commodity processing and creating value through unique products and experiences. Starting a food business offers opportunities in specialty and niche markets but faces challenges from regulations and a competitive industry. Non-food options for adding value include crafts, entertainment, and producer cooperatives for energy and fiber. Success requires marketing skills, risk management, and adequate capital and expertise.
Adding Value to Farm Products: An Overview
- 1. Introduction A s farmers struggle to find ways to increase farm income, interest in “add- ing value” to raw agricultural products has grown tremendously. The value of farm products can be increased in endless ways: by cleaning and cooling, packaging, process- ing, distributing, cooking, combining, churn- ing, culturing, grinding, hulling, extracting, drying, smoking, handcrafting, spinning, weaving, labeling, or packaging. (1) Today, more than ever, adding value means “selling the sizzle, not the steak.” The “sizzle” comes from information, education, entertainment, image, and other intangible attributes. Because of the many regulations involved with food processing, some people may choose to add value in other ways. On a larger scale, producer-controlled process- ing for energy, fiber, and other non-food uses are options. On a smaller scale, items such as flower arrangements, garlic braids, grapevine wreaths, willow baskets, wheat straw weavings, sheep and goat milk soaps, and wool mulch are a few examples. In addition, ideas for providing entertainment, information, and other services associated with direct marketing are abundant. Besides offering a higher return, value- added products can open new markets, create recognition for a farm, expand the Introduction..................... 1 Capturing Value and Creating Value ................ 2 Starting a Food Business............................. 3 Farm and Food Business Profile: Persimmon Hill Berry Farm ........................ 6 Non-Food Options ........ 7 Keys to Success ............... 9 References ......................10 Further Resources........ 11 Resources for Starting a Food Business................ 11 A Publication of ATTRA - National Sustainable Agriculture Information Service • 1-800-346-9140 • www.attra.ncat.org ATTRA — National Sustainable Agriculture Information Service is managed by the National Cen- ter for Appropriate Technology (NCAT) and is funded under a grant from the United States Department of Agriculture’s Rural Business-Cooperative Ser- vice. Visit the NCAT Web site (www.ncat.org/agri. html) for more informa- tion on our sustainable agriculture projects. ���� ATTRA Contents By Holly Born and Janet Bachmann NCAT Agriculture Specialists ©2006 NCAT Adding Value to Farm Products: An Overview This publication discusses the concept of adding value to farm products, the differences between creat- ing and capturing value, and the implications for value-added enterprises. It describes some different approaches to adding value, including starting a food processing business, with a brief look at non- food products. Resources to learn more about value-added agriculture and planning a value-added enterprise are included. Oats, barley, and some products made from them. Photo by Peggy Greb. Courtesy of USDA/ARS.
- 2. Page 2 ATTRA Adding Value to Farm Products: An Overview market season, and make a positive con- tribution to the community. However, adding value is not a panacea for all the problems rural America is facing. It is a long-term approach, not a “quick fix.” It requires the willingness and ability to take on risk, as well as adequate capital, man- agement skills, and personal skills—such as the ability to interact with the public— to succeed. Capturing Value and Creating Value Brees et al. (2) make the distinction between a strategy to capture value and a strategy to create value. This distinction is impor- tant to understand, because each strategy offers specific opportunities and risks that influence the success or failure of the value- added venture. For producers, capturing value usually means capturing some of the value added by processing and marketing. For exam- ple, the producer’s share of the food dollar has seen a steady decline since 1900. (3) In 2005, the average farmer’s share of the food dollar was 22 cents, down from about 33 cents in the 1970s. (4) The rest of the food dollar goes to processing, distribution, and marketing. More and more, produc- ers are attempting to increase their share of that food dollar by engaging in activi- ties such as direct marketing to consumers, turning farm products into food products, and joining producer alliances and coop- eratives that invest in facilities to process their farm products on a larger scale. Marketing directly to the consumer can be done on a small or large scale and in a variety of ways. Options for the pro- ducer who enjoys direct contact with con- sumers include selling at farmers’ markets and through community supported agricul- ture systems. Other options include sales directly to restaurants and local institutions, as well as mail order and Internet sales. Large scale processing through producer alliances, such as agricultural co-ops or limited liability companies, has seen growing interest among producers. These alliances can offer a way to pool resources and manage risks. In some cases, produc- ers lose marketing or processing facilities when corporate agribusinesses close local facilities. For example, when Iowa turkey farmers lost an Oscar Mayer processing