This article I would like to discuss the concept of adding value to farm products, the differences between creating and capturing value and the implications for value-added enterprises. It describes some different approaches to adding value, including starting a food processing business, with a brief look at non-food products. Resources to learn more about value-added agriculture and planning a value-added enterprise are included. The information I gathered from various sources including few books, website and my own field experience in agriculture sector for almost 30 years. Agriculture in Malaysia consists of commercial farmers , moderate scale farmers and a numbers of subsistence farmers. By extension services given by agriculture organization , the farmers income would be increase by adding the value of farm products. Agrobased Industry project in Malaysia is an important program by Ministry of Agriculture and Agrobased Industry.
Most Malaysian farmers try to struggle to find ways to increase farm income, interest in "adding value" to raw agricultural products has grown tremendously. The value of farm products can be increased in endless ways: by cleaning and cooling, packaging, processing, distributing, cooking, combining, churning, culturing, grinding, hulling, extracting, drying, smoking, handcrafting, spinning, weaving, labeling, or packaging. Because of the many regulations involved with food processing, some people may choose to add value in other ways. On a larger scale, producer-controlled processing for energy, fiber, and other non-food uses are options. On a smaller scale, items such as flower arrangements, pickle, make a juice, snack food, salted fish, kerepek and few other product.
Besides offering a higher return, value-added products can open new markets, create recognition for a farm, expand the market season, and make a positive contribution to the community. However, adding value is not a situation for all the problems rural Malaysia is facing. It requires the willingness and ability to take on risk, as well as adequate capital, management skills, and personal skills—such as the ability to interact with the public—to succeed.
For producers, capturing value usually means capturing some of the value added by processing and marketing. For example, the producer’s share of the food ringgit has seen a steady decline since 1900. Producers are attempting to increase their share of that food value by engaging in activities such as direct marketing to consumers, turning farm products into food products, and joining producer alliances and cooperatives that invest in facilities to process their farm products on a larger scale.
Marketing directly to the consumer can be done on a small or large scale and in a variety of ways. Options for the producer who enjoys direct contact with consumers include selling at farmers’ markets and through community supported agriculture systems. Other options include sales directly to restaurants and local institutions, as well as mail order and Internet sales. Large scale processing through producer alliances, such as agricultural co-ops or limited liability companies, has seen growing interest among producers. These alliances can offer a way to pool resources and manage risks. In some cases, producers lose marketing or processing facilities when corporate agribusinesses close local facilities.
With a captured-value strategy, producers may face lower production risks, because production processes are well known and often linked to traditional agricultural production. Even when producers themselves are not familiar with processing, expertise in those areas can be hired. Captured-value ventures face an extremely competitive marketing environment, where demand is high, cost and efficiency considerations are paramount, and high volumes of products must be processed in order to gain efficiencies of scale. These ventures are often turning commodities into different commodities and, while value is added, it may not actually be captured by the producer.
A created-value strategy, on the other hand, relies on products or services that are unique or different from the mainstream equivalent. These often include a real or perceived quality attribute such as organic certification, a brand image, identification with a specific geographic region and/or producer, identity preservation, environmental stewardship, and so on. Creating value can pose higher production risks than capturing value. It usually requires learning new production and marketing skills, dealing with food safety, labeling, and other regulations, and coping with liability issues and insurance. Demand for the innovative product or service must usually be created through advertising, promotion, and consumer education, and this is a lengthy, expensive process. Marketing risks may be lower with a created-value strategy, for if this demand can be established, there is potential for higher, stable prices and little direct competition. Contract agreements for identity-preserved products such as high-lysine corn reduce competition from other producers, for example. On-farm events and activities offer a unique setting that cannot be copied by other producers. However, producers will need to learn new marketing skills, carefully assess feasibility, and develop marketing plans for created-valueproducts or services without established marketing channels.
How to start a Food Business?
The food business is extremely competitive and dominated by a few large companies that are driven by cost and price considerations. Food is considered a "mature" industry in Malaysia which means very little growth in demand. Food manufacturing continues to face narrowing margins and decreasing profits. Retailers are wielding more and more power over food wholesalers and manufacturers, and requiring manufacturers to pay more for shelf space ("slotting fees"), bear more of the product development risk, and provide product uniformity and quality. Smaller processors could have trouble finding outlets for their products, if they cannot meet scale requirements by the large retail operations that dominate the industry. In this mature industry, the only real growth is in niche food markets, where producers create value by adding special services for consumers, offering quality attributes like organic certification, specialized health products, and so on. They are able to charge prices 30 percent or more over mainline markets.
Once you have an idea for a food product that you believe will appeal to consumers in the marketplace, you need to develop a detailed description of your product. Such product like fruit juice, snack food, coconut processed product or many others .This description should include where you will get all ingredients, a formulation (recipe), a method of preparation, processing procedures, and packaging. Revealing the amount of each ingredient or the spices in your formulation is not necessary. This should remain secret and be revealed only to federal or state regulatory agencies. Reliable suppliers for equipment, ingredients, and other supplies are critical to the operation of a successful food processing business. Identification of reliable suppliers is an important step prior to beginning your business. Raw material such as tapioca, banana, yam, flour, lemon grass, pineapple or selected vegetables should be ready according to necessity. From my experience the seasonal tropical fruit must processed according to the respective peak production. Durian, rambutan, mangosteen, cempedak among those popular seasonal available in the middle of the year for processing.
If you are uncertain about any of the details needed in this plan, check with your District Agriculture Office or FAMA to see whether you can get help from them. Most have an advise or the technology, with staff who can help you in the initial stages of product development. If you work with a food technologist to develop your product or process, you will be asked for your complete formula. This information will remain confidential. MARDI also provide food processing courses so as Department of Agriculture. The machine and facilities or capital gain from various sources such as Agro Bank, TEKUN Program, State Agriculture Office and many others.
Bring as many details about your product as you have, including a sample to DOA (Later will be inspected by them). The product will be evaluated in the laboratory in Serdang, Selangor and classified regarding the type of processing needed. This classification will be based on the product’s acid and water contents and must apply for HALAL certification program. Transferring recipes for food products made in small batches or in a home kitchen to commercial-size formulas that can be manufactured in larger batches using commercial equipment is not an easy task. Frequently, simply multiplying ingredient amounts to get larger-size batches does not result in a product comparable to that made with smaller recipes. Plan on contracting with a state-approved facility, such as a private-label manufacturer, to manufacture a fairly large quantity of your best formulation(s).
Keys to Success
Although there is no simple blueprint for success exists when you’re trying to add value to your farm products, a few general practices emerge from interviews with a number of farmers in my service area of Johor State. I started with new entrepreneur from beginning as a small farmers with Group Farming and later became a medium scale food processing as the main income in the value adding to farm product. In 2010 there are about 154 farmers involved in food processing based on food crop with an annual production of RM 54 million. About 12 of them produce more than RM 1.0 million last year with technical advisory works and technical given by Muar District Agriculture Office.
No matter how you end up adding value to your farm products, I always teach them to follow these principles as my extension activities. The principles able to ensure the success rate in project implementation in adding value to farm product as follows :-
1. Start small and grow naturally.
2. Make decisions based on good records.
3. Create a high-quality product.
4. Follow demand-driven production.
5. Get the whole family or partners involved.
6. Keep informed.
7. Plan for the future.
8. Evaluate continuously.
10. Capitalize adequately.
12. Establish a loyal customer base.
13. Choose something you love to do and something that fits your personality and goals.
(24 Zulhijah 1432H)