Research on the Value Added Producer Grant Program

Posted on 05/18/2009 at 12:00 AM by Christa Hartsook

Blog entry written by Michael Boland, professor at Kansas State University and USDA Value Added Producer Grant Reviewer

In 2001, Congress passed legislation authorizing, and later appropriating funds for the Value-Added Producer Grant (VAPG) program. These funds have been used to subsidize the development and marketing of value-added agricultural products, aid in the development of value-added businesses, and augment any other business related expenses including working capital.  Why have some states been more successful than others in attracting applicants and recipients? Iowa had the greatest number of grant recipients while Delaware, Nevada, New Hampshire, and West Virginia had the least number of grant recipients. Grant recipients tend to be clustered in the Midwestern and Great Plains states which have a strong commodity-focused agriculture. In addition, California, Michigan and Washington, states with a great amount of diversity and value-added agriculture, were ranked in the top 10 as recipients.

Organizations that submitted grants were required to identify the grant in various categories based on language in the Farm Bill authorization. These categories included the organizational type and type of value-added activity. The grant defines the steps in business development as: 1) creation of an idea, 2) formation of the idea into a written form through a feasibility study, business plan, or marketing plan, 3) formation of an organizational structure for the idea, 4) hiring of a manager or employee for the idea, 5) conducting an equity drive to raise capital for the idea, 6) formation of a physical structure for the idea, 7) creation of the idea into a product in the facility, 8) creation of the idea into a product for distribution and sale at retail, and 9) whether the idea actually commercialized.

A list of VAPG recipients was compiled from the USDA Rural Development press releases for each year. Using a statistical model, we found that the success of a VAPG recipient was determined by several factors. Market share was an important determinant to VAPG success.  The positive relation between this variable and a successful VAPG may be related to this dissemination of information. After all, knowledge of the basis for different crops is important information for determining where to consider opportunities for adding value to a commodity. Thus, inexpensive corn in Iowa and southern Minnesota is likely to lead to greater opportunities to add value to corn through corn sweetener plants or ethanol plants. Kansas State University and the Center for Agricultural and Rural Development at Iowa State University report basis map information for major commodities for selected Midwestern states. This information is provided daily and weekly and has been very useful to groups considering adding value to crops in their geographic region. Knowing this may have helped firms become successful but, more importantly, providing this information to potential VAPG recipients may help future businesses be successful, as well.

Size variables including greater sales and increased grant dollars as well as a lower number of producers were also determinants of business success. Congress has capped the amount of grant dollars to be awarded. Larger VAPG recipients as measured by sales volume are likely to have been in business for a longer period of time. Thus when considering adding a new value added product to their portfolio, they have greater market intelligence for the potential demand for that product. Some states such as Iowa have made business development part of the job description for selected county extension agents. Some of these agents have entered into subcontracts for VAPG recipients and helped many VAPG recipients. Group action is easier when there are smaller numbers of producers and a county agent or other service provider is likely to have greater impact with a smaller number of producers.

Every state has at least one USDA Rural Business and Cooperatives employee. Because these employees are points of contact for producers interested in value-added activities and because they are information providers for the VAPG program, networking with these individuals is important for departments of agricultural economics. There may be opportunities to undertake research on behalf of these VAPG recipients.

Grants that added value to fluid milk, cut flowers, tree fruit, tree nuts, specialty meats, wheat and wine were found to result in a greater likelihood of VAPG success. Crops such as nuts, fruits and flowers are grown in a much smaller geographic region relative to other crops. Thus, market share is likely to be higher in these regions. Furthermore, many of the producers in these industries are vertically integrated through cooperatives or warehouses and have significant market share at retail increasing the likelihood that these organizations have greater access to market intelligence and are more likely to achieve business success.

One of the four business organizational forms, agricultural producers, did not result in greater success of business development. These are trade associations composed of producers or cooperatives. These organizations tend to have a membership that is very broad and diverse. Furthermore, these variables do not undertake business development but rather make the results of their VAPG grant available to all their members to consider developing a business for the opportunity identified by the study. Many of these activities are market studies. Thus, this result may not be that surprising. The states of Illinois, Kansas, Minnesota, Missouri, and Wisconsin were found to have the greatest amount of success in VAPG business development with Missouri having the greatest success. Missouri has probably the most extensive set of resources available for value-added business development.

As a reviewer of VAPG grants in every year since its inception, the things I look for in a successful grant is one that captures my attention upfront.  The idea has to make sense and should demonstrate cost effectiveness. Grabbing my attention and ensuring that the idea has a solid probability of success and the writers have expertise in the process are important.

Categories: Grants