FOOD COMPANIES in NEW ENGLAND

PHASE 1 RESEARCH FINDINGS: BARRIERS & OPPORTUNITIES FOR LOCAL FOOD

AUGUST 2015 ACKNOWLEDGEMENTS

This report is an outgrowth of the Contracted Food Service Action Project (CFSAP) of Farm to Institution New England (FINE). The project was funded by the John Merck Fund, to whom we are grateful. Research for the project was conducted by Jennifer Obadia and John Stoddard. They were supported by Heather Vitella, the project manager, and the project and staff from Farm to Institution New England, who provided keen insight and a wealth of expertise.

ADVISORY BOARD AUTHOR Kimberly Clark, Farm Fresh Rhode Island Jennifer Obadia Stacia Clinton, Health Care Without Harm Lisa Damon, Mass. Farm to School Kelly Erwin, Consultant RESEARCHERS David Schwartz, Real Food Challenge Jennifer Obadia John Turenne, Sustainable Food Systems John Stoddard Jennifer White, Colby-Sawyer College

SUPPORT PROJECT MANAGER Peter Allison, Farm to Institution New England Heather Vitella Kaitlin Haskins, Farm to Institution New England

PARTICIPANTS We would like to acknowledge the numerous individuals who took time to speak with the research team about their work. This project would not have been possible without them. Thank you!

FUNDER

COMMENTS FINE has made every effort to verify the accuracy of statements in this document, and we accept responsibility for any errors or omissions. If you have questions or comments on the report, please send them to [email protected]. www.farmtoinstitution.org TABLE OF CONTENTS

INTRODUCTION ...... 4

FOOD SERVICE MANAGEMENT COMPANIES: SPHERE OF INFLUENCE ...... 5 The Big Three .

FOOD SERVICE MANAGEMENT COMPANIES: GENERAL OPERATING SYSTEMS ...... 7 Procurement and Rebates Menus and Purchasing at the Unit Level Vendor Approval Types of Contracts

WORKING WITH FSMCs TO INCREASE LOCAL PROCUREMENT ...... 11 Barriers to Local Procurement by FSMCs Opportunities to Increase Local Procurement Sample Pilot Programs that Support Local Agriculture

RECOMMENDATIONS TO INCREASE LOCAL PROCUREMENT ...... 15 Recommendation 1: Technical Assistance for New England Farms Recommendation 2: Technical Assistance for Institutions Contracting with FSMCs Recommendation 3: Development of Regional Infrastructure Recommendation 4: Regional Gathering to Determine a Strategy for Collaboration Recommendation 5. Development of Internal FSMC Support for Procurement of Local Food

CONCLUSION ...... 19

CITATIONS ...... 20

APPENDIX ...... 21 INTRODUCTION

Food service management companies (FSMCs) dictate the parameters of institutional food procurement for many hospitals, schools districts and colleges in New England and around the country.

Credit: UMass Amherst

As the farm to institution movement matures, advocates have realized that they must better understand food service management companies in order to have a significant impact on institutional procurement of regionally produced and processed foods. The Farm to Institution New England (FINE) Contracted Food Service Action Project (CFSAP) aims to address the limited understanding of how FSMCs work by compiling regional and cross-sector information about the operational practices of the largest FSMCs in the region: Compass Group and Sodexo. For this project, researchers conducted over 40 interviews with food systems advocates and FSMC staff members.

This report is an outgrowth of that research. It provides an overview of FSMC operations, including descriptions of purchasing practices, the rebate system, how vendors become approved, and the importance of contracts. The focus of this report is on the role of FSMCs in purchasing local food products for their institutional clients. It provides a synopsis of the main barriers and opportunities to local procurement and provides two examples of promising initiatives, both spearheaded by Sodexo.