plant and feed mill, the producers formed Iowa Turkey Growers Cooperative and purchased the facility in 1996. (5) The Iowa Turkey Growers Cooperative contin- ues to produce and market whole and fur- ther-processed turkey products year round. Research from Purdue University (5) shows that producers do stand to benefit from diversifying into a value-added business related to the producer’s product, when the product is characterized by volatile prices at the farm-gate level but relatively steady prices at the wholesale or retail level. The turkey industry is such an example, and turkey producers benefited from diversify- ing into processing. In many cases, such as livestock processing, economies of scale can make it impractical for producer alliances to own the entire processing plant, if the alliance is not able to support an operation large enough to achieve those economies. With a captured-value strategy, producers may face lower production risks, because production processes are well known and often linked to traditional agricultural pro- duction. Even when producers themselves are not familiar with processing, expertise in those areas can be hired. Captured- value ventures face an extremely competi- tive marketing environment, where demand is high, cost and efficiency considerations are paramount, and high volumes of prod- ucts must be processed in order to gain effi- ciencies of scale. These ventures are often turning commodities into different commod- ities and, while value is added, it may not actually be captured by the producer. For example, producer-owned coopera- tives have attempted to enter the wet corn milling industry. However, this industry is extremely concentrated, with the top three firms having more than 80 percent of the market share for corn sweetener, one of the most important wet milling products, and similar market shares for the other wet Direct Marketing Publications from ATTRA Direct Marketing Farmers’ Markets Community Supported Agriculture (CSA) Selling to Restaurants Bringing Local Food to Local Institutions Marketing Strategies for Farmers and Ranchers
- 3. Page 3ATTRAwww.attra.ncat.org milling products. In this case, one com- modity, corn, is being turned into another commodity, corn sweetener, and the pro- ducer cooperative faces a marketing envi- ronment in which it is almost impossible to compete successfully. Indeed, two of the most recent producer-owned cooperatives that attempted to enter the wet milling mar- ket, American Crystal Sugar’s ProGold facil- ity and Minnesota Corn Processors, could not compete and ended up being acquired by the top three firms. (5) For more infor- mation on getting off the commodity tread- mill, request Moving Beyond Conventional Cash Cropping from ATTRA. A created-value strategy, on the other hand, relies on products or services that are unique or different from the mainstream equivalent. These often include a real or perceived quality attribute such as organic certification, a brand image, identification with a specific geographic region and/or pro- ducer, identity preservation, environmental stewardship, and so on. Creating value can pose higher production risks than capturing value. It usually requires learning new pro- duction and marketing skills, dealing with food safety, labeling, and other regulations, and coping with liability issues and insur- ance. Demand for the innovative product or service must usually be created through advertising, promotion, and consumer edu- cation, and this is a lengthy, expensive pro- cess. Marketing risks may be lower with a created-value strategy, for if this demand can be established, there is potential for higher, stable prices and little direct com- petition. Contract agreements for iden- tity-preserved products such as high-lysine corn reduce competition from other pro- ducers, for example. On-farm events and activities offer a unique setting that cannot be copied by other producers. However, producers will need to learn new market- ing skills, carefully assess feasibility, and develop marketing plans for created-value products or services without established marketing channels. The amount of value that can be added is affected by whether the enterprise is captur- ing or creating value. Brees et al. (2) cite two different approaches to adding value to soybeans—a cooperative venture in a crush- ing plant, using a captured-value strategy, and producing a new “soy nut” product, using a created-value strategy. The crush- ing plant in their example added about $1 per bushel from the meal and oil produced. The crushing plant faced narrow profit margins and stiff competition, common challenges for captured-value ventures, where the processing and marketing risks are relatively low. Producing soy nuts that retailed for $3.95 per 9-ounce package, on the other hand, added almost $420 of value per bushel. While the markets for soybean meal and oil are very large, the market for soy nuts, and thus the total amount of value added, is very limited. Product and market develop- ment and compliance with food safety and packaging laws all require time and money. However, for the small-volume producer who cannot compete with the large-volume producers on price, targeting niche markets with a created-value strategy offers the high- est likelihood of success. Many producers combine aspects of both capturing and creating value in their ven- tures. A producer may create an unusual food product, such as local specialty bread, and sell it at the farmers’ market, capturing