Growing Local Food Sales in Face of New Marketplace Challenges
We are in a precarious moment where gains made by Farm to Plate and Eat Local initiatives to grow and diversify Vermont’s agricultural opportunities are threatened by consolidation in the retail food industry. This consolidation is creating intense pressure to drive costs out of food distribution. These changes are making it harder for farmers to reach consumers who want to provide both healthy food for their families and a fair wage to the farmer.
An October 2018 report by several agricultural leaders in Vermont states, “nearly all farming sectors are facing downward price pressure on producers, increasing production expenses, a need for increased marketing and sales savvy… and an ongoing shift … towards processed, convenience foods.”
In this context, unless they have access to a hyper-local market of adequate size, small Vermont farms are seeking ways to increase their production or band together to reach viable economies of scale. They are seeking markets where a larger share of the consumer food dollar is making it back to farmers.
Moving from Local Purchasing Relationships to Centralized Control
We’re seeing a severing of the ties between local producers, distributors, and the corporate buyers at mega-grocery chains. Farmers are being forced to bear the costs of transportation and labor along the supply chain as stores and distributors seek greater savings. When stores buy too much, or there’s spoilage downstream, farmers are saddled with “chargebacks” for unsold goods.
Amazon’s 2017 purchase of Whole Foods is a case in point. Historically, Whole Foods’ purchasing was decentralized, allowing its buyers to build close relationships with local producers. Since being bought by Amazon, Whole Foods is centralizing its purchasing through its Texas headquarters.
Whole Foods used to provide additional services, such as free in-store product demonstrations, to boost local products. These opportunities have largely fallen away. Producers say they’re being charged for demos that are being run by a third-party vendor, instead of the producers themselves. And, if their sales are over a certain limit, they are charged an additional fee. Many local food suppliers are shut out of the Whole Foods market if they can’t meet stringent price points.
As Tim Storrow of the Castanea Foundation put it recently, the changes wrought by Amazon’s purchase of Whole Foods amount to “the transfer of wealth from small farmers to Amazon shareholders.”
Amazon’s purchase of Whole Foods is particularly striking because of the chain’s pedigree for leadership on organic, natural and local products. But, consolidation is a much broader trend. Total merger deals in the industry reached a high of $2.3 trillion in 2015. This winter, with support from the Farm to Plate Network, NOFA Vermont plans to research more deeply the consequences of consolidation.
In 2016, Midwestern-based Reinhart Food Service bought Black River Produce, a company founded by two Vermonters committed to purchasing local produce when it’s available at scale. Black River has been shifting its purchasing practices to drive efficiency so it can compete in regional wholesale markets. Black River remains committed to buying local and may even be increasing the total amount of food it buys locally. However, only the largest producers can meet its minimum orders and modest-scale producers say they have fewer options for transporting produce to market.
Red Tomato, a Northeast food distribution nonprofit based in Massachusetts, develops partnerships between growers and buyers by arranging the logistics of moving produce and conveying the story of each farm to the end consumer. In a wrenching blog post this fall, Red Tomato’s Executive Director, Laura Edwards-Orr, described how their largest customer told her via email that they would be sourcing four of five apple varieties elsewhere— severing the bulk of a business relationship dating back more than a decade. It’s her understanding that they were underbid on one variety of apples by just one penny per pound, and despite their long-standing relationship, they were given no opportunity to negotiate.
Edwards-Orr concluded her post by suggesting that, “The survival and well-being of farmers depends on our ability to make authentic, systemic and lasting connections with the shoppers and eaters who share core values of thriving family farms, fairness and trust, sustainability and innovation.”
In a follow-up post, Laura talks of many others who are experiencing similar breaks in relationships in the supply chain. Laura calls for building a new framework of collaboration across the region in order to “build a values-based response to market consolidation.”
What are the Right Markets for Vermont Farmers?
Many specialty, independent food stores and co-ops aim to offer farmers a better price point than their corporate competitors. However, despite offering needs-based discounts (for example, through the Food For All program at Burlington’s City Market), the higher prices feed perceptions that they primarily serve affluent consumers.
