Adding Value: The Critical Factors for Farmers

Abstract

One of the ways in which some Australian farmers have responded to the adjustment pressures on them in recent years is to attempt to add value to their farm products. This has taken various forms, and has resulted in both successes and failures. Many of these value-adding activities take farmers beyond their 'comfort zones', and have required a range of new skills and approaches to be applied. There is now a large body of experience regarding value-adding in a wide range of industries, and this represents a potentially valuable resource for other farmers who might consider such activities. This project considers the actions that farmers take to capture some of the returns from the modification, further processing or transformation of the basic commodities produced on farm. The broader literature on value-adding, however, recognises that it occurs at all points in a marketing chain. As well, a focus on value-adding as further processing can divert attention from the many other ways farmers may add value to their product. Farmers have for a long time noted how small a share of the prices consumers pay for food and fibre products is made up of the prices they receive for the raw commodity 'at the farm gate'. Why is the difference so great, and what might be done to capture some of that difference for the producer? The answer to the first question is that what happens beyond the farm gate adds considerable value, but at considerable cost, to the commodity that leaves the farm. Whether producers can capture any of that value depends on an analysis of the particular nature of the tasks or processes undertaken, and costs incurred in the 'value chain' in each instance. There is currently a wide range of attempts by farmers to increase their returns by getting involved in some way in activities traditionally performed beyond the farm gate.