• Funding Small, Local Food Businesses

    The following is a part of my final paper for one of my Rady MBA classes last quarter. The title of the paper is “Funding Small, Local Food Businesses.” I meant to post this earlier, as it is unmistakably linked to this farmers market blog I write. I’ve written about the countless benefits that farmers markets provide, to the community, the farmers, and the environment before on the blog. This excerpt touches on those beneficiaries and more, including a bit on CSA. I hope you enjoy!

    Introduction to Our Current Food System

    Our current food system is, in a word, inefficient. From production to distribution to sales, it seems there is value lost along the chain. For instance, according to the Farm Bureau, farmers only earn 19 cents of retail food dollars. The other 81 cents goes to transportation, packaging, distribution, processing, and retailing. If farmers could sell direct to their consumers, they would earn the full dollar and benefit fully from their labor. (3)

    There are systems that would allow this full value capture, namely farmers markets. It’s a matter of getting more local markets up and running that would make this value capture plausible on a larger scale.Mainly, the produce that can be profitably sold in supermarkets comes from the large volume growers. Because of the large volume, the intricately large supply chains, and the federal aid, few growers can succeed this way. The federal government has a large impact on which farmers receive subsidies. Currently, according to the 2014 Farm Bill, 75% of government subsides is going to only 4% of farmers (1). These farmers specialize in production of commoditized crops like corn and soy. This means that most of the farmers growing fruits and vegetables are not receiving financial aid from the government, and this is only one reason it is hard for them to sustain their farms financially.

    It’s no wonder that the majority of Americans eat food from super markets (32%), restaurants (36%), and warehouses/superstores (10%) (10). These places buy crops from larger, subsidized farms that have lower costs due to economies of scale. Economies of scale help larger farms deal with shifts in consumer demand, changes in the price of oil, and fluctuations in global commodity prices. Volume helps cover costs and fluctuations of demand. A better infrastructure would allow farms to compete on a more level playing field in these larger markets. 

     

    Goals

    The goal of a local food business is to create a thriving and sustainable web of food and farm businesses that can succeed economically while also feeding the local region with healthy, locally produced food. The constituents involved in this local food system may include entrepreneurs, farmers, public officials, lenders, non-profits, and the local community (10). Each constituent has separate goals, but the small, local food system aims to mitigate agency problems by aligning incentives so that all goals are achieved simultaneously.Small business owners and farmers aim to make enough money to live comfortably. They want to be specializing in farming, since that’s what they do best. They strive for sufficient and stable demand in the market to sell their product. Lastly, they want to support their thriving farms and a vibrant local economy.Customers want to have access to fresh and local produce. They desire the produce be affordable, and if they are on a federal aid program, they want the benefits to work at local produce markets. Consumers also want to feel a connection to their food and investors want more knowledge about where their money is going.

     

    Solutions

    There are many reasons to keep money local and there is a lot of proof that local money can support a stronger community. Some local food systems that have shown success in providing better financial and physical access to the community include farmers markets, SNAP, urban farming, and Community Supported Agriculture.

     

    Farmers markets

    Data obtained by a study funded by Surdna Foundation revealed that farmers markets (from the study) generated significant economic benefit for vendors, host neighborhoods, and surrounding regions. The study utilized SEED methodology developed by Market Umbrella to summarize economic benefit of farmers markets (4). SEED is measurement tool that adds the economic benefit of farmers markets for its vendors to the economic benefit for nearby businesses. In short, it captures the impact of an initial round of spending plus successive rounds of re-spending of those initial dollars within a single region. The greater interaction each dollar has with local economy, the larger the impact (and the “stickier” the economy) (3).

    It was discovered that farmers markets were good for all constituents involved. First, they were good for vendors. As referenced earlier in this paper, according to the American Farm Bureau, growers were able to earn 100% of retail food dollars when selling direct to consumers via public markets (as opposed to only 19%). Less profits were consumed by transportation, packaging, distribution, processing, and retailing. Secondly, farmers markets are shown to serve “Main St.” well, as there was an increase in revenue collected by local businesses. Lastly, farmers markets contributed to local and state tax revenues. Some specific examples include Echo Park Farmers’ Market (LA), which contributes over $2.3M to local economy (3), West Baltimore Farmers’ Market which contributes $72K to the local economy, and Hollywood Farmers’ Market which contributes over $56M to the local economy (4). 

    Farmers markets also serve as an effective way to reduce barriers to healthful food access. As far as funding goes, farmers markets can be sponsored by non-profit organizations and community health centers. While they often may seem temporary and informal with the pop up tents taking over parking lots, they are anything but. Farmers markets are highly efficient, enterprising, and democratic (2). 

    Farmers markets involve the four P’s: Place, Procedures, Product, and People. “Place” refers to things like the time, day of the week, frequency, and physical space (open air or indoor). “Procedures” involve decisions such as whether to be open rain or shine, which items can be sold and by who, if there is a mission statement, if EBT/Credit/Token accepted, and whether or not there are written rules/regulations for vendors/staff/shoppers. All products in a Farmers Market are sold directly to the consumer, but “Product” includes which items are sold to the consumer and from which categories, for instance, is reselling goods legal? Usually it’s not. “Product” also determines what percentage of sales vendors pay to market organization. “People” include the shoppers, vendors, neighbors, managers, and investors. The market stands as a place to meet each other, add nutritious, affordable dimension to family diets, and offer outstanding programs/ classes (3). 

