Value-Added agriculture is often promoted as a way for farmers to capture a larger share of the food dollar and as a means of rural economic development. Under USDA definitions, farmers capture the enhanced value from either processing or intrinsic characteristics of the product (e.g., organically or locally grown). However, non-farm entrepreneurs within the regional economy can also add value by using local commodities in their products.
The table below provides an example of farm or non-farm entrepreneurs’ ability to capture a higher price and larger profit by processing locally-grown vegetables into salsa. The $1,000 in locally grown vegetables could be included in a jarred product worth almost $6,900. In the salsa scenario, sales and labor income are higher for both direct (entrepreneurs’) and community-wide impacts between businesses (indirect effects) and among households (induced effects). Labor income is double for the entrepreneur and triple for the community.
If a farmer processes the vegetables, s/he creates the additional value and retains the additional profit—a traditional value-added paradigm. If another business purchases the local vegetables, that business lengthens its longer value chain relative to purchasing wholesale vegetables from outside the region.
Value-added presents promising opportunities to farmers, but it’s not for everyone. Only about 1.65% of US farms reported value-added product sales in the 2017 census of agriculture, and value-added sales were clustered among smaller farms. Farmers interested in value-added processing should consider the costs of labor (including their own), other inputs, and marketing and distribution when evaluating potential products.
Example Economic Impacts of Raw Vegetable Sales versus Value-added Salsa
Photo by Kunal Murumkar Patil: https://www.pexels.com/photo/bowl-of-hot-mexican-salsa-among-composed-bright-ingredients-3846896/