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One Solution for Overcoming Barriers for Local Producers

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1 One Solution for Overcoming Barriers for Local Producers
Regional Food Hubs: One Solution for Overcoming Barriers for Local Producers James Barham Agricultural Economist Farmers Market and Direct Marketing Research Branch USDA Agricultural Marketing Service Agricultural Outlook Forum February 24, 2012 02/24/2012

2 Presentation Overview
Regional Food Hubs USDA’s “Know Your Farmer, Know Your Food” (KYF2) Initiative Food Hub Definition & Core Components Food Hub Example National Food Hub Collaboration Summary of Food Hub Findings to Date Lessons Learned Food Hub Resources & Reference Materials 02/24/2012

3 USDA’s “Know Your Farmer, KK Know Your Food” Initiative
USDA Responding to Local Food Trend: KYF2 Launched September 2009 Designed to spur a “national conversation” on how to develop viable local and regional food systems and stimulate new economic opportunities Deputy Secretary Kathleen Merrigan oversees a “KYF2” task force with representatives from every USDA agency, which meets every 2 weeks. Designed to: Eliminate organizational “silos” between existing USDA programs to support KYF2 mission through enhanced collaboration Align existing Departmental activities/resources and “break down structural barriers” that inhibit local food system development The Know Your Farmer, Know Your Food Initiative, or KYF2 as we often refer to it, is a USDA-wide effort to support the development of local and regional food systems and to lead a national conversation about food and agriculture and increase linkages between producers and consumers. There are a number of interagency subcommittees to carry out the activities of KYF2. For example, we have a farm to school subcommittee and a local meat processing subcommittee, and as you can see we also have a regional food hub subcommittee. We have a website dedicated to the initiative, I have included the link on the last slide, along with my contact information 02/24/2012

4 Regional Food Hub Taskforce
In May 2010, USDA established an interagency taskforce to examine the role and potential of regional food hubs to improve farmer/rancher access to larger volume markets Includes representation from the following agencies: Agricultural Marketing Service, lead agency Rural Development Food and Nutrition Service National Institute of Food and Agriculture Economic Research Service Agricultural Research Service Food Safety and Inspection Service Coordinating efforts with other Federal agencies, non-profit organizations, and the private sector 02/24/2012

5 Why Regional Food Hubs? Demand
Disconnect between growing retail/foodservice demand for local/regional food products and capacity of small/mid-sized farms to supply commercial customers with desired items. Demand Local food sales were estimated to be $4.8 billion in 2008, and are projected to climb to $7 billion in 2011 (USDA-ERS report) In 2011 National Grocers Association survey, 83 percent consumers said the presence of local food “very” or “somewhat important” in their choice of food store (up from 79 percent in 2009) 89 percent of fine dining restaurants surveyed by the National Restaurant Association in 2008 reported serving locally sourced items Seven of the top 10 food retail chains in US now promote local sourcing (USDA-ERS report) 02/24/2012

6 Why Regional Food Hubs? Supply
Farmers continue to be challenged by the lack of distribution, processing and marketing infrastructure that would give them wider market access to larger volume customers Particularly acute for operators of mid-sized farms, who are too large to rely on direct marketing channels as their sole market outlet, but too small to compete effectively in traditional wholesale supply chains independently Between 1992 and 2007, the number of U.S. farms selling between $50,000 and $499,999 of farm products per year dropped by 21 percent Their share of overall farm sales declined from nearly 25 percent of the value of agricultural products sold in the U.S. to under 17 percent Regional Food Hub Rationale: Many farmers continue to be challenged by the lack of distribution and processing infrastructure that would give them wider access to retail, institutional, and commercial foodservice markets, where demand for local and regional foods is reaching an all time high. This problem is particularly acute for operators of mid-sized farms, who are too large to rely on direct marketing channels as their sole market outlet, but too small to compete effectively in traditional wholesale supply chains. We believe regional food hubs can greatly support these ag-of-the middle farmers and to encourage smaller farmers to scale up their operations. USDA believes regional food hubs can play an important role in supporting/retaining these “ag-of-the middle” farmers and encouraging smaller farmers to scale up their operations. 02/24/2012

7 Regional Food Hub Definitions
Definitions vary from narrow market efficiency functions to those related to visions of building a more sustainable food system Working Definition A business or organization that actively manages the aggregation, distribution, and marketing of source-identified local and regional food products primarily from small to mid-sized producers to wholesalers, retailers, and/or institutional buyers Definitions are actually less important than being able to identify some of the core components of a regional food hub – which are the following… next slide 02/24/2012

8 Regional Food Hub - Defining Characteristics -
Carrying out or coordinating the aggregation, distribution, and marketing of locally/regionally produced product from multiple producers to multiple markets. Committed to buying from small to mid-sized local producers whenever possible and considers these producers as core to their business model. Utilizing one or more product differentiation strategies (e.g. identity preservation, group branding, sustainable production practices, etc.) to ensure that producers can get a good price for their products. Working closely with producers to ensure they can meet buyer requirements by either providing direct technical assistance or finding partners that can provide this technical assistance. Aiming to be both financially viable and have positive economic, social, and/or environmental impacts within their respective communities 02/24/2012

