(Photo credit: Karen Guile, Peaslee’s Potatoes)
A central theme in a conversation about a large wholesale buyer, like Sodexo, purchasing more local food is how a small farm can “scale-up” to meet the demand of this market. Vermont First has offered and participated in forums that focus on what it means for a farm to sell to the scale of a market like Sodexo in terms of product quality, food safety, consistency of volume, and the like. What we do not often discuss is what “scaling-up” means from the perspective of farm profitability and viability, and the value of multiple business models that help bring local products to market.
Mark Cannella, from UVM Extension, addresses this issue in his article, “Building Brands in a Small Farm Food System.” A very important and timely read.
Building Brands in a Small Farm Food System
February 10 , 2016
Small farms in Vermont contribute tremendous value to our evolving food system by being nimble enough to respond to shifting consumer demand quickly. Small farms have pioneered niche products, such as multi-variety mesclun mixes and hybrid CSA memberships. They are engaged in cutting-edge production practices, such as air-cooled poultry processing, as well as land practices that benefit our water, air, and wildlife. Owners of small farms are easily accessible to customers through farmers’ markets and events, allowing them to tell (and sell) their story as individuals, families, and responsible stewards of the land.
By 2016, however, many of Vermont’s direct-to-consumer markets or direct wholesale markets (to restaurants and grocers), which have been the bread and butter for our small farms, have gotten very competitive. Since 2012, Vermont Farm and Forest Viability business planners have observed numerous farms pulling out of farmers’ markets or direct accounts due to lackluster sales. These farms are now seeking broader markets.
Why not encourage these small farms to simply scale up? To grow larger and reach an economy of scale that could increase profits? Many have tried but it turns out to be not so easy. Expanding a farm business almost always requires the recruitment, management, and retention of employees, which requires setting up formal payroll practices, absorbing costs to provide worker benefits, and institutionalizing specific farm management practices for others to follow. This requires new skill sets. Scaling up also leads to a customer service focus that many farmers are not interested in fulfilling. This does not mean that small farmers aren’t friendly and courteous to talk to—many excel at that. But an expanding farm must engage with all different types of buyers. Farming and marketing simultaneously is not for everyone.
Yet profitability is a major challenge for small farms that choose to remain small. The Vermont Farm to Plate Strategic Plan has collected U.S. Census data that highlights the financial woes of small farms nationally. Farms are twice as likely to lose money if the farm is a part-time endeavor of the owners. Farms that sell less than $100,000 in goods have a 50 percent chance of profits. Farms that sell between $100,000 and $250,000 when farming is the primary occupation have a more than 85 percent chance to profit. Again, many argue that individual farms need to scale up to increase their efficiencies. It seems like a no-brainer to scale up to meet market demand and also enhance profits, right?
Scaling up does look great on paper but it comes with significant financial hurdles, as expanding farms need to make major investments in land and buildings. An expanding beef farm, for example, will need to access large amounts of up-front capital (usually through debt or owner savings) to bring young stock in (or raise them), yet the stock won’t be sold as meat for up to two years. An expanding beef farm willing to borrow $500,000 to expand will be in a great position to advance their business, but the majority of Vermont farms are not able or interested to take those risks. A half-million-dollar investment entails at least a 15-year financial commitment, management of building projects, and adjustment of management practices that many small farms prefer to avoid.
Given these small farm challenges, it is necessary to look at solutions that don’t happen at the farm level. A new call-out to “scale up brands,” not farms, is needed to capture market opportunities and to remedy certain limitations in our small farm food system. Aggregated brands are companies that buy, market, and sell products from groups of farms under one brand name. They recognize that small farms in Vermont can’t “do it all” but still do many things well. With the right coordination, these brands and their distribution frameworks can improve the economics of independent farms by purchasing their products while helping to solve the key price point, volume, service, and quality issues that both producers and consumers want to overcome.
Selling products to a brand aggregator does not necessarily imply that a farmer has to resign herself to commodity agriculture. Dairy farmer cooperatives like Agri-Mark and CROPP (Organic Valley) support the movement of profits back to owner-farmers; emerging food hubs aggregate and resell numerous specialty products; and maple packers provide secure outlets for maple producers even in the most productive crop years and take on the task of marketing syrup nationally and globally. These collaborative brands often provide farmer incentives, such as technical assistance to solve production issues.
This past October, a dozen leading livestock farmers, business analysts, and distributors came together at the annual Farm to Plate gathering to consider the challenges of scaling up livestock farms. The panel included Black River Meats and Adirondack Grazers Cooperative, both examples of buyers that coordinate a consistent supply of meat from multiple farm suppliers. The panel also included independent farms managing production and marketing themselves.
Adirondack Grazers Cooperative is a newer business that sells meat from small beef producers in upstate New York to target markets that no single member producer could serve on their own. A farm in St. Lawrence County, bordering Canada, might never be able to manage sales and logistics to serve New York City but that is where the demand is. The cooperative can find good customers in New York City and elsewhere who pay strong prices and place large orders and then aggregate a single farm’s beef with products from other regional farms. Vermont’s own Black River Meats, based in Springfield, is similarly sourcing beef throughout the region and managing the logistics to sell the product. Make no mistake, this is not an easy business. Representatives from both businesses acknowledge the real work of coordinating people, product supply, and sales. The advantage, however, is that professionals can work full time on these tasks when small farmers can’t.
Time and time again, I have heard well-intentioned localvores shunning a farm that “got too big” to be hip. Similarly, I work with farmers who embrace their small farm and can’t conceive of buying 200 more acres of land, larger buildings, or complex machinery. It feels odd for me to have studied farm business management for a decade and come to the conclusion that barely breaking even is the end goal. But pushing small farmers into big farmer roles is not a guaranteed solution. If we keep farms small, however, the food system still needs a way to adapt the romantic imagery of small farms to products that work for the broader population. Our farmers need the markets, and new entities are needed to sell the products.
It’s refreshing to see a new wave of support for private labels, packers, and distributors doing the important work of aggregating farm products. Hurray for the middlemen, middlewomen, and producer cooperatives! Hurray for the next wave of competition between distributors who can provide better compensation and commitments to farmers in exchange for the branding of their small farm image! Small farms can lead to big business when they work with collaborative brands that close the sale.
Mark Cannella is an assistant professor of Extension with the University of Vermont and directs UVM Extension Farm Viability programs. Farm Viability provides a variety of farm management education programs and undertakes applied research in farm economics for audiences statewide. He also operates a small farm growing specialty potatoes in East Montpelier.