Generally, value addition is the process of changing or transforming a product from its original state to a more valuable state. Many raw commodities have fundamental value in their original state. For example, maize grown, harvested and stored on a farm and then fed to livestock on that farm has value. In fact, value usually is added by feeding it to an animal, which transforms the maize into animal protein or meat. The value of a changed product is added value, such as processing wheat into flour. It is important to identify the value-added activities that will support the necessary investment in research, processing and marketing. The application of biotechnology, the engineering of food from raw products to the consumers and the restructuring of the distribution system to and from the producer all provide opportunities for adding value.
Economically a commodity is added value by changing its current place, time, and from one set of characteristics to other characteristics that are more preferred in the marketplace. A better meaning would be like processing wheat into flour and eventually into more desired products by customers such as bread, cakes. Those involved in value addition should think of themselves as members of a food chain that processes and markets products to consumers.
In Kenya, the majority of agricultural commodities are marketed in their raw forms, hence losing the opportunities for higher earnings and generating employment.
The main constraints that face Kenya’s agro processing industry include among others, the high operational costs mainly due to the high prices of imported fuel and spare parts, unavailability of appropriate processing machines and spare parts, and the limited knowledge in operation of the machines.
However, despite these constraints, agro processing has a tremendous potential for increasing income through value addition and increasing shelf life and access to food security through the establishment of small scale agro processing enterprises and rural based industries.
Once these commercial agro industries are efficiently run and are responsive to the ever-changing market demands, this will be a precursor for overall economic growth of the country.
Meaning of Value addition
For farmers in Kenya, value addition has a particular importance in that it offers a strategy for transforming an unprofitable enterprise into a profitable one. In fact, there are very few items that a Kenyan small holder farmer can produce and sell profitably at the first level (that is, on the open wholesale market).
Therefore, a value-addition strategy is critical to the long-term survival of most small farms in Kenya.
A good example is say, a coffee farmer who simply grows and harvest coffee cherries, and then sell them “as is” to a local processor. Here, they usually sell at a price below the cost of production. This marketing strategy may be viable in the short run, because it may cover the cash costs involved in producing the crops.
This is, however, a poor strategy because it usually does not cover the total costs of production, and, therefore, the coffee enterprises will not be sustainable.
Value addition strategies could also be easily drawn from the production of tropical fruits, vegetables, livestock, grains and other commodities.
Many small holder farmers should be encouraged to increase their profitability by vertically integrating their operations rather than simply expanding horizontally to increase their volume of production.
Here, they are adding value to their crops by taking their product one or more steps up the vertical ladder of processing and marketing rather than staying at the same level and trying to increase quantity.
Agribusiness support agencies should be seen to support the promotion of rural agro industries. This is mainly crucial because of the following reasons;
- Agro –industrial products, unlike the basic commodities, do not exhibit a long-term real-price decline so they are more effective in increasing local incomes.
- Value addition activities in the rural areas tend to increase local employment and income and usually have a positive impact on the local economy mainly due to forward and backward linkages.
- Product differentiation as a value addition strategy is easier for goods that have been processed, transformed, packaged and labeled.
- The agro-industrial products where value has been added tend to enjoy a higher profit margin than basic commodities.
In conclusion, for those in agribusiness, as markets become more competitive, it is important for mainly small holder farmers and other value chain actors to seek ways of taking advantage of the value adding opportunities to be able to increase the incomes of the rural producers.
Deliberate efforts should be put in place in establishing market research teams to help in investigating both fresh and processed markets.
The value added products can be those that are traditional or those that already exist in the rural areas, or can also be new products, which can be processed using new, low cost technologies
Advantages of Value Addition in Kenya
- Increased profit – any value addition increases financial value to the product and has the effect of improving the income of a farmer.
- Value addition gives a farmer a chance to focus on the consumer
- The producer/farmer can get a share of the marketing bill which is the difference between the farm gate value and the retail value and it is growing bigger day by day.
- Enhanced shelve life – this is a benefit any farmer would want. the longer the product can stay without getting spoilt, the more guarantee one has of a product selling at their preferred price and time. for instance raw milk doesn’t last for long but when processed into ghee, yogurt and other products can last longer.
- Improved bargaining power
- Creation of a brand – if a product goes to the market being identified to you or your farm, then your future is defined.