9 Local Food Hub - Charlottesville, VA -
Started in 2009 by two women entrepreneurs, one with a background in retail and distribution and the other in non-profit work Mission: “Local Food Hub is a nonprofit organization working to strengthen and secure the future of a healthy regional food supply by providing small farmers with concrete services that support their economic vitality and promote stewardship of the land.” A good and recently established example of a food hub is the Local Food Hub based in Charlottesville, VA. 02/24/2012

10 Local Food Hub - Charlottesville, VA-
Non-profit food hub model with two major programs: Local food distributor Educational farm with a variety of outreach programs 02/24/2012

11 Identified Food Hubs to Date
02/24/2012

12 Local Food Hub Currently works with over 60 small and mid- sized family farms (annual sales under $2 million) within 100 miles from Charlottesville Produce farms from 1 to 30 acres and orchards from 20 to 500 acres Offers fresh produce and other food products to over 100 customers, which includes: 45 public schools 20 restaurants 10 grocery stores 4 senior centers 3 college dining halls 1 hospital (see video at Several distributors, processors, and caterers Excellent video on Local Food Hub’s partnership with the University of Virginia’s hospital – see link. 02/24/2012

13 Local Food Hub - Charlottesville, VA-
Annual Gross Sales for 2010: $375,000 Projected Gross Sales for 2011: $675,000 The Local Food Hub opened in July of 2009 and ended that year with $75,000 in sales. In 2010, LFH grossed $365,000 and they are on track to nearly double this with $675,000 in annual gross sales in 2011. They have 6 full time and 10 part time staff – between the educational farm and local distribution business. 02/24/2012

14 Local Food Hub IMPACTS - Charlottesville, VA-
PRODUCER IMPACTS Ensures that 80% of the sales price goes back to the producer 100% of their producers rated product pricing fair to excellent Producers have increased farm sales by an average of 25% since working with the hub 60% of their producers plan to increase production Provides numerous workshops for their producers in areas such as Integrated Pest Management, season extension, crop rotation, farm business planning, and food safety (GAP/GHP). Local Food Hub provided a “good opportunity to open up a market that was not available to us otherwise, and as a result, we have expanded production of our crops considerably and hired more folks due to increased demand.” – Whitney Critzer of Critzer Family Farm 02/24/2012

15 Local Food Hub IMPACTS - Charlottesville, VA-
ECONOMIC AND SOCIAL IMPACTS Reinvested over $850,000 in the local farming community Created 15 paid jobs at their distribution and farm operations Hub services have helped to retain and support over 200 agriculture- related jobs The 120 active food hub buyers reported increasing their local food purchases by an average of 30% The hub’s educational farm offers apprenticeships and high-school internships to budding farmers Donated more than 100,000 pounds of produce to hunger relief organizations, with 25% of the organic produce from their own 6 cultivated acres from educational farm donated to area food bank 02/24/2012

16 The National Food Hub Collaboration
Partners include: Wallace Center at Winrock International, co-lead USDA Agricultural Marketing Service, co-lead National Good Food Network National Association of Produce Market Managers Project for Public Spaces The Regional Food Hub Collaboration is a strategic partnership between the USDA Agriculture Marketing Service and the Know Your Farmer, Know Your Food Initiative and the Wallace Center at Winrock International to support the development of food hubs. The collaboration team consists of members of the USDA Agricultural Marketing Service, the Wallace Center at Winrock International, Wallace Center’s National Good Food Network, Project for Public Spaces, and the National Association for Produce Market Managers (NAPMM). 02/24/2012

17 The National Food Hub Collaboration
First phase of collaboration: Identify existing food hubs Develop a greater understanding of the scope and scale of food hub operations, and their challenges and opportunities for growth, by: Carrying out focus groups with industry stakeholder groups Conducting an online survey with food hubs and “public” markets, and Carrying out phone interviews with a survey sub-sample of food hubs and public markets. In order to support the development of food hubs, the first phase of the collaboration was to identify food hubs that exist, provide a profile of these food hubs and understand the opportunities, challenges, and successes of these organizations. The collaboration set out to get a greater understanding of what these food hubs are doing: to understand the size and scope of the operations, to get a sense of the markets and supply channels these food hubs sell through, and to understand what types of food hub-like activities they are involved in. The collaboration also wanted to survey public markets that are involved in food hub related activities and gain a sense of how public markets can operate as food hubs, especially healthy food hubs that serve and provide healthy foods to all communities including underserved communities. To accomplish this work, the collaboration developed and implemented an online survey to obtain data on the identified food hubs and public markets. 02/24/2012

