Presented at the 2007 American Agricultural Economics Association Annual Meeting: Portland, OR, July 29, 2007. 29 pages. Conference hosted by the Agricultural & Applied Economics Association.
Copyright © 2007 Charles Nicholson and Mark Stephenson.
NOTE: At the time of publication, the author Charles F. Nicholson was not yet affiliated with Cal Poly.
Federal, state and local governments have funded various efforts to support value-added agriculture, often implicitly assuming that the enterprises would be profitable and that the transition from commodity producer to producer-processor-marketer-distributor would be relatively easy. Some analysts (e.g., Streeter and Bills; 2003a, 2003b) have questioned both of these assumptions, noting that available aggregate data do not allow assessment of the financial performance of value-added enterprises. Our study collected detailed financial information from 27 value-added dairy enterprises with cows, goats or sheep in three states. These businesses processed and marketed cheese, fluid milk products and yogurt; 17 had begun processing during the previous three years. The financial information was used to develop income statements and balance sheets for both the milk production and the dairy processing and marketing enterprises. Our results suggest that value-added dairy is not a panacea: despite much higher revenues per unit milk produced or processed, mean net income for the processing enterprise and for the combined milk production and processing business were modest at best and often negative. More than half of the on-farm processors had negative net incomes from processing, and seven processing enterprises had negative net worth. On average, returns per cwt milk processed were $90 per cwt and $209 per cwt (for cow and goat/sheep milk producers, respectively) lower than the full economic costs of production and processing.
Agribusiness | Agricultural and Resource Economics | Business