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Investment needed to meet demand for local food

Finance and Commerce
February 29, 2008
By Mark Anderson

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Supply

Twelve times as many farmers markets are operating in the U.S. today as in 1970.

Demand

The unmet annual demand for locally produced food in New York City is estimated at $860 million.

Income

Produce and other food sold in local markets delivers greater income to farmers — 33 percent of agricultural revenue is produced on 16 percent of ag land, all located within 50 miles of a large city. Most of us would probably like to eat in the old-fashioned way – dining on food that’s fresh, delicious and raised on a farm just down the road.

If you need proof of that look to the boom of farmers’ markets all over the country, the burgeoning local produce sections in tony grocery stores, or the prices that top local restaurants get now for a Minnesota lamb chop or a Wisconsin artisan cheese.

But although those trends may make food industry headlines, locally produced food still constitutes only a tiny amount of the comestibles sold around the country.

A movement is under way to change that, and leaders in it cite a litany of ecological, economic and public health reasons to expand markets for local produce and meats; they’re even eying an entry into the mass food markets – the Cub Foods and Chipotles of the world.

Problem is, small farmers in Minnesota and elsewhere don’t have in place enough of the distribution system needed to get locally grown food from small farms to people’s tables.

Matching the capabilities of local farmers with the needs of the Cub Foods and Chipotles — the big institutional buyers — won’t be simple, said JoAnne Berken-kamp, local foods program director at the Institute for Agriculture and Trade Policy, a Minneapolis-based research and advocacy group.

“Those are much bigger wheels than farmers are used to working with, and it means they have to create bigger cogs to fit into that machine. We’ve been grinding gears trying to get there.”

Finding the strategies to help that occur is what the Washington, D.C-based Farm Credit Council, a think tank affiliated with a network of government-sponsored agricultural lenders, addresses in a report they published this month, “Growing Opportunity: The Outlook for Local Food Systems.”

“We asked the practical questions about what’s needed to get this all into place,” said Robert Heuer, a consultant for the council and report co-author. “Up till now those questions haven’t been asked much.”

Heuer wrote the report with Gary Matteson, a greenhouse farmer from New Hampshire who is head of the Young, Beginning and Small Farmers section of the Farm Credit Council. And the first thing their research dug up is that growth on the demand side of the local food market is robust.

One sign of that is how more and more shoppers are using the channels that traditionally carry local food. For instance, the number of Minnesota farmers markets almost doubled between 2002 and 2007, according to the Minnesota Department of Agriculture; and food co-ops, another major outlet for local farms, are steadily expanding or opening new stores.

Sales at existing co-ops are also strong: Year-over-year sales at The Wedge in Minneapolis, one of the elders of the local food movement, grew 8.5 percent in 2007, numbers that easily beat most conventional competitors.

The Wedge also recently tripled the size of its busy warehouse, which distributes to other co-ops and restaurants in the region.

New channels are rapidly joining the movement, too, according to Heuer and Matteson.

Institutions like hospitals and colleges are converting to local produce to supply their food services. For example, the University of Minnesota at Morris decided in 2003 to replace as much of its national wholesale purchases as it could with locally grown food. By next year, UM-M’s local food buys should reach $500,000.

Elementary and secondary schools are also moving to local foods, hoping to improve children’s diets and their understanding of food production, farming and the environment. The St. Paul Public Schools joined the movement in 2005, adding locally grown fruits and vegetables to school lunch menus.

But St. Paul’s experience also pointed out some current shortcomings in local wholesale markets when producers failed to plant vegetables that district nutritionists had ordered, leaving the schools scrambling to replace the loss.

“Where we see the bottleneck now in the chain is in the linkage between the producers and consumers,” said Berkenkamp of the Institute for Agriculture and Trade Policy in Minneapolis.

Part of that bottleneck comes from poor communication and coordination between growers – who probably started by operating a market stall or shipping small cases of produce to co-ops – and buyers in the larger or institutional markets they’re trying to enter.

An example is milk, Berkenkamp said. “Colleges want to buy milk locally; they want BGH-free milk, and local farmers could provide that. But the schools need it packaged in a 5-gallon dispenser size, and no farmers were set up for that.”

Farmers are starting to pay closer attention to those needs, Berkenkamp said, but as they eye larger markets they’ll find other packaging, warehousing or distribution obstacles that are harder to get over.

Getting over some of those obstacles will require big capital investments, such as trucks or large-scale coolers that chill produce immediately after harvest and stabilize the temperature to keep the food safe and fresh, in taste and appearance.

Others will require a greater level of organization. The Minnesota operating unit of Sysco, a $37 billion, Houston-based national food distributor, has started talking to local farmers about combining the produce of 25 to 30 growers in order to reach the scale existing regional distributors and their buyers want.

“Sysco sees this as a real market trend, and they want to be part of it,” Heuer said.

But in order to aggregate their produce, those farmers or a separate food broker will need to invest in a cooling shed where the multi-farm produce can be collected, stored and packaged for distribution.

Sysco estimates the cost of such a cooling shed at around $400,000.

Heuer said part of his report’s goal is to help the Farm Credit System (FCS) lenders, the group behind the think tank he works for, understand the scale of the emerging local food marketplace and the stage it’s in and let them figure out how to respond.

“What this report says to them is that there’s an emerging opportunity here, and it looks like its worth your while to cultivate these relationships because they’re going to produce some business down the pike.”

Andy Huneke, agribusiness director for AgStar, a Mankato-based member of the FCS, said he’s made a handful of loans to local food growers, and he expects the number to grow.

But he predicted that cooperative efforts to build collection and distribution facilities will develop slowly.

“The shortcoming in trying to take distribution to the next level is in organizing groups of producers,” Huneke said. Their independence and the shortage of time available – most have off-farm jobs, he pointed out – make organizing activities difficult.

“But consumer demand will keep growing, and that’s going to stimulate their response. If there’s a market, farmers will find a way to meet it.”

Those infrastructure pieces won’t necessarily come from farmers, however. Both Heuer and Berkenkamp predicted that other commercial players could enter that niche as consumer demand grows.

“And that’s going to be good for the development of the food system,” Berkenkamp said. “We’ll be better off if there are multiple approaches to filling in that center part of the supply chain.”

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