18 Preliminary Findings from Food Hub Survey*
Regional Food Hub Survey Online survey was sent to 72 food hubs and 36 “public” markets in January 2011. Surveys completed by Feb. 7 were included in analysis. 45 food hubs completed the survey (63% response rate). Follow up phone interviews with 20 food hub operations * This presentation of preliminary findings is subject to revision as further analysis is completed 02/24/2012

19 Food Hub Survey Key Findings
Entrepreneurs took the organizing lead in establishing 40 percent of the food hubs A nascent industry: 60 percent of the food hubs have been in operation for five years or less Average food hub sales are nearly $1 million annually Food hubs employ on average 7 full-time and 5 part-time employees with an average of 5 regular volunteers The median number of suppliers to a food hub is 40, many of whom are small and mid-sized farmers and ranchers 02/24/2012

20 Food Hub Survey Key Findings
Offers a wide range of food products, with fresh produce being its major product category, and sells through multiple market channels, with restaurants being an important entry market A socially driven business enterprise with a strong emphasis on “good prices” for producers and “good food” for consumers Actively involved in their community, offering a wide range of services to both producers and consumers Over 40 percent of food hubs are working in "food deserts" to increase access to fresh, healthy, local food products in communities underserved by full-service food retail outlets 02/24/2012

21 Food Hub Findings – Financial Viability of Food Hubs –
From follow-up phone interviews with 20 regional food hubs on their financial viability: 10 Food Hubs identified themselves as financially viable, i.e., presently covering their operating costs (breaking even) or turning a profit 7 Food Hubs projected they will break even in the next 1 to 3 years All 10 financially viable food hubs have gross annual sales of $1 million or more Regarding financial viability, we must understand that a great number of food hubs have little interest in being a solely for-profit driven enterprise – many are specifically designed as means to bring the greatest share of the consumer food dollar back to the producer. As one food hub survey respondent said, their goal is to just breakeven: “The goal is to make a penny and make sure anything else goes back to the growers” Furthermore, food hubs offer a number of producer and consumers services that could certainly be characterized as a “public good” – whether this is production training on season extension, IPM, or food safety or increasing consumer awareness on the benefits of buying local. Local Food Hub estimates that their breakeven point is 1.2 million – that would cover both their distribution and farm operations. Expect to get their in 3-5 years. The magic number for breaking even seems to be between 1 – 1.5 million in gross annual sales. It would be lower for most direct to consumer models. 02/24/2012

22 Regional Food Hubs There are many other examples of food hubs across the country. When we first started to search out food hubs – our initial list was of 33 food hubs. A year later, we had identified over 100 more, with to date total of 168 food hubs, and we are still searching… particularly if we were to include all the local distributors and produce delivery companies that meet our criteria, as well as multi-farm CSA operations. Interesting to see high concentrations in the Upper Midwest, Northeast, and Mid-Atlantic Based on a working list of 168 regional food hubs identified by the National Food Hub Collaboration 02/24/2012

23 Regional Food Hub Classifications
Breakdown of Regional Food Hubs* Food Hub Legal Status Number Percentage Privately Held 67 40% Nonprofit 54 32% Cooperative 36 21% Publicly Held 8 5% Informal 3 2% Regional food hubs are generally classified by either their structure or function. In regard to structure, one way to classify regional food hubs is by their legal business structure, which includes: nonprofit organizations (which often develops out of a community-based initiative); privately- held food hubs (a limited liability corporation or other corporate structure); cooperatives (either owned by producers and/or consumers); and publicly-held food hubs (often the case where a city-owned public market or farmers market is carrying out food hub activities). In regard to function, another useful way to classify regional food hubs is by the primary market they are serving, which can be delineated in the following ways: farm to business/institution model; farm to consumer model; or a hybrid model. Under the farm to business/institution model, regional food hubs are selling to wholesale market buyers, such as food cooperatives, grocery stores, institutional foodservice companies, restaurants, etc. Under this model, regional food hubs provide new wholesale market outlets for local growers that would be difficult or impossible for them to access individually. While this is one of the primary purposes of a food hub, there are food hubs that are focused on the farm to consumer model. In this case, the regional food hub is responsible for marketing, aggregating, packaging, and distributing products directly to consumers. This would include multi-farm CSA enterprises (e.g., Beneficial Farms), online buying clubs (e.g. Oklahoma Food Cooperative), produce delivery companies (e.g., Green B.E.A.N. Delivery), and mobile markets (e.g., Gorge Grown Mobile Farmers’ Market ). Under the hybrid model, the regional food hub is selling to both wholesale market buyers and directly to consumers. A good example of the hybrid food hub model is the Intervale  Food Hub, a 24-member farmer collaborative managed by the Intervale Center in Burlington, Vermont. The Intervale Food Hub sells their farmers’ products directly to consumers through a CSA with over 300 members, and sells wholesale to 12 restaurants and caterers, as well as to two schools and local hospital.  Hyperlink these and we need to write up a summary on the Gorge Grown Mobile Market for the appendix  hyperlink Intermediated Market Model Number Percentage Farm to Business/Institution (F2B) 70 42% Farm to Consumer (F2C) 60 36% Both F2B and F2C 38 22% *Based on a working list of 168 regional food hubs identified by the National Food Hub Collaboration 02/24/2012

