Getting Started with Value-Added Foods & Farm Goods
With farmers' markets running longer and shoppers wanting local food all year, many growers are turning to value-added products to tap new markets. The term value-added products covers a broad range of farm goods, from specialty foods to non-food items like straw bales and wreaths. Here we'll concentrate on value-added foods as a way to diversify what your farm sells, lengthen your selling season and strengthen your finances.
We'll begin with the first decision, what to make, and then turn to the practical side, especially the business details.
Start by listing possible products.
- Pick things you know and love, since your enthusiasm will drive your marketing later on. Perhaps you have a terrific family pepper jelly recipe, a passion for pesto, or a love of fermenting.
- Choose foods you find interesting and look for variations that could grow into a product line, such as pestos made with basil, cilantro and parsley.
- Test recipes in your home kitchen until they're tasty, affordable to make, and built around ingredients from your farm or neighboring farms.
- To keep things simple, stick with one kind of processing at first, such as canning, freezing, drying or baking.
Once you've got that down, you can think about broadening your line.
After choosing one or more products, take a quick look at the key pieces of a business plan for the venture:
The Market Assessment
Your early market research should cover:
- Trends in your product category: are sales rising, flat or falling? Food is very trend-driven, and you don't want to launch something that's going out of style.
by Sandor Ellis Katz
by the gardeners and writers of Centre Terre Vivante
Contract Packaging Association
Writing a business plan for value-added agricultural products Oklahoma State University Extension
Locate a co-packer or launch a food business
Northeast Center for Food Entrepreneurship Cornell University
Postharvest practices for small-scale horticulture (manual) UC Davis Postharvest Technology Center • print or PDF in 12 languages
Specialty Food Resource A directory linking specialty food makers, suppliers, distributors, brokers and retailers
Cooperative Extension and land-grant universities in the U.S. USDA NIFA office locator map
Small Business Administration (SBA)
- Know your competitors and how your product will stand apart. In a category that's fairly new to your area, like fermented foods, you may face little competition but need to educate shoppers and offer samples to build sales. In a familiar category such as jam or salsa, you'll need a clear point of difference.
- Check local shops and online sellers for artisan foods like the ones you have in mind, and note their prices. That will be key to judging whether your product can make money.
- Define your target customers and how you'll reach them. Farmers' markets and natural food stores are the obvious outlets for local foods, but they may not be enough. Many supermarkets carry local products but have strict requirements for delivery points, schedules, volumes, food safety certification and liability insurance. Understand everything a sales channel demands before basing your business plan on it.
The Internal Assessment
Home-fermented garden vegetables.
— a home gardener
Besides sizing up the market, take a hard look at your own resources, both tangible and intangible:
- On the intangible side, ask honestly whether you have the time and skills, or whether you'll need to hire help or outsource part of the marketing.
- On the tangible side, think about your ingredients and how you'll secure enough of them, from your farm or other local farms. You'll need to know every cost involved in making your products, so get accurate price quotes from suppliers.
Often the biggest question is where the food will be made. There are two options: make it yourself, or hire a contract packer (co-packer).
- If you make it yourself, home kitchens are usually limited to low-risk foods allowed under your state's cottage food rules, which vary widely, and some states require a licensed commercial kitchen even for those. Building your own commercial kitchen is a big investment you'll likely want to skip while starting out. If your products take off you can reconsider, but at first it's usually easier to find an existing facility.
- Food hubs are a growing part of the local food movement, and many include shared commercial kitchens that local growers can use. Kitchens may also be available to rent through extension offices, senior centers, clubs, camps, churches and other places of worship, or restaurants.
- Co-packers are manufacturers that make products for you and may also help with testing, labeling, storage and shipping. Their advantage is having the right equipment, food safety systems and experience to produce your product efficiently. Finding a good fit is key, though, particularly if you have proprietary recipes or want to use local farm ingredients.
- These resources can help you find co-packers and other partners:
Laws & Regulations Around Value-added Foods
Regulations are one of the biggest hurdles for a new food business. You may need to register with the U.S. Food and Drug Administration, pass a state health inspection, complete training, and more. You may also need nutrition labels, date coding and UPC barcodes. The rules differ by type of processing and by how you plan to sell.
Image courtesy Commercial kitchen at a regional food hub.
It may sound like a lot, but plenty of help is available for farmers developing a value-added product.
- Start with your county extension office, which can connect you with the right people at your land-grant university. Many universities have food science programs devoted to helping people develop new products, and they can often help with every stage, from scaling up small-batch recipes to nutrition analysis. They may also point you toward co-packers, suppliers, label designers and marketing experts.
- Many online resources can also help you learn this new field. A great place to begin, with plenty of further references, is ATTRA, the National Sustainable Agriculture Information Service, and its guide an overview of adding value to farm products. Another good source is the Northeast Center for Food Entrepreneurship at Cornell.
Profit Potential (The Money Angle)
Once you understand what it will take to create, produce and sell your product, run the numbers carefully to be sure it will turn a profit. As with any crop, build an enterprise budget covering direct costs like ingredients and labor (your own time included) and overhead such as higher insurance and utility costs.
If your idea still looks promising after that first round of research, you'll find excellent guidance on writing a business plan for value-added agricultural products from Oklahoma State University Extension.
Another helpful resource as your plans take shape is your local Small Business Development Center. Its advisors know the financial and marketing side of starting a business and can help with cash-flow planning, finding financing and staying on budget.
Launching value-added products takes real legwork, but with the business basics in place you can move on to the creative, rewarding part. If you believe in your product, a bit of planning goes a long way, and the time you put in early is more likely to pay off later. Before you head to market, make sure the horse is in front of the cart!