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 4 FOOD SERVICE MANAGEMENT COMPANIES: SPHERE OF INFLUENCE Food service management THE BIG THREE companies are commercial There are over 200 FSMCs in the enterprises or non-profit United States, but the three largest by revenue are Compass Group, Aramark that contract and Sodexo (in descending order). with institutions to provide In 2013, these companies generated a food service management. collective $31 billion in sales in North America. The education sector (K-12 schools Food service management companies and colleges and universities) generated provide their institutional clients with a $9.59 billion in sales and the health care wide array of services that may include any sector generated $7.4 billion. The remaining combination of the following: development sales came from the government, corporate, of the menu; food procurement; and sports and leisure sectors. These negotiating food prices with suppliers three companies provided food service and manufacturers; maintaining a well- management for 47% of all hospitals, 21% of functioning retail space; providing capital colleges and universities and nearly 11% of for infrastructure improvement; managing all public school districts in the country.2 staff; and maintaining regulatory compliance. Some FSMCs serve all institutional sectors, Compass Group, the largest of the three while others are focused on a specific sector FSMCs, generated a combined $6.7 billion such as education or health care. in sales from the health care and education sectors. Compass Group is the parent In some parts of New England, self-operated company for Morrison, who serves the institutional dining services are still common. health care sector, Chartwells who serves For example, many hospitals in New the education sector, and Bon Appetit Hampshire choose to manage their own Management Company, which is a high- food service operations. However, FSMCs end specialty company that serves multiple are increasingly common at institutions in sectors. Aramark generated just over $4 New England and around the country. The billion in sales from these two sectors, primary reasons institutions decide to work serving 948 health care clients, 481 public with FSMCs are: (1) their own administration school districts and 420 colleges and does not have the expertise or staff to universities.3 Finally, Sodexo generated manage dining services, (2) they believe nearly $6 billion in sales from the health care FSMCs will lead to cost savings, or (3) an and education sectors. They served 1,150 infusion of funds are needed for construction health care* facilities4, 470 school districts 1 or other improvement projects. and 850 colleges and universities5.

* Note: FINE uses the term “health care” instead of “healthcare” in order to emphasize the meaning and align with the term used by Health Care Without Harm, one of our key partners.

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 5 Due to the fact that these companies purchase and prepare food for such a large number of institutions, their buying patterns have a tremendous impact on the food system. For example, if FSMCs decided to make purchasing local or regional food a priority, they could greatly influence what regional farmers grow and the amount of land in production. For this reason, FSMCs are the focus of many local food system efforts. However, the first step in working with FSMCs is understanding how they operate and knowing their barriers and opportunities for increasing procurement of local food products.

Credit: Franklin Pierce University

TOP THREE FOOD SERVICE MANAGEMENT COMPANIES: MARKET SHARE IN THE HEALTH CARE & EDUCATION SECTORS

Health Care Colleges & K-12 Districts Universities Collective Number of Clients for Top 2,683 1,500 1,451 Three FSMCs Number of Facilities Nationwide 5,7246 7,0217 13,5888

Percent of Facilities Managed by the Big 47% 21% 11% Three

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 6 FOOD SERVICE MANAGEMENT COMPANIES: GENERAL OPERATING SYSTEMS Every FSMC seeks a way to by individual clients are tightly managed. However, supply management departments distinguish itself from the of FSMCs traditionally have procurement management staff in the region. As a result, competition, but when it comes to they may have a greater ability to partner with the core of purchasing local suppliers, versus a GPO, which does not maintain management in the region. food, they are rather similar. One way purchases are controlled is This section of the report provides a description of through the requirement that products the way in which most FSMC procurement systems be selected from approved or preferred function, including product procurement and vendors. Most FSMCs require their clients rebates, menuing, vendor approval and contracts. to purchase 80% or more of their products through approved vendors. This is referred to as buying “on contract.” Incentives for PROCUREMENT & REBATES unit level managers may even be tied to Food service management companies sell the portion of products purchased from their services based on their expertise in the approved vendors that have been management of high volume food service at negotiated for priority pricing. Incentives vary from reporting on annual performance a competitive rate. reviews that are tied to merit increases to bonuses provided in addition to annual One of the primary ways FSMCs are able to offer salaries. low costs is through their procurement companies or divisions, often called group purchasing A noted strategy emerging among FSMCs organizations (GPO) or supply management is to charge very low management fees departments. Supply management departments to make themselves more competitive in are part of FSMCs that act similar to GPOs and link the bidding process. This places greater purchasing to the management of the . reliance on revenue through volume GPOs can be structured in a variety of different ways. discount allowances (VDAs), otherwise Their principal purpose is to pool the collective known as rebates. FSMCs have noted buying power of their clients to obtain volume that VDAs are “a revenue stream earned discounts from vendors and manufacturers. An through good management practices.” The institution that is a member of a GPO is able to negotiation of volume discounts is standard achieve savings based on the volume of all the practice in food and other industries GPO’s institutional clients. For example, the GPO from manufacturing to distribution. It Foodbuy negotiates prices with vendors based on is important to note that in the case of the volume of the 10,000+ sites that are managed government agencies, including public by its parent company, Compass Group North school districts, FSMCs are legally required America. GPOs most often negotiate with large to transfer rebates, and any other cost national and international producers and distributors savings, to the government agency. This for discounted prices. Because this pricing is so requires the FSMC to provide transparent important to their , purchases made accountability to its client. BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 7 Rebates come in three main forms:

The primary form is an agreement with the distributor for a certain percent off total purchases. For example, if the distributor sells a product to 1 the company for $10 and the FSMC wants a 14% rebate, the distributor marks up the price by $1.40. Therefore, the client pays this inflated price of $11.40 and the difference is profit to the FSMC, which is often partially shared with the institution.