24 At least 45 food hubs have started in the past three years ( ), with at least 17 food hubs established in 2011 alone 02/24/2012

25 The Big Picture… - Regional Food Hubs and the Food System -
Regional food hubs are filling a market function not adequately addressed by the current distribution system: the aggregation and distribution of food products from small to mid-sized producers into local/regional wholesale market channels Strong potential partnerships between regional food hubs and other distributors/wholesalers. Regional food hubs can: Serve as aggregation points for regional distributors/wholesalers Provide a reliable and ready supply of local/regional products Offer a broader and more diverse selection of source-identified and branded local products Increase supply of local/regional products by providing training/technical assistance to “grow” more producers Take advantage of the existing infrastructure available at wholesale/terminal markets across the country Over half (51%) of the food hubs in our survey said they are selling to distributors. LFH is a great case with sales to several regional specialty distributors as well as national broadline distributors. LFH has there specific markets around C’ville and let these other distributors move product to the DC area market. 02/24/2012

26 Priority Needs of Food Hubs
In most cases, the physical and “virtual” infrastructure is already in place, with an unmet demand for locally and regionally grown products What is needed? Start-up capital to renovate facilities for aggregation, storage, packing, light processing, and distribution Working capital for business management systems to coordinate supply chain logistics (e.g., grower-buyer transactions, aggregation, distribution, and marketing) Enterprise development training and technical assistance to increase grower capacity to meet wholesale buyer requirements (volume, quality, packaging, food safety, etc.) The bottom line - It’s not about building new infrastructure, it’s about taking underutilized assets and making them work better. Example – state farmers markets have the infrastructure and are well situated in terms of locations to growers to be turned into food hubs – just need the right management system to provide active and deliberate coordination between buyers and sellers, and between aggregator and distributors - instead of a what exist now, just a “come what may” approach. The virtual infrastructure – online matchmaking services – is also becoming increasingly sophisticated and accessible but this virtual infrastructure lacks the physical space and distribution coordination to be truly useful and impactful to smaller growers. 02/24/2012

27 Lessons Learned – Five Keys to Successful Marketing for Food Hubs –
Don’t sell commodities Product differentiation is key (unique product attributes, source identified, production practices, social equity), telling a compelling story, branding, certifications Be there all year for your customers Must sustain operations year round to cover costs and keep customer communication constant. Be pragmatic about your approach in terms of sourcing “locally” Get buyer commitment Be clear with buyers about volume order expectations and use a combination of specials, incentives, rewards, public recognition for “committed” buyers Think farmers first Ensure good prices for producers and find ways to build their capacity to grow and be successful Sweat the small stuff To tell an authentic and compelling story, all staff need to know every detail of the production and handling practices of the product sold under the brand (even the truck drivers!) Don’t sell commodities. It is essential to differentiate your products from others in the marketplace. On one level this can be accomplished by developing a strong brand that tells the product’s story and the values behind the story. The story must be simple, compelling, and credible. Most importantly, the value AND values reflected in the brand should speak directly to what is important to the customer audience (e.g. high quality, unusual varietals, local family farms, sustainable production practices, social equity, etc.). Be there all year for your customers. Strive to offer enough variety of products so that you can sustain a year round operation, which is essential for covering fixed operating costs and helps to ensure constant communication with your buyers. This means working with suppliers on season extension practices, offering shelf stable and value added products, as well as offering less seasonally dependent products, such as dairy and meat. Finally, be pragmatic in your approach – you may not be able to offer “local” products year round but you can offer fresh produce from other areas that still conform to the values espoused in the brand (e.g., sustainably grown products from small family farms). Get buyer commitment. With a good brand, quality products, and a reliable delivery service, food hubs have little difficulty finding and maintaining accounts, but they do struggle to get some buyer’s commitment to purchase in higher volume regularly. Many food hubs have mismanaged their growth by acquiring too many low volume order accounts. Be clear with new customers on volume order expectations and continually work with existing customers to increase their purchase orders, which can be done through a combination of specials, incentives, rewards, public recognition awards for being a “committed” buyer. Think farmer first. Ultimately, all marketing success is dependent on the producers you work with, so they should always be treated as valued and essential partners in your business, instead of interchangeable parts of a supply chain. Food hubs work hard to ensure good prices for their producers and often provide technical assistance, or find partners that can provide this, in such areas as sustainable production practices, production planning, season extension, packaging, branding, certification, and food safety – all of which helps build their growers’ capacity and ensures a steady and reliable flow of quality products through the food hub to the buyers. Sweat the small stuff. The marketing and sales staff (often it’s just one person!) must know every intimate detail of the production and handling practices for every product sold under their brand. This is necessary in order to be able to tell an intimate and authentic story about the producers they work with AND to assure their buyers that products are produced, handled, and delivered in a way that minimizes food contamination (food safety is an ever growing concern!). Also, given the boot-strap, sweat equity nature of food hub businesses, it’s a good idea to train the delivery staff (i.e., truck drivers) so they are knowledgeable about the producers and products, and have excellent customer relations skills – they are often the face of your business! 02/24/2012

