Moving Food Along the Value Chain: - Agricultural Marketing Service

104 Pages·2012·5.86 MB·English

Moving Food
Innovations in
Along the Value Chain:
Regional Food Distribution
United States
Department of
Agriculture
Agricultural
Marketing
Service
March 2012
Recommended citation format for this publication:
Adam Diamond, James Barham. Moving Food Along the Value Chain: Innovations in Regional Food Distribution. U.S. Dept.
of Agriculture, Agricultural Marketing Service. Washington, DC. March 2012. <http://dx.doi.org/10.9752/MS045.03-
2012>
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Moving Food
Innovations in
Along the Value Chain:
Regional Food Distribution
Adam Diamond, Agricultural Marketing Specialist
James Barham, Economist
Marketing Services Division
Agricultural Marketing Service
U.S. Department of Agriculture
March 2012

i
Contents
Summary 1
Introduction 3
La Montanita Co-op: Retail-Driven Model #1 9
Co-op Partners Warehouse: Retail-Driven Model #2 18
Oklahoma Food Cooperative: Consumer-Driven Model 27
New North Florida Cooperative: Producer-Driven Model 39
Growers Collaborative/CAFF: Nonprofit-Driven Model #1 47
Red Tomato: Nonprofit-Driven Model #2 55
Minnesota Food Association and Big River Farms: Nonprofit-Driven Model #3 66
Appalachian Harvest: Nonprofit-Driven Model #4 73
Conclusion: Lessons Learned from Case Studies 86
References 94
Acknowledgements
The authors would like to thank Debra Tropp for her invaluable support during the research and writing process, and
Wendy Wasserman for helping make this manuscript more accessible. Thanks to Ben Turner and Larry Laverentz for
their early collaboration in helping us define the scope and intent of the study. Thanks to the value chain writeshop
participants for serving as a sounding board for some of the ideas contained in this report. Thank you to Jessica Ladd,
graphic designer, for her patience and creativity in assembling the words and images into a highly readable document,
and to Michael Smith for his careful editing. Special gratitude to all of the organizations studied herein who gave so
generously of their time in providing us invaluable information and contacts.
1
Summary
This report examines the aggregation, Retail-Driven Models Red Tomato, founded in 1996 and
distribution, and marketing of eight based in Canton, MA, arranges for
diverse food value chains to glean the aggregation, transportation, and
La Montanita Co-op, based in
practical lessons about how they sale of a wide variety of produce
Albuquerque, NM, established its
operate, the challenges they face, supplied by 35–40 farmers to grocery
Regional Foodshed Initiative in 2007
and how they take advantage of stores and distributors throughout
to expand purchases by the Co-op’s
emerging opportunities for marketing the Northeast. Its signature Eco
four stores of sustainably grown
differentiated food products. A focus AppleTM line of apples is grown
regional products and to assist
on the operational details of food using advanced Integrated Pest
regional producers in accessing other
value chains—business networks that Management methods subject to
wholesale market channels for its
rely on coordination between food third-party verification and accounts
products.
producers, distributors, and sellers to for more than half of Red Tomato’s
achieve common financial and social sales volume.
Co-op Partners Warehouse, located
goals—demonstrates how to facilitate
in St. Paul, MN, was started in 1999
moving differentiated products from
by the Wedge Cooperative to provide
regional food suppliers and buyers high-quality organic produce to the Producer-Driven
to customers.
Co-op, and now serves 200 consumer
Model
cooperatives, health food stores,
The key business practices of food
buying clubs, and restaurants in the
value chains include: Upper Midwest. New North Florida Cooperative has
been aggregating, processing, and
„ Recruiting producers selling produce in the Southeast since
and developing 1999. It sells primarily chopped fresh
Nonprofit-Driven
producer networks collard greens, sweet potatoes, and
Models green beans from mainly small-scale
„ Identifying, branding, and minority farmers to 60 independent
marketing differentiated grocery stores and more than 30
Appalachian Sustainable
farm products school districts in the Southeast
Development’s Appalachian Harvest,
serving more than 200,000 students.
located in Abingdon, VA, has been
„ Managing infrastructure to
selling organic produce to regional
transform, pack, and transport
supermarket chains and specialty
farm products
grocery chains in the Southeast and Consumer-Driven
Mid-Atlantic regions for 10 years.