The second most common form is a deal made directly with the manufacturer or producer. This is done for the highest volume purchases 2 and achieves the best price. The manufacturer sends the rebate on an agreed- upon basis. This is common with large national contracts for products such as chicken, turkey and ground beef.

Third, a manufacturer that wants to move a high margin product (typically a prepared food) will offer big inducements (10-20% off) to buy the product in a 3 short time frame.

MECHANICS OF THE REBATE SYSTEM

STEP 1: AGREEMENT DEVELOPED BETWEEN FSMC & DISTRIBUTOR/SUPPLIER The agreement sets a percentage rebate based on a specified purchase volume. To account for this volume-based rebate, distributors typically increase the base prices of the product.

STEP 2: SUBMIT FOR REBATES FSMC submits for rebates over a specified time interval.

STEP 3: REBATE PAYMENT Distributors/suppliers send rebates to a FSMC’s financial department. In financial statements, rebates are not shown as income, but are subtracted from operating costs.

STEP 4: USE OF REBATE DOLLARS Rebate funds are an important revenue stream for FSMCs and have benefits to institutions.

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 8 MENUS & PURCHASING AT THE Credit: Northern Girl LOCAL LEVEL Most FSMCs have a staff of dietitians who develop a national menu. This menu is crafted to meet federal guidelines for school children (in the case of schools) and other groups with special needs, such as cardiac or VENDOR APPROVAL diabetic patients in hospitals. There are three types of vendors: 1. Prime The menu is also developed to incorporate 2. Approved contracted or preferred products. There are 3. Not Approved typically minor changes at the regional level to account for variations in regional tastes. *Prime is also referred to as contract or However, individual institutions are encouraged preferred. not to make significant changes to these menus. In some cases, a menu may be developed at The prime vendor carries the contracted the unit level, but this must be requested by items negotiated by the GPO or FSMC. the client and/or incorporated into the client’s This is typically a large distributor such as contract with the FSMC. Sysco or US Foods. An approved vendor has gone through the approval process set As mentioned above, purchasing at the unit forth by the FSMC and may carry one or level is tightly managed. Most FSMCs use more contracted products. Purchases from a computer ordering system that shows the this vendor are then restricted to approved “preferred” items in a clear, color-coded items. A vendor that is not approved will display, which adds efficiency to the ordering need to go through an approval process process. Unit managers are evaluated and before selling to the FSMC and the facility. either rewarded or disciplined based on their adherence to the contracted items. This The process for becoming an approved results in a disincentive for purchasing any off- vendor varies based on the FSMC. Compass contract items. If an account manager wants Group offers a link to a vendor application to purchase an unapproved product, they must form on their website to initiate the approval make a request to their district manager, who process by their GPO, Foodbuy. In most will communicate with the corporate office to cases, vendors must meet food safety determine if the item can be purchased. This requirements such as GAP certification by can be a long and burdensome process for the a third party auditor and/or have a Hazard account manager. To gain approval, the farm Analysis & Critical Control Points (HACCP) or food business, in most cases, must carry plan in place, depending on the operation. Good Agricultural Practices (GAP) certification Liability is also typically required. and large amounts of liability insurance, which For example, Foodbuy requires a minimum is standard for wholesale food purchases. of $5 million in liability insurance. Furthermore, in many cases a product will only be approved if it is not available from an already approved vendor. These requirements are large barriers for most mid- and small-scale producers, inhibiting sales to the institutional sector.

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 9 TYPES OF CONTRACTS There are two main types of contracts between FSMCs and their clients: 1. Profit and Loss (P&L) 2. Management Fee

Under a profit & loss contract, the FSMC assumes all financial risks and rewards of the food service operation. Generally, the P&L contract gives more autonomy to the FSMC to design a program of their choosing, along with some guidance from the client, particularly in the contract process. The FSMC receives payment for their services in the form of profits that are generated by the food service operation.

