Feasibility Study For A Texas Organic Food Hub

NATIONAL CENTER FOR APPROPRIATE TECHNOLOGY June 2015

Prepared by the National Center for Appropriate Technology June 2015 NATIONAL CENTER FOR www.ncat.org APPROPRIATE TECHNOLOGY

Co-Directors Project Lead Team Production Team Robert Maggiani, [email protected] Robert Maggiani, NCAT Amy Smith, layout, cover design Mike Morris, [email protected] Mike Morris, NCAT Ronja Behrends, illustrations 1-866-319-1669 Susie Marshall, TOFGA Taylor Brown, research assistant Pedro Schambon, My Father’s Farm

Funding to develop this publication was provided by the Rural Business Enterprise Grant program of USDA–Rural Development, award number 49-015-752017047. This publication is the result of tax-supported research, and as such is not copyrightable. It may be freely reprinted with the customary crediting of the source.

While every precaution has been taken in the preparation of this document, neither NCAT, nor the authors, nor the funders assume any liability for any loss or damage caused or alleged to be caused, directly or indirectly, to any person or entity by the information or instructions contained in this book. Reference to any specifi c commercial product, process, company, individual, or service does not imply endorsement, recommendation, or favoring. The views and opinions expressed in this publication do not necessarily refl ect those of the funders, the United States government, or any Federal or State agency.

Acknowledgments

Thanks to these technical advisors: Juan Anciso, Texas A& M AgriLife Extension; Jim Barham, USDA Rural Development; Susan Beckwith, City of Elgin; Rick Carrera, Texas Rural Cooperative Center; Fidel Delgado, USDA-Agricultural Marketing Service; Brent Demarest, Whole Foods Market; Roger Harkrider, H-E-B; Chad Julka, Grow North Texas; Sandi Kronick, Eastern Carolina Organics; Annelies Lottmann, Texas Rural Cooperative Development Center; Amy McCann, Local Food Marketplace; Leslie McKinnon, Organic Certifi cation Consulting; Austin Moore, H-E-B; Marco Palma, Texas A&M AgriLife Extension; Chris Romano, Whole Foods Market

Thanks to Billy Curb, Betty Soto, and Gilberto Menendez of Texas USDA Rural Development for their help and encouragement.

Thanks to the following farms for their input:

Seth Armstrong, A Y RAAM Farms Juan Raygoza, Terra Preta Farm Kenneth Ball Randy and Ellen Rye, Idyllwild Acres Georgia Carmichael, Bramble and Bog Farm Pedro Schambon, My Father’s Farm Joshua Kubena, Kubena Farms LLC Gerald Scheffl er Paul Magedson, Good Earth Organic Farm Shaye and Michelle Stevens, Edendell Farms James Moss, Moss Family Farms Marysol Valle, Fat Frog Farm Jesus Navar, El Sabroso Farm Gita Van Woerden, Animal Farm Jeff Nickerson, Nickerson Farms Whitney Waller, Little Bluestem Farm Debra Medina, Medina Farm Dan Wickware, Wick’s Locally Grown Saul and Diana Padilla, Yahweh’s All Natural Farm Milton Woods Millie’s Barn Veggie Barn Farm

Table of Contents

Executive Summary ...... 1 Market Feasibility ...... 23 Background ...... 1 Commitments from customers ...... 23 Sales focus and operations ...... 1 Competition ...... 23 Financial/Economic feasibility ...... 2 Access to market outlets ...... 24 Market feasibility ...... 2 Technical feasibility ...... 2 Management feasibility ...... 2 Technical Feasibility ...... 24 Major risks ...... 2 Recommendations for implementation ...... 3 Facility requirements ...... 24 Availability of suitable sites ...... 24 Introduction ...... 3 Transportation ...... 24 Workforce ...... 25 Purpose ...... 3 Project team ...... 4 Availability of organic produce ...... 25 Methodology ...... 4 Crop production risks ...... 25 How this report is organized ...... 6 Environmental impacts ...... 25 Risks related to regulatory requirements ...... 25 Background ...... 6 Challenges faced by small farms ...... 6 Management Feasibility ...... 25 Organic certifi cation ...... 7 Business structure ...... 25 Demand for organic foods ...... 8 Continuity and adequacy of management ...... 25 Organic farming in Texas ...... 8 The Texas wholesale produce market ...... 10 Availability of consultants and service providers ...... 26 Grower Survey results ...... 12 Economic impact ...... 13 Conclusion ...... 26 Other benefi ts ...... 13 Summary of recommended approach ...... 26 Assumptions ...... 13 Strengths, weaknesses, opportunities, and threats ...... 27 Guiding principles ...... 13 Products sold ...... 14 Reference List ...... 28 Size and location ...... 14 Geographical scope ...... 16 Transportation ...... 16 Qualifications ...... 29 Ownership and governance structure ...... 17 Major markets and sales focus ...... 17 Glossary ...... 30 Workforce ...... 17 Revenue split and profi t sharing ...... 18 Activities and services ...... 18 Appendix 1: Grower Survey Results ....31 Grower relations and membership ...... 18 Branding and labeling ...... 19 Winning and maintaining grower trust...... 19 Appendix 2: Seasonal Availability Chart for Texas Crops ...... 33 Financial/Economic Feasibility ...... 19 Appendix 3: Organic Certifying Sales projections for years 1-3 ...... 19 Agencies Active in Texas ...... 34 Income statements ...... 20 Sensitivity analysis ...... 20 Appendix 4: Certified Organic Cash fl ow projections ...... 21 Balance sheet ...... 21 Specialty Crop Farms in Texas ...... 35 Total capital requirements ...... 22 Sources of capital and credit ...... 22 Reliability of fi nancial projections and assumptions ...... 22 Appendix 5: Job Descriptions ...... 36

Executive Summary Sales focus and operations Background NCAT recommends that the hub specialize in selling primarily to large retail grocery esponding to a request from farmers outlets. Hub operations should be designed to R in central Texas, the National Center maintain superior quality and freshness, and for Appropriate Technology (NCAT) products should be co-branded, featuring both studied the feasibility of a food hub in or the hub name and the farm name. he main near Guadalupe County, Texas. This enter- We also recommend the following: T prise would aggregate fresh certified purpose organic produce from small- to mid-sized • The hub should keep startup costs low: of this food renting most of its equipment initially farms, making it conveniently available hub would be from a single source and at volumes large and starting with just four employees and enough to be attractive to retailers. capacity for 700 cases of cold storage. By to increase the the third year the business would grow to net incomes The main purpose of this food hub would be eight employees. to increase the net incomes of small farms and • In order to source produce from all parts of small farms improve their resilience and long-term profi t- of the state and take advantage of year- while improving ability by creating access to the growing mar- round growing season in Texas, the hub ket for certifi ed organic food. The larger vision should begin with two sub-hubs: eventually their resilience is to promote rural development by addressing deploying a network of four sub-hubs and long-term the underdeveloped state of organic farming in the northern, southern, eastern, and profi tability. in Texas: a missed economic opportunity that western parts of the state. causes retailers to purchase the vast majority • In its mission and activities, the enterprise of organic produce from outside the state . should strongly focus on delivering benefi ts to its grower members, who would receive 70 From April 2014 until June 2015 NCAT led a proj- percent of gross sales and have opportunities ect team that surveyed all organic produce for revenue sharing. Depending on the wishes farms in Texas; interviewed growers, buyers, of its grower members, the hub could be and other industry experts; off ered trainings on organized as a cooperative, non-profi t, or organic certifi cation and food safety; met with limited liability corporation. food hub managers and organizers from around Hub employees would plan and coordinate the country; and investigated market conditions, crop production by participating farms, create business structure options, infrastructure needs, availability sheets, negotiate purchases with crop availability, transportation, insurance, food retail customers, place orders with farms, and safety, and many other topics. receive produce at the central storage and shipping facility. Farms would be responsible for A feasibility study is only one step in the planning washing, packing, and cooling produce, as well process and due diligence that should precede as delivering it to the nearest hub or sub-hub. the creation of a business. Following completion Once received at the main hub, produce would of a feasibility study, several additional steps ordi- be inspected, sorted, placed into temporary narily take place before decisions are made about cold storage, loaded onto refrigerated delivery proceeding with incorporation and fundraising. vehicles, and shipped to customers. This report shows how a Texas organic food hub During the hub’s fi rst three years, we estimate would perform under realistic assumptions, but it that it would create four to eight jobs in the is by no means a complete business plan. community where it was located. Statewide Potential investors and participants should impacts would be far greater. By the hub’s third proceed cautiously and gather more information year of operation, about 60 full-time equivalent than is provided in this report. jobs would be created throughout rural Texas. The hub would create opportunities for farms Technical terms and abbreviations used in cita- throughout Texas—even small ones—to tions are italicized the fi rst time they appear in access professional business management the text, and are defi ned in a Glossary at the end services and lucrative organic markets off ering of the report. premium prices.