„ Negotiating with buyers Models
to secure a fair return for
Minnesota Food Association’s Big
the producers.
River Farms, based near Stillwater, The Oklahoma Food Cooperative
MN, has provided production training has been operating an Internet-
By analyzing what has and has not
and distribution/marketing services based buying club since 2003. It is
worked within food value chains, we
to aspiring immigrant and refugee a producer- and consumer-owned
hope to show organizations interested
farmers since 2007. cooperative in which 200 producer
in building local food systems lessons
members sell more than 4,000
to build on, blunders to avoid, and
Growers Collaborative was individual items, including meat,
inspiration to draw from.
established by Community Alliance produce, milk, and value-added items,
for Family Farms (CAFF) in 2005 to to 3,800 Co-op members.
Our eight case studies were selected
offer aggregation, distribution, market
to examine a variety of participating
promotion, and education services
farmers, locations, product mixes,
to California family farms. In 2009
markets, and types of partnership or
CAFF went from being a full-service
collaboration. They are categorized by
distribution company to playing
the type of organization that drives
a matchmaker role, transferring
the distribution operation.
distribution and marketing services
to independent aggregators
and distributors.
2
Findings and individual consumers. When
there is a great deal of preexisting
Nonprofits and
trust between consumers and the
Four themes that cut across the eight cooperatives can play
seller, there is less need to specify
case studies provide valuable insights key roles in value
which farmer produced an item or
for value chain practitioners: chain development
to create a third-party certification
but should recognize
scheme. When there is less trust or
its organizational
social connection between consumers
competencies and play
and sellers, identifying the farmer
to its strengths.
The level of investment on each produce package helps
in infrastructure establish marketing claims and better
should match the position products in a competitive
organization’s stage of selling environment. As nonprofits and cooperatives
development and engage in value chain activities,
marketing capacities. they should consider what roles
are most suited to its capacities
and recognize how its limitations
Distribution entities
can be mitigated through building
using informal producer
strategic partnerships with other
How much and when an organization networks can adapt to
value chain actors. Cooperatives
invests in infrastructure is vital to the the constantly shifting
may benefit from partnering with
success and even the survival of the demands of diversified,
nonprofits for training, education,
enterprise. Whether it makes sense niche food markets.
and resource prospecting; nonprofits
for food value chain distributors
may find it worthwhile to partner with
to invest heavily in infrastructure
cooperatives or other business entities
depends on operational scale,
to provide infrastructure support or
proximity to customers, availability of
supply chain management services.
existing distribution assets, financial
While agricultural cooperatives
capacity, and its ability to capture
have played a major role in product
value throughout the supply chain.
aggregation and food marketing, new
The four nonprofit distribution
models of producer coordination are
models tended to overinvest in
emerging that offer more flexibility
infrastructure because of its ability
to suppliers and buyers. With
to solicit grants and donations and
more informal supply networks,
its tendency to focus on needs in
farmers benefit from a more diverse
the community rather than assets
market channel mix by balancing
that could be mobilized. The four
risk and not “putting all its eggs in
cooperative distribution models were
one basket,” and the distribution
much more conservative; they only
entities are under no obligation to
invested in infrastructure in tandem
take all of its members’ production.
with business growth and needs.
Informal farmer networks seem
to be particularly appropriate for
marketing diverse products like

Value chain managers fruits and vegetables; more formal
must ensure identity cooperative structures may be more
preservation from farm appropriate when dealing with single,
to market as a way to uniform products. A diverse range of
establish marketing products, each with its own separate
claims and improve costs of production, processing
negotiating position requirements, and prices, makes it
with buyers. difficult to allocate costs and benefits
to cooperative members.
