^^ Farmer-To-Consumer Direct Marketing in Six States

/ /;^^ Farmer-to-Consumer Direct Marketing In Six States Peter L. Henderson Harold R. Linstrom >\D United States Economics, Agriculture Department of Statistics, and Information Agriculture Cooperatives Bulletin Service No^-se FARMER-TO-GONSUMER DIRECT MARKETING IN SIX STATES, by Peter L. Henderson and Harold R. Linstrom. National Economics Division; Economics, Statistics, and Cooperatives Service; U.S. Department of Agriculture. Agriculture Information Bulletin No. 436. ABSTRACT Nearly 62,000 farmers in Indiana, Michigan, New Jersey, North Carolina, Ohio, and Pennsylvania sold about $260 million worth of farm products directly to consumers in 1978. Direct sales represented 2 percent of total farm income in the six States. Leading in sales value were floral and nursery products, apples, berries, peaches, sweet corn, tomatoes, and melons. Direct sales from the farmhouse was the most frequently used direct marketing method, followed by roadside stands. Other types of direct marketing outlets are pick-your-own operations, farmers' markets, house-to- house delivery and farm stores. Keywords: Direct sales, Roadside stands. Pick-your-own, Farmers* markets. Dairy products, Vegetables, Fruits. Copies of this report can be ordered from: ESCS Publications, Room 0054-South U.S. Department of Agriculture Washington, D.C. 20250 Telephone: (202) 447-7255 Washington, D.C. July 1980 PREFACE The increased interest by consumers and fanners in the midseventies for direct buying and selling of farm products resulted in the passage of the Farmer-to-Consumer Direct Marketing Act of 1976 (P.L. 94-463). The purpose of the law is to appraise the extent of direct marketing and its benefits to consumers and farmers and to promote the development and expansion of direct marketing of agricultural commodities from farmers to consumers on an economically sustainable basis. Promoting direct marketing has been a joint effort by two agencies of the U.S. Department of Agriculture— the Agricultural Marketing Service (AMS) and the Science and Education Administration- Extension (SEA-Extension). AMS works with the State departments of agriculture on technical assistance programs; SEA-Extension works with the State extension services on educational assistance. In its implementation of the act, USDA developed stringent guidelines to which States must adhere in submitting their proposals for State projects to encourage and promote direct marketing. Those guidelines include a detailed justification and rationale for the proposal, what the project is intended to achieve, the methodology for achieving the objectives, and an evaluation of the project's cost effectiveness. Priority in the selection process was given to those proposals that especially suggested innovative approaches to direct marketing, to States with available staff to provide project leadership, and to proposals that had a built-in evaluation. For fiscal years 1977 and 1978, $2 million was allocated among 23 States and Puerto Rico. The act also directs the Secretary of Agriculture, through the Economic Research Service (now Economics, Statistics, and Cooperatives Service—ESCS), to conduct continuous surveys in each State to determine the number of farmers marketing directly, the types of direct-marketing methods in existence, the volume of business conducted through each method, and the impact of such marketing methods on financial returns to farmers and on food quality and cost to consumers. The act further re- quires the Secretary to make annual reports to the Committees on Agriculture of the U.S. House of Representatives and the U.S. Senate with respect to the activities conducted under the provisions of the act. Funds for carrying out the surveys specified in the act were provided in a supplemental appropriation of $500,000 in September 1978. The annual cost of surveying all 50 States annually was estimated at about $3 million. Because of the large amount of funds required to conduct the surveys, the amount authorized proved too low, and an alternative research approach was suggested to Congress through the appropriate committees. The approach consisted of three parts: (1) Statewide surveys of farmers marketing directly to consumers in 6 to 10 States annually (different States each year) to determine the number of direct marketers in each State, methods employed, volume of business conducted, commodities marketed, percentage of total sales represented by direct sales, and location with respect to population centers; (2) periodic surveys of farmer cooperative marketing associations to document volume, value, and commodities sold directly to consumers; and (3) through cooperative research agreements with State experiment stations, supplemental case studies of representative direct-marketing