Why ‘Middleman’ Doesn’t Have to be a Dirty Word for Farmers

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At a time when we’re all scanning the dark horizon of recession land for any economic spark, local food systems look to be a flare-up that’s got some staying power. The past several weeks have been full of signs that both in  Minnesota and nationally producing and consuming food in our own collective backyard isn’t just good for our palates — it’s good for the bottom line. But there are also indications that if local foods is to graduate from fringe status, it’s going to take a team effort.

In November, the USDA’s Economic Research Service released some surprising numbers on the economic punch of local foods. It found that marketing of local foods grossed $4.8 billion in 2008. That figure includes two categories: “direct-to-consumer” sales, which involves farmers’ markets, roadside stands, on-farm stores and Community Supported Agriculture arrangements; and “intermediated marketing channels” such as regional distributors and grocery stores, restaurants or other retailers.

This latter category is an important recent addition to research related to local food sales, and it adds much to the economic clout of this sector — that $4.8 billion is around four times higher than previous USDA estimates based solely on direct-to-consumer sales.

Overall, intermediated marketing accounts for 50 to 66 percent of all local food sales. This study validates what many have suspected: face-to-face contact between the farmer and the eater is important, but it’s not how the majority of local food sales are executed.

Vegetable, fruit and nut farms—the kinds of enterprises that dominate the local food economy—have on average an annual per-acre direct-to-consumer sales volume ranging from $640 to $1,310, according to the ERS study. But for produce and nut farms that use intermediated outlets to get their product to consumers, gross per-acre sales jumped to over $3,100 annually.

Between 1992 and 2007, the number of farms marketing their products via direct-to-consumer sales increased by 58 percent to 136,000. Now that the government is tracking intermediated food sales, it will be interested to follow the growth of this sector in coming years.

Overall, local food sales is a trend that shows no sign of cooling. The USDA estimates that it will generate $7 billion in sales this year, according to the Associated Press.

In Minnesota alone, farmers’ markets generate some $64 million in revenue annually, while CSAs produce $10.5 million, according to a recent study by the St. Paul-based think tank Minnesota 2020. (By the way, the study’s author, Lee Egerstrom, says local food marketing offers significant opportunities for new immigrant farmers in particular.)

Granted, local food sales are still a drop in the bucket compared to the overall ag economy. The ERS estimates that this sector represents just 1.9 percent of total gross farm sales nationally. In Minnesota, the local food market represents only around  0.3 percent of the total farm commodity market, according to analyst Ken Meter.

But local foods is a growing presence, and it’s increasingly allowing farmers to make a good living. For small and medium-sized farms that market food locally, more operators identified their primary occupation as farming and devoted more time to their farm operation than operations of similarly sized farms that don’t sell locally, according to the ERS.

The USDA’s local food marketing map shows, not surprisingly, that regions around places like the Twin Cities and Madison, Wis., are hot spots for this kind of activity. Nationally, the West and East coast is where the most local foods economic activity is taking place, with metropolitan areas specifically generating the most action.

But this economic engine is revving up in some surprising places as well. When I was in southwest Missouri recently interviewing Farm Beginnings graduates Greg and Nancy Rasmussen (click here for the profile of the Rasmussens, and here for the podcast), they talked about how surprised they were that direct-marketing of pasture-raised beef, lamb and chicken has become the mainstay of their farming enterprise. In fact, the Rasmussens are looking to rent more pasture ground just to keep up with demand. It turns out a fair number of eaters on the Ozark Plateau care about where their food comes from as well.

“Down in this area the demand is so high for naturally raised meat that we could probably easily double what we’re producing and still sell it,” Greg told me. Anyone that’s met Greg Rasmussen knows he’s the last person in the world to make an empty boast.

If there’s such a high demand, then why isn’t every farmer in the country giving up raising crops for the commodity market and jumping on the local foods express? Well, as we’ve pointed out in this blog before, it’s a lot of hard work, and it’s made even harder by the fact that our current processing, transportation and aggregation infrastructure is simply not set up to get food from the local field to the local fork. Frankly,  many of the farmers who pioneered direct-to-consumer sales are getting a little burnt out trying to juggle producing, marketing and transporting what they raise.

A 2010 USDA study on food supply chains (including one here in the Twin Cities) found that farmers who direct market retain nearly 100 percent of the retail price. But there’s an important caveat: costs incurred to bring the product to market can swallow up between 13 percent and 62 percent of the net profit those direct-marketing farmers were hoping to take home.

That’s why it’s exciting to see the recognition of the role intermediated marketing channels could play in sustaining and growing the local food economy. LSP is working on developing and strengthening such supply chains in southeast and western Minnesota. Two of our farmer-members, Gary Brever and Jack Hedin, traveled to Washington, D.C.,  last month as part of a National Sustainable Agriculture Coalition fly-in to talk to policy makers about the just-introduced Local Farms, Food and Jobs Act. This bill could, among other things, help farmers and ranchers engaged in local and regional agriculture by addressing production, aggregation, processing, marketing and distribution needs.

This is not to say that direct-to-consumer, face-to-face marketing like what we get via the CSA model or at farmers’ markets isn’t still a key component of the local food system.  Such relationships make this type of food and farm system something that Wal-Mart just can’t replicate, no matter how many clever marketing gimics it makes up.

And there is a reason farmers have bypassed the middleman in their attempt to garner a greater share of the food dollar—it doesn’t take long for all those links in a stretched out supply chain to swallow up all the profits that should go to the producer. But if intermediated marketing channels can be developed that are accountable to everyone taking part—the producer, consumer and yes, the middleman— then  a few extra links in the chain can help forge the kinds of relationships one might see at the local farmers’ market.

And the word “relationships” is key here. That 2010 USDA study on supply chains concludes that building relationships with mainstream middlemen doesn’t mean farmers have to sacrifice profitability. Yes, processors, distributors and retail outlets are going to want their share of the pie, but “product differentiation”—pasture-based livestock, organic, etc.—can help farmers charge enough to make up for that. Ken Meter has studied extensively the role such relationships are already playing right here in Minnesota’s food economy.

Direct-to-consumer sales remind eaters why knowing the source of your food produces multiple benefits. Intermediated marketing can make those benefits accessible to more people.




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