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What is value added? Value added refers to increasing the customer value offered by a product or service. It is a production/marketing strategy driven by customer needs and perceptions. It adds features to a raw agricultural, marine, aqua cultural, or forestry material used to make a product. Examples of value added agriculture is food processing, drying, canning, juicing, handcrafting, unique packaging, labeling and marketing. The farmer is not only involved in production of a raw commodity but also takes part in processing, and distribution of the product. This is known as vertical integration. Value added marketing is a relatively new concept to many traditional producers, and involves significant capital, teamwork, and integration of diverse segments of the food industry. Doing more of the processing and marketing activities takes time skill and extra labor. Why Value added? Declining grain prices, federal farm policies, changing consumer choices and intense competition for agricultural commodities have created a sudden need to explore alternative production/marketing strategies. The recent establishment of producer owned, value added processing cooperatives in the Red River Valley region have provided farmers with opportunities to increase sales and profits. A flurry of activities from value added cooperatives based in Great Plains region have given a clear signal that farmers are moving up the food chain. In the past, there was a clear ‘disconnect’ between agriculture producers and their ultimate customers, the consuming public. The middlemen harnessed most of the profits in the food chain. As a result farmers would only receive about 1-2% return on their investment. If the farmers can move up the food chain by engaging in manufacturing and direct marketing, rather than just selling their raw commodities to a local dealership, then they would realize higher returns on their investment. Clearly there are higher profits to be made between the time a raw product is produced on the farm and it is ultimately transformed into a food product served on a plate. Today's food consumers want taste, nutrition, freshness, variety, and convenience. Ethnic populations are growing and niche markets are becoming available. By engaging in value added agriculture farmers are expecting to increase their net farm profits that would otherwise go to the middlemen in the food chain. The value added concept transforms growers from 'price takers' to 'price makers'. Value added coop's control processing steps and achieve greater product reliability, quality control, and volume. Members receive a greater return for their products. Co-op's reduce risks associated with new business enterprises, keep jobs in the rural communities, and strengthen the local tax base. Do the benefits of value added agriculture reach only the food consuming public? No. Value added means different things to different customers. To a food customer, value added may indicate a high protein or pesticide free product. To a farmer, value added may mean using varieties that are resistant to roundup or resistant to European corn borer (Bt corn), so that he or she have to rely less on pesticides resulting in less production cost. What are the challenges facing farmers in value added agriculture? It requires sound marketing savvy. Getting a new product into the highly competitive retail market is very difficult. USDA estimates that at least two out of every three new food products introduced into the market fail due to lack of customer appeal. Only one in five new businesses succeeds for more than five years. Failure to do market research and the lack of a sound business plan are leading causes for failure. List the important considerations for a new food entrepreneur?
How many years does it take for farmers to realize value added benefits? It takes time for consumers to adjust to a new product. Farmers should afford to invest on a new product for about 3-4 years before realizing profits. What is a key feature of a successful value added venture? Almost all value added ventures have a project champion who is a leader and a visionary, and who is able to bring together consensus and teamwork. He should be able to persuade others to join and take reasonable risks.
Source: Michigan State University Extension |