more of the food marketing dollar. Food processors may use organic or unusual ingredients, and so on. Starting a Food Business The food business is extremely competitive and dominated by a few large companies that are driven by cost and price consid- erations. Food is considered a “mature” industry, which means very little growth in demand. Food manufacturing continues to face narrowing margins and decreasing profits. Retailers are wielding more and more power over food wholesalers and man- ufacturers, and requiring manufacturers to pay more for shelf space (“slotting fees”), bear more of the product development risk, and provide product uniformity and qual- ity. Smaller processors could have trouble Food Processing Publications from ATTRA Grain Processing: Adding Value to Farm Products Oilseed Processing for Small-Scale Producers Edible Soybean Production and Marketing Food Dehydration Options Sorghum Syrup Value-Added Dairy Options
- 4. Page 4 ATTRA Adding Value to Farm Products: An Overview finding outlets for their products, if they cannot meet scale requirements by the large retail operations that dominate the indus- try. In this mature industry, the only real growth is in niche food markets, where pro- ducers create value by adding special ser- vices for consumers, offering quality attri- butes like organic certification, specialized health products, and so on. They are able to charge prices 30 percent or more over mainline markets. Industry analysts agree that these markets are likely to continue to grow. (7) The National Association for the Specialty Food Trade (NASFT) defines “specialty foods” as follows: Foods, beverages, or confections meant for human use that are of the highest grade, style, and/or quality in their category. Their specialty nature derives from a combination of some or all of the following qualities: their uniqueness, exotic origin, particular process- ing, design, limited supply, unusual applica- tion or use, extraordinary packaging or chan- nel of distribution, the common denominator of which is their unusually high quality. (8) For more information and resources on the specialty foods industry, visit the National Association for the Specialty Food Trade’s Web site at www.specialtyfood.com. Consumers with special dietary needs— both for specific health conditions and the general health concerns of our aging pop- ulation—offer more opportunities for new products. For example, there are more than two million Americans with life-long, incur- able celiac disease, who must avoid all glu- ten (from wheat, rye, and barley) in their diets. Gluten-free foods have been difficult to find and remain expensive, but for celiac disease sufferers, they are well worth the effort and expense. (9) For more informa- tion on health conditions requiring special diets, and the companies supplying these special foods, visit www.specialdiets.org. Other specialty foods options that have paid off for producers include produc- tion and marketing of unusually colored or shaped, “heirloom,” and “ethnic” crop varieties (request the ATTRA publication Specialty Vegetables for more information). Livestock can also be marketed as a spe- cialty food, often in conjunction with reli- gious or cultural celebrations and festivals or events, to use in traditional recipes. For example, meat goat and sheep produc- ers have the options of serving many eth- nic markets and providing special products such as sheep for the Muslim Ramadan holidays and cabrito (young goat) for the Hispanic Easter market. Some produc- ers even offer buyers facilities on farm to slaughter according to Halal or other religious requirements. Some of the main challenges in food pro- cessing include developing formulations and preparation schedules, dealing with regulations and regulatory agencies, prod- uct coding and labeling, and product liabil- ity insurance. (10) Researching the market potential for food products is a crucial first step. You will need to have a good idea of who will buy your product in the amounts and prices that will generate a profit for you. For more information on market research, visit www.agmrc.org/agmrc/business/ Case History: Value-Added Agriculture From Our Future’s on the Table (6) Radiance Dairy, Francis and Susan Thicke, owners, Fairfield, Iowa Former Minnesota dairy producers Francis and Susan Thicke have oper- ated Radiance Dairy in Fairfield, Iowa, since 1992. When they took over the herd of Jersey cows—a breed that produces high-butterfat, high- protein milk that receives a premium price—the Thickes added more value by turning the dairy into an organic operation. Today, 99 percent of their organic whole, skim, and two-percent milk, as well as cream, yogurt, and a soft cheese called Panir, are sold under the Radiance Dairy label by three local grocery retailers. Chocolate- and vanilla-flavored soft-serve ice cream is sold in restaurants. Other prod- ucts such as new yogurts and cheeses are in development. What does value-added mean to the Thickes? According to Francis: “Value-added products have features that go beyond what is gener- ally found in the conventional market. Most people think value-added means processing raw materials into a finished product. That’s true, but value-added can be more than that. We believe organic products are value-added because of the extra care that goes into making the product. Radiance Dairy products really have two value-added features: they’re organic, and they’ve been processed to deliver additional value to our customers.”