After grocers and co-ops, direct to consumer outlets—think farm stands and farmers markets—are the second largest channels for local food purchasing in Vermont. There is evidence that this channel may be stagnating, and while these markets offer the highest margins to farmers, they’re becoming more saturated and are by no means immune to consumer demand for lower prices and convenience.
In this environment, how can we ensure Vermont farmers are able to build a regional food system that recognizes the value of healthy locally produced food for everyone, regardless of income? How can smaller producers find markets that allow them to scale up and eventually meet the requirements of a larger buyer such as Black River/Reinhart? Additionally, what role can nonprofit enterprises play in taking advantage of niche markets without compromising or overlapping with the for-profit distributors who purchase Vermont farm products?
These questions are an ongoing challenge for High Meadows and our partners.
Our Farm to Market Initiative represents our best thinking to date on how we might encourage solutions to this complex problem. It’s focused on strengthening local food hubs in order to help Vermont farmers access targeted regional markets and thereby scale up production.
The term “food hub” can mean different things, but generally speaking, food hubs connect farmers, food processors, distributors, and markets— the elements of a “food value chain.” High Meadows’ Farm to Market Initiative focuses on the nonprofit Vermont food hubs that take possession of farm products and move them to markets. Some food hubs offer light processing too, as does the Hardwick-based Vermont Food Venture Center (VFVC), a project of the Center for an Agricultural Economy, one of our grantees.
The High Meadows Fund values the for-profit and cooperative businesses that provide aggregation and distribution services for local producers, such as Black River, Myers Produce, the Mad River Food Hub, and others. As a charitable organization, our grantmaking focuses on nonprofits and the unique role they can play in filling gaps or identifying new opportunities in the food system. In a future story, we will highlight Farmers To You, a business in which the Taproot Capital Fund has made a mission investment. High Meadows is one of two members of Taproot, an L3C.
High Meadows is also working with the Vermont Housing Conservation Board, which coordinates the Vermont Food Hub Collaborative through its Vermont Farm and Forest Viability Program. It’s a project that brings together food hubs from across the state to look for areas where they might gain efficiencies and impact by collaborating.
Together, they’re finding ways to exchange products between food hubs and mapping out opportunities for cross docking, an inventory strategy where product is moved directly from incoming trucks to outgoing trucks without the need for long-term storage. They’re exploring shared cold storage and warehousing opportunities. And, they’re learning from food hubs in neighboring states and beyond as they seek to innovate and improve efficiency and customer service.
Vermont’s food hubs are seeing their producer base grow. At the same time, source identification technology is increasingly allowing them to keep consumers informed of precisely where food items are grown. When it works, source ID adds value to food products because consumers value knowing more about the farms where their food is produced.
Food Connects, in Brattleboro, collects food from more than 50 farms in Vermont and New Hampshire and distributes that food to more than 100 wholesale customers in the region. With its own fleet of trucks, and their location in southern Vermont, Food Connects has excellent access to markets in Massachusetts and Connecticut. Sales have increased over 25% in 2018, including 46% increase during the 3rd quarter, which is the main growing season. Much of this growth has come through collaboration with other food hubs and distributors to get easy access to more producers throughout the region. They have plans to begin purchasing from farms in the Upper Valley.
Opportunity in Institutional Markets – Health Care, Colleges, and More
Another area that’s showing particular promise is food hubs’ ability to connect modest-sized Vermont farms with institutional markets, particularly colleges and hospitals, where administrators recognize the value of healthy food and local sustainable growing practices. Students are also able to hold colleges to local buying commitments through programs like the Real Food Challenge. Hospitals and health care centers are guided by standards set by Health Care Without Harm, which articulate both food and sustainability practices across their industry.
These health care providers and colleges demonstrate the impact consumers can have when they demand food produced locally and sustainably.
The Intervale Food Hub, with its Burlington location, is having success getting local food onto the plates of University of Vermont students through its approved vendor status with Sodexo, which handles the schools’ dining service and has shown a serious commitment to local.