28 National Food Hub Collaboration: Next Steps
Innovative Pilots: Key leverage points Partner with new/existing hubs Large buyers Farm to School/Institution Rural/Tribal/Underserved populations Community of Practice National & regional networking Peer to peer learning tools Clear access point for new stakeholders Accelerate innovation Technical Assistance Network Leverage National Good Food Network Both “strategic” and “tactical” support Outreach & Communications Case studies Webinars Links to financial and knowledge resources Food Hub Collaboration Building Effective Networks and Peer-to-Peer Learning Platforms Through our research, food hub operators indicated that ongoing outreach mechanisms such as face to face and on-line communities of practice would assist them in improving their food hub operations by facilitating networking with other food hub operators and the sharing of critical knowledge. We also see a need for Local and Regional communities of practice where stakeholders meet and work together, Chicago where Fresh Taste Initiative has facilitated a Great Lakes regional network of enterprises, in the Northeast with an informal network of food enterprises and civic organizations, and in California with the establishment of the California Regional Food Hub Network. There is also a need for a national community of practice to facilitate investment, innovation, information, and communication needs 02/24/2012

29 Regional Food Hub Research
Soon to be released: Moving Food Along the Value Chain: Innovations in Regional Food Distribution By Adam Diamond and James Barham Regional Food Hub Resource Guide An inventory and profile of existing food hubs A synthesis of lessons learned, challenges, opportunities, emerging best practices for the development of food hubs Identification of existing and potential resources (i.e., grants, loans, technical assistance) that can be used to support food hub development Coming Soon! 02/24/2012

30 USDA Food Hub/Food System Resources
USDA’s Food Hub Portal A catalogue of USDA's findings, resources, and support for food hubs USDA’s “Know Your Farmer, Know Your Food” Website See links to “Grants, Loans, and Support” and “Tools and Resources” 02/24/2012

31 - Reference Materials -
Regional Food Hubs: Understanding the scope and scale of food hub operations - Reference Materials - . 02/24/2012

32 Preliminary Findings from Food Hub Survey*
Online survey was sent to 72 food hubs and 35 public markets in January 2011 45 completed food hub surveys by February 7, 2011 The following results only include the food hubs, not the public markets * This presentation of preliminary findings is subject to revision as further analysis is completed 02/24/2012

33 Food Hubs Identified for Survey
When we first started back in May 2010 to inventory food hubs – we identified little over 30 food hubs – now we have over 70 food hubs identified. We keep hearing about more – and it wouldn’t be a stretch to say there are well over 100 food hubs operating in the US. A lot of this, of course, depends on how you define a food hub. We are just beginning to scratch the surface of multi-farm CSAs, producer marketing coops, produce delivery companies like Arganica in DC or New Organic Roots in Seattle, and even food cooperatives. – not to mention, and this is big, private produce distributors, like Keany Produce Company in the DC area or Horton Fruits based out of KY… West Southwest Midwest South Northeast TOTAL Food Hubs 11 (15%) 5 (7%) 22 (31%) 15 (21%) 19 (26%) 72 02/24/2012

34 Food Hub Online Survey Completed Survey Sent Survey West Southwest
Response rate of 63% - pretty good geographic representation, slightly under-represented in the South and slightly over-represented in the East and Northeast. West Southwest Midwest South Northeast TOTAL Sent Survey 11 (15%) 5 (7%) 22 (31%) 15 (21%) 19 (26%) 72 Completed Survey 7 (16%) 2 (4%) 13 (30%) 8 (17%) 15 (33%) 45 02/24/2012

35 Lead Organizing Entity for Establishing Hub
Entrepreneurs took the organizing lead in establishing 40% of the food hubs 7 out of the 11 hubs in the “Combination” category included non-profit or public sector involvement 02/24/2012

36 Legal Status of Food Hubs
Given the previous slide – you can see that many of the combination of entities became legally established as a non-profit organization. Greatest share of food hubs are non-profits, followed by cooperatives (many are producer run coops, but this also includes some consumer food coops, as well as some multi-stakeholder coops, like new generations buying clubs that include consumers and producers), and then LLC. Given the multiple services that food hubs often offer, such as production training, crop planning, business development services, many choose non-profit status so that have greater opportunities to access govt. and foundation funding (the public good aspect of their enterprises…) 02/24/2012