    Community Supported Agriculture
    The Community Supported Agriculture model, commonly referred to as the CSA model, is a financial model that works to align incentives of both consumers and producers alike. When a community group decides on a CSA, a farmer can focus on developing his or her farm and growing produce. They can assure abundance, diversity, fertility, and capacity for future. The CSA model works by pre-selling shares of crops. The buyers can be promised the highest quality produce at lower cost than would be possible otherwise. Growers can specialize in environmentally sustainable farming practices, knowing demand is certain. They get a sense of economic security since there is a guaranteed market for the produce (9).CSA creates direct relationship between producers and consumers where they both gain (7).
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    The CSA model allows farmers to specialize in what they do best: growing delicious food. It makes known the difference between growing and selling. Really, they are two sides of the business that work best autonomously, yet are dependent. The CSA model says ‘Let farmers farm- marketing is not their forte.’ Then food and labor can to be taken out of market place.
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    According to Rudolph Steiner, “Father” of biodynamic farming, the “True price of a crop is when we receive enough to enable us to satisfy all our needs until it is time again to produce the same product.” (8) He means to say that farmers don’t get paid for labor of a crop specifically, but instead they simply need to make enough to satisfy their needs until there are more crops (next season). The CSA model is built on the concept that food is a transitory wealth. Potatoes, for instance, are soon worth nothing, but the farm that grows the potatoes is the means of production and insures the future. Farms therefore need community support.
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    CSA argues that the value of farms goes beyond its produce to include beauty, education, and environment. Not only can a consumer receive their produce, but also they are welcome to the farmland for picnics, education, etc. They get an all around stronger connection with their food and the land. Members are encouraged to ‘take what you need, give what you can.’ (8) The CSA model benefits the environment as well as it allows for less waste and promotes protecting local farmland since small farms remain economically viable (9). 
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    Conclusion
    Many of the solutions to financing and sustaining our local food systems may sound idealistic. They are possible, but a total change in thinking, one that opposes the notion that “more is better”, is necessary. Besides this change in mindset, there are other threats and challenges for implementing any of these solutions.
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    Recently, food safety scares that make the news tend to go viral. These scares have led large buyers such as super markets to require producers of prewashed salad greens, for instance. This is often time consuming and expensive. Small farmers may not have the time, resources, or infrastructure to make this possible (10).
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    As mentioned, financing small food enterprises is difficult. Community Development Corporations (CDCs), local banks, personal resources, and investors are necessary to cover start up and operational costs. But small food businesses are considered “high risk” for many reasons, including that they are seen to be at the start of this trend of consolidated food systems. Second, they may be perceived as a low growth industry, and tough there may be projected growth, it may be slower. Local food systems must rely on community investment to achieve profitability and may lean towards unconventional business or ownership models (10). Shared cooperative ownership or shared use facilities are good ways to finance food systems, and are fitting as these methods involve many constituents all benefitting efficiently from minimal resources.
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    On the other hand, capital into local food system to works on its own community. The money stays local. There’s something t be said about knowing where one’s money is going. An investor can visit the farms he or she supports. He or she can taste and see the progress.I argue that local food systems are worth the “slow return”, the extra work, and the wait. Even while growing, local food business generate community support, high quality products and services, local tax revenue, and wider community benefits. They may produce jobs and other ongoing benefits to local community. It’s a beautiful thing to keep food, the thing that nourishes us and keeps us alive, local. Feeling a connection to the land has benefits beyond dollar amounts, and once communities can see this, they might be willing to slow their money down and invest in the local food system.
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     Bibliography 1. Woo, Jaimie. “Our Taxpayer Dollars: Going to Waste and Wealthy Corporations.” Huffington Post, 6 February 2014. Web. 2 June 2014.2. Obadia, Jennifer and Porter, Jennifer. “Farmers Markets: Impact on Fruit and Vegetable Consumption of Supplemental Nutrition Assistance Program Clients.” Boston Collaborative for Food & Fitness, 2008. Web. 23 May 2014.
    3. “Sticky Economy Evaluation Device: Measuring the Financial Impact of a Public Market.” Market Umbrella, 21 October 2011. Web. 23 May 2014.4. Shepherd, Mary. “The Economic Impact of Farmers Markets.” Farmers Markets Today, 2014. Web. 23 May 2014.
    5. “VSAT Program.” Archi’s Acres. Web. 29 May 2014.
    6. “WWOOF.” WWOOF. Web. 29 May 2014.7. Jones, Helen. “Deli Dollar Offers Route to Business Funding.” The Independent, 17 February 1999. Web. 24 May 2014. 8. Poppen, Jeff. “Community Supported Agriculture and Associative Economics.” Biodynamics, Spring 2008. Web. 23 May 2014.9. “What is Community Supported Agriculture?” Slow Movement, 2014. Web. 29 May 2014. 10. Christie, Margaret. “Scaling Up Local Food: Investing in Farm & Food Systems Infrastructure in the Pioneer Valley.” Community Involved Sustaining Agriculture, 2011. Web. 23 May 2014.11. “Slow Money.” Slow Money. Web. 23 May 2014.
    12. Gatheround.org. Slow Money, 2013. Web. 29 May 2014.
    13. Chu, Michael and Tahilyani, Rachna. “Aspada: In Search of the Right Structure for Impact Investing.” Harvard Business School, 1 April 2014. Web. 28 May 2014.
    14. Golden, Sheila. “Urban Agriculture Impacts: Social, Health, and Economic: A Literature Review.” University of California Agriculture and Natural Resources, 13 November 2013. Web. 27 May 2014.
    15. “Herb En Routes.” Herb En Routes. Web. 29 May 2014.
    16. “Credibles.” Credibles. Web. 29 May 2014.
    17. “EWG Farm Subsidies.” Environmental Working Group, 2014. Web. 2 June 2014.
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    See you next week!
    -Market Girl
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