Value Added for Long-Term Viability

Katie Micik Dehlinger
By  Katie Dehlinger , Farm Business Editor

Jason Henderson, associate dean of Purdue University's College of Agriculture and director of Purdue Extension, says he thinks the current economic environment is signaling that it's time to focus on value-added products.

"Farm downturns occur when trade issues and interest rates rise," he says. Margins keep getting tighter in commodity production's low-cost-of-production business model. "We have to find where the new sources of demand are emerging. If it's India, it's India. If it's Latin America, it's Latin America."

Instead of trying to convince the world to eat more American-style products, "maybe we need to be growing products that are native to India and Latin America, and shipping that stuff to them," he says.

Not interested in growing corn high in beta-carotene for India customers? Henderson says there's another demographic you can target: millennials.

Millennials want to know where their food comes from and want it to be organic. "And, they're willing to pay a higher price for it," Henderson says.

During the past decade, organic food sales have more than doubled, and organic products account for 5.5% of all food sold in retail channels, according to the Organic Trade Association. Annual sales are closing in on $50 billion.

"We have to think about what's supply-oriented and what's demand-oriented, and we have to get closer to the customer," Henderson says. "Because who makes the most money—the grocery store or the farmer—off the food dollar? Whoever is closer to the customer gets the bigger profits."

Recent estimates of organic acreage and production show farmers are starting to take note. Mercaris, a market data and trading platform for the identity-preserved grain industry, estimates the number of certified organic corn operations increased 4% in 2018 from the year before, while overall acreage grew by 2%. Organic soybean production, along with the number of certified operations, increased 7%.

"There's never been a time when there's been this much opportunity to produce a crop or a food product that the consumer wants and will pay you for than in any time in history as far as I can tell," says Steve Nicholson, a senior analyst at RaboResearch.

While a lot of farmers disagree with the rationale fueling growth in the organic sector, Nicholson says farmers should look at the opportunity it presents. Premiums for organic corn are often three times the price of conventional.

"Let's take advantage of it, and let's put profitability back on the farm. Think about what is good for the business and then go from there," he says.

Organic production requires far more intensive management and planning, not to mention the agronomic challenges, and Nicholson says it's not for everyone. But, there are many ways to expand value-added agriculture on your operation, whether it's growing non-GMO soybeans, food-grade pulses and small grains or adding a few acres of pumpkins.

Read Katie's Business blog at Minding Ag's Business.
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