Moving Food Along the Value Chain: Innovations in Regional Food Distribution (2012)

This report examines the aggregation, distribution, and marketing of eight food value chains to glean practical lessons about how they operate, the challenges they face, and how they take advantage of emerging opportunities for marketing differentiated food products. A focus on the operational details of food value chains—business networks that rely on coordination between food producers, distributors, and sellers to achieve common financial and social goals—demonstrates how to facilitate moving differentiated products from regional food suppliers and buyers to customers. The key business practices of food value chains include: (1) Recruiting producers and developing producer networks; (2) Identifying, branding, and marketing differentiated farm products; (3) Managing infrastructure to transform, pack, and transport farm products; and (4) Negotiating with buyers to secure a fair return for the producers. By analyzing what has and has not worked within food value chains, this report gives organizations interested in building local food systems lessons to build on, blunders to avoid, and inspiration to draw from. Our eight case studies were selected to examine a variety of participating farmers, locations, product mixes, markets, and types of partnership or collaboration. They are categorized by the type of organization that drives the distribution operation. Retail -Driven Models La Montanita Co-op, based in Albuquerque, NM, established its Regional Foodshed Initiative in 2007 to expand purchases by the Co-op’s four stores of sustainably grown regional products and to assist regional producers in accessing other wholesale market channels for its products. Co-op Partners Warehouse, located in St. Paul, MN, was started in 1999 by the Wedge Cooperative to provide high -quality organic produce to the Co-op, and now serves 200 consumer cooperatives, health food stores, buying clubs, and restaurants in the Upper Midwest. Nonprofit-Driven Models Appalachian Sustainable Development’s Appalachian Harvest, located in in Abingdon, VA, has been selling organic produce to regional supermarket chains and specialty grocery chains in the Southeast and Mid-Atlantic regions for 10 years. Minnesota Food Association’s Big River Farm, based near Stillwater, MN, has provided production training and distribution/marketing services to aspiring immigrant and refugee farmers since 2007. Growers Collaborative was established by Community Alliance for Family Farms (CAFF) in 2005 to offer aggregation, distribution, market promotion, and education services to California family farms. In 2009 CAFF went from being a full -service distribution company to playing a matchmaker role, transferring distribution and marketing services to independent aggregators and distributors. Red Tomato, founded in 1996 and based in Canton, MA, arranges for the aggregation, transportation, and sale of a wide variety of produce supplied by 35–40 farmers to grocery stores and distributors throughout the Northeast. Its signature Eco AppleTM line of apples is grown using advanced Integrated Pest Management methods subject to third -party verification and accounts for more than half of Red Tomato’s sales volume. Producer -Driven Model New North Florida Cooperative has been aggregating, processing, and selling produce in the Southeast since 1999. It sells primarily chopped fresh collard greens, sweet potatoes, and green beans from mainly small-scale minority farmers to 60 independent grocery stores and more than 30 school districts in the Southeast serving more than 200,000 students. Consumer -Driven Models The Oklahoma Food Cooperative has been operating an Internet-based buying club since 2003. It is a producer- and consumer-owned cooperative in which 200 producer members sell more than 4,000 individual items, including meat, produce, milk, and value-added items, to 3,800 Co-op members. Findings Four themes that cut across the eight case studies provide valuable insights for value chain practitioners: The level of investment in infrastructure should match the organization’s stage of development and marketing capacities. How much and when an organization invests in infrastructure is vital to the success and even the survival of the enterprise. Whether it makes sense for food value chain distributors to invest heavily in infrastructure depends on operational scale, proximity to customers, availability of existing distribution assets, financial capacity, and its ability to capture value throughout the supply chain. The four nonprofit distribution models tended to overinvest in infrastructure because of its ability to solicit grants and donations and its tendency to focus on needs in the community rather than assets that could be mobilized. The four cooperative distribution models were much more conservative; they only invested in infrastructure in tandem with business growth and needs. Value-chain managers must ensure identity preservation from farm to market as a way to establish marketing claims and improve negotiating position with buyers. The type of identity preservation employed by the various distribution models to differentiate its products was largely dependent on its relationship with farmers, retailers, and individual consumers. When there is a great deal of preexisting trust between consumers and the seller, there is less need to specify which farmer produced an item or to create a third-party certification scheme. When there is less trust or social connection between consumers and sellers, identifying the farmer on each produce package helps establish marketing claims and better position products in a competitive selling environment. Distribution entities using informal producer networks can adapt to the constantly shifting demands of diversified, niche food markets. While agricultural cooperatives have played a major role in product aggregation and food marketing, new models of producer coordination are emerging that offer more flexibility to suppliers and buyers. With more informal supply networks, farmers benefit from a more diverse market channel mix by balancing risk and not “putting all its eggs in one basket,” and the distribution entities are under no obligation to take all of its members’ production. Informal farmer networks seem to be particularly appropriate for marketing diverse products like fruits and vegetables; more formal cooperative structures may be more appropriate when dealing with single, uniform products. A diverse range of products, each with its own separate costs of production, processing requirements, and prices, makes it difficult to allocate costs and benefits to cooperative members. Nonprofits and cooperatives can play key roles in value chain development but should recognize its organizational competencies and play to its strengths. As nonprofits and cooperatives engage in value chain activities, they should consider what roles are most suited to its capacities and recognize how its limitations can be mitigated through building strategic partnerships with other value chain actors. Cooperatives may benefit from partnering with nonprofits for training, education, and resource prospecting; nonprofits may find it worthwhile to partner with cooperatives or other business entities to provide infrastructure support or supply chain management services.