Management fee contracts require the contractor to provide a food service program specified by the client and in return they are paid a management fee, typically as a percentage of revenues.9 This type of contract is a greater risk to the client because the operating fee is the typically the same (with some exceptions), whether or not the food service operation is profitable. However, the

Credit: Katy Hiza management fee contract gives the client more control over the operationm including sources of product. In the majority of cases, contracts contain clauses and addendums to protect all parties against loss.

Credit: Ben DeFlorio

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 10 WORKING WITH FSMCs TO INCREASE LOCAL FOOD PROCUREMENT

Based on their large sales Price was the first barrier mentioned by nearly every interviewee. Seasonality and volume, institutions have the consistency of the local food supply, limited capacity to greatly influence regional infrastructure, food safety and insurance, and the rebate system were also regional food systems. Their called out as significant barriers for local demand for locally produced farms to enter the institutional food market. foods can signal farmers to 1. Price increase their acreages and One of the main issues mentioned by nearly every individual interviewed was that local inspire new food enterprises. products have a tendency to be more expensive than similar items purchased Local food advocates can work directly with through conventional channels. This is FSMCs to enlist their support in leveraging true for both value-added products and the collective power of institutions to source raw farm products. In New England, local from local farmers. farm products are often more expensive because the farms are smaller10 and the Most FSMCs recognize that there is growing season is shorter than in the rest of significant momentum behind the local the United States. This means that farmers food movement. They realize that client are unable to reach the economy of scale and customer demand for these products realized by larger farms in other parts of the is growing and that it’s to their competitive country. Despite this disadvantage, local advantage to provide local food options to products are likely to be cost competitive their clients where feasible. However, there when they are purchased at peak season. are also significant barriers, many of which One FSMC noted that their produce vendors are fundamental to their general operating are contractually mandated to use local systems, that limit their ability to source local. when available, as it makes good economic sense in season.

BARRIERS TO LOCAL 2. Seasonality & Consistency Seasonality and consistency of the local PROCUREMENT BY FSMCs food supply was another issue that was Below are five barriers to local repeatedly mentioned. The typical growing food procurement by institutions season in New England runs from April contracted with FSMCs that were through October11, which means that FSMCs highlighted by interviewees of the cannot rely on local producers for farm Contracted Food Service Action products year round. The need to develop and manage multiple relationships requires Project during phase 1 research. extra staff time which is an additional expense. Additionally, most farmers in New