Feasibility Study for a Texas Organic Food Hub Page 1 Financial / Economic certifi ed organic farmland. This appears feasible, feasibility as nine specialty crop growers with 560 acres of certifi ed organic land have already expressed A pro forma profi t and loss statement shows net strong interest in participating. The availability of revenue of $480,042 in the hub’s fi rst year, based organic produce could eventually limit growth on product sales of $1,777,933. By the third year, of the hub, as there are currently only 75 certifi ed net revenue would grow to $1,075,976 based on organic specialty crop farms in Texas. However, a product sales of $3,985,095. Total funds needed signifi cant percentage of the state’s conventional to begin operations are $277,920. This includes growers are believed to be open to the idea of $77,920 for asset purchases, deposits, and organic certifi cation. Many of these are already other startup expenses, and $200,000 for cash using organic farming methods and could expenses during the hub’s fi rst three months of become certifi ed within a matter of months. operation. The gross profi t margin would be 2.1 percent in year one, 4.1 percent in year two, and To reduce transportation costs, NCAT recom- 6.2 percent in year three. A sensitivity analysis mends that the hub take advantage of all shows that net profi ts for year one would drop opportunities for backhauling on the part of to zero if sales fell eight percent below the tar- retail customers. The hub will need to be fl ex- ible, reducing its geographical scope if low-cost get level of $1.7 million. transportation options are not available. Market Feasibility There are no known adverse environmental NCAT recommends that the hub should focus impacts and many well-known environmental on the untapped retail market for Texas-grown benefi ts from organic farming. The new Food Safety Modernization Act will create new regu- organic produce, thus largely avoiding direct lations, but these appear to be manageable. competition with existing economic interests. NCAT recommends that all grower members be Consumer purchases of organic food have organically certifi ed, ensuring that they undergo grown consistently for over two decades. The a third-party inspection at least annually and fol- two largest retailers of organic food in Texas low stringent food safety protocols and environ- (Whole Foods and H-E-B) have both expressed mentally benefi cial practices. strong interest in buying from the food hub. Keeping in mind the seasonal limitations on pro- Management Feasibility duction of certain crops, we estimate that Texas As with the workforce generally, qualifi ed con- organic producers could grow (conservatively) sultants and service providers are abundantly half of the organic produce currently being sold available from Austin, San Antonio, and other in Texas grocery stores, worth about $100 million cities nearby. A bigger challenge would be per year at farm gate prices. In theory, the hub fi nding dynamic managers who have the right could eventually capture a signifi cant percentage balance of professionalism and optimism to of this $100 million market. There are also signifi - win and maintain the trust and loyalty of the cant markets for Texas-grown organic produce in grower members. other states, especially during the winter months. Other food hubs already operate in Texas, but Major risks none like the one envisioned here. Competing The three major risks are that growers may not food hubs may come into existence, but they participate in suffi cient numbers, high trans- would need to win the trust and participation of portation costs could make sub-hub operations the state’s limited pool of organic farmers. Low prohibitively expensive, or the enterprise could profi t margins will also likely discourage entre- fail if sales fall short of expected levels. preneurs who are exclusively profi t-driven. To address the fi rst risk (attracting a suffi cient Technical Feasibility number of growers as participants), NCAT recommends: The equipment and processes needed to run a food hub are well-known and available. Suitable • operating with a high degree of transpar- sites are readily available throughout central ency and a strong commitment to the Texas, and qualifi ed workers are abundantly ideals of organic farming, which include available from the surrounding area, which environmental improvement along with includes the cities of Seguin, Austin, San Marcos, human safety and health; New Braunfels, and San Antonio. • not requiring an exclusive commitment The produce needed to meet the hub’s fi rst year from participants, leaving them free to sell sales target could be grown on 60-80 acres of through other channels;

Page 2 Feasibility Study for a Texas Organic Food Hub • limiting competition with established Introduction organic growers who are already selling to retail groceries; Purpose • spending at least several months inform- he U.S. Department of Agriculture ing Texas growers about the food hub’s (USDA) defines a food hub as purpose and engaging as many of them T “a business or organization that as possible in the planning process, before actively manages the aggregation, fi nal decisions are made about the hub’s distribution, and marketing of source- feasibility business structure and operations; identified food products primarily from Astudy is • informing and involving existing Texas local and regional producers to strengthen an assessment organizations that represent organic their ability to satisfy wholesale, retail, and farmers and have won their trust; and institutional demand” (Barham et al., 2012) . of whether an • providing education, support, and In the fall of 2013 a group of small-scale veg- enterprise is encouragement to the large pool of etable producers from Guadalupe County, Texas technically and asked NCAT to investigate the feasibility of a conventional growers who are interested economically in transitioning to organic production. food hub that would aggregate organic pro- duce from Texas farms, making it available from feasible, showing To address the second risk (high transporta- a single source and at volumes large enough how the tion costs), the hub should aggressively pursue to be attractive to retailers. Responding to this all possible opportunities for backhauling by its request, NCAT submitted a proposal to USDA enterprise would customers. To address the third risk (business Rural Development and was awarded a Rural perform under failure due to inaccurate forecasting and low Business Enterprise Grant in the spring of 2014 to sales), the hub should start small and minimize carry out four main activities: a set of realistic its startup costs: renting equipment and being 1. Determine baseline information, such as assumptions. prepared to shrink operations if necessary. what crops can be grown organically in Texas, who would be the hub’s likely cus- Recommendations for tomers, how much produce these custom- implementation ers would likely buy, how much acreage This study concludes that a Texas organic food would be needed to meet this demand, hub could be implemented profi tably. NCAT how many farms would be interested in recommends that food hub organizers con- participating, and what cities might want to tinue outreach and grower recruitment eff orts house such a food hub. and develop a fundraising plan and timeline, 2. Determine the operational requirements towards the goal of a pilot eff ort such as the one for an appropriately-scaled food hub, described in this report. including fi nancial requirements, building Some funders and lenders will require a much and equipment needs, job descriptions, possible organizational structures, and more complete and specifi c business plan than marketing strategies. what is provided in this report. Before actual fundraising can begin there will also need to be 3. Create and disseminate a feasibility a legal entity to apply for and administer funds. study including discussion of the market, The organizers can either choose an existing competition, sales projections, and brand organization to play the role of fi scal agent tem- development, as well as fi nancial pro porarily or else proceed directly to the incorpo- formas and an analysis of the strengths, ration of the food hub as a legal entity in Texas. weaknesses, opportunities, and threats for In either case, before deciding on a business such an enterprise. structure there should be a deliberate process 4. Begin training growers on essential topics to disseminate information about the food hub’s such as the organic certifi cation process, purpose and educate and involve many stake- food safety, packing standards and cooling holders. This process should not be rushed and requirements for retail and wholesale will take several months at a minimum. If the customers, transportation issues, insurance organizers wish to start operations quickly, we requirements, USDA lending and conserva- recommend the fi rst path: fi nding an appropriate tion programs, labor and tax issues, organization to serve as a temporary fi scal agent. and related topics.

Feasibility Study for a Texas Organic Food Hub Page 3 Project team Stakeholder input The Project Team consisted of a Lead Team that During a feasibility study, it is recommended participated in all aspects of the study, Technical that potential members of the enterprise “partic- Advisors who provided expert input on techni- ipate in the development of the feasibility study cal topics, and a Production Team that created and thus are educated about various aspects this report. The Lead Team and Technical Advi- of the project, which will help them decide sors are listed below. A Qualifi cations section whether to move to the implementation stage” at the end discusses NCAT’s qualifi cations, and (Brockhouse and Wadsworth, 2010). With this those of the Co-Directors, to conduct this study. goal in mind, NCAT engaged a wide range of stakeholders and asked for their input. Methodology To gather input from certifi ed organic growers, As the term is used here, a feasibility study is an NCAT worked closely with the Texas Organic assessment of whether an enterprise is techni- Farmers and Gardeners Association (TOFGA), cally and economically feasible, showing how the state’s largest organic farming membership the enterprise would perform under a set of organization. In January 2015, NCAT staff gave realistic assumptions. These include assump- a presentation about the idea of a statewide tions about likely market conditions as well as organic food hub at the annual TOFGA confer- recommendations for how the enterprise should ence in San Antonio. We also sent a letter or be organized and run. Feasibility studies often e-mail to all 294 certifi ed organic producers in include a sensitivity analysis showing how the Texas (USDA-AMS, 2014), along with about 30 business would perform if some of these major other interested persons, inviting them to com- assumptions (and especially market conditions) plete a Grower Survey indicating their level of are changed (Brockhouse and Wadsworth, 2010). interest in a potential food hub. Fifty-two people

Table 1: Project team Lead Team Title/organization Role/expertise Lead researcher, economic modeling, market Robert Maggiani Sustainable Agriculture Specialist, NCAT analysis, stakeholder input Mike Morris Southwest Regional Offi ce Director, NCAT Project Director, study design, report writing President, Texas Organic Farmers & Gardeners Research on operational requirements, outreach Susie Marshall Association (TOFGA) to organic growers, stakeholder input Research on operational requirements, crop Pedro Schambon Owner/operator, My Father’s Farm production, and economics Technical Advisors Title/organization Role/expertise Juan Anciso Texas A&M AgriLife Extension Service Food safety and GAP audit trainer Jim Barham USDA Rural Development Advisor on food hub design and development Susan Beckwith Rural Development Specialist, City of Elgin Outreach to growers and other stakeholders Rick Carrera Director, Texas Rural Cooperative Center Grower organization trainer Fidel Delgado USDA-Agricultural Marketing Service Advisor on food hub facilities design Brent Demarest Produce Purchasing, Whole Foods Market Sales estimates, policies and procedures Roger Harkrider Director, H-E-B Produce Operations Sales estimates, policies and procedures Chad Julka Grow North Texas Outreach to growers, stakeholder input Sandi Kronick CEO, Eastern Carolina Organics Advisor on food hub organization and operation Annelies Lottmann Texas Rural Cooperative Center Cooperative development specialist Amy McCann CEO. Local Food Marketplace Technical assistance: hub management software Leslie McKinnon Organic Certifi cation Consulting Researcher with organic certifi cation expertise Austin Moore Business Development Manager, H-E-B Produce Sales estimates, policies and procedures Marco Palma Texas A&M AgriLife Extension Service Economic modeling and impact analysis Chris Romano Global Produce Coordinator, Whole Foods Market Sales estimates, policies and procedures