- 5. Page 5ATTRAwww.attra.ncat.org startingbusiness/marketresearch.htm, and see the Business Planning Resources section below. Once you have an idea for a food product that you believe will appeal to consumers in the marketplace, you need to develop a detailed description of your product. This description should include where you will get all ingredients, a formulation (recipe), a method of preparation, processing pro- cedures, and packaging. Revealing the amount of each ingredient or the spices in your formulation is not necessary. This should remain secret and be revealed only to federal or state regulatory agencies. Reliable suppliers for equipment, ingredi- ents, and other supplies are critical to the operation of a successful food processing business. Identification of reliable suppli- ers is an important step prior to beginning your business. If you are uncertain about any of the details needed in this plan, check with your county Extension office to see whether you can get help from your land-grant university. Most have a department of food science or food technology, with staff who can help you in the initial stages of product development. If you work with a food technologist to develop your product or process, you will be asked for your complete formula. This informa- tion will remain confidential. Bring as many details about your product as you have, including a sample. The product will be evaluated and classified regarding the type of processing needed. This classi- fication will be based on the product’s acid and water contents. Transferring recipes for food products made in small batches or in a home kitchen to commercial-size formulas that can be manu- factured in larger batches using commercial equipment is not an easy task. Frequently, simply multiplying ingredient amounts to get larger-size batches does not result in a prod- uct comparable to that made with smaller recipes. Plan on contracting with a state- approved facility, such as a private-label manufacturer, to manufacture a fairly large quantity of your best formulation(s). This will give you an opportunity to revise and adjust your formula so that your final prod- uct is exactly the way you want it. Most pri- vate-label manufacturers can also provide formulation assistance. The county health department may be able to help you with information about such facilities located in your county. A key point to remember is that adding value by processing food products increases safety risks. Therefore, rules and regula- tions are established to protect the public health. Each state has its own regulations about processing kitchens, and some local governments have building codes that also apply. If there is any possibility that you will be selling your food out of state, you must also comply with the federal regula- tions as stated in the Federal Food, Drug, and Cosmetic Act and enforced by the Food and Drug Administration (FDA). The FDA has what it calls Good Manufacturing Prac- tices (GMP), upon which state regulations are based. GMPs include requirements that walls, floors, and ceilings be wash- able, and the kitchen must be ventilated so that drip or condensation from ceiling or fixtures won’t fall into food. Food con- tact surfaces, tools, and equipment must be resistant to corrosion and made of non- toxic materials. Seams on surfaces must be smoothly bonded to prevent accumu- lation of food particles, dirt, etc. The room must be screened to keep out birds, insects, and other pests. You must have a bathroom, if you have employ- ees. You must have a hand-wash- ing sink separate from sinks for wash- ing, rinsing, and sanitizing equipment and utensils. Water must be from an approved source. If your food product contains more than five percent meat, you must have a USDA Food Safety and Inspection Service inspec- tor present during processing. You must also comply with USDA regulations, whether the product is sold in-state only or out of state. The full description of GMPs is printed in the Code of Federal Regula- tions 21 CFR, Part 110, available on-line at www.access.gpo.gov/nara/cfr/index.html. A dding value by process- ing food products increases safety risks.
- 6. Page 6 ATTRA Adding Value to Farm Products: An Overview All products need to include a product code that shows where the product was packed, the date and year packed, and the prod- uct and batch number. Individual con- tainers and cases should be coded. The codes should be kept in records pertain- ing to the product and should be written on your invoices to identify distribution. The codes provide a means of tracking a prod- uct, should there be complaints or a recall be necessary. Organic processing involves additional record-keeping and other regulatory requirements. The label is the means by which consum- ers identify your product, so time and thought should be given to developing your label. Both the state and the FDA have very specific regulations concerning label- ing requirements. Contact the appropri- ate agency regarding information you must include on the product label. The FDA requires nutritional labeling if you do more than $50,000 in business annually. The regulations for nutritional labeling are quite extensive, with very specific requirements about information to include and the for- mat for presenting this information. Details of these requirements can be obtained from any FDA office or the FDA Small Business representative. If you plan to sell your product through retail stores, you should plan to display a Uniform Product Code (UPC) on the label. This bar code provides a means for automated iden- tification of your product. Brokers, whole- salers, and retail buyers will not handle a product without a UPC. It is your responsi- bility to obtain a UPC for each product you produce. Contact the Uniform Code Coun- cil to apply for a UPC assignment. The fee for assignment is based on the size of your business. Contact: Uniform Code Council 937-435-3870 937-435-7317 FAX info@uc-council.org www.uc-council.org/ ean_ucc_system/index.cfm While it can be difficult to find a liability insurance provider, and insurance may be costly, product liability insurance