The Business of Food Hubs: Planning Successful Regional Produce Aggregation Facilities
This workshop-style webinar explains the value of, and takes you through the steps for creating your own food hub feasibility study.
Food hubs (regional aggregation points) have been identified by many
as a clear need for scaling up Good Food. Have you picked the right
place and time to build your food hub? What are the area's resources and
needs? How can you tailor your business to best meet those needs?
These questions can be answered by using a business planning approach, starting by completing a feasibility study. A crucial first step when embarking on a new venture, a feasibility study carefully examines the context into which the new undertaking would fit, and attempts to determine its likelihood of success.
This workshop-style webinar steps through two food hub feasibility studies to illustrate how you might go about assessing your potential food hub venture. These studies demonstrate two very different value chain environments, and come to some different conclusions.
Watch the Webinar
Answers to Questions
The live audience for this webinar asked many questions, some of which our presenters were able to answer in the 15 minute Q&A section at the end of the webinar. Our presenters have generously taken the time to provide written responses to many of the questions we ran out of time to address verbally.
Q: Will the business plan get solid information about the prices that
these big buyers are paying and if there'd be a premium on price for
Kathy Nyquist:Yes. Buyers and growers will be brought together to discuss requirements regarding pricing, quality and service.
Q: What is the best way to link farmers to customers?
Jim Slama: Professional sales systems are the key. Of course customers want to be ensured of quality, food safety, and steady supply.
Q: What type of farm do the schools [you mentioned in the Chicago area] purchase from?
Jim: Chicago schools purchase from multiple farms both directly and through distributors.
Q: Is there an entity that might be tracking the number of new food hubs, or similar pack houses planned across the country this year?
Jim: Agricultural Marketing Services at USDA is working on food hubs. If anyone could do it, they could. Not sure of any other resources.
Q: So is 1260 the average break even that we should think about? That is very large for MN at least. The avg [fruit and vegetable] grower is about 100 acres.
Kathy: Break even will vary in every model. It is dependent on the size of the facility, the cost of operations and the volume and price of goods sold.
Q: Can the small, diversified farm play a role in this? Is it only those that can provide full pallets of product? What are the environmental repercussions of that?
Jim: Small farms can certainly participate. The Northern Neck packinghouse in VA purchases product from a wide variety of farmers including smaller operations. The more efficient a packinghouse is, particularly with transportation, the lower the carbon footprint.
Q: Re: public and non-profit financing: Are there public grants or guaranteed loans available for food hubs and did you utilize any of these type of resources? Any funding from foundations making PRI's (program related investments)?
Jim: We received funding from the Triskeles foundation to fund the work in VA. Illinois was funded by the Illinois Dept. of Agriculture through a USDA Specialty Crop Block Grant. USDA Rural Development grants can also be used to fund feasibility studies and/or business plans.
Q: What was the $ amount of the Illinois Dept. of Ag & familyfarmed.org project?
Kathy: The Illinois Specialty Crop Block Grant was for $36,000.
Q: One of the advantages of the local movement is selling the "story" of the farmers (seeing pictures of the farmers, giving that produce a personality). Can you comment a bit on how that story is lost through aggregating, and how you maintain that?
Kathy: Farm identification is greatly preferred to a single, generic label, but whether this can be accomplished profitably will be explored in the business planning phase and confirmed through market feedback once the business is operating.
Q: Can you explain the commission structure? I'm not sure who pays the commission to which players.
Kathy: Sales commission is paid by the customer and kept by the packing house. The grower receives the proceeds of the sale after commission and any packing fees are subtracted.
Q: Is there either a feasibility study or existing business model that addresses food hub specifically dealing with farm to school programs including minimally processing for extended use of locally grown products for schools?
Jim: Not that we know of. You may want to check with the National Farm to School Network.
Q: Is there a state that has multiple food hubs managed or organized by one group?
A: Look into CAFF in CA, their grower's collaborative program has helped open and operate a few in the bay area
Q: Is there a financial model that represents a combination of food hub and packing house?
Jim: A food hub can be a packing house. There are many models that are both.
Q: Is there any guarantee you will offer farmers for pre-season planning?
Kathy: Growers in Illinois indicated a willingness to participate without formal agreements.
Q: Has there been any specific discussion on the marketing plans for the local produce?
Kathy: Marketing plans will be developed for the business plan.
Q: Do either of these studies address extended season opportunities?... including (eventually, what can be available during winter?
Kathy: The basic model measured profitability without seasonal extension. Seasonal extension is discussed as an asset utilization strategy in both studies, but specific crops, volumes and pricing will be determined in the next phase of business planning.
Q: How was the survey implemented? (Online, in person, mail, phone).