Page 4 Feasibility Study for a Texas Organic Food Hub completed the survey, including 38 commercial • attended dozens of webinars about food growers. The results are summarized in the Back- hub management, including webinars ground section of this report, and presented in on specialized topics such as trucking, more detail in Appendix 1. fi nancing, and fi nancial software; To gather input from the state’s conventional (i.e. • contracted with TOFGA to research non-organic) growers, NCAT staff spoke at fi ve insurance requirements, job descriptions, grower meetings attended by mostly conven- and infrastructure needs; tional farmers and ranchers: the Texas Interna- • got quotes from vendors for large equip- he two tional Produce Association, Texas Fruit Growers ment (such as vehicle, cooler, and trailer T Association, Texas Certifi ed Farmers Markets Asso- largest leases); ciation, Fort Bend Vegetable Growers Conference, organic and Texas Pecan Growers Association. At these • met with about ten food hub managers meetings we explained the concept of an organic at the annual meeting of the Southern produce food hub, provided information about the Sustainable Agriculture Working Group retailers in organic certifi cation process, and asked producers (Southern SAWG); Texas, H-E-B about their interest level and concerns. We also • participated actively in the Southern SAWG and Whole off ered three trainings on food safety and organic Food Hub Working Group listserve; certifi cation—two in Guadalupe County and one Foods, both • read dozens of food hub case studies; and via webinar—attended by a mix of conventional took an active and organic growers. • consulted with the management of Eastern NCAT contacted 30 wholesale produce buyers, Carolina Organics, a food hub specializing interest in this of whom 22 expressed at least some interest in certifi ed organic produce and headquar- feasibility study. in buying from a food hub and four expressed tered in Durham, North Carolina. strong interest. We also contacted buyers from It should also be noted that several members of the 15 largest grocery retailers in Texas. Of these, the project team have extensive fi rsthand expe- 11 expressed at least some interest in buying rience with marketing fresh produce in Texas. from a food hub and three (H-E-B, Whole Foods, See the Qualifi cations section near the end of and Brookshires) expressed strong interest. this report. NCAT had extensive and ongoing discussions with Whole Foods and H-E-B, the two largest Determining market and organic produce retailers in Texas. Both com- financial feasibility panies took an active interest in this feasibil- The National Good Food Network (NGFN) lists ity study and provided valuable information, over 300 food hubs currently operating in the including estimates of the items and volumes United States (NGFN, 2014a). We regularly com- they would be interested in buying from an pared our assumptions to industry averages organic food hub. In July 2014 we met with reported in the NGFN’s Benchmarking Study Whole Foods Market’s Global Produce Coordi- (NGFN, 2014). nator at the company’s headquarters in Austin, Texas. In October 2014 we met with the Produce Most food hubs run on slim profi t margins, Purchasing Team Leader for the Whole Foods meaning that small miscalculations or unex- Southwest Division in Austin. We also had six pected market shifts can create cash fl ow prob- meetings with senior H-E-B managers, at the lems. (See, for example, NGFN, 2014 and Abellera company’s Retail Produce Center in San Antonio. et al., 2014.) The fresh produce industry is also subject to price fl uctuations that vary from crop Determining technical to crop. With these challenges in mind, NCAT feasibility wanted to start from the most realistic possible To fi nd out what crops can feasibly be grown assumptions about likely prices and sales vol- with organic methods in Texas, the Grower umes. We also wanted to carry out a wide-rang- Survey asked farmers what crops they had ing sensitivity analysis, testing the hub’s eco- grown in the past three years. NCAT also con- nomic performance and viability under many tracted with TOFGA to create enterprise budgets price and volume scenarios. for over 20 crops, estimating the cost and labor We accomplished both objectives by creating requirements of organic production. a Weekly Sales Forecasting spreadsheet that To fi nd out the operational requirements of a allowed us to input specifi c prices and sales statewide organic food hub, NCAT: volumes, crop-by-crop and week-by-week.

Feasibility Study for a Texas Organic Food Hub Page 5 Creating this spreadsheet gave us the ability to the food hub’s chances of success. The Con- study the hub’s fi nancial performance under an clusion summarizes strengths, weaknesses, almost unlimited number of hypothetical con- opportunities, and threats, and makes tentative ditions: asking “what if” questions like “What recommendations for moving towards capital- would happen to the hub’s cash fl ow if tomato ization and startup. prices fell to $10 a box in July instead of staying at $15 per box?” Background To forecast the hub’s likely sales, we used esti- mates provided by major retailers, indicating Challenges faced by the kinds and volumes of produce they would small- to mid-sized farms expect to buy from the hub. We consider these estimates realistic and conservative because mall- to mid-sized farms face challenges these retailers have expressed strong interest in S that include limited marketing options; buying from the hub. To create a realistic fore- high levels of personal, financial, and cast of weekly case prices, we drew from histori- market risk; and unpredictable conditions such cal data in the USDA-AMS Fruit and Vegetable as weather. Prices depend on factors that are portal (USDA-AMS, No Date). We consider this generally beyond the control of the individual historical data to be the most reliable guide to farmer, and can drop sharply because of pro- expected prices available to the general public. duction gluts. Texas farmers compete with The Weekly Sales Forecasting spreadsheet growers all over the world, including countries is available from NCAT’s ATTRA website, and with lower labor costs. In negotiating with should be useful as a template for other groups buyers, fruit and vegetable growers often have that want to replicate our planning process or a weak bargaining position because their study the fi nancial performance of an existing products are so perishable. Federal programs hub under varying assumptions. to reduce agricultural risk, such as crop insurance and direct payments, have historically How this report is been used mainly by growers of commodities organized like wheat, corn, soybeans, and cotton, and have been less widely used for growers of A Background section explains the purpose fruits, vegetables, and other specialty crops for creating a Texas organic food hub, including (Schahzenski, 2012). information about small- to mid-sized farms, organic food sales, and the Texas wholesale The recent growth in the number of farmers produce market. The Assumptions section next markets, community supported agriculture explains how the hub is expected to operate, (CSA) subscription programs, and other direct making many recommendations and including marketing channels has created opportuni- likely market conditions. With these assump- ties for small specialty crop farms (Rodriguez, tions in mind, the next four sections show how 2006). On the other hand, direct-marketing is the hub would perform, considering its feasibil- time-consuming and requires intense involve- ity from several diff erent angles (Technical ment in promotion, record-keeping, and the Feasibility, Market Feasibility, Financial/Eco- business aspects of farming. Many farmers nomic Feasibility, and Management Feasibility). lack the training or aptitude for these activities We estimate sales, profi tability,and cash fl ow in (Wiswall, 2009). And mid-sized farms often fi nd the hub’s fi rst three years. We also assess and that direct-marketing channels do not generate prioritize risks, building a detailed picture of enough sales to support them (Lerman, 2012).

Figure 1: How this report is organized

Background AssumptionsFeasibility Analysis Conclusions

F inancial / Technical Market Economic Management

Page 6 Feasibility Study for a Texas Organic Food Hub Food hubs can potentially address many of the an extra layer of costs to the supply chain, dupli- challenges above. cate existing eff orts/infrastructure, and struggle • Aggregating production may create fi nancially without subsidy” (Abellera et al., 2014). enough volume and variety to interest The food hub envisioned in this report would larger retailers and institutional buyers (such be either farmer-owned or at least strongly as schools), thus opening new marketing “grower-centric”: intended to increase the channels (Barham et al., 2012). net incomes of farms, reduce their risks, and • Diversifying marketing methods and selling improve their resilience and long-term profi tabil- he some products wholesale through a food ity. These are the main objectives of the enter- Tfood hub hub may add a measure of predictability prise and the primary measures of its success. envisioned in and reduce a farm’s fi nancial risk. Organic certification • Food hubs preserve information about this feasibility The term certifi ed organic refers to products that the farm origin of foods, enabling them to have gone through the rigorous USDA regula- study is strongly seek price premiums. Many U.S. consumers tory process allowing them to carry the USDA grower-centric: want to buy from local farms, and are organic logo and be branded as and sold as willing to pay higher prices for locally- intended to organic. Unlike common but legally meaningless produced and source-identifi ed food benefi t (Bloom and Hinrichs, 2011). terms such as “chemical free,” “all natural,” or “naturally grown,” “organic” is a legally participating • Growers can focus on what they do best— protected term whose use requires meeting farms. farming—leaving business management USDA standards (Baier, 2005). and marketing to professional staff . Maintaining organic certifi cation requires an • Growers may have opportunities for owner- annual on-site inspection to confi rm that a farm ship and profi t-sharing, as well as continuing is following approved methods. These methods education and other attractive services such are based on promoting soil health, biodiversity, as direct technical assistance or discounted and water quality, while also protecting food liability insurance. They join a community safety and human health. Organic farms must where the members often enjoy mentorship comply with the National List of Allowed and and mutual support (Pressman & Lent, 2013). Prohibited Substances maintained by USDA’s Despite all these potential benefi ts, food hubs National Organic Program (NOP) (USDA-AMS, are not a panacea. Profi t margins are often low, 2015). Farmland that has been treated with and a study in California found that food hubs, prohibited substances must undergo a three- unless they are farmer-owned, merely “add on year transition period before it can be certifi ed

Figure 2: Number of U.S. farmers markets 10,000

8,000

6,000

4,000

2,000

0

Feasibility Study for a Texas Organic Food Hub Page 7 Table 2: Food hub national averages conventional products. In some cases the organic product was found to cost less, while in Average age of hubs: 7 years other cases it was found to cost as much as 300 percent more (Marks, 2015). Average revenue: $2.83 million Texas represents an enormous market for Average enterprise income: $108,241 organic food, with 27 million residents, four of America’s eleven largest cities (Houston, Dallas, exans Annual operation (days open): 276 San Antonio and Austin), and 33 other cities with T at least 100,000 people. The Food Marketing spent at Number of paid staff (FTE’s) 6.2 Institute estimates that total 2014 U.S. grocery least $365 store sales were $638 billion. Texas represented Number of farmer vendors 20.2 million on 7.4 percent of total national sales, and produce Labor as % of revenues 18.3% department sales are about 11.3 percent of total organic grocery store sales (FMI, 2014). produce in Labor as % of sales 16.4% Based on these three assumptions, we can esti- mate total 2014 Texas grocery stores sales at $47 grocery stores Cost of goods sold 72% during 2014— billion and produce department sales at $5.3 bil- Gross profi t margin 14.5% lion. The OTA claims that organic produce now equivalent to accounts for 12 percent of produce department one million Strictly organic 3.0% sales in U.S. groceries, whereas another industry research group (FreshLook Marketing) has cal- dollars per day. Not for profi t 38% culated a lower estimate of 6.9 percent (Karst, 2014). Taking the lower estimate of 6.9 percent, No term debt 46% we reach the conclusion that Texas consumers Grocery stores as customers 28% spent at least $365 million on organic produce in grocery stores during 2014—equivalent to one Other distributors as customers 14% million dollars per day. Food safety certifi cation required 31% Organic farming in Texas Source: NGFN 2014 Food Hub Benchmarking Study (48 food hubs reported performance numbers.) In 2014 there were 294 farms in Texas certifi ed by the USDA to grow organic crops, although organic. There are currently 82 organizations the great majority of these grew grass or pas- accredited by the NOP to issue organic ture (92 farms), or commodities such as corn certifi cation to growers, processors, and (63 farms), rice (58 farms), or cotton (53 farms). handlers. Of these, 18 were active in Texas in Only 75 Texas farms were certifi ed to produce 2015 (Maggiani, 2015). organic specialty crops (USDA-AMS, 2014). These 75 farms represented the entire supply of Texas- Demand for organic grown certifi ed organic produce in 2014. All of foods them are listed in Appendix 4. According to the Organic Trade Association Despite having far more farms than any other (OTA), U.S. sales of organic food and non-food state, and ranking third among all states in total products have grown by double-digits every agricultural production, Texas ranks only about year since the 1990s, and reached $39.1 billion in 20th in the number of certifi ed organic opera- 2014. The OTA estimates that 81 percent of U.S. tions. In comparison to the 294 certifi ed organic families now choose organic food at least some- crop farms in Texas, there are 2,644 of these farms times (OTA, 2014). in California, 1,304 in Wisconsin, and 936 in New In general, farms receive substantially higher York—to name three high-ranking states (USDA- prices for certifi ed organic crops, although mar- AMS, 2014). A Texas Department of Agriculture kets are volatile and there are wide variations (TDA) study concluded, “The number of certifi ed between products (Post & Schahczenski, 2012). organic operations in Texas has remained rela- One recent study found that retail prices for tively stagnant while nationally the organic food organic foods in the grocery store were, on aver- sector has experienced double-digit growth” age, 47 percent higher than prices for equivalent (York et al., 2007).