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 11 England are unable to produce enough product there are a select number of instances in to meet the demands of large institutions, which which FSMCs will work with small, local again requires the development of multiple vendors whose agreements do not contain farm contracts by the FSMC. Seasonality is a rebates because their client has requested particular challenge for schools, which are not such an arrangement. in session during the peak harvest months. There are opportunities 3. Infrastructure to work with food Limited infrastructure for value-added products and proteins was highlighted as a significant service management challenge. For example, insufficient slaughter companies to enhance facilities make it difficult for regional ranchers and poultry farmers to increase their scale the local food system to meet institutional demand. Additionally, and help New England limited infrastructure to flash freeze produce farmers gain entry to or process various products makes it difficult for food to extend the availability the institutional market. of local products into the off-season. This challenge is not specific to working with FSMCs, but is a barrier to increasing the supply of local OPPORTUNITIES TO INCREASE proteins and value-added products in general. LOCAL PROCUREMENT 4. Food Safety & Insurance The barriers above are real and Even in instances when there are farms who significant. However, there are can produce sufficient quantity of products opportunities to work with FSMCs to on a reliable basis, FSMCs require high levels enhance the local food system and of liability insurance (often $3-5 million) and help New England farmers gain entry numerous certifications to ensure food safety. This protocol was established to protect to the institutional market. the end consumer and shield the FSMC and institution from lawsuits. They are important These opportunities include aggregating precautions, however, these existing criteria to demand from client institutions, forging protect public safety do not address the reality relationships with regional distributors, of operations on small farms in New England. focusing on binding contract language that requires local options, and encouraging 5. Rebate System expansion of promising pilot programs. Innovative institutions and supporters of Lastly, the overall FSMC business model has regional food systems are seizing onto been pointed to as a barrier for small farmers. these opportunities to create change. The requirement to purchase on contract makes it difficult for institutions to develop independent relationships with farms outside 1. Client Demand of the FSMC, significantly impeding the ability The largest leverage point to change of New England farms to sell to the institutional the way FSMCs work with producers and market. FSMC profitability is based on suppliers may be through client demand. In relationships with large suppliers who provide a highly competitive environment, FSMCs volume discounts. This system does not work recognize that if they do not meet their for small and mid-sized farmers and suppliers client’s needs, the client can find another that cannot afford to provide these large company that will. Institutions such as discounts in the form of rebates. However, public schools, colleges and universities, BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 12 and hospitals are organizing across New 4. Pilot Programs England to present a cohesive message Finally, expansion of signature pilot to FSMCs that they want to purchase local programs may provide each FSMC with the food products. Furthermore, advocates are opportunity to develop their own unique organizing across sectors to further leverage strategy for working with local farm and food their voice and demonstrate their collective businesses. FSMCs are testing strategies buying power. This aggregated demand may for procurement of local foods in all corners assist FSMCs in identifying new suppliers or of the country. Unfortunately, to date these products in order to meet the client’s desires. programs have stayed small with limited impact on overall operations. However, 2. Regional Distributors these pilot programs could be expanded to One strategy that has taken hold is working change the ways by which FSMCs operate with regional food distributors who have across the country. the capacity to develop relationships with individual farmers. These distributors, some of which are also referred to as food hubs, SAMPLE PILOT PROGRAMS THAT function throughout New England and enable smaller farms to aggregate their product to SUPPORT LOCAL AGRICULTURE meet the demand of institutions. Furthermore, Food service management these distributors are able to carry the companies are seeking strategies large liability insurance required by FSMCs, to distinguish themselves from their eliminating this barrier from individual farmers. Examples of these distributors include Black competitors as a way to garner new River Produce, which serves all of New business in a highly competitive England; Native Maine, which serves Northern market. One way that companies can New England; and Roch’s Produce, which do this is by proactively integrating serves Southern New England. a diverse array of local suppliers into their purchasing profile. 3. Contract Language Another strategy that offers great promise is In New England, Sodexo has taken steps to focus on the contracts between the client to meet this demand through two pilot institution and the FSMC. Due to their binding programs: Adopt-a-Farm and Vermont First. nature, these contracts are a critical leverage point for increasing local food procurement. Adopt-a-Farm The bidding and contract negotiation Adopt-a-Farm is the anchor of Sodexo’s process provides an opportunity for the client farm to school program.12 It originated institution to include specific procurement in Rhode Island in 2012 with the help of goals and for the FSMC to outline its plan Farm Fresh Rhode Island (FFRI) and Roch’s for meeting the client’s local food needs. Produce. Sodexo Providence and a local These may include identifying areas for farmer developed a verbal agreement growth in with current and new through which Sodexo guaranteed they local suppliers. Management fee contracts would purchase all the produce grown on a may provide more opportunities for local 20-acre area of the farm. In return, the farm purchasing than P&L contracts because the worked with FFRI and unit-level Sodexo staff cost is passed on to the institution rather than to develop their growing plan for the land. the FSMC, allowing the facility to articulate This collaboration was helpful in ensuring their approval for budget deviations. that the farmer grew the varieties of produce

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 13 that would be needed by the Rhode Island As announced in a press release from the school being served. The growing plan Vermont Agency of Agriculture, Sodexo was developed by the early spring so that has made commitments in the realms of farmers could plant on time and have the communications, relationship building, and appropriate quantities and varieties of producer investment as part of a long term produce ready for the school year. plan to develop a Vermont First brand.

Roch’s Produce, a regional distributor, picks To do so, Sodexo has made the following up produce from the farm, handles all key commitments: processing and delivers the final product 1. Develop a plan to meet the production directly to the schools. Roch’s also carries needs of Vermont farmers and enable the liability insurance sufficient to cover the businesses to buy local. This includes producer. The intermediary role played by market analysis, technical assistance around Roch’s Produce enables mid-sized farms, production, processing and marketing. without processing equipment, to gain entry to the institutional market. The Adopt- 2. Form a steering committee of Vermont a-Farm program has been considered stakeholders to discuss issues of highly successful by all involved and it is procurement, marketing and customer slowly expanding to additional farms. In demand. just two years it has grown to include four sites in Massachusetts: the school districts 3. Develop a formal commitment and of Springfield and Fitchburg as well as investment that supports the production and Southcoast Hospital in New Bedford and purchase of local food. the New England Baptist Medical Center in Boston. Sodexo is looking into further 4. Hire of a local food coordinator to broker expansion of the program in additional New relationships with growers wanting to England states. Browse photo album > meet the institutional market demand and track progress and growth in local food Vermont First procurement. Vermont First is the newest local food initiative from Sodexo, announced in 5. Sponsor an annual summit meeting and September 2014. Sodexo staff have two working group sessions around “scaling worked closely with the Vermont Agency of up” local food production and procurement.13 Agriculture and farm to institution support organizations to develop this comprehensive plan to support the Vermont food system. “This exciting announcement Under this program, Sodexo will work with farmers, distributors, processors, state [about the Vermont First government, non-profit organizations and initiative] will help us expand supply chain partners within the farm to Vermont’s farm-to-institution institution sector to increase the amount of local food grown and sold in the state. sector.” - Governor Peter The program is the first of its kind and Shumlin (VT) will be watched closely for the success of implementation and impact on the food system.

