Financial Viability of an On-Farm Processing and Retail Enterprise: A Case Study of Value-Added Agriculture in Rural Kentucky (USA)

Sean Clark

doi:10.3390/su12020708

Abstract

Value-added processing and direct marketing are commonly recommended strategies for increasing income and improving the economic viability of small farms. This case study uses partial budgeting to examine the performance of an on-farm store in Kentucky (USA) over a six-year period (2014–2019), intended for adding value to raw farm ingredients through processing and direct sales to consumers. Three primary product supply chains were aggregated, stored, processed, and sold through the farm store: livestock (meats), grains (flours and meals), and fresh produce (fruits, vegetables, and herbs). In addition, prepared foods were made largely from the farm’s ingredients and sold as ready-to-eat meals. Whole-farm income increased substantially as a result of the farm-store enterprise but the costs of operation exceeded the added income in every year of the study, illustrating the challenges to small farms in achieving a sufficient economy of scale in value-added enterprises. By the final two years of the study period, the enterprise was approaching break-even status. Ready-to-eat items, initially accounting for a small fraction total sales, were the most important product category by the end of the study period. This study highlights the importance of adaptability in the survival and growth of a value-adding enterprise as well as the critical role of subsidies in establishing similar enterprises, particularly in low-income, rural areas.

Highlights

Direct marketing of value-added products is a strategy for improving the financial viability of small-farm businesses, widely promoted in the United States by state cooperative extension services [1,2], state governments and legislation [3,4], non-profit organizations [5,6], federal government agencies [7,8], and academic researchers [9]
Annual total operating costs for the farm store enterprise exceeded the additional income by an average of USD 113,390
Prior to opening of the farm store in 2013, whole-farm gross income increased at an average rate of about 1.3% annually based on the sales data from 2007 to 2012 (Figure 4)

Summary

Introduction

Direct marketing of value-added products is a strategy for improving the financial viability of small-farm businesses, widely promoted in the United States by state cooperative extension services [1,2], state governments and legislation [3,4], non-profit organizations [5,6], federal government agencies [7,8], and academic researchers [9]. Founded in the 1870s to provide educational and work opportunities to students attending the institution, the Berea College Farm is unusual in several ways. It encompasses about 200 ha (500 acres) of land, which is comparable to the average farm size in the United States [12] but considerably larger than most educational farms, at liberal arts colleges and universities [13,14]. The number of different farming enterprises is relatively high for the farm’s size [15], resulting in some relatively small-scale enterprises (described in more detail below) that are fairly typical of the Eastern Uplands Region of the United States, which includes most of Kentucky and the central Appalachian region [16]

Methods

Results

Conclusion