is a must. Many farmers’ markets and most retail out- lets will require a minimum level (normally $1 to 2 million) of product liability cover- age before you can sell your products in their markets. There are no standard rates for liability coverage for food products, because the premium depends on the spe- cific characteristics of the product, the man- ufacturing process, and marketing plan. Most insurance companies require a great deal of information—including submission of production, distribution, and marketing plans—even to provide a rate quote. Product design and marketing tips are covered in more detail in Fresh to Processed: Adding Value for Specialty Markets. (11) Created as a training and resource tool for value-added processors, with funding from the North Central Region SARE program, Fresh to Processed: Adding Value for Specialty Markets provides an over- view of the main aspects of starting a food business. Contact ATTRA for a copy of this resource. Farm and Food Business Profile: Persimmon Hill Berry Farm The story of Earnie and Martha Bohner’s Persimmon Hill Berry Farm shows what can happen when creative and persistent farmers team up with supporters from the state university, state department of agricul- ture, and many others. Although both Earnie and Martha trained and worked in other professions, the small- farm lifestyle of the southern Missouri Ozarks appealed to them, and in 1983— starting with no buildings, no electric- ity, and no running water—the Bohners began developing their pastured hill land. They chose the name Persimmon Hill because the farm was covered with young persimmon trees. Within 10 years they were cultivating three acres of blueberries, an acre of blackberries, 2,000 hardwood logs for growing shiitake mushrooms, and 120 apple trees. (12) Contact the FDA by mail, telephone, or Internet: Food and Drug Administration 5600 Fishers Lane Rockville, MD 20857 1-888-INFO-FDA (1-888-463-6332) www.fda.gov
- 7. Page 7ATTRAwww.attra.ncat.org The berries were initially marketed to pick- your-own customers. The added value is the experience of a day on a farm with a friendly and helpful host. “We create a place where people can enjoy themselves,” Earnie says. Clean restrooms, a picnic table, and shade trees provide for the com- fort of visitors to the farm. Keeping the field edges mowed and trimmed contributes to the clean image needed to attract visitors. “People don’t come all the way out here to get cheap food. They come because it’s fun, and the berries are absolutely fresh. As much as we can, we give them contact with ‘the farmers.’ The more we can do that, the more people go away with that memory.” In 1986 the Bohners began adding value through processing. “After considerable study, we decided to turn ripe berries into full-fruit jams, although it would take more work than the U-pick operation and spread our management thinner,” says Martha. “From the first, we were committed to qual- ity, and quality entails a lot of time and cost. Our recipe is simple: fresh, ripe fruit; sugar; natural pectin; a bit of lemon juice, and nothing else. We want our product to have a distinctive, berry taste.” Earnie and Martha worked with a chef to perfect recipes for other products such as shiitake mushroom sauce. The first products were prepared in rented kitchens, a good way to make the step without the cost of build- ing your own kitchen. The Bohners now have their own processing kitchen on the farm, just a few steps from the blueberry patch. The business office and storage space are in the same two-story building. Processed products (their famous blue- berry Thunder Muffins, a range of jams, shiitake mushroom sauce, blueberry and other barbecue sauces, dried shiitake spe- cialties, a refreshing blueberry slush, and a cookbook) now account for a large share of the farm’s gross income. Processing fruits and shiitake mushrooms allows them to use produce that isn’t sold fresh, to extend the marketing season and to diversify their marketing outlets. The Bohners have sold as many as 1,400 Thunder Muffins in a single day, and Martha Bohner says the muffins carry the farm through the unprof- itable winter months. (13) Direct marketing is another way to add value. In addition to U-pick and farm stand sales, the Bohners have created a Christmas gift mail-order market. Previous custom- ers and gift recipients receive a mail-order folder describing packages that will be sent directly to them. The cover of the flyer features the farm’s black Labs shown watch- ing St. Nick’s sleigh heading off into the Ozark night. Business planning has been critical to the development of Persimmon Hill Berry Farm. Earnie tries to reorganize each Jan- uary, after he reviews production and mar- keting records for the previous season. He adjusts long-range plans, sets goals for the next 12 months, and then breaks down jobs by two-week periods. Earnie says, “In an ideal situation, I would look at these goals monthly. On a daily basis, I have a list that I carry with me that supports the overall plan.” He is always looking for ideas for new products, niches, and ser- vices. In regard to finding help for busi- ness planning, Earnie says, “SCORE has been really helpful.” (SCORE, the Ser- vice Corps of Retired Executives, is a Small Business Administration program. For more information on SCORE, request the ATTRA publication Agricultural Business Planning Templates and Resources.) “We also have had graduate students from a uni- versity business department out here. It is a useful experience for them, and they can give a business owner another perspective. And we get lots of ideas from Ron Macher’s Small Farm Today magazine.” Beyond the financial aspects of the business, a visit to the farm will show anyone that a vision for a beautiful place in the country and love for life are driving forces. To pay a virtual visit to the farm, visit www.persimmonhill.com. Non-Food Options The difficulty of coping with regula- tory requirements, as well as the highly competitive nature and the relatively low margins of the food industry, have “P eople don’t come all the way out here to get cheap food. They come because it’s fun.”
