Financial viability of an on-farm processing and retail enterprise: A case study of value-added agriculture in Rural Kentucky (USA)

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.