Page 8 Feasibility Study for a Texas Organic Food Hub Why does Texas have so few organic farms? In into this “sustainable-but-not-organic” 2006-7 researchers at Sam Houston University category, at the time of publication 781 surveyed a random sample of 4,006 Texas farms, Texas farms on the Local Harvest website studying attitudes towards organic farming. were representing their products as “naturally 977 growers completed the survey. (See York grown” (Local Harvest, 2015). Unlike “organic,” et al., 2007 and Constance & Choi, 2010.) About 45 percent of the conventional producers who the term “naturally grown” has no legal responded had at least some interest in organic meaning, and any farm can legally describe production, but 80 percent of these reported “a itself this way. Nonetheless, these farms rep- espite lack of both informational and services support resent an important recruitment pool for the Dhaving regarding organic production methods” and food hub since many of them use organic far more farms only 11 percent of this group indicated that they methods and avoid using synthetic fertilizer, “understood the process of organic certifi cation” pesticides, and other substances prohibited in than any other (Constance & Choi, 2010). These results suggest organic farming. Farms that have not applied state, Texas that low familiarity with organic certifi cation prohibited substances within three years (and and limited research and technical assistance ranks only on organic production methods are two of can document it) can become certifi ed organic about 20th in the major barriers to the expansion of organic without the standard three-year waiting period the number of farming in Texas. faced by conventional growers. For every USDA certifi ed organic Many Texas farms that use organic farming certifi ed organic specialty crop farm in Texas, practices choose not to become certifi ed there are probably fi ve to ten others that could farms. organic. As an indicator of how many farms fall quickly become certifi ed.

Figure 3: Certifi ed organic specialty crop farms in Texas

Travis County

Guadalupe County

Harris County

Hidalgo County

Feasibility Study for a Texas Organic Food Hub Page 9 The Texas wholesale (which includes distributors, restaurants, produce market universities, hospitals, and other institutions). Texas has a long growing season, wide varia- The wholesale sector of the Texas fresh produce tions in climate and soils, and eight established industry is a mature, competitive sector, with and named growing regions for fresh produce: produce terminal markets in Dallas, Houston, Wintergarden, Coastal Bend, High Plains, Trans San Antonio and the Rio Grande Valley. Each Pecos, Central Texas, East Texas, North Texas, of these terminal markets consists of many or every and Rio Grande Valley. With a few exceptions distributors and brokers who move produce FUSDA (such as avocados, pineapples, and head sourced from all over the world. lettuce at certain times of the year), most fruits A handful of grocery chains dominate the certifi ed organic and vegetables commonly consumed in Texas Texas produce market: Brookshire’s, Brookshire specialty crop can be grown within the state. In every month Brothers, Fiesta Mart, Krogers, HEB, HEB-Central farm in Texas, of the year harvests are taking place in some Market, Market Basket Stores, Safeway/Tom part of Texas. Thumb/Randall’s, Sprouts Farmers Markets, there are In the fresh produce world, a sales transaction United Supermarkets/Albertson’s, Walmart, and probably fi ve from a grower to someone who is going to Whole Foods Market. Whole Foods and H-E-B to ten others re-sell the product is considered a wholesale are the two largest organic retailers in Texas. transaction. There are essentially two channels Headquartered in Austin, Whole Foods is the that could for wholesale marketing of fresh produce: largest organic produce retailer in the United quickly become selling to retailers (including grocery chains as States. Headquartered in San Antonio, H-E-B is certifi ed. well as box clubs and other home delivery the largest grocery chain in Texas, and the 15th services) and selling to the food service industry largest privately held corporation in America

Figure 4: Texas farms claiming “naturally grown” production

Page 10 Feasibility Study for a Texas Organic Food Hub (Murphy, 2014). In March 2014 H-E-B announced Harkrider, H-E-B Director of Produce Procurement, a storewide private label brand of organic said, “We here at H-E-B support Texas-grown agri- products, as part of a major campaign to culture and its development. Consumer demand increase its organic off erings (Angrisani, 2014). for organics continues to grow as well. We are Currently there is no single source for a varied interested in working toward the success of this off ering of Texas-grown, organic produce. If a organic food hub project to provide fresh organic retailer, restaurant, or hospital chain wanted to produce to our customers.” purchase organic produce from Texas they would How big is the market within Texas for Texas- he have to deal with individual farms one at a time. grown organic produce? Farm gate prices T Consequently, most large retailers and wholesale received by growers are typically 55-60 percent of customers in Texas buy very little of their organic retail prices. So based on the calculation (above) percentage of produce from Texas growers (Maggiani, 2015). that Texas consumers spend $365 million per Texas-grown Instead they buy from brokers and wholesalers year on organic produce, the farm gate value of in other states and countries (Edwards et al., No these products would be about $200 million year. organic Date). Industry experts interviewed during this Keeping in mind the seasonal limitations on pro- produce in study all agreed that the percentage of Texas- duction of many crops, we estimate that Texas Texas grocery grown organic produce in Texas grocery stores is organic producers could theoretically grow half of extremely small. One used the term “minuscule.” the organic produce currently being purchased stores was Both Whole Foods and H-E-B strongly support in Texas grocery stores, or about $100 million per described as the creation of a Texas organic food hub. Roger year at farm gate prices. “minuscule.”

Figure 5: Major Texas produce-growing regions

High Plains North Texas

Central Texas Trans Pecos East Texas

Coastal Bend Wintergarden

Rio Grande Valley

Feasibility Study for a Texas Organic Food Hub Page 11 Grower survey results that at least 10 Texas organic farms with sub- Fifty-two respondents completed the Grower stantial acreage are well-prepared and highly motivated to participate in the food hub. Survey, with 38 of these being commercial growers. We rated all farm respondents on a Four other farms received a rating of 4, mean- scale of 1 to 5. Ten farms received our highest ing that we consider them good prospects. All rating of 5, meaning that they are very strong are certifi ed organic and have at least fi ve acres prospects for food hub participation. All of these under production, but said they were either farms are already certifi ed organic, have at least “slightly” or “somewhat interested” in food hub fi ve acres under production, and said they were participation. All four are specialty crop farms, “very interested” in selling to the kind of organic with a combined total of 225 acres under food hub envisioned here. One of these is a production. grain farm with 2,000 acres under production. Some highlights from the Grower Survey are The other nine are specialty crop farms with a shown below, and a more complete summary is combined total of 560 acres. These results show included as Appendix 1.

Table 3: Grower survey highlights Are you already a certifi ed organic producer? 47% YES, 53% NO If not organically certifi ed, how likely is it for you to become certifi ed in the next 5 years? 52% VERY LIKELY, 24% SOMEWHAT LIKELY, 24% NOT VERY LIKELY Are you already Good Agricultural Practices (GAP) certifi ed? 16% YES, 84% NO How would you rate your level of interest in selling to an organic-only food hub? 62% VERY INTERESTED, 17% DEFINITELY INTERESTED, 19% SLIGHTLY OR NOT INTERESTED What would make you more likely to participate in the food hub? (Please select all that apply) 34% The food hub is grower-owned, 22% The food hub is owned by Texas residents, 42% The food hub is a grower-owned cooperative, 24% You are off ered the opportunity to become an investor, 48% None of the above matter as long as you get a fair price for your produce. Would you be willing to participate in preseason crop planning with the food hub and other growers to schedule the type, quantity, and approximate timing of the produce? 82% YES, 18% NO How long have you been farming fruits and vegetables? Average # of years farming is 14. At least 15 of the growers respond- ing have more than 10 years farming fruits and vegetables commercially. Evaluate the following statements about yourself: Considerable Some Very little No knowledge # knowledge knowledge knowledge at all responses Good Agricultural Practices (GAP) 15 11 10 8 44 Good Handling Practices (GHP) 9 6 11 7 43 Food Safety Modernization Act 715101042 (FSMA) requirements Organic Certifi cation process 26 9 7 1 43

Wholesale packaging standards 7 12 14 10 43

Wholesale grading standards 6 10 15 12 43 Wholesale insurance 79161042 requirements Financial recordkeeping 22 16 3 1 42 Crop production planning 21 14 7 1 43