The type of identity preservation
employed by the various distribution
models to differentiate its products
was largely dependent on its
relationship with farmers, retailers,
3
Introduction
The Changing Statistics Service, direct marketing production alongside the continued
of all types was worth $1.2 billion in industrialization of agriculture into
Agricultural
2007, having grown 105 percent in ever larger production units. The
Landscape value from 1997 to 2007, compared number of midsized farms declined 10
to a 48-percent increase in total farm percent just from 2002 to 2007, and
sales for the same period (Diamond & thirty six percent from 1987 to 2007.
Agriculture in the United States
Soto, 2009).
is at a crossroads. It has made
In response to this conundrum,
tremendous strides in improving labor
Direct-marketing outlets can increase many midsized farmers are turning
productivity with mechanization and
returns to farmers by allowing farmers to a burgeoning array of alternative
land productivity through advances in
to capture additional income streams strategies for wholesale food
plant and animal genetics, application
from traditionally off-farm food aggregation and distribution, ones
of fertilizers, and myriad pest control
system activities such as aggregation, that can broadly be characterized as
technologies (Cochrane, 1993).
processing, and marketing (Martinez less intermediated and more direct
With these technologies, the overall
et al., 2010). Nevertheless, direct- sales from farm to institutions or
number of farms in the United States
marketing channels alone are not retailers (Day-Farnsworth, L., McCown,
has plummeted from over 6 million
equipped to accommodate the bulk B., Miller, M., & Pfeiffer, A., 2009; King,
in 1935 to around 2 million in 2007,
of midsized agricultural producers— R., Hand, M., DiGiacomo, G., Clancy,
even as the population has increased
those earning between $50,000 K., Gomez, M., Hardesty, S., Lev, L., &
140 percent from 127 million to
and $250,000 in gross farm income McLaughlin, E., 2010). Such marketing
308 million in this time period.
(Stevenson et al., 2008). More than strategies usually involve some
Compounding this dramatic reduction
270,000 farmers, with gross farm degree of product differentiation
in overall farm numbers, we have
income of $33 billion in 2007, belong based on attributes such as place
seen intense concentration of farm
to this “agriculture of the middle” of origin, production practices, and
ownership to the point where 55,509
category (USDA, 2009). Generally product quality, combined with
farms—2.5 percent of all farms—
speaking, they are too big to rely product aggregation, to improve
accounted for 59 percent of total farm
primarily on direct-to-consumer producers’ bargaining position
income in 2007 (USDA, 2009). Never
marketing channels to dispense of relative to buyers. These efforts
have so many been fed by so few.
their output. Farms in this size range to bypass both undifferentiated
are likely to specialize in one or two commodity markets and direct-to-
Although this dramatic increase
crops and be located far enough consumer market channels depend
in agricultural productivity has
from population centers to make on the creation of new collaborative
been a triumph of technology and
direct marketing impractical. On supply chains and the marketing of
has released millions of people
the other side of the coin, these differentiated products.
from backbreaking work, it also
midsize producers are often too
has transformed the agricultural
small to compete on price with large Key to these new food marketing
landscape. The steady increases
commodity producers (Stevenson & strategies (King et al., 2010) is the
in average farm size have made it
Pirog, 2008). Their larger competitors establishment of strong relationships
increasingly difficult for small and
are often more able to take advantage between the different actors involved
midsized operators to compete
of economies of scale related to in growing/raising crops; processing
successfully in the marketplace,
farm machinery, farm management, crops; and marketing food to retailers,
especially in bulk commodity markets.
and/or get better terms of trade institutions, restaurants, and other
In response to these prevailing
in the marketplace due to their food buyers. The phrases “values-
trends, many smaller and mid-scale
large sales volume. “Agriculture based value chains” and “food
farmers have capitalized on growing
of the middle” farmers are thus value chains” refer to emergent
consumer interest in food provenance
caught short, having difficulty supply chains emphasizing vertical
to sell through direct-to-consumer
capitalizing on two simultaneous, coordination rather than integration
food markets such as farmers markets,
if contradictory, developments in throughout the supply chain
community supported agriculture
contemporary American agriculture— (Stevenson & Pirog, 2008).