- 8. Page 8 ATTRA Adding Value to Farm Products: An Overview led many producers to consider non- food options for adding value to their farm products. Some of these non-food options are discussed below. Your options for add- ing value with non-food products and ser- vices are limited only by your resources and your imagination. Energy Energy production from agricultural prod- ucts is on the rise. It includes producing biofuels, such as ethanol and biodiesel, and electricity from crops, wastes, and wind. Producers may be interested only in reduc- ing on-farm fuel costs by producing biofuels for their own use. Many producer groups, on the other hand, have invested in biofu- els manufacturing as a way to add value to agricultural products such as corn and soybeans. The viability of many of these investments, such as corn producers invest- ing in ethanol production, depends on gov- ernment subsidies and programs. (5) The Agricultural Utilization Research Institute’s Center for Producer-Owned Energy offers useful information on many biofuels options on their Web site at www.mncpoe.org. The ATTRA publication Biodiesel: a Primer not only describes the process of making biodiesel on-farm but also provides further resources on many aspects of renewable energy. For more information on energy and agriculture, visit ATTRA’S Energy and Agriculture section at www.attra.org/ energy.html. Fiber Organic cotton fiber is enjoying a develop- ing market (14); however, these markets are still limited and subject to competi- tion from imported cotton. For more infor- mation on organic cotton, request Organic Cotton Production from ATTRA. There are also small niche markets for natu- rally colored cotton. The increasing con- sumer interest in hand spinning, knitting, and weaving has led to increased mar- keting opportunities for sheep and goat producers for organic, naturally colored, hand-made wool, yarns, and other products, as well as finished goods such as blankets and clothing. Wood Woodlot enterprises, both timber and non- timber, may offer another option. Request a copy of Woodlot Enterprises from ATTRA for more information. Another good place to start investigating woodlot enterprises is the WoodWeb at www.woodweb.com/ KnowledgeBase/KBIndex.html. Personal Care Products Adding value to products such as milk, honey, and wax by producing soaps, lotions, and other personal care products is a popular option. The market for “natural” personal care products reached $5 billion in 2004, increasing by more than 50 per- cent since 2000, and should continue to grow. (15) Learn more about natural per- sonal care products at www.soap-wire.com. Farm Entertainment According to Agriculture Specialist Katherine Adam, in Entertainment Farm- ing and Agri-Tourism, “While the popular- ity of specific enterprises—such as pump- kin patches or U-pick orchards—may ebb and flow, the public’s desire for a ‘farm experience’ remains.” Small diversified farms are ideally suited to agri-entertainment. Unlike the mega-hog facility or a corn/soybean operation producing bulk commodities, the small farm can recre- ate an earlier, simpler, human-scale vision of Many farm machines at ARS’ Beltsville Agricul- tural Research Center run on a mixture of die- sel fuel and biodiesel, which is made from soy- bean oil. Photo by Bob Nichols. Courtesy of USDA/ARS.
- 9. Page 9ATTRAwww.attra.ncat.org farming. The chief qualification for the rural landowner who expects to make a living from the land through agri-tourism is the desire and the ability to cater to tourists and meet their expectations of a farm visit. Request a copy of Entertainment Farm- ing and Agri-Tourism from ATTRA for more information on many dif- ferent options to add entertainment and educational value to your farm and farm products. Keys to Success Although no simple blueprint for success exists when you’re trying to add value to your farm products, a few general prac- tices emerge from interviews with a number of southern farmers. No matter how you end up adding value to your farm products, these principles apply. Start small and grow naturally. Make decisions based on good records. Create a high-quality product. Follow demand-driven production. Get the whole family or partners involved. Keep informed. Plan for the future. Evaluate continuously. Persevere. Capitalize adequately. Focus. • • • • • • • • • • • Business Planning Resources A comprehensive business plan that includes marketing and finances can help determine the feasibility of a value-added enterprise. Developing your business and marketing plan helps you define your business, creates a road map to operate the business, sets the goals you will aim for, and satisfies outsiders’ requests for a written explanation. The basics of a business plan include the following. What? Describe your product or service. Why? Describe the need for your product or service. Who? Describe the customer. When? Draw a timeline and list all the tasks that need to be accomplished. Where? Describe the location of your business. Building a Sustainable Business: a Guide to Developing a Business Plan for Farms and Rural Businesses helps alternative and sus- tainable agriculture entrepreneurs develop profitable enterprises. Sample worksheets illustrate how real farm families set goals, researched processing alternatives, determined potential markets, and evaluated financing options. Blank worksheets help producers develop detailed, lender-ready business plans and map out strategies to take advantage of new opportuni- ties. It is available at no charge on the Internet at www.misa.umn.edu/publications/bizplan.html. Print copies are available for $14 (plus $3.95 shipping and handling charge). To order copies, contact: Sustainable Agriculture Publications 210 Hills Building University of Vermont Burlington, VT 05405-0082 802-656-0484 802-656-9091 FAX sanpubs@uvm.edu Useful resources from ATTRA include: Agricultural Business Planning Templates and Resources Sources of agricultural business planning templates and other resources. Enterprise Budgets and Production Costs for Organic Production Sources of information on costs and returns of organic production.
