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Adding Value To Agricultural Products: What Is Customer Value?
Adding Value To Agricultural Products: What Is Customer Value?
E-573
RM1-8
06-09
Risk Management
Value-added agriculture generates several 1) What is customer value? and 2) What creates
billion dollars in economic impact for the state a value-added product?
of Texas each year. In fact, adding value to agri-
cultural products beyond the farm gate usually What is Customer Value?
has several times the economic impact of the “Customer value” reflects the relationship
agricultural production alone. between the benefits customers receive from
Agricultural producers receive a much and the price they pay for a product. The more
smaller portion of the consumer’s dollar than benefits relative to the price, the higher the
do food processors, especially processors who customer value. This does not necessarily mean
produce brand name items (e.g., Sunkist, Del that greater value results from a low price. The
Monte). Capturing those additional dollars by price of a particular product may be high, but if
adding value to farm or ranch products is a goal the associated benefits are high as well, the cus-
of many producers. This leaflet defines value- tomers perceive the product as valuable. This
added activities, outlines the economic forces interaction creates customer value and, thus, the
that make adding value important, and pro- opportunity to add value to your product.
vides guidelines for starting your own value- Creating customer value is critical in building
added business. a profitable and substantial business. However,
one must bear in mind that it is the customers’
What is “Value Added?” perception of value, not the producers’, that is
“Value added” means adding value to a raw critical. Consider the case of pre-conditioning
product by taking it to at least the next stage of calves. Does the cattle buyer perceive the pre-
production. This can be as simple as retaining conditioning program as adding value? That
ownership of your calves and wintering them is, will the buyer pay more for preconditioned
on wheat pasture or placing them in a feedlot. calves (enough to cover the added costs) than
Value can be added through membership in a for other calves?
cooperative that processes your products, such It is also important to recognize that different
as a cooperative cotton gin. Or, adding value customers have different perceptions of added
may be as elaborate as going all the way to the value. These perceptions correspond to their
consumer with a “case-ready” food product. expectations of quality, service, convenience
If you are considering a value-added enter- and selection.
prise, there are two key questions to answer:
2
Examples of Value-Added lars, sales volume or number of employees. These
small firms have developed value-added products
Agricultural Products and are marketing them successfully
As an example of adding value to an agricul-
tural commodity, consider wheat. Value can be Summary
added to wheat grain in many ways. One way Beyond business planning and market research
is for farmers to produce wheat grain for use to get to know the customer, the essential ele-
in feed or food products. Wheat straw, a waste ments for success in a value-added business can
product, can be harvested, processed and then be boiled down to four key ingredients for busi-
turned into building materials. Another way ness managers:
to add value to wheat is to graze it with stocker • Adapt to market changes.
cattle, which increases the yield of wheat by • Be open to exploring new ideas.
causing “tillering” of the plant, and also gener- • Operate more as a resource manager than
ates income from the cattle operation. Wheat as a producer.
grain also can be converted into organic natural • Realize the importance of networking
foods and sold at health food stores. and the need to develop alliances.
It may be hard to believe, but value can be These are difficult because they require a new
added to woody plants such as cedar and mes- vision of the farm or ranch. Managing resources
quite. Cedar fiber can be used to make boards and exploring new ideas means searching for new
and recap oil wells. Mesquite wood can be used profit centers within your operation. That may
to make boards, jewelry boxes, lawn furniture, seem tedious, but that is precisely what adding
and molding for floors. The sawdust and fiber value is all about.
from cedar and mesquite can be made into fiber-
board. South Texas Molding, Texas Kiln Prod-
ucts and Uvalde Mesquite Company are some
Internet Resources
of the firms that add value to mesquite wood by for the Entrepreneur
making furniture and lumber. Opportunities for Adding Value to Your Products
There are also opportunities to add value in ag.arizona.edu/arec/pubs/dmkt/dmkt.html
the fed beef industry. A rancher can add value Horticultural Alternatives for Texas Agriculture
by having a cow-calf operation or retaining own- aggie-horticulture.tamu.edu/alternatives
ership of his cattle through a feed yard. Another Resource List for Marketing Alternative Crops
option is producing specialty products such www.ianr.unl.edu/pubs/horticulture/nf107.htm
as sausage and tamales, or processing tongue Potential Value-added Food Products Groups:
and some of the viscera into menudo or tripas. Marketing and Production Opportunities for
Booker Packing Company, Caviness Packing High-end Consumer Food Products
Company and J&B Foods are some of the compa- agecon.lib.umn.edu/ndsu/aer419.pdf
nies adding value to meat successfully in spite of Entrepreneur Magazine
processing costs. www.entrepreneur.com
A recent survey of such companies indicated Alternative Farming Systems Information Center
that their return on assets averaged 63 percent. www.nal.usda.gov/afsic/
Of the firms in the survey, 42 percent had fewer Appropriate Technology Transfer for Rural Areas
than five employees, 21 percent had sales be- www.attra.org
tween $50,000 and $250,000, and 26 percent had The Farmer’s Guide to the Internet
sales of less than 50,000 pounds of meat per www.rural.org/favorites.html
year. Many of the firms are in rural areas, some Adding Value to Farm Products: An Overview
close to urban centers, and they cater to the lo- www.attra.org/attra-pub/valueovr.html
cal population. The smaller firms tend to be the
most profitable whether measured by sales dol-
3
Partial funding support has been provided by the
Texas Corn Producers, Texas Farm Bureau, and
Cotton Inc.–Texas State Support Committee.
Educational programs of the Texas AgriLife Extension Service are open to all people without regard to socioeconomic
level, race, color, sex, disability, religion, age, or national origin.
Issued in furtherance of Cooperative Extension Work in Agriculture and Home Economics, Acts of Congress of May
8, 1914, as amended, and June 30, 1914, in cooperation with the United States Department of Agriculture. Edward G.
Smith, Director, Texas AgriLife Extension Service, The Texas A&M System.