Kathy: We developed print and online versions of the survey. It was advertised across the state via print and online ads, in print and online newsletters, through mailings to grower groups, and through list serves. 90% of responses were received online and 10% were mailed or faxed.
Q: Has Virginia Cooperative Extension been able to quantify those positive benefits of their involvement for the state?
Kelly Liddington: I don’t have an exact number that I can hang my hat on and say that Extension’s involvement yielded X dollars. Like with many ag. and other enterprises, there are significant factors that influence outcomes and in this case, Extension is one of them. Sam Johnson and I have served as advisors to the Northern Neck of Virginia Growers Association from its inception and facilitated many aspects of their capacity and present programs. We do know that the association has facilitated many things that can be measured, and if you would like to get more information on them you can contact me directly.
Q: Food Safety is such an important component of food production...what has your experience been with the "small" farms willingness to embrace GHP/GAPs and implementing food and farm safety?
Jim: There is reluctance for small farms to get GAP certified for food safety. It is a time consuming process and can be expensive. Developing a food safety plan is very challenging the first time out and this plan is the basis for GAP certification. We are developing a free online tool that will help farmers develop a food safety plan. We plan to launch it next spring.
Q: Can you talk a little more about the proposed ownership structures planned for the Food Hubs in the case studies?
Jim: Ownership will be addressed in the business planning process.
Q: Can you give examples of hubs that take "seconds" and also ones that provide processing and stabilization such as canning or flash freezing for later sale?
A: Appalachian Sustainable Development in VA/KY is selling second to food bank type programs. Processing is another matter.
Q: Are you working with anybody in the area in the development of a hub or packing house?
Jim: It all depends on our capacity to take on new work and the specific needs of the project. We are planning to expand our work in this area and excited about new possibilities.
Q: What is the minimum acreage needed to grow in this wholesale arena.
Jim: It all depends on the crop, market demand/price, and the farmers fixed and variable costs. There are farmers selling into wholesale who have 10 acres, others won’t do it unless they have 50 or more.
Q: Are more detailed numbers on the survey responses available?
Kathy:Yes. A complete summary can be found on pages 9-16 of the Ready to Grow report.
Q: Did the Illinois growers who were ready to "step up" acknowledge that these services/facilities/guarantee may cut into their margins? Or was the expectation that the consumer-side pays the difference?
Jim: Farmers who sell into wholesale realize that it is a lower margin business, versus direct. Most of the growers we have been talking too in Illinois are primarily wholesale producers. They are excited about new markets!
Jim Slama is the founder and president of FamilyFarmed.org, which encourages the production, marketing and distribution of locally grown and responsibly produced food and goods. FamilyFarmed.org expands the market for local farmers and food producers, by advancing the Community Supported Agriculture (CSA) movement, supporting farmers markets, and playing an integral role in public policy in the state and region. Jim works with many of the leading trade buyers for local food in the country including Whole Foods Market, Goodness Greeness, Chartwells Thompson Hospitality (Chicago Public Schools), Chipotle, Compass Group, Lettuce Entertain You, SYSCO, Irv and Shelly’s Fresh Picks, and more. FamilyFarmed.org hosts the annual FamilyFarmed EXPO, a food festival, trade show, financing conference, and celebration of local food and goods. Jim is the editor of Wholesale Success: A Farmers Guide to Selling, Post Harvest Handling, and Packing Produce. The manual gives small to mid-size growers technical assistance to help them develop the skills to sell produce into wholesale markets. As a result of this work, FamilyFarmed.org created the On-Farm Food Safety Project which is working with the FDA, USDA, food buyers, and advocates for small to mid-size growers to create an online tool giving farmers the ability to create a On-Farm food safety plan. Jim played a key role in developing and helping to pass the Illinois Local Food, Farms, and Jobs Act, which has been hailed as model legislation to build a local food system. The law created the Illinois Local, Food, Farms and Jobs Council which is charged with developing local food systems in the state. Jim is a member of this Council.
Kathy Nyquist is principal at New Venture Advisors LLC, a strategy consulting firm providing business development services for entrepreneurs and investors. With FamilyFarmed.org, she is leading several business planning projects for local food enterprises. Kathy has ten years of food industry experience at Kraft Foods, where she was most recently on the leadership team for the Cheese and Dairy business unit as Director of Promotion Marketing. Prior to Kraft, Kathy worked for two of the nation’s top advertising agencies developing national campaigns for Coca-Cola, Keebler, Frito-Lay and Miller Brewing. Kathy graduated from the University of Chicago Booth School of Business where she earned an MBA with honors and received the Dean’s Award for Strategy for achieving the highest academic record in Strategic Management.