Farming enterprises can build profitability and resilience and create income and employment for future generations of family members by establishing income streams from value-adding.
Investing in research and development while commodity prices are high may be a sound investment for the future, and much of the expenditure is potentially offset by state and federal government programs.
Value-adding usually means processing to create products for commercial, industrial or retail customers. Even a small amount of primary processing can make what might otherwise be a waste stream into a valuable raw material for food, nutraceuticals or pharmaceutical manufacturers.
Australian farms produce some of the best product in the world. Even if it does not meet the specifications required for retail consumers, doesn’t mean it is not a valuable resource.
Start slowly
Farming enterprises considering value-adding can move gradually. For example, you might start by supplying a commodity that meets a specification required by one or more domestic or international manufacturers and processors of food for pet, production animal or human consumption.
The experience gained from ensuring the commodity is delivered when required, at the price agreed and to the specification needed, enables the farming enterprise to learn about the value-add industry, processing and markets. With that experience, the enterprise can then consider whether adding more value is justified.
The closer you move towards the consumer, the greater your capacity to become a price-maker instead of being at the mercy of commodity pricing cycles.
Advisory Partner can help develop and implement your value-adding plans and help find customers for your value-added products. Adding value to an agricultural commodity can contribute substantially to profit as gross margins can be 40%-60% and net profit typically 20% and higher if some or all the raw material used would otherwise go into waste streams with little financial return.
Build capacity
The challenge is securing and retaining attractive market segments and using marketing management methods that are typically not employed by farmers, who are mostly focused on producing commodities.
That may require a capacity-building program and Advisory Partner can assist with that.
Advisory Partner’s agribusiness specialist, Dr Phil Currey, can help you plan and implement value-adding projects that can be incorporated into your agribusiness organisation’s financial plans, in collaboration with Advisory Partner’s financial advisers. Contact Phil at phil@advisorypartner.com.au.