Why Value-Added Agriculture?
The importance of value-added agriculture grows every year. The accompanying figure illustrates how the value-added to agricultural products beyond the farm gate has greatly outpaced the value of raw agricultural goods since 1950. The real value of agricultural products at the farm gate has remained virtually unchanged since 1950, where the real dollar of services, packaging and conveniences paid for by consumers has almost doubled since 1950. In 1950 the farm value made up 40.9% of total food expenditures. But by 1993 the farm gate value has slipped to only 22.2% of total food expenditures (both at home and away from home).
The farm share of each consumers dollar spent on food varies greatly by product. In 1993, the farm value was 42% for fluid milk, 18% for iceberg lettuce, 22% for fresh fruit, 26% for fresh vegetables, 7% for bakery and cereal products, 49% for fresh eggs, and 40% for meat products (Dunham). But a word of caution is also in order for thinking that all of the farm value shown in the accompanying graph has been added by the farmer. In reality, the farmer also buys many manufactured inputs like fertilizer, seed, chemicals, fuel, etc. before a raw commodity can be sold. Because production expenses are a larger component of cash receipts (crop and livestock) today than in 1950, the actual real value added by farms has declined. Production expenses as a percentage of gross cash receipts has increased from 60.5% in 1950 to 85.4% in 1990 (USDA Agricultural Statistics). Thus, the actual "value-added" contribution by farmers for each dollar spent on food has declined from 16.2¢ in 1950 to only 3.5¢ in 1990.
Advances in production technology have increased average farm yields by two to three-fold for most raw agricultural commodities. For example, U.S. average corn yields have increased from 37.4 bu. in 1950 to 118.5 bu. in 1990, a 317% increase (USDA Agricultural Statistics). Over the same period total corn production has increased 259% while the total real farm value (adjusted for inflation) of U.S. corn produced has declined by 30.2%. During this period, average U.S. wheat yields have increased 239% while total production has increased 268%. In spite of almost a three-fold increase in total wheat production the real farm value of all wheat sold has declined by 37.5% over this 40 year period. Clearly, producing more raw product of a commodity does not ensure that the total farm value received in the aggregate will increase.
The intent of this curriculum is to help individuals identify how they can proceed to capitalize on adding value to agricultural products that will benefit the whole community. Curriculum areas include: Recognize and Investigate Value-Added Opportunities and Constraints; Select and Plan for Value-Added Action -- Developing a Detailed Written Action Plan; Implement and Manage Value-Added Strategies; and Continue to Monitor and Evaluate Value-Added Business Efforts.
Agricultural Statistics, various issues, United States Department of Agriculture, Economic Research Service, United States Government Printing Office, Washington D. C.
Denis Dunham, Food Cost Review, 1993, United States Department of Agriculture, Economic Research Service, Agricultural Economic Report #696, United States Government Printing Office, Washington D. C.
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Last update: 1/3/97