37 Food Hub Maturity Number of Years in Operation Average Median Range
A Nascent Industry: Three-quarters of the food hubs in our survey have been in operation for 10 or less years. The reason for this can be explained in large measure by a decade long increasingly growing demand by consumers for exactly what food hubs offer – source identified, sustainably grown food from local farmers. Number of Years in Operation Average Median Range 8 years 5 years 1 – 37 years 02/24/2012

38 Food Hub Funding As to be expected, in almost every funding category, you see food hubs more reliant on external funding at the beginning of operations, and then as they get established, they shift to covering their costs by income derived from food hub services, and other things like membership fees. To begin operations, in-kind support, or sweat equity, is a key contributor. Federal and state funding and member/owner capital contributions (which is basically their own money and equipment they put into this) are also key funding streams for starting up operations. As one founder of food hub said, “We started with $20,000 in savings, bought 1 refrigerated truck & a computer, used a spare bedroom as an office & our garage as our initial warehouse.” More on this food hub later… Currently funded: Most of the food hubs use income from services to fund their operations. Membership fees and loans are also prominent and also, which I think is quite interesting, is the important role of foundations, both in terms of beginning operations and currently with 31% to begin operations and 29% in current operations. 60% of the food hubs received govt. funding to begin operations 30% of the food hubs currently receive govt. funding 02/24/2012

39 Food Product Categories Offered by Hubs
Primary refers to products that make up the majority of hub offerings or sales, and secondary refers to products that hub currently carry less of or are emerging. Not surprising that almost all food hubs offer fresh produce, and the majority of food hubs also offer dairy and protein products (either as a primary or secondary product. It is very common for food hubs to offer multiple product categories. On average, food hubs offer seven product categories (on average four primary and three secondary). 02/24/2012

40 Food Hub Buyers/Customers
Primary refers to supply channels where the majority of hub sales are coming from, and secondary refers to where less of hub sales are coming from or an emerging market. Restaurants, grocery stores, and food cooperatives are the top three primary markets for food hub products. College/Universities are also significant buyers, but more so as a secondary market rather than a primary market. 02/24/2012

41 Food Hub Suppliers Number of Food Hub Suppliers Average Median Range
Food hubs work with a wide range of suppliers to provide multiple food products categories – there is also significant variation on the number of suppliers they work with, from 4 to On average, food hubs work with 77 suppliers but as the chart shows, over half (53%) of the food hubs in this study have 40 or less suppliers. Number of Food Hub Suppliers Average Median Range 77 40 4 – 450 02/24/2012

42 Food Hub Workforce Food Hub Workforce Average Median Range
13 of the food hubs surveyed (29%), do not have any full time paid staff. Many start-up food hubs rely on part time help and volunteers to keep their food hubs operational. Again, this speaks to nascent stage of development for many food hubs, who rely a great deal on sweat equity and/or other parts of their program or business to keep the food hub operational. But, we should not lose sight of the fact that on average, a food hub employs 12 people, with some of the more mature food hubs have over 10 full time staff to run their operations. Food Hub Workforce Average Median Range Full-time paid 7 3 0 – 112 Part-time paid 5 0 – 40 Regular Volunteers 1 0 – 30 02/24/2012

43 Operational Services/Activities
We asked the food hubs are number of questions concerning the type of services/activities offered by the food hub, and broke this down into four main categories: Operational, Producer, Community, and Environmental. We also asked what services were offered by their value chain partners. The assumption is that all food hubs have partnerships with others to carry out some of the activities along the food supply chain, including a number of support services. So, as to be expected, almost all food hubs are involved in distribution and aggregation activities, but some do rely on their partners to carry parts of these functions. For example, the food hub may be largely responsible for distributing food products to their end buyers/customers, but may rely on a farmer group to aggregate product and send it to the food hubs warehouse. Selling wholesale to consumer I think was misunderstood – we wanted to know if food hubs were selling directly to consumers, at both wholesale and retail prices, but I think this was misconstrued by some to meaning selling wholesale to buyers, such as foodservice buyers, grocery stores, etc. 02/24/2012

44 Producer Services/Activities
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45 Community Services/Activities
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46 Environmental Services/Activities
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47 Annual Gross Sales by Food Hub for 2010
35 out of 45 gave us their gross annual sales for As you can see, there is a huge range in terms of scale of operations - $46,000 to 40 million. 6 food hubs (17%) gross more than 5 million, the other 29 gross 3 million or less. And basically half (51%) or 18 of the 35 food hubs gross less than 1 million annually. This gives a pretty skewed view of average gross sales, as shown by the median – next slide gives a more accurate picture of the current sales of food hubs N Ave. Sales Median Range 35 Food Hubs $3.7 million $700,000 $46,000 to $40 million 02/24/2012

48 Annual Gross Sales by Food Hub for 2010 - sample of 29 food hubs grossing 3 million or less -
Ave. Sales Median Range 29 Food Hubs $871,000 $580,000 $46,000 to $3 million 02/24/2012

