OREGON STATE UNIVERSITY

Value Added to Oregon Ag Products a Major Impact, Says OSU Report

09/04/2007

CORVALLIS, Ore. – Value-added processing and handling of crop and livestock products is a major force within Oregon's agricultural economy, and an indicator of how the state's agriculture industry shifts to meet growing global competition, according to a report just released by the Oregon State University Extension Service.

OSU economists studying 2005 data found that value added to $4.1 billion in crop and livestock sales (farmgate sales) generated another $2.1 billion in first-handler economic activity, a 53 percent increase over the value of farmgate sales alone.

The term value-added describes the economic value of an agricultural commodity when it leaves the field and is transformed into a product ready for purchase by consumers.

According to the report, three Oregon agricultural commodity sectors – vegetable crops, poultry and eggs, and fruit and nut crops – more than doubled in value after value-added processing and handling was estimated.

"This finding wasn't entirely unexpected," said Larry Burt, OSU Extension agricultural economist. "We know that value-added agriculture is a significant part of the overall economy. Although it's difficult to estimate the impact of first-handler value added on Oregon agriculture every year, it clearly plays an important role within the state's food and fiber sector."

Value-added typically has four components: labor; processing and packing; transportation and handling; and other activity including, marketing, management charges, government fees and taxes and utility costs. Burt emphasized that the value-added analysis in the report focused on the “first-handler level” – processing and/or handling that happens immediately after the commodity is harvested or otherwise moved from the farm toward distribution.

Commodities differ significantly in the level of value-added processing. For example, grass seed crops come out of the field almost ready for market distribution. Raw milk from Oregon dairies, on the other hand, requires much more processing, especially when transformed into cheese products available in food stores.

Burt and Linda Brewer, OSU Extension senior faculty research assistant, co-authored the report "Oregon Agricultural Commodities: 2005 Farmgate Values and First Handler Value Added." It is available online at: http://extension.oregonstate.edu/catalog/pdf/ec/ec-1612-e.pdf

The statewide value-added report hadn’t been conducted by OSU since 1994. The new report is based on available agricultural sales data and information gathered from a broad range of sources including agricultural industry leaders, county-based OSU Extension agriculture agents and other OSU agricultural specialists.

The project was funded by the OSU Extension Service and the Oregon Department of Agriculture. Many OSU Extension and research faculty contributed, as well as industry experts and ODA staff. Jim Cornelius, former OSU agricultural economist, served as a reviewer.

"An exciting new component in this report are the industry insight sections for each of the major agriculture groupings," said Brewer. "These sections offer a glimpse into the change some sectors of the industry are undergoing to compete in the global economy."

Brewer collected the information by conducting 500 hours of telephone interviews with agricultural industry contacts and others throughout the state.

Several highlights from the report stand out.

The Oregon vegetable crops sector recorded the highest value-added amount for 2005. Farmgate sales of all vegetables totaled $378 million that year and value-added by first handlers contributed another $696 million, a 184 percent increase over the value of farmgate sales. About one-third of the value added is attributed to labor input and another 21 percent is related to packaging expenses.

Falling on the opposite end of the scale was livestock for meat production, including cattle and calves, sheep and lambs, hogs and pigs. Estimated 2005 farmgate value for this sector is $657 million, with cattle and calves accounting for more than 90 percent. Total value-added is estimated at $53 million, about 8 percent of the farmgate sales figure.

"The low value added in the livestock sector is due to the fact that relatively little meat processing is done in Oregon," said Brewer. "Most Oregon cattle for beef production are shipped out of state and processed elsewhere."

According to Brewer, some producers in the industry want to improve value-added performance by establishing small-scale processing plants in Oregon to market high-value branded beef products to consumers and gourmet restaurants.

Another commodity grouping with a strong value added performance is berry and grape crops.

Oregon berry and grape growers generated $135 million in 2005 farmgate sales. The value added for berries and wine grapes is estimated at $211 million, about 156 percent of farmgate value.

"Wine production is probably one of the best examples of what value-added agriculture means," said Burt. "We have many Oregon vineyards where wine grapes are grown, harvested, crushed, fermented and bottled at the same location. The raw crop goes from whole grapes to bottled wine before leaving the farm."

This is a big part of the reason that value added for Oregon wine grapes in 2005 was estimated at a whopping 370 percent ($135.7 million) of the farmgate value of $36.6 million.