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Will value adding on the farm work for you?

This first in our four-part series on value adding for farmers starts with the most important question of all

So you think you have a great idea for a value-added business on your farm. Before you even begin to evaluate your idea to see if it will fly, however, it’s a good idea to ask the even more basic question: Is this kind of business venture a good fit for you and your family?

First of all, what do we mean by value adding? A general definition is that value adding refers to any product that is developed beyond the commodity stage.

This includes everything from selling produce direct to the customer to raising heritage pork, producing a unique soybean or canola oil, opening your farm up for agri-tourism, creating your own brand of dog food… the list is endless.

Consumer interest seems endless too. Estimates put the number of Ontarians who prefer to buy locally grown food at 79 per cent, for example, and other provinces are posting similar numbers.

The goal, of course, is to generate income, perhaps because you’re trying to find additional income during the overlap years when there are multiple generations on the farm, or because it seems to you to make sense to intensify the income you get out of your current property rather than expand at today’s land prices, or for any of a number of other reasons.

It turns out, however, that if you’re only in it for the money, it’s tougher to succeed.

That’s not to deny the money potential. In his book The Omnivore’s Dilemma, Michael Pollan estimates that, on average, direct and local sales allow farmers to take home as much as 94 per cent of the selling price, rather than share it with grocers, truckers, processors, and all the others.

But when you talk to successful value-adders, they rarely start by wanting to discuss dollars. Many cite being able to connect with consumers as one of the best parts of running a value-added business. For instance, Jim Eby who processes the milk from his Waterloo, Ont. Guernsey herd and sells it in glass bottles says the best thing about his business is the feedback he gets from customers. Many people tell him they really appreciate the quality, flavour and digestibility of his Guernsey milk.

Other reasons farmers choose to start value-added businesses include increasing employment opportunities on the farm, improving cash flow by creating off-season revenue, feeding their entrepreneurial and creative spirit, spreading the risk by having more than one product and having more control over the value chain.

Despite all of the economic reasons for getting into a value-added business, all of the farmers and experts interviewed for this series agree on one thing: going the value-added route isn’t a good idea if you aren’t passionate about it.

Of course, there are lots of different reasons why consumers buy from farm value-adders too.

Moren Levesque, CPA Ontario chair of international entrepreneurship at York University’s Schulich School of Business says there are people who want to buy local so they know that their food didn’t come from China. “They are willing to pay a premium for it, but farmers must be genuine,” she says.

Eby agrees. “Being friendly and transparent with your customer is a must.”

That’s also the view from Cambridge asparagus grower, Tim Barrie, who sells several products made from his asparagus. “That’s part of what the customer is paying for,” Barrie says.

By contrast, for some people, having to deal with customers is a good reason not to get into a value-added business. Be honest with yourself. Are you a people person? Some consumers can be very demanding. Are you prepared and equipped for customer service?

That leads to a list of tough questions for would-be value-adders, because it’s important to recognize that the demand for customer service isn’t always something you can control as easily as you might like.

If you’re thinking of opening an on-farm store or agri-tourism venture, are you willing to have people come to your farm? (This can also increase your liability risk and may require additional insurance coverage.)

Plus, if you’re selling food products direct to the consumer, food safety can also be an issue. There are bound to be many regulations and there is the potential of increased risk. Are you prepared to deal with inspectors and paperwork?

While creating a job for a family member or additional work for existing employees may be a benefit, if you have to hire new employees this could be a drawback. When hiring outside the family, employee safety training and additional paperwork will be required. Many farmers also complain that it can be difficult to find reliable employees with the necessary dedication.

Not the least of your concerns will be the additional financial investment needed to get your value-added processing business up and running. Will you contract out the processing, or will you need to build to accommodate processing and retail activities?

If you contract it out, can you get the consistency and quality that you need? If you do it on farm, will you be spreading your management ability too thin?

When Bonnie den Haan, owner of Sheldon Creek Dairy near Alliston, Ont. first learned that the provincial marketing board was making it easier for farmers to process and sell dairy products made from their own milk, she envisioned just a small dairy plant that might cost a few hundred thousand dollars.

Once she realized what would be involved in meeting the new regulations she realized it might be twice that or more.

Not only will a financial investment be required, there will also be a substantial time commitment to get your business off the ground. “We all work like dogs,” says Marianne den Haan, who handles marketing and schedules deliveries for the family’s dairy business.

It’s also important to understand your own strengths and weaknesses. What is your tolerance for risk? Will you need to hire someone with expertise in marketing, packaging, human resources or financial management? Can you manage the logistics of running the expanded operation including making and scheduling deliveries? Are you an innovator?

Cindy Wilhelm, co-owner of Dragonfly Garden Farms which sells 130 products from their farm in Chatsworth, Ont. says it’s important to be a leader. “Don’t just do what other farmers are doing.”

Also vital for launching a successful value-added business is persistence. The van Bergeijk family makes Gouda-style cheese from their Holstein dairy herd in a cheese plant on their farm near New Hamburg, Ont. Their cheese is now sold all over Ontario including through a major grocery store chain. When asked what it takes to successfully launch a value-added business, cheese maker and owner, Adam van Bergeijk says: “It takes someone who doesn’t give up. When there is a roadblock you have to think: How am I going to manage it so I can get to my goal?”

But in the early stages, you’ll need to separate dreams from farming business opportunities. When you are starry eyed in the very beginning (in what entrepreneurial experts call the “infatuation stage”) it can be difficult to distinguish a chance to expand your business from a non-viable drain on your farm. The way to inject some reality into your idea is by conducting research. This could mean talking to farmers doing projects similar to what you envision, looking up data online, consulting advisers, or surveying potential customers. Most of all, asparagus entrepreneur Tim Barrie recommends farmers get unbiased feedback. Don’t rely on family and friends, he says. They are likely to be too optimistic.

With a passion for farming and food, New Dundee, Ont., writer Helen Lammers-Helps brings farmers and value-add experts together for her four-part Country Guide series. She can be reached at [email protected].

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