USDA Value-Added Producer Grant
May 17, 2015
The USDA announced last Friday that $30M is available this year for farmers and farmer groups to use for business planning or early stage working capital expenses. The deadline to apply is July 7th. The Planning Grants help farmers hire professionals to help them plan their value-added business. The services farmers can hire include a feasibility study, business plan, marketing plan, and/or legal advice regarding the proposed value-added product.
So farmers – listen up. One can request up to $75,000 for planning activities with a 50% match requirement. What really makes this a remarkable opportunity is that loans are simply not available for business planning. Yet, solid planning is critical toward building a sustainable business. Once, you, a farmer, have a thoroughly vetted business plan, you can approach lenders and investors with your business plan to get your project off the ground. You are also well positioned to apply in subsequent years for the Working Capital part of the VAPG program. Both the Planning Grant and the Working Capital Grant have a 50% match requirement. In other words, you pay 50% of the project and the USDA pays 50%. The producer’s match can include in-kind contributions.
Here is what Cindy Hale of Clover Valley Farm wrote about her VAPG Planning Grant for culinary vinegars: “It is impossible to overstate how critical funding of our feasibility study and business plan has been, and continues to be, for the success of our value-added enterprise. The process allowed us to identify in real terms where the most significant obstacles would be in developing this business and how to overcome them effectively. For example, we assumed that the technical aspects would be our biggest hurdle, but in fact the marketing plan was by far the most challenging and most important to overcome. Had we moved forward without conducting this complete and professionally overseen study, I can confidently say we would have failed. However, by being given the time and professional expertise to do the really hard work over 2 years of critically examining every aspect of the proposed enterprise we were able to achieve success quickly and with great confidence as we look forward.”
The USDA Value-Added Producer Grant Program goes well beyond the processing of raw farm products in its definition of value-added. While changing the physical state of a raw commodity can add value, the VAPG program recognizes four other ways to add value to one’s raw farm products. One is by branding and marketing the product locally. For example, tomatoes aggregated and marketed locally can be considered as value-added. Another way is by a means of production that earns greater returns in the market place, such as managing the crop or livestock organically or pasture-raised livestock. Another way to add value is segregating identity preserved commodities, such as non-GMO corn or soybeans. Finally, one can add value to a farm’s bio-based materials by converting it to energy, such as converting one’s oil crop, such as sunflower seeds, to diesel. So farmers don’t need to change the physical state of a raw commodity to add value to it; they can use four other ways to compete for VAPG funds. Any means chosen must be more profitable to the farmer than the selling of the raw commodity would be.
Why Clover Valley Farm needed to add value-added products…
“We are a very small-diversified farm that uses rotational pastured animals (sheep, hogs, chickens) in our fruit and herb production systems (Tree fruits = apples, pears, cherries. plums; Native Small Fruits = Juneberry, Currants, Elderberry, Aronia, Highbush Cranberry and Pin Cherry; Rhubarb; Herbs = garlic, mint, basil, dill, sage, rosemary, thyme, pepper and more). Because we produce so many things in relatively small quantities we struggled to find an economically successful way to sell our fresh produce. Direct sales to customers through farmers markets was too time consuming for the payback; we ended up having to discard anything not sold and customers didn’t know how to “use” our products effectively, limiting their repeat purchases. While we could sell our products wholesale to local co-ops, that required additional packaging, (especially for herbs), and the lower price meant we were making less margin. This alternative also suffered from customers not knowing “how to use” the fresh fruits, so the co-ops found they were also discarding much of the fruit, especially small fruits that have quite limited shelf life.”
“By making our fresh products into a more shelf-stable, value-added product we hoped that we could maximize the use of what we produced (less waste), increase the length of time over which we could make and sell the products (shelf-stable products), and increase our farm income relative to production costs.”
“In short, that is exactly what happened, the VA products give us much more flexibility in managing our available raw ingredients while adding substantial value in the process.”
How the VAPG process helped…
“We chose to examine the viability of a culinary vinegar operation because it was a product we had been making and selling on a small scale with good customer response, there was very little competition or duplication in the “local” market (unlike jams & jellies) and the technical and licensing obstacles appeared to be minimal (compared to something like hard cider). The stages of study we conducted allowed us to access expertise that allowed us to very effectively examine the market and technical aspects of producing a culinary vinegar; and then develop a realistic business plan to meet our personal and farm needs.”
“The first step was to examine the market for specialty vinegars (i.e., the size and nature of this market and the competition in this market) to determine if sufficient market existed to support the business that we had proposed (1000 gallon annual production with distribution in the western Great Lakes region). It also examined the specifics of the different sub-markets such as direct to consumer retail, wholesale of retail packed product to food co-ops and specialty shops, and bulk wholesale to restaurants. It was determined that there was more than adequate market for us to reach our target goal within three years. So then we continued to the next step.”
“The second step was to describe and compare the technical aspects of producing artisanal vinegars using three different potential production models. An important part of this step was to not only determine how each production system would work, but to also compare the culinary qualities of the end product. In short, all three systems were determined to be technically effective, but one gave substantially high “culinary” qualities in the final product. Since the market study indicated we would have the highest success within a particular market that will pay a premium of artisanally made products, the higher quality production process, although more labor intensive was chosen. From here we moved to the third step of examining financial feasibility.”
“The third step was to examine the financial feasibility of each of the three production methods detailed in the technical study (step 2). Here we examined the details of the costs of materials, equipment, labor, etc., for each of the production scenarios to determine if, and to what degree, each was financially feasible. This step more specifically answered the question of whether or not the market would support both the qualities and prices needed to make the enterprise profitable based on the different production costs and timing. In short, all three scenarios were deemed financially feasible. Further, given that the proposed scale up of the vinegar operations included substantial increases in our fruit production over the three-year projection, we conducted a financial analysis to determine if we could still be profitable if the vinegary failed and we needed to sell the fruit on the wholesale market. The result indicated yes, we could maintain profitability in this worst-case scenario. This was a very important finding, not only for our peace of mind but also for finding and securing a line of credit which would allow us to do the capital investments needed to execute the plan.”
“The Final step, writing a business plan, incorporated not only a road map for developing and growing the vinegar enterprise but also how that enterprise would affect (positively and negatively) other enterprises on our diversified farm. This enabled us to make important and strategic decisions about what enterprises we might choose to phase out (i.e., our small egg-laying flock), but also which would be most complementary (i.e., adding new fruits & herbs, other value-added products).”
“As a direct result of the USDA-VAPG project we were able to secure a leased facility for our vinegar production in 2014 and three MN state grants to provide additional cost sharing of startup costs. In April 2014 we released our first line of fruit and herb infused vinegars (Juneberry-Currant), just before final completion of the USDA-VAPG project in June 2014. A second line of vinegars was introduced in August 2014 (Rhubarb), and we were able to meet our 2014 sales goals. Growth of our value-added enterprise continues to increase on pace with our business plan, to the degree that we will be adding one year-round full-time employee and one seasonal full-time employee to assist with production, processing, packaging and sales.”
Are you considering applying? Or are you wanting to learn more to help you decide if this program is right for you? The “Farmers Guide to the Value-Added Producer Grant Program “written by the National Sustainable Agriculture Coalition is an excellent resource, as is the USDA VAPG Resources page.
Note the eligibility sections for applicants, their projects, and their budgets. If you are seriously considering applying, talk with your state’s USDA Rural Development office found on the VAPG website.
Whatever you do, don’t wait to decide. The applications are due July 7 if post-marked or delivered to your state’s USDA Rural Development office. The applications do require considerable thought and information to complete. Funding available this year is more generous than most years, making this a particularly good year to apply.