Selling Whole Products AND Value-Added Products for Maximum Profit
Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Agritourism
According to a recent NYT article, most small farms are not self-sustaining in a very basic sense: they can’t make ends meet financially without relying on income from jobs off the farm. In a clever way to make ends meet, you should consider, if you can, incorporating agritourism opportunities. Many farms have opened bed-and-breakfasts, or created opportunities for farm stays by partnering with folks such as Feather Down Farms. Others operate corn mazes, seasonal amusements, hunting opportunities, dude ranch amusements, and more!
Agritourism activities bring important economic boosts and direct marketing awareness to farms and the movement is fueled by city dwellers who want to understand where their food comes from or who feel an urge to embrace the country life.
The United States Department of Agriculture predicts that this year the average farm household will get only about 13 percent of its income from farm sources. Agritourism is appealing because it increases the family’s income from the farm, potentially reducing the need for off-farm jobs.
The U.S.D.A.’s census of agriculture, which is conducted every five years, estimated that 23,000 farms offered agritourism activities in 2007, bringing in an average of $24,300 each in additional income. The number of farms taking part fell from the previous census, in 2002, but at that time the average agritourism income per farm was just $7,200.
World Wide Opportunities on Organic Farms acts as an online clearinghouse for people who want to trade labor for lodging on a farm, with stays ranging from days to months. Ryan Goldsmith, who manages the group’s branch in the United States, said that interest had grown strongly. Currently more than 11,600 people are registered as members of the American branch, with access to a database of about 1,300 farms, in all 50 states.
Exploring Value-Added Products
A great many farmers include direct and retail sales as at least one component of their marketing mix. This might include a Community Supported Agriculture operation, sales at farmers' markets, selling through their farm stand, and selling wholesale to area restaurants and retail stores. And then, most small and medium farming operations stop there.
Most commonly, value-added products derive from fruit or vegetables that are transformed into gourmet food items. According to Jeri Ohmart in Direct Marketing with Value-Added Products, any product can be considered value-added if it is originally grown by the farmer and increased in value “by labor and creativity.”
Farmers cite three major reasons for expanding their farming business to include value-added products: to use excess produce, to supplement their regular farming income, and to provide an outlet for their creative talents.
Value-added products eliminate waste and use excess produce
If there's one thing farmers detest, it's waste. They hate to see perfectly good fruit rot on the ground or be added too early to the compost bin. The first response to the question of what motivates farms to develop value-added products was that it was an excellent solution to the waste problem.
As farmers have discovered, less than perfect fresh fruit is not valued in today's competitive and cosmetic market. Those who sell to exclusive restaurants, niche markets and restaurants that specialize in high quality, organic produce know their fruit and vegetables must be in near-perfect condition. Chefs like Alice Waters or retail markets like Monterey Market in Berkeley hire "foragers" to seek out the highest quality, fresh, seasonal food; hence, the quality requirements are high and the competition is fierce. Much of the fruit off the trees and vines is not cosmetically perfect enough to sell to our high-end customers.
But the blemishes are minor and don't interfere with the quality of the fruit. Sometimes the fruit is just overripe, becomes ripe at a time that is not quite right for their customers, or there is a bumper crop of overabundance. Value-added products provide an excellent use for this extra, less-than-premium-quality produce.
Value-added products add profit, stabilize farm income, and boost direct retail sales
Close on the heels of the desire to use all their produce is the potential profit that value-added products offer farmers. Off-season months present a problem to farmers, especially small farmers who rely solely on direct marketing through retail sales at farmers’ markets. By putting your excess produce to good use, you can supplement your regular farm income in the slow season. It also allows you to recoup some of the loss incurred from vegetables or fruit that does not receive top dollar due to minor damage, and to mitigate the market fluctuations of any particular products’ market pricing.
During the peak summer season, about 90 percent of his farm income is derived from fresh fruit sales, but during the off-peak winter season, the proportions should be reversed with value-added products contributing about 90 percent to the farm income. The value-added portion of the direct marketing business plays a critical role in the farm's year round income.