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 14 RECOMMENDATIONS TO INCREASE LOCAL FOOD PROCUREMENT Our recommendations fall #1: TECHNICAL ASSISTANCE FOR under five general areas of work, including actions to NEW ENGLAND FARMS For many small and mid-sized be taken by FINE and other farmers, it is difficult to navigate the partner organizations and systems necessary to work with large actions to be taken by FSMCs institutions and FSMCs. themselves. As FINE works to help more New England farmers increase in scale sufficient to The primary criteria considered meet demand from the institutional sector, in development of the first four technical assistance will be necessary. recommendations were: (1) Will the recommendation have a direct influence on the ability of FSMCs to increase procurement Part A of regionally grown and raised products, Individual farm scale and diversification and (2) Is the recommendation something of sales need to be considered when that can be carried out by FINE and/or its determining if a farmer should sell direct network of organizational members? The to institutions or work with a FSMC. It is fifth recommendation is geared toward recommended that FINE or one of their food service management companies partners connect farmers with farm themselves. It includes suggested changes business training programs and provide within the companies, although outside assistance to farmers who are considering advocates like FINE will be necessary whether or not to work with FSMCs. This is to encourage such changes. This not the right sales outlet for all farms. recommendation does not meet the same criteria as the first four, but is important to Part B facilitate change in procurement practices. Once a farm has decided they want to work with a FSMC, it is not always clear what to We recommend these five actions (detailed do next. A liaison is needed to connect in the following sections): farmers with FSMCs and/or their approved #1: Technical assistance for New England distributors so that farmers can gain entry farms to sales at institutions. It is recommended #2: Technical assistance for institutions that FINE or one if its member institutions contracting with FSMCs play the role of this farm-to-distributor #3: Development of regional infrastructure connector. In lieu of an actual liaison, it is #4: A regional gathering to determine a recommended that a guidance document strategy for collaboration be developed to perform this function. #5: Development of internal FSMC support for procurement of local food

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 15 the proper language can be difficult if an #2: TECHNICAL ASSISTANCE FOR institution does not have staff with expertise in this area. It is recommended that FINE INSTITUTIONS CONTRACTING develop guidance on how to craft contract language that will favor the procurement of WITH FSMCs regional products and articulate a tracking Food service management and reporting process to ensure the FMSC companies are legally bound to the is meeting agreed upon goals. terms of their contracts. Therefore, the language incorporated in any contract between an institution and #3: DEVELOPMENT OF REGIONAL FSMC is of great importance. INFRASTRUCTURE Unfortunately, it is often after-the-fact that New England farmers and ranchers many institutions realize the language they all face the challenges of limited should have included in order for their infrastructure. mission and values to be reflected in the food served at their institution. Limited infrastructure is a familiar refrain in New England. For example, it is common to Part A hear that New England has too few slaughter A request for proposal (RFP) is the first step facilities and limited access to processors in finding a FSMC. The RFP lets prospective for produce. Furthermore, there is limited bidders know what the institution is access to aggregators for small and mid- looking for in the food they serve and the sized farmers, which is needed to gain entry approximate budget they have to work to large contracts with institutions. within. If a school, college or hospital wants to prioritize local, organic or any other type However, the researchers are not aware of of food, they can use the RFP as a tool to any thorough survey of the infrastructure gather information about a FSMC’s ability that does exist. It is recommended that to provide these types of products. It is FINE conduct research to determine recommended that FINE develop guidance what infrastructure is currently in place to aid institutions in drafting their RFP so throughout the six New England states that they can capture the information they and the actual processing needs of New need about how a FSMC will meet local England farmers in order to develop food goals. This guidance should include a regional plan. This research would topics to consider and sample language for include food hubs or aggregators; produce inclusion in an institutional RFP. processing facilities; and slaughter facilities for beef, poultry and pork; among others. This research would also explore the Part B demand for these facilities by farmers The contract is the bottom line for FSMCs. throughout the region. Combined, these They must meet the criteria that they two pieces of research would enable agreed to, which can include procurement the creation of a regional plan for the of local food if it is in the contract language. development of agricultural infrastructure. The researchers found that a well-crafted contract is an incredibly important tool for ensuring procurement of local food by FSMCs. However, ensuring inclusion of