Page 12 Feasibility Study for a Texas Organic Food Hub Discussion Those who do transition successfully to organic • The factor that mattered most to production will gain access to the generally respondents, in deciding whether or not to higher prices in the marketplace for organic participate, was that they get a fair price fruits and vegetables. for their products. Nearly as important to Finally, the operation of the hub will likely create them was the question of whether the hub a new market for less-than-perfect produce that would be a grower-owned cooperative. has little value in small quantities and often goes • The overwhelming majority respondents to waste on small farms. This produce could lthough (82%) expressed willingness to do pre- be aggregated at the hub and re-sold to the A season crop planning. This suggests that many food processors in and around Austin and some jobs they understand the importance of San Antonio. This new market for seconds (also will be created working together. known as number twos or culls) could amount to at the hub, • More than half of all respondents had very hundreds of thousands of dollars per year. little or no knowledge of the wholesale the economic trade, including packaging and grading Other benefits benefi t will be standards and insurance. This suggests a Organic farming has well-known environmental need for grower education and training on much greater benefi ts that include protecting water quality, these topics. promoting biodiversity, preventing soil erosion, for farms Economic impact and increasing organic matter and microbial life throughout in the soil. The use of toxic chemicals is greatly In the fi rst year of operation we estimate reduced or eliminated, resulting in safer condi- Texas who sell that four people will be employed at the hub, tions for farmers and their workers and families. to the hub. with one of these being part time. (See Appendix 5, Job Descriptions.) Of far greater Assumptions economic importance will be the fi nancial benefi t to growers throughout Texas who sell Guiding principles to the hub. According to the IMPLAN economic planning model (IMPLAN, 2015), every million e will next outline and explain dollars in Texas vegetable sales generates W a series of assumptions about 12.4 full-time equivalent (FTE) jobs, while every the food hub. Taken together, million dollars in fruit sales creates 15 FTE’s. these provide a fairly detailed description of the hub’s operations and set the stage for the Table 4: Job creation estimates feasibility assessments in the following sections. FTE’s at FTE’s on Total FTE’s In making decisions about how the hub should Based on expectedHub sales Farmnumbers from be designed and run, we have been guided by the Texas organic food hub (shown later in the following questions: thisYear study), 1 we 3.5estimate the 21.0 following job 24.5 • Would it create signifi cant economic creationYear 2 impacts 6.0 during the 34.0 fi rst three 40.0years growth in rural Texas? ofYear operation: 3 8.0 52.0 60.0 • Would it enhance the profi tability of farms? In addition to these direct job-creation impacts, • Would it incorporate a strong degree of there will be many additional “indirect” grower control and ownership? economic impacts, as growers purchase more • Would it increase the market leverage of inputs from local suppliers and as their workers small farms and create new marketing spend more money at local businesses, keeping options for them? money turning over in their local economies. We make no attempt to estimate these indirect • Would it reduce risk and increase the impacts here. resilience of farms? We also expect the existence of the hub to raise • Is it realistically achievable? awareness of organic farming in Texas, encour- • Is it sustainable in the long term without aging many growers to consider certifi cation. grants?

Feasibility Study for a Texas Organic Food Hub Page 13 Products sold Size and location We assume that the hub will sell only USDA We assume that the hub will begin its opera- certifi ed organic produce, and suggest that tions in or near Guadalupe County, in central it strongly align itself with the USDA organic Texas. The county’s central location and proxim- program, building a reputation as a superior ity to the large city of San Antonio (at the inter- source of certifi ed organic products. Accord- section of several major interstate highways) ing to the 2014 NGFN Benchmarking Study, make it an ideal location for receiving produce he hub only three percent of food hubs nationally limit from all parts of Texas and shipping it almost Tshould themselves to exclusively organic produce. anywhere. Most parts of the county are within However, the large Texas markets for organic about an hour of the main distribution ware- strongly align food and the lack of any source for a varied houses for Whole Foods (in Austin) and H-E-B (in itself with the off ering of Texas-grown, organic fruits and veg- San Antonio): the two largest retailers of organic produce in Texas. USDA organic etables provide a strong rationale for focusing on organic produce. program, Table 5 Distance from Guadalupe County There are many other eco-labels (such as to major markets building a “pesticide free” and “naturally grown”) but retail buyers tend to ignore all of these except “ reputation as a Distance superior source certifi ed organic.” For example, there are only two price lists on the USDA-AMS Fruit and Market Population (miles) of certifi ed Vegetable Portal: one for organic products and Dallas Fort Worth 3,718,472 260 the other for conventional products. organic Houston 2,248,494 160 (See USDA-AMS, No Date.) products. San Antonio 1,197,816 40 Focusing exclusively on certifi ed organic pro- Austin 790,390 50 duce should help the hub build a reputation for superior quality. Organic farmers are already El Paso 649,121 580 subject to extremely stringent regulations and Corpus Christi 305,215 140 record-keeping requirements, and undergo Laredo 236,091 190 third-party inspections every year. They are, in Lubbock 229,573 420 a sense, ideal candidates for learning to meet Amarillo 190,695 540 the exacting food safety, packaging, and quality standards of the wholesale market. Brownsville 175,023 280 McAllen 129,877 260 The hub may eventually choose to include some growers who are transitioning to cer- Killeen 127,921 130 tifi ed organic production, and. The hub will Waco 124,805 160 undoubtedly want to encourage and support Beaumont 118,296 240 such growers, in order to expand its pool of Abilene 117,063 270 potential grower members. If the hub should Denton 113,383 290 decide to carry some non-organic products, it will be extremely important to keep them Midland 111,147 360 clearly labeled and physically separated. They Wichita Falls 104,553 360 will be sold in the conventional marketplace, Odessa 99,940 370 not the organic marketplace. Round Rock 99,887 80 Appendix 2 provides a complete list of the crops that the hub could sell during its fi rst three years In the short term (at least the fi rst two years), the of operation, along with their seasonal availabil- startup food hub business should keep its costs ity. Several of these products are already avail- and fi xed asset purchases as low as possible. As able in good supply from Texas organic grow- much as possible of the equipment should be ers—such as kale, collards, onions, potatoes, rented. We assume that the hub will rent a 1,000- oranges, and grapefruit. In order to limit head- 1,500 square foot trailer, a 53-foot reefer cooler, to-head competition, it will be wise to avoid and two reefer trucks (a 28-foot reefer truck these crops in at least the fi rst year or two of the and a 20-foot reefer cargo van). These would be hub’s operation. parked at a participating farm.

Page 14 Feasibility Study for a Texas Organic Food Hub This arrangement would create an initial capac- DesRoberts, 2015). In addition to electrical work, ity of 700 cases of cold storage at the hub. In room insulation, and a CoolBot setup, each sub- order to maximize the use of this capacity, the hub will need a manual pallet jack and packing hub should plan its operations to minimize the supplies. There will also be rental costs, paid to need for cold storage, taking what has been the farmer who provides the facility. called a “just in time” approach (Matson et al., Only two sub-hubs will be operational in the 2015). Products should rarely spend more than fi rst year. Total initial investment for the main one night at the hub, and should usually leave hub and two sub-hubs will $77,920, as follows: the same day that they arrive. The startup We assume that the eight established growing Table 6: First year investment food hub regions of Texas would be divided into fi ve sub- business should hub regions: the North (North Texas), South (Rio Deposits $24,420 Grande Valley and the Wintergarden), East (East Leasehold improvements $11,500 keep its costs Texas and Coastal Bend), West (High Plains and Equipment $18,000 and fi xed asset Trans Pecos), and Central. (See the map below.) Marketing expenses $7,000 purchases as The sub-hubs will be set up with minimal invest- Supplies $6,000 low as possible. ment and operating cost. A participating grower in each sub-hub region will allow the hub to use Legal expenses $5,000 an existing shed. A 20’x20’ shed can be reno- Miscellaneous expenses $6,000 vated with insulation and a CoolBot refrigera- Total $77,920 tion system, for around $1,000 (Betancourt and

Figure 6: Potential Sub-hubs

260 miles

300 miles 120 miles

260 miles

Feasibility Study for a Texas Organic Food Hub Page 15 • Deposits are for rented equipment: offi ce fruits and vegetables throughout the year. space, utilities, cooler, trucks, and forklift. In the second year, we assume that a sub-hub • Leasehold improvements are improve- will become active in the North, off ering late- ments to the electrical system at the host- season salad vegetables: tomatoes, peppers, ing farm and grading for loading docks. cucumbers, lettuce, and so on. In the third year, • Equipment includes two electric pallet we assume that a sub-hub will be activated in jacks, three manual pallet jacks, three pallet- the West, providing late-season melons and also ourcing wrapping devices, and two CoolBot setups onions and potatoes. Sproduce (portable air conditioner plus control unit). Because of their climates and crop harvest from all Texas • Marketing expenses include signage for the schedules, all of the sub-hubs would shut main hub and trucks. down in certain months, and none would growing operate year-round. We assume that the South • Supplies include offi ce and packing Texas sub-hub would run from November regions will supplies, as well as printing and through May. The East Texas hub would run its reproduction supplies. allow the hub cooling system from April through December. to off er fruits • Legal expenses are for assistance with The North Texas cooler would run May through and vegetables incorporation, business planning, and November. And the cooler at the West Texas other topics. sub-hub would be active from June through year-round. • Miscellaneous expenses include organic November. certifi cation, hand tools, offi ce furniture, phone system, computers, scales, and many Transportation smaller items. Transportation costs would be a major ongo- Although we assume that the hub will ing challenge, and the cost of delivering small initially be located in Guadalupe County, it quantities would often be prohibitive. Taking could eventually be located at almost any advantage of its network of sub-hubs (described community in central Texas. The hub should above), we recommend that the hub seek all be located at whatever location is most opportunities for low-cost backhauling. By this fi nancially and logistically advantageous. The we mean loading produce onto empty or par- managers should encourage communities tially empty trucks (sometimes called “less than throughout central Texas to compete and loaded” or LTL) that have already delivered their offer financial incentives. load and are returning to their starting point. Geographical scope From the beginning, the willingness of custom- ers to do backhauls should be a major factor in By the end of its third year, we assume that the the hub’s decision whether or not to do busi- hub will be statewide in its operations, sourc- ness with them. If a customer is willing to use ing produce from all established Texas growing their own fl eet trucks to pick up and deliver regions. This arrangement will allow the hub produce from sub-hub locations, this would to off er products year-round. It will also be an greatly reduce transportation costs for the hub, important aspect of the hub’s diversifi cation expanding its geographic reach and opening and risk-reduction strategy, since a crop failure possibilities to transport lower-value products. in any one region would not put the enterprise Conversely, if few customers are willing to do out of business, and would leave the hub with many options. backhauls, the hub may have a limited ability to source produce from locations that are far from In the fi rst year, we assume that the South Texas the main hub location in central Texas. and East Texas sub-hubs would be established. The South Texas sub-hub will have produce avail- Although backhauling will be a key to the hub’s able January through May and October through ability to serve the whole state, for purposes of December. The East Texas sub-hub will have forecasting the hub’s fi nancial performance we produce available year-round, varying with the have assumed (conservatively) that no back- seasons. The Central Texas growing area will be hauling takes place. Transportation costs are served by the main food hub and will have pro- between fi ve and six percent of sales in each duce available from April through December. of the fi rst three years, ncluding fuel, insurance, These three regions will provide a good variety of rental, and minor maintenance costs.