(CSAs), and farm stands. According
the growth of small-scale, niche, local
to the USDA National Agricultural
4
These food value chains strive to Research Inquiry a longitudinal approach to examine
create economic value through how these organizations have faced
and Methods
product differentiation and advance challenges and seized opportunities
particular social or environmental to best advance their business goals
values by espousing the concept of The following analysis focuses and social missions.
social entrepreneurship, or doing on the myriad ways that value
good works through good business chain distributors: A baseline review of value chain
(Barnes, 2006; Porter & Kramer, 2011). distribution models was first
„ Recruit producers and develop conducted to ensure a diverse
Stevenson, as part of the Ag of the producer networks. representation of cases. An initial
Middle Project, has described in a list of around 25 cases was gathered
series of case studies how farmers, „ Identify, brand, and market via key informants involved with the
distributors, retailers, and food differentiated farm products. regional food distribution sector to
processors coordinate their actions create a broad set of cases from which
for mutual economic benefit while „ Manage infrastructure to to choose a diverse sample. While
advancing social and ethical values transform, pack, and transport this initial list was not exhaustive,
such as agricultural sustainability farm products. it was sufficiently diverse to form
and farm viability (Stevenson, our sampling frame. Eight case
2009). Others have built on this „ Negotiate with buyers to secure a studies were chosen, considering the
framework to assess the effectiveness fair return for the producers. following criteria:
of conventional food distributors in
building up local food systems (Bloom By analyzing what has and has not „ Types of participating farmers
and Hinrichs, 2011) and the capacity worked in regional food distribution (e.g., minority, transitional,
of pasture-raised livestock production enterprises, organizations interested refugee/immigrants,
to strengthen farm viability and rural in building local food systems new/beginning)
communities (Conner, Campbell-Arvai, will have lessons to build on,
and Hamm, 2008). These studies blunders to avoid, and inspiration „ Geographic location
have examined how the attitudes and to draw from. These factors
behaviors of food value chain actors affect value chain performance: „ Agricultural products
facilitate the creation of regionally
based, sustainable food systems. „ Organizational structure „ Markets (e.g., institutional buyers,
Building on this body of work but also retail grocery stores, restaurants)
offering a new perspective, this report „ Financing
focuses on distribution mechanics „ Types of collective producer
and operations within the food value „ Distribution logistics structures (e.g., cooperatives,
chain framework. farmer networks, associations)
„ Buyer-grower relationships
This focus on distribution is meant „ Types of collaborations
to address the oft-cited challenge „ Price negotiation
to regional food marketing: farmers The initial data-gathering period
are willing to grow produce for „ Marketing/branding occurred with visits to each case
local markets, and food buyers want study location, beginning in August
local food, but there is no practical In order to capture the level of detail 2007 and concluding in June 2008.
way to connect local demand with and richness of various distribution Each site visit lasted an average of 2
local supply (Day-Farnsworth et al., models, a case study approach was days and included semi-structured
2009; Zajfen, 2008). In focusing chosen as the primary research interviews with distribution entity
on the operational details of food method. The themes described staff, including general managers,
value chains, this report seeks to in this paper emerged from our sales staff, and farmer-relations
explain how mission-oriented food analysis of interview transcripts and personnel. Our key informants at
distributors can facilitate connections notes and other primary sources, the distribution entities provided
between regional food suppliers and such as organizational newsletters, names of buyers (customers) and
buyers through appropriately scaled websites, and journalistic accounts. suppliers (farmers) who work with
and designed business operations. Furthermore, given the dynamic them. Periodic follow-up interviews
nature of these alternative models of were conducted either in person or
local food distribution, the study took by phone through February 2011
to chart their progress. In total,
this study captures a rich, evolving
narrative of over 3 years in the life of
each case study.