10 Jul2000

Overstory #63 - Value-Added Enterprises for Small-Scale Farmers

Written by Sylvia Kantor.

Editor's Note

Economic viability is an important aspect of the success of agroforestry projects. The last edition of The Overstory introduced seven principles of marketing, with emphasis on wood products from farm forestry. This edition goes further into depth on the subject of value-added enterprises using farm food products to illustrate value-added strategies.

Introduction

Small farmers are under tremendous pressure to develop innovative business strategies to stay afloat. Value-adding is one such strategy that is also a logical extension of many farm businesses and can exploit underutilized farm resources for increased returns. Value-adding offers farmers the potential to capture a larger share of the consumer dollars.

What is value-adding? Value-adding is any step taken to increase the value of a raw product anytime between harvesting and sales of the final product. Typical value-adding includes processing in some way such as cleaning, cutting, packaging, smoking, drying, freezing, extracting, or preserving.

What are the benefits of value-adding? Value-added products offer a higher return, open new markets, create brand recognition and add variety to a farm operation. Adding value means consumers are willing to pay more than they would for a raw product.

Developing Value-Added Product Ideas

Valued-added enterprises can be very rewarding. Benefits accrue from matching underutilized farm, labor, and management resources with potential markets.

Talk with nonfarming friends, Cooperative Extension agents and specialists, lenders, coworkers, and people in both urban and rural areas for their input.
Ask current buyers if they have any unfulfilled demands.
Visit specialty grocery stores and gift shops.
Look at mail order catalogs.
Read agriculture magazines, food magazines, and trade journals.
Read the food section of your daily newspaper.
Talk to other farmers about what they have heard other farmers are doing.
Keep your eyes, ears, and mind open to new, innovative ways to process farm products and to make use of existing resources.

Three Keys to Success

Value-adding offers no guarantee to profitability. Though more money may be coming in, more time and resources are also going out. Careful planning and management are necessary to promote profitability. Three factors key to the success of value-added enterprises are: quality products, good marketing, and sufficient capital.

Quality products

- Do some test marketing at various venues like farmers' markets, county fairs, and festivals.
- Get assistance with product development from local resources like chefs, classes, culinary colleges, freelance product developers, independent food technology labs, and university extension, and friends and relatives who offer feedback.
- Consider whether your product is unique enough to survive in market competition.
- Be consistent in quality, supply, delivery, and service and you will foster a loyal customer base.

Good marketing

- Do market research to see if there is a market for your product.
- Keep your market research simple and cost effective; make it objective (beyond friends and family); monitor repeat sales. An example is to put out samples or sell small quantities of a product for customers to try.
- Look into possibilities for distributing your product in the market. Options include selling direct (on farm or off), selling wholesale, mail order, roadside stands, internet, specialty retailers.
- Consider working with brokers or distributors once your business has expanded beyond the territory it can service.
- Also consider wholesalers. A growing number of specialty food wholesalers deal with smaller quantities.
- Think about collaborating with other small-scale processors to help promote each other's products.
- Packaging is critical! Label and packaging designs represent your business, so make sure they have appeal.
- Seek out advertising and promotion opportunities that will fit within your budget. Examples include sending out samples, offering tasting opportunities, handing out sales literature, or merchandising at point-of-sales purchase locations.

Sufficient capital

- Start small. Invest ingenuity first, labor second, and money third.
- Keep your day job. You will need an independent source of income to cover your costs for at least the first three to five years.
- Research regulations at the beginning because they may add costs.
- Reduce capital costs by borrowing equipment, buying used equipment, sharing resources with other small-scale enterprises, or using community processing facilities.
- Save on initial labor costs by seeking help from family and friends, and consider hiring outside labor later on.
- Develop a business plan that includes outside financing for future expansion of your business.

Other qualities of success for value-added enterprises as described by successful processors are:

- A unique product.
- An enthusiastic promoter of the product.
- The right kind of labeling and packaging.
- Aggressive marketing.
- A full-time presence on the farm.
- Strong agricultural or livestock knowledge.
- Ability to cater to customers.
- Assistance from agencies and universities.
- A strong relationship with the local community.
- Having vision, taking risk, and believing in yourself.

Food Safety and Liability

Safe food handling is crucial to effectively marketing a product and maintaining a trustworthy reputation. Food safety regulations are in place not only to protect consumers' health but to prevent businesses from being destroyed by a consumer getting ill from their product.

Regulations are complex and can frustrate processors. All small businesses must comply with federal, state, and local laws and regulations.

Product liability insurance is necessary because most value-added products are not covered under general farm policy programs. Be sure to have this protection from the beginning, even if you are just handing out samples. Contact an insurance agent for advice.

A Few Value-Added Product Ideas

cut flowers and ornamental greens
dried flowers
dried fruit
dried gourds
dried mushrooms
dried whole or processed herbs
dry mixes
essential oils
fermented and cultured foods
free range eggs
herbal products (soaps, lotions, oils, etc.)
honey meal or recipe "kits" (e.g., ingredients for salsa or pesto)
mixed salad greens organically grown products
pasteurized milk
pastured lamb, beef, pork, and poultry
pickles/relishes
pie filling
preserves
sauces, pesto, chutney, etc.
vinegars
wreaths

Conclusion

If you have identified some underutilized physical or by-product resources, untapped management and labor resources, promising market opportunities, and significant financial resources, you are in an excellent position to start a new enterprise.

Farmers can work together with small-scale processing enterprises to create new markets for higher value farm products. Often, small-scale processors look to their community for local ingredients, staff, and markets. Value-adding can serve to showcase the uniqueness of communities.

Original Source

This article was adapted with permission from the original, Value-Added Enterprises for Small-Scale Farmers, Agriculture and Natural Resources Fact Sheet #518 by by Sylvia Kantor. The original can be downloaded from . It was published by: Washington State University Cooperative Extension (WSUCE), King County, 500 SW 7th St, Ste A200, Renton, WA 98055-2983, USA; Tel: 206-205-3100.

This article is based largely on two publications:

Markley, K. and D. Hilchey. 1998. Adding Value for Sustainability: A Guidebook for Cooperative Extension Agents and Other Agricultural Professionals. Pennsylvania Association for Sustainable Agriculture (PASA). Milheim, PA, USA.

Northeast Regional Agricultural Engineering Service (N RAES). 1991. Farming Alternatives: A Guide to Evaluating the Feasibility of New Farm-Based Enterprises. NRAES. Cornell University. Ithaca, NY, USA.