Adding value to farm commodities can ease supply chain strain

COLUMBIA, Mo. – For two years, shoppers have seen how supply chain problems can shock the food system. Initially triggered by the pandemic, these problems have persisted due to labor shortages, transportation bottlenecks and now international conflict.

“Supply chain issues have really hit home for consumers,” said Mallory Rahe, University of Missouri Extension agricultural business and policy state specialist. “Many of us have walked down an empty grocery store aisle, or we’ve had to choose a food product other than one we’d normally buy simply because what we wanted wasn’t in stock.”

On-again, off-again product availability coupled with consumer interest in local foods has led more farms to consider adding value to the commodities they produce.

Adding value can take different forms, such as processing a raw commodity into a ready-to-eat product, adopting a unique practice such as grass-fed or organic production, or marketing foods on a local basis.

As farms develop and sell their own value-added foods, consumers have more choice and may feel less of the supply chain strain.

The meat industry provides on example, Rahe said. When the pandemic led to bare retail meat counters, producers responded to consumer demand by selling whole animals, halves or quarters. Others have sold meat directly to consumers through farmers markets or online marketplaces.

Farms interested in starting a value-added enterprise should first conduct their due diligence, Rahe said. That involves research into the risks, costs and opportunities.

The MU Extension publication “Adding Value in Agriculture, Food and Forestry” lists questions that farms should answer through research. Rahe said to begin with these five questions:

1. What problem will you solve? Think about how your product can solve a problem or fill a need. Identify businesses that would be your competitors and find ways to differentiate how your product addresses the need.

2. What customers will you serve? Learn all you can about your target customers, including their motivations and preferences. To collect this information, browse through social media or conduct informal interviews.

3. What resources do you need? List the raw materials you’d need to make the value-added product. If you don’t raise all of the needed materials on your farm, identify possible suppliers. Also, account for facility and equipment needs. Document how much all of these investments would cost.

4. How will you structure the business? The value-added enterprise should be separate from the farm enterprise and ultimately sustain itself independently. Gauge how the value-added business may require different skills from those used to run the farm. You may need to call on advisers or hire others to support you.

5. What are the economics? Estimate what your value-added enterprise’s cost structure would look like. Project how many units you could sell at a certain price. Understanding these economics will help you gauge whether you have the potential to profit and how you would need to finance the value-added enterprise.

Ideally, you’ll organize the answers to these questions in a written feasibility study that you can keep on file, Rahe said.

“Lenders and investors will want to see that you have the potential to succeed, so a written study provides the documentation,” she said. “Even if you don’t need external funding, a feasibility study provides a plan that you can rely on when you’re deciding whether to start a value-added enterprise and how to operate the business.”

“Adding Value in Agriculture, Food and Forestry” is available for free download at muext.us/AddingValue.