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 16 #4: REGIONAL GATHERING TO #5: DEVELOPMENT OF DETERMINE A STRATEGY FOR INTERNAL FSMC SUPPORT FOR COLLABORATION PROCUREMENT OF LOCAL FOOD There is shared enthusiasm by Unlike the recommendations #1 institutions, advocates and some staff through #4, this last set focuses on at FSMCs to increase procurement of internal changes that FSMCs can local food. make to enhance the ways in which they support the development of a Since each of these constituencies has sustainable regional food system in a different set of goals and challenges, a New England. common agenda needs to be developed in order to align this diverse set of stakeholders in movement toward the common goal. Part A One of the main challenges FSMCs face Part A in procuring local products is that they need to aggregate from multiple farms The landscape of regional food advocates to achieve the appropriate quantity which in New England is large and diverse. can be very time consuming. Therefore, it Organizations have different definitions is recommended that FSMCs hire a local of local food and various other objectives procurement specialist for each region that they are trying to achieve. Therefore, of the country. This extra staff support it is recommended that FINE convene will provide the person-power needed to institutions that contract with FSMCs and work with multiple producers. If a local local food advocates throughout New procurement representative exists with England to develop a shared agenda. This a FSMCs, improved efforts are needed to would include a series of common goals and ensure that this resource is utilized. requests for their work with FSMCs.

Part B Part B A common challenge cited by FSMCs is A step toward implementing the shared the lack of adequate supply from local agenda would be to host a conference with producers. To address this issue, we both advocates and FSMCs. Therefore, it is recommend that companies start with a recommended that FINE hold a convening focus on three to five products that are that includes FSMCs to identify areas in grown in abundance in each region. This which advocates, institutions and FSMCs approach will allow the companies to pilot can collaborate in order to meet regional integration of local producers into their goals for institutional procurement of local ordering systems around a small number food. of products, enabling them to work out any glitches before ramping up.

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 17 Part C There is minimal infrastructure throughout New England to enable small and mid-sized farms to sell directly to FSMCs or through distributors at the quantities needed by large institutions. It is recommended that FSMCs develop a regional infrastructure grant program to help the supply grow to meet demand. Such infrastructure may include processing plants, slaughter facilities, aggregators, distributors and more. All of these types of facilities play an important role in enabling institutional clients to benefit from the diverse agricultural landscape in New England.

Part D Farmers need technical assistance in learning how to work with large distributors, meet the needs of institutional clients and obtain the necessary certifications. It is recommended that FSMCs hold bi-annual training seminars to provide this type of assistance to producers. It is also recommended that participation in this training be accompanied by a small grant to help farmers complete the process.

Part E Most FSMCs require suppliers to be GAP certified. This process is cumbersome and expensive. It is recommended that companies change this policy to accept state GAP certification in lieu of the federal certification that does not take into account the realities of small farms in New England.

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 18 CONCLUSION

If the collective buying power of institutions is focused, colleges, schools and hospitals will have a significant impact on New England’s Credit: Farm Fresh RI Fresh Farm Credit: food system.

However, given the prominence of FSMCs, institutions will need to strengthen their alliance in the movement to increase local procurement to strive towards a sustainable regional food system. There are many challenges to creating a shift in purchasing practices to provide New England producers with access to the institutional market. The barriers will require state and federal policy shifts, internal company policy changes, aggregation of customer demand and changes in the way farmers operate. While these are large obstacles, there are signs that these changes are already happening and an increasing number of companies are recognizing the value of local food procurement and the development of a sustainable New England food system.

Learn more at www.farmtoinstitution.org

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 19 CITATIONS

[1] Porter, D. (2006). Self-Op vs. Contract: What’s Right for Your Campus? Food Management http://www.porterkhouwconsulting.com/articles/documents/SelfOpVsContract_000.pdf Last accessed 08.02.2015

[2] Unfortunately, only national level data of the number of institutions served is available from the companies; therefore, the portion of New England institutions managed by these companies is unknown. It may be possible to gather this information on a state by state basis through departments of education and hospital associations, but this has not been attempted by the researchers.