- 10. Page 10 ATTRA Adding Value to Farm Products: An Overview Establish a loyal customer base. Choose something you love to do and something that fits your personality and goals. These points are described in detail in the ATTRA publication Keys to Success in Value-Added Agriculture. Call ATTRA to request a copy. The publication also provides farmer profiles and information about the resources that they found useful. Adding value to your farm products can be a great way to increase farm income, diversify production, and enter new markets. Understanding the risks and rewards of different approaches to adding value, investigating the wide range of options for adding value, and thoughtful business planning are all important to success. References Richards, Keith, and Deborah S. Wechsler. 1996. Making It On the Farm: Increasing Sustainability Through Value-added Process- ing and Marketing. Southern Sustainable Agriculture Working Group. 40 p. Compiled from interviews with southern farm- ers and ranchers who are adding value to their products, it describes some of their practices, dis- cusses 10 keys to success, and includes a list of resources. Available for $12 (includes shipping and handling) from: Southern SAWG Publications P.O. Box 324 Elkins, AR 72727 501-587-0888 ssfarm@lynks.com Brees, Melvin, Joe Parcell, and Nancy Giddens. No date. Capturing vs. Creating Value. MU Agricultural Guide, University of Missouri Cooperative Extension. www.agmrc.org/agmrc/business/gettingstarted/ capturingvscreatingvalue.htm Smith, Stewart. 1991. Is There Farming in Agriculture’s Future? Presentation to College of Agriculture and Life Sciences. University of Vermont. November 14. Anon. 2005. Retail Food Prices Rise Slightly. Pork magazine. April 4. www.porkmag.com/ directories.asp?pgID=678&ed_id=3305 • • 1. 2. 3. 4. Fulton, Joan. Value-Added Business Ventures Through Producer Alliances. 2003. Purdue University Cooperative Extension Service Pub- lication ID-318. www.ces.purdue.edu/extmedia/ID/ID-318.pdf Our Future’s on the Table. The Web site of an Iowa consortium seeking to increase the value of Iowa farm products includes links to a number of case histories. Contact can also be made through the address below. Ag Initiative 2000 Consortium 200 East Grand Ave Des Moines, IA 50309 515-242-4805 515-242-4832 FAX Sparks Companies, Inc. 2003. Top-Down Com- petition in the Food Industry: Trends and Implications. Strategic Forum Discussion Paper. Sept. 23. 46 p. www.mda.state.mn.us/ams/whitepapers/ topdown.pdf Food Industry Resources & Worksheets. Prod- uct Development: Identifying Your Market Seg- ment. Appalachian Center for Economic Net- works (ACEnet) Food Ventures Web site. www.acenetworks.org/frames/ framesfoodventures.htm Choi, Candice. 2005. Gluten-Free Market Goes Mainstream. Associated Press. July 27. Brady, Pamela, et al. 1997. Starting a Food Business. Institute of Food Science and Engi- neering. University of Arkansas, Fayetteville, AR. 6 p. Durham, Deni. 1996. Fresh to Processed: Adding Value for Specialty Markets. Missouri Organic Association, Ashland, MO. 33 p. Bohner, Earnie. 1998. Personal communication with Janet Bachmann. Anon. 2003. True blue: Loyal berry fans line up across Missouri to get a taste of summer’s sweetest treat. Columbia (MO) Daily Tribune. June 29. http://archive.columbiatribune.com/2003/jun/ 20030629feat004.asp 5. 6. 7. 8. 9. 10. 11. 12. 13.