Page 16 Feasibility Study for a Texas Organic Food Hub Ownership and formal advertising, apart from signage on trucks. governance structure We do recommend, however, in-store product sampling (demos) in grocery produce depart- Nationally there are successful examples of food ments—particularly in the spring and the fall hubs organized as for-profi t corporations, non- holiday season—since the hub would be a new profi t organizations, and producer cooperatives. vendor establishing its presence and name-rec- Each of these three business structure has its ognition. In the fresh produce world, sales take advantages, and there is considerable fl exibility place mainly on the Internet and over the phone. within each category. (So, for example, an LLC Personal trust, personal relationships, and a repu- he hub can be structured so as to have features more tation for honesty are imperative. In the early Tshould typical of cooperatives.) However it is organized, years of the food hub, a signifi cant percentage of we assume that the hub will exhibit a strong the General Manager’s time should be spent net- establish a degree of grower control and ownership. But working, building relationships with retail buyers, revenue split we make no assumption about the business and learning how to meet their needs. structure that would serve the needs of grower of 70/30— members best. We recommend that the grower Workforce meaning that members make this decision for themselves, Initially, the hub would have just four employees: 70 percent after informed consideration of the options and a General Manager, a Sales Manager, a with the help of business and legal experts. Warehouse Laborer/Driver, and a half-time of gross sales There would be signifi cant advantages in post- Accountant/IT Manager. In the second year, the would be poning incorporation and a fi nal decision on hub’s growth would support six full-time equiv- the hub’s business structure until it has been alent positions, including two Drivers and one retained by running for one or two years, in a pilot or trial Warehouse Laborer. The Accountant/IT Manager growers. period. At that point there should be a formal will be increased to full-time. In the third year, organizing meeting, where growers, managers, we assume that the staff would grow to eight, and investors decide long-term goals, business including two Warehouse Laborers, two Drivers structure, membership requirements, and other and a Marketing Manager. Detailed job descrip- operational matters. In the Conclusion we will tions are included as Appendix 5. off er some brief comments on how such a pilot The hub needs to hire and retain excellent or trial period might be accomplished. employees, particularly the general manager. All workers at the hub should be paid staff , Major markets and not volunteers. In order to avoid disruptive sales focus departures by employees, we recommend We assume that the hub will focus its sales over- attractive salary and benefi t packages. whelmingly (and probably more than 90 per- Salaries should also be consistent with the cent) on retail groceries such as H-E-B, Kroger, values of the hub, which means keeping a Safeway, and Whole Foods Market. Both nation- modest ratio between the highest- and lowest- ally and in Texas, retail grocery chains purchase paid employee and ensuring that all staff the vast majority of organic produce, and at members earn a living wage. volumes that vastly exceed any other class of customers. They also serve consumers who Table 7: Assumed annual salaries are happy to pay premium prices for local and organic food. By contrast, restaurants, universi- General manager $70,000 ties, hospitals, and corporate cafeterias are all Sales manager $56,000 highly price-conscious, limiting their ability to Marketing manager $56,000 buy organic produce. Accountant/IT Managers $42,000 We assume that the hub will sell mainly through Driver $35,000 direct contacts with buyers, and will spend modest amounts of time and money on Warehouse Laborers $30,000

Feasibility Study for a Texas Organic Food Hub Page 17 Revenue split and minimum. No produce should ever spend more profit sharing than two nights at the hub. This will help keep costs down, and is consistent with the goal of We recommend that the hub establish a rev- delivering extremely high quality produce at its enue split of 70/30—meaning that 30 percent of peak of freshness. gross sales will cover the operational cost of the business, with 70 percent of gross sales retained by the growers. This is the average split for food Grower relations he hub hubs nationally (NGFN, 2014). The stakehold- and membership Tshould not ers and owners may wish to revisit or revise this We assume that the food hub will be committed choice later. Many food hubs also include some fi rst and foremost to enhancing the profi tabil- wash or pack form of profi t-sharing, and we assume that this ity and well-being of its grower members. The produce, since will be taken up by the owners and members hub will provide, for example, onging training these functions when formalizing the organizational structure of for members in the areas of food safety, packing the food hub. and handling, organic production, and fi nancial signifi cantly Activities and services assistance. The hub could help its growers get increase the their Good Agricultural Practices (GAP) certifi ca- cost and The hub will have the following core functions: tions, establish traceability protocols related to the new Food Safety and Modernization Act • Production planning and coordination complexity of (FSMA), and develop HACCP plans. (See Press- infrastructure. • Planning and forecasting man & Lent, 2013.) The hub could also ensure that • Grower relations growers take full advantage of programs and ser- vices off ered by the Natural Resource Conserva- Purchasing (pallets, labels, shrink-wrap, • tion Service (NRCS), Farm Service Agency (FSA), boxes, etc.) and GO TEXAN marketing program of the Texas • Availability sheet creation Department of Agriculture (TDA). • Sales order processing and fulfi llment The hub should screen potential grower • Customer relationship management members carefully, giving priority to those with wholesale marketing experience. For growers Web-based sales • accustomed to direct marketing, the move to • Inventory and product management wholesale is a big step, and the hub will need • Traceability to provide ongoing training for its growers. • Routing and delivery An important decision will be whether to require some form of exclusive commitment, • Analysis and reporting limiting the growers’ freedom to sell to other • Payroll buyers. We recommend that there should be • Food safety training few if any restrictions of this kind. This recom- mendation calls for explanation, since it would • Organic production training allow grower members to sell to the hub’s com- A question that will need to be decided at the petitors or directly to one of the hub’s retail cus- beginning is whether the hub will wash and tomers, undercutting the hub’s prices. pack produce. We recommend against this • First, allowing this freedom will help the because these functions would signifi cantly hub recruit growers, including those who increase the cost and complexity of infrastruc- are understandably nervous about commit- ture: requiring a washing line, sorting equip- ting all of their production to one customer. ment, and many more employees. In its fi rst few Low participation is one of the greatest risks years the hub should keep its fi xed asset pur- to the hub’s viability, and the number of chases to a minimum. Holding growers respon- organic specialty crop growers in Texas is sible for sorting and packing their own produce limited. will also require them to learn how to do these • Second, allowing growers this freedom is tasks, and will reinforce the idea that quality and consistent with the hub’s grower-centric food safety are their responsibility. philosophy: its commitment to reducing We also recommend keeping cold storage to a risks and increasing net profi ts for members.

Page 18 Feasibility Study for a Texas Organic Food Hub • Third, peer pressure would likely limit the their needs, and their point of view. frequency of side deals. The managers • Always seek to reduce risk for growers, for would also have the option of discontinuing example by cultivating relationships with their relationship with a grower who consis- growers and doing production planning, so tently undercut the hub’s prices. that growers rarely, if ever, plant and grow Like almost everything else, this is a policy that crops that are not sold. A major ongoing the grower/members might decide to change responsibility of the hub management is later. And to avoid one possible misunderstand- to forecast market demand and coordinate n a sense, production planning to match it as closely ing, allowing growers to sell outside the hub is Icommunica- in no way meant to imply that they would be as possible. allowed to back out of production and sales tion will be the commitments that they have made to the hub. Financial /Economic main business of Feasibility Branding and labeling the hub: bring- Preserving information about the origin of foods Sales projections ing together is extremely important to food hubs because for years 1-3 willing buyers it allows them to capture price premiums. We and sellers and assume that the hub’s product labelling will n the following projections, estimates co-brand the name of the hub with each farm I of sales volume (cases sold per week) preventing mis- name. Co-branding is essential for any food hub, are based on estimates received from understandings. and proves to the marketplace that growers are two major Texas retailers. Estimates of case at the center of the hub and its reason for being. prices for each item and each week are based on historical data extracted from the Winning and maintaining USDA-AMS Fruit and Vegetable Portal, grower trust Custom Average Pricing application. (USDA-AMS, No Date) Texas has only 75 certifi ed organic specialty crop farms, and they have many marketing options. In order to limit head-to-head competition In order to succeed, the hub will need to attract with existing organic farmers who are already growers and win their trust and confi dence. We selling to the major retailers, the projections assume that the hub will: below refl ect weekly sales of just 18 vegetable items and three fruit items for the fi rst year of Communicate frequently to growers that • operation, avoiding onions, potatoes, kale, the hub is focused on their profi tability collards, mustard greens, oranges, grapefruit, and success. and several other products. The list of products • Inform and involve established organiza- grows to 34 vegetable items and six fruit items tions that represent organic farmers and in the second year, and 36 vegetable items and have won their trust. Four examples are eight fruit items in the third year. TOFGA, NCAT, Growers Alliance of Central Texas (Gro-ACT), and the Farm and Ranch Table 8: Net Revenues from Vegetable Freedom Alliance (FARFA). and Fruit Sales • Provide ongoing education and techni- Year Vegetables Fruits Total cal assistance, including help with organic certifi cation, organic production methods 1 $ 1,420,772 $ 303,823 $ 1,724,595 (including pest and weed control), sources 2 $ 2,089,380 $ 489,496 $ 2,578,876 of grants and loans, GAP training, and other food safety and regulatory issues. 3 $ 3,227,985 $ 637,557 $ 3,865,542 Maintain a high degree of transparency and • As a reality check, projected fi rst year sales of a strong commitment to fairness and excel- $1.72 million are 67 percent of the average food lent communication. In a sense, communi- hub revenue ($2.83 million) reported in the NGFN cation will be the main business of the hub: 2014 Benchmark Study (NGFN, 2014). By its third bringing together willing buyers and sellers year the Texas food hub would become larger and preventing misunderstandings. than the average food hub in the NGFN study. • Constantly advocate to buyers for fair pay- This appears to be a reasonable possibility, ments to farmers, representing the farmers, considering the large markets available in Texas.