[3] Top 50 Management Companies. Food Management http://food-management.com/fm-top-50-2013 Last accessed 08.02.2015

[4] Spotlight on Sustainability. Issue 8. http://bettertomorrow.sodexousa.com/nslst/a-holistic-approach- to-health-and-wellness-for-the-health-care-market-interview-with-pat-connolly/ Last accessed 08.02.2015

[5]Sodexo Press Release. (2012) http://sodexousa.com/usen/media/press-releases/2012/ princetonreviewgreencolleges060412.aspx Last accessed 08.02.2015

[6] American Hospital Association. “AHA Hospital , 2013 Edition.”

[7] National Center for Education Statistics. http://nces.ed.gov/fastfacts/display.asp?id=84 last accessed 08.02.2015

[8] National Center for Education Statistics. http://nces.ed.gov/programs/digest/d12/tables/dt12_098. asp Last accessed 08.02.2015

[9] Farrand, T. (2.7.2011) On-Site Dining Contracts: How does this affect you? Cini-Little. http://cinilittle. wordpress.com/2011/02/17/on-site-dining/ Last accessed 08.02.2015

[10] According to the 2012 US Census of Agriculture the average farm in the United States is 434 acres. In New England the average farm acreage ranges from a high of 178 in Maine to a low of 56 in Rhode Island. http://www.agcensus.usda.gov/Publications/2012/ Last accessed 08.02.2015

[11] The growing season varies by state. CT has the fewest frost days and ME has the most. Additionally farm practices such as high tunnels can extend the harvest season.

[12] Information about the adopt-a-farm program was provided by staff at Farm Fresh Rhode Island and Roch’s Produce.

[13] Vermont Governor Applauds Sodexo’s Commitment To The “Vermont First” Pledge To Impact State’s Agricultural Economy And Improve The Well-Being Of Vermonters. Sept 5, 2014. Corporate Social Responsibility Wire. http://www.csrwire.com/press_releases/37319-Vermont-Governor-Applauds- Sodexo-s-Commitment-To-The-Vermont-First-Pledge-To-Impact-State-s-Agricultural-Economy-And- Improve-The-Well-Being-Of-Vermonters Last accessed 08.02.2015

BARRIERS & OPPORTUNITIES FOR LOCAL FOOD PROCUREMENT PAGE 20 APPENDIX

COMMENTS & RESPONSES This report was released in draft form in January 2015 via a webinar presentation. FINE solicited reflections and comments in order to ensure accuracy of the information presented. All comments were compiled and many were incorporated into this final report. The following are comments that were not directly integrated into the report, along with responses from the project advisory team.

Comment: The tone of this report is misleading as it presents food service management companies (FSMCs) as “devious and underhanded”, but they are part of the solution. Response: It was certainly not a goal of this project to portray FSMCs as advisaries. We recognize the value of working with FSMCs to identify solutions to the development of a diverse regional food system. The report does highlight areas where FSMCs have created innovative models to contribute to the growth and market for local suppliers, however, more work needs to be done by all members of the supply chain to make this the norm rather than the exception.

Comment: There is a lack of discussion around Group Purchasing organizations (GPO’s) who dictate purchasing in health care facilities and are procurement entities that FSMCs do not control. Response: The focus of this report was on aspects of the supply chain that impact local procurement cutting across three sectors: colleges and universities, K-12 schools and hospitals. With this in mind, we recognize that GPOs are a large component of hospital purchasing, however, they are much less relevant within colleges, universities and K-12 schools. Still, some discussion of GPOs is included.

Comment: The report notes that FSMC staff were interviewed and a request was made to clarify what individuals this refers to. Response: We’re referring to existing and former food service directors, current and former regional and national leadership from FSMCs who were interviewed by our project team. We told these individuals that we would not list their names to encourage them to speak openly.

Comment: A FSMC representative reflected that rebates, otherwise known as Volume Discount Allowances (VDAs), add value where the best quality is provided for the price and that price reflects efficiencies of value all along the supply chain. This example was given: “If a FSMCs commits to buy 10 million pounds of a specific product... 4 ounce boneless, skinless chicken breast... the farmer, processor and distributor can all achieve savings based on the efficiency of not having to produce another spec product. The VDA is based on these savings generated by lower costs and efficiency at every link of the supply chain and that is what is shared.” Response: We agree that rebates do reward efficiencies in the supply chain particularly for those who are able to meet demand for higher volumes. However, as New England farm and food businesses are primarly small and mid-sized, it is more challenging for them than larger national suppliers to meet the level of supply required to obtain rebates. For this reason, the volume discount process is a barrier for New England producers.

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