- 11. Page 11ATTRAwww.attra.ncat.org Dimitri, Carolyn, and Catherine Greene. 2002. Recent Growth Patterns in the U.S. Organic Foods Market. U.S. Department of Agricul- ture, Economic Research Service, Market and Trade Economics Division and Resource Eco- nomics Division. Agriculture Information Bul- letin Number 777. 42 pp. www.ers.usda.gov/publications/aib777/ Anon. 2005. Three Years of Double-Digit Growth Powers the Natural Personal Care Mar- ket to $5 Billion. Soap Wire Online. June 22. www.soap-wire.com/2005/06/ three_years_of _.html Further Resources General Value-Added The Ag Marketing Resource Center (AgMRC) (www.agmrc.org) is an excellent electronic, national resource for producers interested in value-added agriculture. This comprehen- sive Web site offers information on value-added opportunities for agricultural commodities and products, market and industry trends, learning how to create and operate a business, research results of value-added markets and businesses, and how to locate national, state, and local value-added resources. A comprehensive set of directories, including agricultural innova- tion centers, consultants, service providers, and value-added businesses that can be contacted by individuals with similar interests, and specific resources for all 50 states, is available at www. agmrc.org/agmrc/directories/. Hamilton, Neil. 2000. The Legal Guide for Direct Farm Marketing. Drake University Law School. Des Moines, IA. 235 p. This book is an excellent resource to help you begin the process of learning about the rules and regulations that may affect you. Prepared under a grant from the USDA Sustainable Agriculture Research and Education Program, it is available from: Agricultural Law Center Drake University Law School 507 University Ave. Des Moines, IA 50311 www.law.drake.edu 14. 15. One great source of innovative, farm-tested ideas for adding value and generating more income is FARM SHOW magazine. For more information, contact: Circulation Department FARM SHOW P.O. Box 1029 Lakeville, MN 55044 800-834-9665 952-469-5575 FAX circulation@farmshow.com www.farmshow.com Another source of ideas is Small Farm Today magazine. For more information, contact: Small Farm Today 3903 W Ridge Trail Rd Clark, MO 65243-9525 573-687-3525 573-687-3148 FAX 800-633-2535 smallfarm@socket.net www.smallfarmtoday.com USDA Rural Business-Cooperative Services offers two grant programs for value-added proj- ect development. The Section 9006 Renewable Energy System and Energy Efficiency Improve- ment Grants provide grants and guaranteed loan funds to farmers, ranchers, and rural small businesses looking to finance a renewable energy or energy efficiency project. Visit http:// attra.ncat.org/guide/n_z/renewable.html for more information. The Value-Added Producer Grant program makes grants available to inde- pendent producers and producer groups for plan- ning activities to establish a viable value-added marketing opportunity for an agricultural prod- uct or for acquiring working capital to operate a value-added business venture. Visit http:// attra.ncat.org/guide/n_z/value_added.html for more information. Resources for Starting a Food Business In addition to the directories available at the AgMRC Web site mentioned above, there are some other resources that are especially helpful for starting a food business.
- 12. Appalachian Center for Economic Networks (ACEnet) runs the Food Ventures program, which works with entrepreneurs in their service area in the southeastern Ohio area to create and grow specialty food businesses. ACEnet also offers excellent advice and information on their Web site at www.acenetworks.org/frames/ framesfoodventures.htm for anyone interested in the specialty foods business. Better Process Control School (BPC) is required by federal regulations for any supervisors of low-acid food thermal processing systems and container closure operations. It is strongly rec- ommended that anyone involved in any phase of food processing who is not familiar with the principles of food preservation attend this school. Several universities hold a BPC school at vari- ous times during the year. To locate a BPC school near you and learn about the many other training resources available, contact: Food Processors Institute 1350 I Street, NW Suite 300 Washington, DC 20005-3305 202-639-5945 800-355-0983 (toll-free) 202-639-5932 FAX fpi@fpa-food.org www.fpi-food.org The Fooddude’s Food Marketing 101 at http://www.fooddude.com/foodmarketing101. htm is an on-line resource designed primarily for potential manufacturers or marketers of specialty food products. The purpose is to pose questions (and provide some answers) for those interested in producing food products for sale. Included is information about retail trade channels; distri- bution channels; product positioning, branding, packaging, and pricing; packaged food sales; marketing and promotion; customer service and data use; as well as links to general resources and food industry associations. Getting Started in the Food Specialty Business www.efsonline.uga.edu/EFS_NFB/ New%20Food%20Business%20Packet/ Getting%20Started%20in%20the%20Food% 20Specialty%20Business.pdf Hall, Stephen F. 1992. From Kitchen to Market: Selling Your Gourmet Food Specialty. Upstart Publishing, Chicago. 190 pp. ISBN-0- 926894-34-2. A good resource to determine whether your food product has potential. Exploring the Potential for New Food Products http://msucares.com/pubs/publications/ p2170.html Starting a Value Added Farm-Food Business www.uwex.edu/ces/agmarkets/ Page 12 ATTRA Adding Value to Farm Products: An Overview By Holly Born and Janet Bachmann NCAT Agriculture Specialists ©2006 NCAT Paul Driscoll, Editor Cynthia Arnold, Production This publication is available on the Web at: www.attra.ncat.org/attra-pub/valueovr.html and www.attra.ncat.org/attra-pub/PDF/valueovr.pdf IP141 Slot 136 Version 032206