Overall sales at farmers markets are boosted by value-added products, especially during the off season. Farmers can charge about 10 to 20 percent more than wholesale prices for a value-added product at the farmers’ market. Because several holidays occur during winter months, farmers should partner together to create products that complement holiday tables or that can be used for gifts. Nuts, spreads, sauces, pies and pastries, and home decoration items such as wreaths and herbal sachets move especially well during late fall and winter when fresh fruit and vegetables are not as abundant.
Additionally, the imagination of most farmers is limited to condiments with their value-added products. Keep in mind that condiments have a long shelf-life and are replaced occasionally – sometimes 6-8 months later. And yet, consumers LOVE their pre-packaged and processed convenience products. When 70% of the retail food dollar is spent on convenience, small farmers and producers should be reaping the profit benefits of offering these opportunities to their consumers – trail mixes, dinners in a box, food-to-go, and all other clever things non-condiments!
Creating Value-Added Product Partnerships to minimize Stress and Costs
Value-added helps with overall farm income, but there are extra costs as well. Many of these additional costs are extensions of their normal operating costs. However, there are new costs, and depending on the operation, these can be quite substantial. For an investment like this, you must feel fairly confident of a consistent, and even growing, market for your new products. Even if the market seems to be reliable, these investments add pressure to your farm enterprise. There are many entrepreneurial training programs to assist with exploring and mastering the business of value-added product expansion. And too, don’t forget your neighbors!!!!!!
One downside to the farmers’ market model is that under one “roof,” farmers are left to fend for themselves at their individual booths. The current agricultural landscape seems to favor individualism and segregation from other farmers and producers. I, for one, would like to see that trend reversed.
The notion that ONE BUSINESS has to do it all is misguided and dangerous. Agricultural Cooperatives are extraordinarily effective generators and marketers of value-added products! No one farm or producer needs to meet the needs of every potential retail customer alone.
Value-Added Agriculture
Depleting grain prices, lower farm subsidies, changing consumer habits and intense competition for agricultural commodities have created an immediate need to explore alternative production and marketing strategies. The establishment of farmer owned, value-added processing cooperatives will provide farmers with opportunities to enhance sustainable profit.
In our current system, middlemen still harness more profit than the real owner of the produce. As a result, farmers receive only 2-3% return on their investment. And yet, if you can move up the food chain – so to speak – by getting involved in processing and direct marketing, rather than selling raw commodities to middlemen, you’d realize a much higher profit return on your investment in the short term, and a greater stability of reliable income in the long term.
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 increasing 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'.
The world has shrunk, and, increasingly peoples and nations have grown completely inter-dependent on one another. Why should our individual small farms be different? Why should we expect them to stand alone and provide all things to all consumers?
Emily’s Wishlist for Value-Added Products at the Market
Form value-added strategic alliances with your farming compatriots and add value-added products to your sales mix alongside raw and whole products. And, don’t go it alone. Share the costs, share the profits, share the extra work load, and share the experience with your consumers!
And for goodness sake, THINK OUTSIDE OF THE BOX!!!! My wishlist?
- Dinner to go: like a package of gound beef, rolls, lettuce, tomatoes, and a condiment in one bag, for example
- Macerated fruit in containers that I can add to my plain yogurt for breakfast or lunch
- Sampler Packages: small containers of different condiments so that I can try them all or give them as gifts
- Beverages: iced tea or fruit drinks made from your farm that I can drink while you’re away
- Old-fashioned fermented foods like sauerkraut or kimchi or old-fashioned katsup
- Oh . . . . the list goes on and on!!!!!!!!!!
PS. Remember that livestock is considered a value-added product because livestock increases the value of pasture and feed grains. Just a tidbit of knowledge . . . . . .
Diversifying your Agricultural Sales Mix Blog Series
Check out our: