Louisiana’s farmers generated more than $855 million in value-added through various crop and animal production activities in 2005, according to a recent report by LSU AgCenter agricultural economist Matthew Fannin.
Although down from the $948 million in value-added produced in 2004, it places Louisiana farmers third behind only food product and paper product manufacturing as the largest producers of food and fiber value-added.
The drop in value-added came largely as a result of the effects of hurricanes Katrina and Rita on many sectors of the state’s economy.
“Many individuals believe that value-added is only created after the agricultural commodity leaves the farm gate.” Fannin explained. “But crop and animal producers in Louisiana generate a measurable proportion of value-added for the overall food and fiber system.”
Value-added is the difference between the price of an agricultural product sold and the cost of materials and services used to produce the product. The remainder includes two key elements — the temporary and permanent labor hired by producers and the profit that is left after the end of the growing season for the farmer.
“Increasing value-added generated by farmers is important to the viability of rural economies in the state,” Fannin commented. “The wages and salaries paid to hire farm workers, as well as the profits earned by farmers, typically return back to the local economy through household spending — thereby helping rural businesses.”
Value-added is typically influenced by three key factors — the price of the agricultural commodity, the yield of that commodity and the input costs required to produce the commodity.
Fannin said value-added created by Louisiana’s farmers will vary by commodity and region again in 2007. Northeast Louisiana and central Louisiana farmers are likely to increase their overall value-added contribution as prices for such commodities as corn have risen above historical averages.
Other regions in north Louisiana and south Louisiana will struggle to maintain their value-added contributions to the state’s economy as costs of energy-intensive inputs required to produce traditional commodities like cotton, rice and sugarcane in those regions continue to increase.
“Natural gas, propane, diesel and fertilizer prices are much higher than five years ago and are eating into the profit margins of crop and animal producers across the state,” Fannin said. “Unless farmers can increase yields on the same acreage or differentiate their commodities in order to command a premium above market prices, farmer profits will continue to come under increased pressure.”
To learn more about how agricultural commodities are being transformed into higher value-added food and fiber products, visit www.lsuagcenter.com (type B-886 in the search box to see the research bulletin from which this material is drawn).