The Intervale Food Hub sells Sodexo produce from the Vermont Food Venture Center (VFVC), each week moving more than 1,200 lbs of processed local potatoes alone to UVM during the school year. The VFVC’s Farm to Institution program provides lightly processed farm products (shredded cabbage, diced root vegetables, whole peeled carrots) in appropriate portions to make food services and cafeteria serving more efficient and labor saving. The VFVC works with both growers and buyers to test produce varieties, portions, recipes, and products (shredded, diced, and chopped) that work best given constraints of climate, cost, and consumer taste.
These products, sourced from over 15 farms, currently move across the state of Vermont and into New Hampshire to hospitals, colleges, schools and even caterers or retail food service outlets. However, these locally grown and locally processed foods are replacing some of the lowest cost commodity products for the institutions which purchase them, and require commitment on behalf of the buyers to meet the price point that supports farmers and the processing entity.
Sodexo is able to source 20 percent of the food it purchases for UVM locally— within Vermont or a thirty-mile radius. Across their 14 food service sites in the state, nine of which are colleges or universities, the average is close to 14 percent local food— equivalent to $2.7 million in local spend statewide in 2017-18.
There are challenges. Annie Rowell, Vermont First Director for Sodexo, says she sees some potential to increase that percentage, but she adds that the low-hanging local procurement opportunities have been covered. Rowell adds, moving the needle to the next level will require increased collaboration, strategic partnerships, and investment.
There are two key external factors facing colleges and universities that impact the dining programs. First, both across the state and country, there is an overall trend of declining student enrollment at colleges and universities, which puts a strain on dining budgets. Second, Sodexo faces the same worker shortage that’s making life difficult in agriculture, construction, and other industries throughout Vermont. This means not only fewer hands to prep fruits and vegetables, but also those in management positions have less time to explore local procurement options or meet with local producers as they are more absorbed in daily kitchen operations.
Health care institutions recognize that serving healthy local food is part of assuring the health and well-being of their patients. VFVC works with Dartmouth-Hitchcock Medical Center and the University of Vermont Medical Center as two of its major institutional clients. They are able to commit to purchases, plan in further in advance, and even bring farm partners to the table. The UVM Medical Center has even gone as far as providing no-interest or low-interest loans to local farms to expand infrastructure like greenhouses or slaughter facilities.
Hospitals serve a diverse a cross section of Vermonters— more diverse than the population that shops at farmers markets and specialty food stores. If you want a lunch with local ingredients, and a reasonable price, stop by the UVM or Dartmouth Hitchcock Medical Center cafeterias.
High Meadows has committed $300,000 over the next two years toward growing local food sales by helping food hubs scale up and find sustainable business models, focusing on markets that recognize, and are willing to pay for, the value of locally produced food. While this is a large commitment for High Meadows, it will only partly meet the need, so we hope other funders will join us in this work. If this initiative proves successful, we’re committed to extending it beyond 2020.
All of the food hubs we’re working with have a commitment to expanding access to healthy local food across Vermont’s socioeconomic lines, and they continue to experiment with finding the right mix of markets that will allow them to do that. Given the pervasive downward pressure on prices across the food distribution system, it’s unclear whether such an approach will be sustainable, but we want to help food hubs try to make it work.
And therein lies the rub: when it comes to all areas of promise we see, from deeper collaboration between Vermont’s food hubs to finding the right customer mix, so much comes down to costs. Can food hubs scale up and operate more efficiently? By doing that, can they fill a gap in the food system that enables smaller producers to reach viable markets? Will that also help farmers scale up to meet the requirements of distributors like Black River while receiving a viable slice of the consumer’s food dollar?
We will share what we learn as we embark on this initiative in partnership with food hubs and with funders who share our goal of improving the viability of local farms and providing healthy Vermont-grown food to consumers in the Northeast.
This article was written by Gaye Symington, with initial research and writing by Morgan True, of Kria Associates.
 Jean Hamilton, “Stagnant, Saturated, or Ready to Surge? Strategic Marketing Investments for Vermont’s Direct to Consumer Markets,” NOFA, 2017, https://nofavt.org/sites/default/files/files/resources/vt_direct_markets-stagnant_saturated_or_ready_to_surge.pdf.