49 Food Hub Survey Key Findings
Well over 170 food hubs are in operation around the country, with large clusters in the Midwest and Northeast Entrepreneurs took the organizing lead in establishing 40 percent of the food hubs A nascent industry: 60 percent of the food hubs have been in operation for five years or less Average food hub sales are nearly $1 million annually Food hubs employ on average 7 full-time and 5 part-time employees with an average of 5 regular volunteers The median number of suppliers to a food hub is 40, many of whom are small and mid-sized farmers and ranchers 02/24/2012

50 Food Hub Survey Key Findings
Offers a wide range of food products, with fresh produce being its major product category, and sells through multiple market channels, with restaurants being an important entry market A socially driven business enterprise with a strong emphasis on “good prices” for producers and “good food” for consumers Actively involved in their community, offering a wide range of services to both producers and consumers Over 40 percent of food hubs are working in "food deserts" to increase access to fresh, healthy, local food products in communities underserved by full-service food retail outlets 02/24/2012

51 Food Hub Survey Key Findings – Financial Viability of Food Hubs –
From follow-up phone interviews with 20 regional food hubs on their financial viability: 10 Food Hubs identified themselves as financially viable, i.e., presently covering their operating costs (breaking even) or turning a profit 7 Food Hubs projected they will break even in the next 1 to 3 years All 10 financially viable food hubs have gross annual sales of $1 million or more Regarding financial viability, we must understand that a great number of food hubs have little interest in being a solely for-profit driven enterprise – many are specifically designed as means to bring the greatest share of the consumer food dollar back to the producer. As one food hub survey respondent said, their goal is to just breakeven: “The goal is to make a penny and make sure anything else goes back to the growers” Furthermore, food hubs offer a number of producer and consumers services that could certainly be characterized as a “public good” – whether this is production training on season extension, IPM, or food safety or increasing consumer awareness on the benefits of buying local. Local Food Hub estimates that their breakeven point is 1.2 million – that would cover both their distribution and farm operations. Expect to get their in 3-5 years. The magic number for breaking even seems to be between 1 – 1.5 million in gross annual sales. It would be lower for most direct to consumer models. 02/24/2012

52 Food Hub Potentials - from one food hub survey respondent -
THEN (1989) “I had been an organic farmer from 1979 to 1989…. [and] I realized what was needed was a food distributor focused on helping farmers get access to larger urban markets than they already had.” “We started with $20,000 in savings, bought 1 refrigerated truck and a computer, used a spare bedroom as an office and our garage as our initial warehouse.” NOW (2010) A regional distributor with over 100 suppliers, many of whom are small and mid-sized producers, offering over 7000 products to a wide range of market channels, including food cooperatives, grocery stores, institutions, corners stores, and food banks. Own a 30,000 sq. ft. warehouse and 11 trucks, with 34 full-time paid employees and over $6 million in gross sales for 2010. Certainly not “typical” but nonetheless an inspiring example from one food hub respondent about the possibilities and potentials for future food hub growth and development. 02/24/2012

53 Regional Food Hub Needs
Common Goal = Become a Viable Triple Bottom Line Business Profitable (or at the very least breaking-even), paying all staff for their work, paying on debts, and investing a percentage back into the business to increase efficiencies and expand sales and product lines. Financial Support Accelerating Innovation Technical Assistance and Business Development Services Community Support and Wider Stakeholder Engagement Building Effective Networks and Peer-to-Peer Learning Platforms Through our research to date, we have learned about a multiple needs of food hubs as they develop. Food hubs often rely on grant money for start-up funding to provide services and carry out essential operational activities, but a common goal among many is to become a viable triple bottom line business that will be sustainable in the long run. As a triple bottom line business, many food hubs are looking to be not only be economically viable but provide social and environmental benefits as well. To do this, here are the needs that we have currently identified. 02/24/2012

54 Regional Food Hub Needs
Financial Support Access to capital for infrastructure needs Innovative and creative loan options with technical assistance Less traditional equity investments or gift capital Accelerating Innovation Food hub “on the ground” pilot programs to develop models and innovative approaches Innovation in securing land and facilities, contractual relationships to farmers, meeting the needs of food insecure populations Financial Support- Food hubs need support and access to capital to purchase high-priced fixed assets such as warehousing, pallet jacks, forklifts, coolers, truck, and so on that are needed when getting started. Grant funds are needed for food hubs to invest in these assets and to better position the food hub and a candidate for a loan. Innovative creative loan options that are starting to emerge would also benefit food hubs as they are typically low-interest loans that also provide technical assistance to help support the success of the business. Other ways to access financial support could be through less traditional equity investments or gift capital such as sourcing from a cooperative membership, local community investing programs, crowd funding, and social venture capital. For example, Grasshoppers Distribution a food hub in Louisville, KY is creating a loan grant program for their producers where community members can provide financial support for producer investments. Accelerating innovation As many food hubs are still in early stages of development there is a need for foundations and government entities to work with for profit and not-for-profit partners to mobilize food hub “on the ground” pilot programs to further develop models and approaches for building an economically viable, environmentally sustainable, food hub operation as well as innovation in the business models in how they are able to secure land and facilities, contract with farmers, and how they play a role in helping to meet the needs of food insecure populations. 02/24/2012