methods employed by farmers and consumers patronizing these outlets to document impacts to cost and financial returns to farmers and benefits to consumers. These studies are also designed to develop information that will: (1) provide a basis for estimating potential impacts on farmers' financial returns under stated conditions and estimating the potential of direct marketing for improving the economic viability of small farmers; (2) improve existing direct marketing for the benefit of both farmers and consumers; and (3) aid State departments of agriculture and extension services in designing more effective programs. Information obtained from this research can be used: —In the Secretary's annual report to the Committee on Agriculture of the U.S House of Representatives and the Committee on Agriculture, Nutrition, and Forestry of the U.S. Senate. —By State departments of agriculture and State extension services in planning and conducting direct marketing projects. —By farmers in planning and conducting their direct-marketing activities to satisfy their customers better. —By consumers to obtain a better understanding of what is involved in buying directly from farmers, to appraise the benefits obtained, and to appraise additional costs incurred by extra travel or other efforts in purchasing directly from growers. CONTENTS SUMMARY iii INTRODUCTION 1 DIRECT-MARKETING METHODS 2 COMPARISON OF DIRECT-MARKETING METHODS. 4 Products Sold by Direct-Marketing Method 5 s Added and Avoided Cost Associated with Direct-Marketing Methods . 6 Location of Direct-Marketing Farms 6 Use of Advertising 7 CHARACTERISTICS OF DIRECT-MARKETING FARMERS 8 Full-Time and Part-Time Farming . 9 Products Marketed ....... ........... 9 Reasons for Selling Directly to Consumers 10 IMPLICATIONS 10 TABLES , 12 ii SUMMARY About 15 percent of all farmers in Indiana, Michigan, New Jersey, North Carolina, Ohio, and Pennsylvania sold almost $260 million worth of farm products directly to consumers in 1978, The leading products sold, by dollar value, were floral and nursery products (including bedding plants), apples, strawberries, other berries (blueberries, black- berries, and raspberries), peaches, sweet corn, tomatoes, melons (watermelons and cantaloups), white potatoes, green beans, and livestock and poultry products. Dairy products were important in Pennsylvania, the only State with a significant volume of dairy product sales. The most popular method of direct selling among the nearly 62,000 farmers was from the farmhouse or another farm building, used by 59 percent of the direct-selling farmers in the six States. The next most popular methods were from a roadside stand (used by 12.5 percent) and house-to-house delivery (12 percent). Trailing those three methods were pick-your-own operations (9 percent), farm store (8 percent), and farmers* market (6 percent). Most direct-selling farms (74 percent) were within 20 miles of the nearest city; 40 percent were within 10 miles. Distance to the nearest city was less critical for pick-your-own operations and sales from the farmhouse than for other methods. For both those methods, 35 percent were more than 20 miles from a city; only 12 percent of the other direct-selling farms were that far away. Most direct-selling farms (74 percent) were closest to cities with populations of less than 50,000. Only 13 percent of direct-selling farms were closest to cities with more than 100,000 residents; 44 percent of roadside stands, however, were closest to cities of that size. Seventy percent of direct-marketing farmers in the six States were part-time farmers who had sources of income other than farming. Seventy-six percent of all direct-selling farmers had gross farm sales (direct and through other outlets) of less than $20,000 in 1978. Those farmers accounted for only 24 percent of total direct sales made to consumers. The remaining 24 percent of farmers selling direct in the six States had total farm sales above $20,000 and accounted for 76 percent of total direct sales. Many direct-selling farmers believe that they can receive higher prices by selling directly to consumers rather than selling to normal marketing channels. Many farmers also indicate that their volume of production is too small to meet the require- ments of conventional wholesale buyers. Another factor affecting income is that many direct-selling farmers can avoid costs for such items as shipping containers, packing- house labor, transportation, sales commissions, and storage. Other direct marketers, however, incur some costs that they would not otherwise, such as advertising, insurance, labor for sales personnel, and parking lots. iii Farmer-to-Consumer Direct Marketing in Six States Peter L. Henderson and Harold R. Linstrom Agricultural

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