1. What Exactly is… “Value Added”?
Rodney B. Holcomb
Agribusiness Economist
Oklahoma State University
Food & Agricultural Products Center

2. The Definition of “Value Added”
The addition of time, place, and/or form utility to a commodity in order to meet the tastes/preferences of consumers.
To put it simply…
Figure out what consumers want, when they want it, and where they want it – then make it and provide it to them.

3. Changes for Agriculture Since the Mid/Late 1980s
Agricultural prices see greater volatility due to:
Farm policy changes
Developments in international trade
Weather
Because of instability some producers left agriculture and others began to explore ways to enhance income

4. Adding Value to Agricultural Products
Provides substantial benefits
Increased ability to capture a percentage of the farm-to-retail price spread
A typical loaf of bread for example
Wheat represents less than 9% of the retail value
Milling, baking, and related activities represent almost 65% of the final value
The rest is transportation and retail mark-up

5. Value-added Marketing Cooperatives
A noticeable phenomenon in U.S. agriculture since 1990
More than $1.2 billion were invested in value-added marketing cooperatives in the late 1980’s and early 1990’s (Egerstrom, 1994)
Particularly evident in the Northern Plains, shown by development of farmer owned efforts
Success in the Northern Plains has increased interests of Oklahoma producers and cooperatives

6. Value-added Processing: The State’s Perspective
Possibilities for additional employment, gross state product, and tax revenues
Friendlier environment for value-added food and agricultural products processing industries:
Decentralization in U.S. manufacturing
Population shift towards the “Sun Belt” states
Resource allocations towards food processing research made by Oklahoma

7. Future Growth
Oklahoma has the potential to expand its value-added processing activities
Factors suggesting future growth:
Agricultural output is tremendous and varied
Several incentives for producers considering processing opportunities
Ag Enhancement & Diversification Program
Producer Value-Added Tax Credits
Highway system and central location offer proximity to market centers

8. Planning a Value-added Processing Venture
Success in developing depends upon careful business planning and marketing
In most cases, producing a value-added product is the easiest part
Main difficulties for a food business are:
Manufacturing a product consumers are willing to buy
Having a market outlet for the product

9. Initial Planning Four basic steps…
Step 1: Compile all available information concerning the quality characteristics of the commodity
In the producer’s trade territory
Over a period of time.
From this step an initial list of potential processed products can be identified

10. Initial Planning (cont.)
Step 2: Obtain industry and production information for each potential product
Market size
Market growth
Industry concentration
Location of competitors within the region
Complexity of processing technology
Minimum efficient scale of operation
Location of major market outlets and distribution points

11. Initial Planning (cont.)
Step 3: Analyze the information via a rating or ranking system
Addresses advantages and disadvantages
Provides a means for quantifying/ranking each possibility
From this analysis identify the ventures that show the greatest promise

12. Initial Planning (cont.)
Step 4: Develop a specific plan of action for pursuing the “best” processing alternative
Business structure to be used
Necessary facilities, equipment, and management
A plan for raising capital
A marketing scheme for contracting production

13. Results
An enterprise that is both profitable and consistent, providing a steady source of additional income for the producer
Opportunities to capture a significant share of the consumer’s food dollar
Make use of resources provided by Oklahoma state agencies and Oklahoma State University