55 Regional Food Hub Needs
Technical Assistance and Business Development Services Balancing social and environmental values/goals with the business plan Specific and detailed information about getting started Illustrative business models for various growth phases Community Support and Wider Stakeholder Engagement Investment in communications and outreach efforts to educate key stakeholder groups (e.g., producers, distributors, processors, buyers, foundations, government offices, economic development organizations, city and county planners and their trade associations) Technical Assistance and Business Development Services In the case of food hubs focused on a triple bottom line business, technical assistance and business development services are needed to learn how to balance the demands of social and environmental values within the business plan. When creating a business plan, it is important that food hubs have specific and detailed information on getting started that is included in their business plan such as information on facilities, types and sizing of handling and distribution equipment, floor plans for optimal product flow, and anticipated start-up and operating costs. This information can be used not as a blue-print to be copies by utilized as an example. Illustrative business models are needed that provide information specific to the various stages of a food hub (start up, early and growth phases) which could identify probable markets and products, forecast, and match facility and operating costs with investment and anticipated revenue in order to increase the probability of financial success. Community Support and Wider Stakeholder engagement In order for food hubs to truly meet their potential, the larger regional and community economic development framework that food hubs exist within needs to be on board with their development. There is a need for Foundations and government entities to invest in organizations that will develop communications and outreach efforts to educate not only food hub operators, but target information to others along the supply chain including buyers (such as schools and other intuitions, distributors and retail stores); family, regional and national level foundations; government offices inside and out of USDA; economic development organizations, city and county planners and their trade associations, and so on. 02/24/2012

56 Regional Food Hub Needs
Building Effective Networks and Peer-to-Peer Learning Platforms Face to face and on-line communities of practice to facilitate networking among food hub operators and partners Communities of practice at the local and regional level National Community of Practice to facilitate investment, innovation, information, and communication needs Building Effective Networks and Peer-to-Peer Learning Platforms Through our research, food hub operators indicated that ongoing outreach mechanisms such as face to face and on-line communities of practice would assist them in improving their food hub operations by facilitating networking with other food hub operators and the sharing of critical knowledge. We also see a need for Local and Regional communities of practice where stakeholders meet and work together, Chicago where Fresh Taste Initiative has facilitated a Great Lakes regional network of enterprises, in the Northeast with an informal network of food enterprises and civic organizations, and in California with the establishment of the California Regional Food Hub Network. There is also a need for a national community of practice to facilitate investment, innovation, information, and communication needs 02/24/2012

57 Five Keys to Food Hub Marketing Success
It is essential to differentiate your products from others in the marketplace. On one level this can be accomplished by developing a strong brand that tells the product’s story and the values behind the story. The story must be simple, compelling, and credible. Most importantly, the value AND values reflected in the brand should speak directly to what is important to the customer audience. Don’t Sell Commodities Strive to offer enough variety of products so that you can sustain a year round operation - essential for covering fixed costs and ensuring constant communication with buyers. Working with suppliers on season extension practices, offering shelf stable and value added products, as well as offering less seasonally dependent products. Be pragmatic in your approach – you may not be able to offer local products year round but you can offer fresh produce from other areas that still conform to the values espoused in the brand. Be There All Year for your Customers With a good brand, quality products, and a reliable delivery service, food hubs have little difficulty finding and maintaining accounts, but they do struggle to get some buyer’s commitment to purchase in higher volume regularly. Many food hubs have mismanaged their growth by acquiring too many low volume order accounts. Be clear with new customers on volume order expectations and continually work with existing customers to increase their purchase orders. Get Buyer Commitment Ultimately, all marketing success is dependent on the producers you work with, so they should always be treated as valued and essential partners in your business. Food hubs work hard to ensure good prices for their producers and often provide technical assistance in such areas as sustainable practices, production planning, season extension, packaging, branding, certification, and food safety – helping to build their growers’ capacity and ensures a reliable flow of quality products through the food hub to the buyers. Think Farmers First The marketing and sales staff must know every intimate detail of the production and handling practices for every product sold under their brand. This is necessary in order to be able to tell an intimate and authentic story about the producers they work with AND to assure their buyers that products are produced, handled, and delivered in a way that minimizes food contamination. Also, given the boot-strap, sweat equity nature of food hub businesses, it’s a good idea to train the delivery staff so they are knowledgeable about the producers and products, and have excellent customer relations skills! Sweat the Small Stuff 02/24/2012

58 National Food Hub Collaboration Contacts
USDA Agricultural Marketing Service Jim Barham, Agricultural Economist – Marketing Services Division Wallace Center at Winrock International John Fisk, Director National Good Food Network National Association of Produce Market Managers Ben Vitale, President Project for Public Spaces Steve Davies, Senior Vice President 02/24/2012


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