Value-Added Agricultural Enterprises in Rural Development Strategies (CRS Report for Congress)
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| Release Date |
Oct. 8, 2002 |
| Report Number |
RL31598 |
| Report Type |
Report |
| Authors |
Tadlock Cowan, Visiting Scholar, Resources, Science and Industry Division |
| Source Agency |
Congressional Research Service |
Summary:
From 1910 to 1990, farmers' share of the overall GDP of the food and fiber system fell from 21%
to 5%, while the share contributed by the agricultural input and distribution subsectors rose from
13% to 30%. Congress is concerned about how these and other changes in agriculture are affecting
rural America and the role value-added agricultural production might play in future rural
economic
development strategies. Value-added production is a legislative concern in the 107th Congress; the
rural development title in the 2002 enacted farm bill ( P.L.107-171 ) includes provisions for the
development of value-added agricultural enterprises. By adding to and capturing the value in
commodities grown and processed locally, proponents of value-added production argue that farm
households, rural businesses, and rural communities will benefit through new and higher-wage
employment, new markets for agricultural commodities, and more vibrant rural and regional
economies.
U.S. agriculture is also changing rapidly from a sector characterized by production of
undifferentiated bulk commodities sold in spot markets to one of specialized markets driven by new
end-user demands. As production shifts away from commodity agriculture to
product agriculture,
vertically integrated agribusiness firms are increasingly organizing production into agro-food
value
chains to synchronize all stages of production from seed to supermarket. Value-added
production
is a central element of agro-food value chains, and control over specific "identity preserved"(IP)
traits is basic to the development of product agriculture. Many farmers and ranchers are beginning
to consider how they might reorganize their operations to better anticipate these changes and to
participate in them, for example, by forming "new generation" value-added cooperatives, and
engaging in increased contract relations with value chain integrators. Some producers see IP traits
and contract production as sources of new markets, lowered risks, and higher farm and ranch
incomes. Emerging opportunities for biomass-based fuels and materials processing facilities, new
food processing plants, and alternative farming systems (e.g., organic) could create important new
markets for producers. Smaller-scale producers too may find new opportunities in
regionally-branded products, farmers markets, new specialty crops, ethnic markets, or in establishing
direct marketing links between farms and regional groceries
While capturing more of a commodity's value at the site of primary production can have
positive impacts on some farm household incomes and farm-related businesses, important questions
arise regarding the extent to which value-added agriculture might become a significant rural
development strategy for the future. These identified opportunities, however welcome, are unlikely
to significantly alter the diminishing role production agriculture plays in most rural economies.
Moreover, because of its comparatively low wages, low net employment generation, and low
labor-skill requirements, value-added commodity manufacturing may not become as effective a
driver of broad, sustainable rural economic development and new competitive advantage as rural
communities and advocates might hope for.
