The additions of time, place, and/or form utility to a commodity in order to meet the preferences or tastes of the consumer. The true test of value added is achieved when the after tax return on invested capital used to generate time, place, and / or form utility exceeds the overall cost of capital.
Value-added food products are raw or pre-processed commodities whose value has been increased through the addition of ingredients or processes that make them more attractive to the buyer and/or more readily usable by the consumer. It is a production/marketing strategy driven by customer needs and perceptions.
About 15,000 new value-added products are introduced each year. However, getting a new product into the highly competitive retail market is very difficult. USDA estimates that at least two out of every three new food products introduced into the market fail due to lack of customer appeal. Only one in five new businesses succeeds for more than five years. The average time spent on developing new food products is about two years. Product development is not limited to creating new and unique food items. It also includes product repositioning, line extension, and reformulating existing products. Every type of product development consists of five stages: screening, feasibility, costing, prototyping/test marketing, and commercialization.
Value Added Agriculture by Michigan State University Extension