Feasibility Study for a Texas Organic Food Hub Page 19 Income statements Expected profi t and loss results in the fi rst three years of operation: Table 9: Consolidated Income Statements Year 1 Year 2 Year 3 Revenues Revenue from Product Sales $1,777,933 $2,658,635 $3,985,095 et profi t n Returns† <53,338> <79,759> <119,553> would Cost of Goods Sold <1,244,553> <1,861,045> <2,789,567> drop to zero in Net Revenue 480,042 717,831 1,075,976 the fi rst year if Expenses sales fell eight Salaries 182,004 268,000 353,984 percent short of Payroll Taxes 15,507 22,834 30,159 expected levels. Health Insurance 12,000 18,000 24,000 Offi ce and satellites 52,090 63,240 86,720 Marketing/Promotion 12,500 24,000 36,000 Transportation 96,216 136,102 207,109 Other 73,825 80,475 98,676 Total Expenses 444,142 612,651 836,648 Earnings Before Income Taxes EBIT $35,900 $105,180 $239,327 † “Returns” are produce items for which—on account of spoilage or some other reason—the customer is not charged. Because produce is so perishable, it is almost never literally returned to the seller. A return rate of three percent is assumed here, the approximate industry average..

Sensitivity analysis Table 10: Pricing Sensitivity Analysis Year Three Year One Sales Yearly per week income Net profi t Sales Yearly $55,000 $ 2,860,000 $ (35,850) per week income Net profi t $57,460 $2,988,035 0 $25,000 $1,300,000 $(80,000) $74,300 $3,865,540 $239,327† † † $30,500 $1,586,000 0 $80,000 $4,160,000 $328,150 $33,165 $1,724,595 $35,900 † † † † Estimated outcome Year 3 $40,000 $2,080,000 $134,850 Discussion † Estimated outcome Year 1 The tables above and to the left show that net Year Two profi t would drop to zero if sales fell 8% below expected levels in year one, 15% below expected Sales Yearly levels in year two, or 23% below expected levels per week income Net profi t in year three. This highlights the narrow margin for error in year one, but somewhat exaggerates $40,000 $2,080,000 $(30,250) the vulnerability of the hub because it assumes, $42,080 $2,188,035 0 in eff ect, that operations would continue $49,600 $2,579,200 $105,180 †† unchanged despite low prices. The managers would have many options for reacting to a major $55,000 $2,080,000 $134,850 market shift, such as temporarily discontinuing †† Estimated outcome Year 2 routes or equipment rental contracts.

Page 20 Feasibility Study for a Texas Organic Food Hub Cash flow projections Operating the hub in the manner described in the Income Statements will result in the following Consolidated Cash Flow Statement:

Table 11: Cash fl ow projections Year 1 Year 2 Year 3 Beginning Cash Balance $277,920 $262,282 $254,967 Infl ow from Sales† 1,579,666 2,464,280 3,779,833 Total Available Cash 1,857,586 2,726,562 4,034,800 Outfl ow from Expenses 1,819,304 2,466,896 3,593,191 Outfl ow from Assets 53,920 4,700 4,700 Ending Cash Balance $262,282 $254,967 $436,909 † We assume conservatively that cash will not be received until 30 days after sales. Payment in two weeks is the industry standard.

Balance sheet Operating the hub in the manner described in the Income Statements will result in the following Balance Sheet at the end of Year 3

Table 12: Balance sheet

Assets Liabilities & Stockholder Equity Cash & Bank Accounts Current Liabilities Petty Cash on Hand 0 Accounts Payable 0 Checking Account 436,909 Interest Payable 0 Savings Account 0 Taxes Payable 0 Othe Current Assetsr 0 Accrued Expenses 0 Total Current Assets $436,909 Total Current Liabilities 0 Other Assets Accounts Receivable 315,425 Long Term Liabilities Deposits Rent/Utilities/Equipment 17,920 Line of Credit 200,000 Deposits Rent/Utilities 0 0 Prepaid Insurance 2,500 0 Deposits Farmers 0 Total Other Assets $335,845 Total Liabilities $200,000 Property Plant & Equipment 0 Lease Hold Improvement 11,500 Warehouse Equipment 12,000 Offi ce Equipment 6,000 Stockholders Equity Equipment Satellites 12,000 Common Stock 389,926 Less: Accumulated Depreciation <15,000> Retained Earnings(Defi cit) 239,327 Total Property & Equipment $56,500 Total Stockholders Equity $629,254 Organization Cost 0 Total Assets $829,254 Total Liabilites & Equity $829,254

Feasibility Study for a Texas Organic Food Hub Page 21 Total capital Reliability of financial requirements projections and The Texas organic food hub will be a new assumptions startup in the fi rst year. There is no other busi- Several issues merit discussion: ness that will transfer assets for the company’s use. So the management will have to raise Potential errors in the equity funds and borrow at least some of the Weekly Sales Forecasting etting capital needed to get the hub off the ground. As spreadsheet Gthe hub explained earlier, the hub will need $77,920 for NCAT’s Weekly Sales Forecasting spreadsheet is asset purchases, deposits, pre-paid insurances, the basis for all fi nancial projections reported in off the ground and other startup expenses. We are assuming this section. While created with care, it contains would take that the owners and managers will be able to many formulas and should be tested to be sure $277,920—for raise that amount in equity capital. it is error-free. Errors in this spreadsheet would In addition, we assume that management will spread throughout the other fi nancial statement asset purchases, take out a fi ve year balloon payment line of spreadsheets. deposits, credit loan for $200,000 at six percent interest The reliability of pricing insurance, rate. If the hub were to begin operations in the assumptions month of January, these funds would cover cash and enough expenses for the months of January through Anyone familiar with the fresh produce industry funds to cover March, a period when sales are typically slow would agree that weekly sales prices are hard because the hub has no fruit to sell and high- to predict. Historical data from the USDA-AMS operating volume vegetable items such as cucumbers, Fruit and Vegetable Portal is based on millions of expenses for squash and tomatoes do not start coming in transactions per year, and is the most compre- until mid-April. hensive source of pricing information available three months. to the general public. There are other propri- etary sources for some of this data, but they cost Sources of capital thousands of dollars per year. and credit Even though historical data from AMS is accurate Within USDA there are several options for the for what it measures, interpretation is required food hub to borrow money. Since the hub’s cen- to apply this information. For example, there are highly accurate and reliable records of the aver- tral facility as well as its sub-hubs will be in rural age price at the Dallas Wholesale Terminal Mar- areas, it would be eligible to apply to USDA-Rural ket every week last year for 25-pound boxes of Development programs such as the Business bulk-packed tomatoes. However, interpretation and Industry Loan Guarantee or Value-Added is involved in translating this into the price a Producer Grant Program. food hub could charge to grocery retailers in the Other traditional sources of agricultural capital coming year. Other analysts may arrive at some- in Texas are Capital Farm Credit, AgTexas, Texas what diff erent estimates. Farm Credit, Lone Star Ag Credit, and Texas Agri- cultural Finance Authority. The reliability of sales volume assumptions Three sources of small and mid-sized credit in Texas that are not traditionally involved in Buyers often gave ranges of their likely pur- agriculture but might be interested in pro- chases. For example, one buyer anticipated buy- viding funds to the hub are People Fund, Lift ing 200-300 cartons of broccoli per week (14 Fund (formerly Acción, Texas), and Community bunches per box). When given a range, we gen- Development Financial Institutions (CDFI) Fund. erally went with the lowest (most conservative) All CDFI member institutions in Texas (about number provided. 30 of them) receive funding from this program The sales projections developed with the of the US Department of the Treasury to make Weekly Sales Forecasting spreadsheet were loans and grants in low-income communities then used to create the Revenues portion of and rural areas. the Income Statement above. There are many

Page 22 Feasibility Study for a Texas Organic Food Hub additional assumptions and estimates refl ected Table 13: Comparison to national food hub averages in the other expense categories shown on the Income Statement. These are our best estimates, Texas given the expected level of sales and expected NGFN study progress in building the capacity of the food hub. average food hub As one illustration, initial staffi ng and annual sal- Age of food hub: 7 years 1-3 years ary levels are based on industry knowledge and Annual revenue: $2.83 million $1.7 - 4.0 million the assumption that employee turnover in the $35,900 (year 1) to Enterprise income: $108,241 startup phase of the food hub could be devas- $239,327 (year 3) tating. So the projected salary levels are meant Operation (days open): 276 300 (main hub) to be high enough to keep the staff on the job, 10 (year 1) to even in the scenario of sometimes working six Number of farmer vendors 20.2 days a week and odd hours. 20 (year 3) Below is a comparison between the fi nancial Labor as % of revenues 18.3 % 15.1% projections in this study and the 2014 Bench- Cost of goods sold 72% 70% marking Study done by the National Good Food 2.1% (year 1) to Network (NGFN, 2014). Net profi t <1.8 %> 6.2 % (year 3)

Market Feasibility Discussion Low profi t margins are common for food hubs, and it is noteworthy Commitments from that the 48 food hubs in the 2014 NGFN benchmarking study had a customers negative average net profi t. The top-performing 25% of food hubs in the NGFN study showed an average net profi t of 3.8% (NGFN, 2014). he two largest organic produce Our economic model shows the Texas organic food hub performing T retailers in Texas, H-E-B and Whole at a similar level by its second year of operation. Foods, have both expressed strong interest in buying from the food hub, and provided estimates of products and vol- umes that they are interested in buying from such a hub. While in no way legally list (NGFN 2014a), all are quite diff erent from binding, these commitments have been the hub envisioned in this study. Most or all rely treated as a reasonable expectation and on direct-marketing, whereas the hub we have used to define the appropriate scale of the described would focus on wholesale marketing.. hub’s operations. Because there is so much pent-up demand for Competition Texas-grown organic produce, it seems likely that various retail and wholesale enterprises will be Products from the hub should command price devised to meet this demand. If the hub were premiums in the marketplace, because they are successful there could certainly be competitors both local and certifi ed organic However, by at some point in the future. However, because of necessity pricing will need to be competitive with the slim profi t margins in the fresh produce busi- alternative sources of organic produce.. ness generally—and at food hubs in particular— In general, competition is not expected to be a this is not going to an easy or particularly lucrative great source of risk. The essential role of the food business opportunity. hub would be to open a portion of the largely The number of organic produce farms in Texas untapped market for Texas-grown organic pro- is also currently limited. The type of food hub duce while limiting or avoiding competition most likely to win their participation would be with existing economic interests. The market (like the one considered in this study) either niche for wholesale distribution of Texas-grown grower-owned or at least grower-centric, return- organic produce appears to be nearly empty. ing most of its gross sales directly to farmers and Although eight existing Texas food hubs are depending for its continued survival on their identifi ed in the National Good Food Network enthusiastic participation.

Feasibility Study for a Texas Organic Food Hub Page 23 As noted earlier, most of the 75 certifi ed organic On the other hand, a mistake in sizing, cleaning, specialty crop growers in Texas sell their prod- packaging, or food safety by even one member ucts directly to consumers, through farmers could harm the reputation of the entire organi- markets, CSAs, and other arrangements. How- zation. The hub will need to be extremely vigi- ever, a few mid-sized growers sell through lant. This is one reason why limiting the hub to wholesale channels. Most of these growers certifi ed organic products is recommended, would compete with the Texas organic food since it entails a rigorous set of standards with a hub to some extent. But it is also possible that third-party verifi cation. o reach its some of these growers would decide to sell Tpotential through the food hub or join it as a member, The hub can mitigate quality control risks by particularly as we are assuming that they would limiting participation to the very best and most as a statewide in no way be restricted from continuing with conscientious farmers. It should be an honor for distribution their other sales arrangements. a producer to be chosen to sell to the food hub. The message to the consumer and the retailer network, the There are also some established wholesale dis- needs to be one of superior quality and superior hub will need tributors in Texas that sell a limited amount of food handling standards. organic produce to their food service customers. an aggressive Since we are recommending limited sales to the Technical transportation food service industry, these businesses should not be in competition. Some of them may also Feasibility strategy that buy from the hub, as a way to satisfy their cus- includes tomers without having to do the hard work of Facility requirements extensive sourcing local organic produce. here will be no buildings in the first backhauling. Access to market outlets T three years, since the hub will oper- As noted throughout this report, retail grocery ate from trailers. All equipment chains are the major target market for products needed for the hub (trucks, coolers, pal- of the food hub. This appears to be feasible, and let jacks, communication system) is read- we are not aware of any problems or barriers. ily available “off the shelf,” and there are Indeed, the largest retailers are enthusiastic and no technical challenges in purchasing this supportive. A successful food hub will enter into equipment and setting up the infrastructure partnerships with existing retailers and become for the hub. their trusted ally: directly benefi ting them by giving them increased supplies of Texas-grown Availability of organic produce. suitable sites On the other hand, no matter how good or Four farms in Guadalupe County have already unique their products, new fresh produce pur- expressed strong interest, and there are dozens veyors often have to make concessions such as of others who could host the hub temporarily, providing lower prices or extra marketing ser- so there should be no problem fi nding a suit- vices in order to persuade groceries to buy their able site. products for the fi rst time. This is a scenario the hub should expect to see repeated with each retailer. This is one reason why sales expecta- Transportation tions are conservative and the income state- There are signifi cant challenges and risks for ment above shows money allocated to market- the food hub related to the high cost of trans- ing in every month of the fi rst year. portation. Long travel distances are inevitable between the sub-hubs as envisioned, especially Branding and in the case of the West Texas hub. As discussed reputation in the Assumptions section, the hub will need The opportunity is certainly present to establish a an aggressive and effi cient strategy that includes strong brand that will win loyalty from consumers extensive backhauling. Should backhauling and retailers. Texas has a tradition of pride in its options be limited or unavailable, the hub could agricultural heritage. And the food hub will still operate within a smaller radius. We assume support local food, fresh food, family farmers, that the hub will start small and expand its net- healthy eating habits, and environmentally work and range only as the feasibility of long- sensitive farming techniques. distance delivery is proven.

Page 24 Feasibility Study for a Texas Organic Food Hub Workforce Risks related to The necessary trained and trainable labor would regulatory be abundantly available. Employees could live requirements in Seguin, Austin, San Marcos, New Braunfels, or The hub’s activities will be subject to regulation San Antonio and still work at a hub in Guada- by the USDA National Organics Program (NOP). lupe County. In addition to requiring certifi cation for all partic- ipating farms, the hub itself will need to be cer- Availability of organic tifi ed for organic handling. NOP rules and regu- he diversity produce lations often change and are strictly enforced, Tof products creating a risk that certifi cation of the hub or a The diversity of products available year-round in participating farm could be withdrawn for a vio- available year- Texas is a major advantage, unmatched by any lation of these rules. round in Texas is other state except possibly Florida and Califor- The major governmental regulatory risk aff ect- a major advan- nia. Assuming that the hub starts small, we do ing hub operations is the Food Safety Mod- tage, unmatched not foresee major problems in fi nding enough ernization Act, which will be administered by willing growers to provide the volume of pro- the Food and Drug Administration (FDA). Two by almost any duce that would be required. aspects of the Act will aff ect hub operations: the other state. Average gross income levels of $20-$30,000 per Produce Rule and the Preventative Controls Rule. acre appear realistic and even conservative in The hub will have several years to come under full compliance, but these rules will undoubtedly Texas. For example, Wiswall (2009) estimated add to the management complexity of the food average gross income of $22,900 per acre for 22 hub. All growers who supply produce to the organic specialty crops in Vermont. Almost all of hub will have to be GAP certifi ed and be able to these crops are harvested only once per year in pass a food safety audit (Wolfe & Dufour, 2010). Vermont but could be double-cropped in Texas, Training on food safety will be an ongoing ser- yielding about twice the annual income. vice provided to participating growers. Assuming gross income of $20-$30,000 per acre, enough crops to meet our fi rst-year sales tar- Management get of $1.7 million could be grown on just 60-80 Feasibility acres of land, . The nine highest-rated specialty crop growers who completed our Grower Sur- Business structure vey manage a total of 560 acres. As noted earlier, various food hub business Crop production risks structures have been successful, and the hub could be organized as a cooperative, non-profi t Organic farmers everywhere face special chal- organization, or LLC. There are no special lenges in the areas of pest and weed control, challenges or problems with choosing a because they are not allowed to use most syn- business structure. thetic pesticides or herbicides. These challenges are often highly location-specifi c, and many Continuity and states maintain strong research programs to adequacy of management support their organic farming industry. By com- No matter how well the hub is designed, it parison, there is limited research support for will need excellent management to succeed. organic farming in Texas. Sandi Kronick, CEO of Eastern Carolina Organics, described the General Manager’s qualifi cations Environmental impacts to us this way: There are no known adverse environmental “In addition to the usual critical entrepreneur- impacts and many well-known environmental ial skills, you really need someone who can benefi ts from organic farming. develop intensely strong relationships with both farmers and buyers, enough for them to trust All produce “shrink” will be composted on par- that the hub will be a success and they need ticipating farms at or near the hub, so there to get behind it for their own benefi t. Finding should be little or no addition to the waste a dynamic leader who isn’t afraid to drive the stream in Guadalupe County. truck, and who possesses the right balance of

Feasibility Study for a Texas Organic Food Hub Page 25 professionalism and optimism isn’t easy but is washing, packing, and cooling produce, as well an absolute requirement. More important than as delivering it to the nearest hub or sub-hub. anything else, it needs to be someone that the Once received at the main hub, produce would farmers and the buyers are impressed by. Turn- be inspected, sorted, placed into temporary over for any reason is NOT an option so choose cold storage, loaded onto refrigerated delivery wisely, and make sure they’re literally invested in vehicles, and shipped to customers—rarely this for the long-term” (Kronick, personal com- spending more than one night in cold storage. munication 2015). ou really The hub should focus on the large untapped Yneed Availability of retail market for Texas-grown organic produce. someone who consultants and The produce needed to meet the fi rst hub’s year service providers sales target of $1.7 million could be grown on can develop 60-80 acres of certifi ed organic farmland. As with the workforce generally, qualifi ed con- intensely strong sultants and service providers would be abun- Requiring all grower members to be organically relationships dantly available from the large cities (especially certifi ed will ensure that they undergo a third- with both Austin and San Antonio) nearby. party inspection at least annually and follow stringent food safety protocols and environmen- farmers and Conclusion tally benefi cial practices. buyers... To reduce transportation costs, NCAT recom- a dynamic Summary of mends that the hub take advantage of all leader who isn’t recommended opportunities for backhauling on the part of approach retail customers. The hub will need to be fl ex- afraid to drive ible, reducing its geographical scope if low-cost the truck. NCAT recommends that a Texas organic food transportation options are not available. hub specialize in selling primarily to large This study concludes that a Texas organic food retail grocery outlets. Hub operations should be designed to maintain superior quality and hub could be implemented profi tably. NCAT freshness, but the hub should keep startup recommends that food hub organizers con- costs low: renting most of its equipment initially tinue outreach and grower recruitment eff orts and starting with just four employees. By the and develop a fundraising plan and timeline, third year the business would grow to eight towards the goal of a pilot eff ort such as the one employees. described in this report. In its mission and activities, the enterprise should Some funders and lenders will require a much strongly focus on delivering benefi ts to its grower more complete and specifi c business plan than members, who would receive 70 percent of gross what is provided in this report. Before actual sales and have opportunities for revenue sharing. fundraising can begin there will also need to be Depending on the wishes of its grower members, a legal entity to apply for and administer funds. the hub could be organized as a cooperative, non- The organizers can either choose an existing profi t, or limited liability corporation. organization to play the role of fi scal agent tem- In order to source produce from all parts of the porarily or else proceed directly to the incorpo- state and take advantage of year-round growing ration of the food hub as a legal entity in Texas. season in Texas, the hub should eventually deploy In either case, before deciding on a business a network of four sub-hubs in the northern, structure there should be a deliberate process southern, eastern, and western parts of the state. to disseminate information about the food hub’s Hub employees would plan and coordinate purpose and educate and involve many stake- crop production by participating farms, create holders. This process should not be rushed and availability sheets, negotiate purchases with will take several months at a minimum. If the retail customers, place orders with farms, and organizers wish to start operations quickly, we receive produce at the central storage and recommend the fi rst path: fi nding an appropriate shipping facility. Farms would be responsible for organization to serve as a temporary fi scal agent.

Page 26 Feasibility Study for a Texas Organic Food Hub Summary of • The market for organic produce in Texas strengths, weaknesses, is $200 million per year (farm gate prices) opportunities, and Texas farmers could realistically grow at least half of this food, worth $100 million. and threats • The central hub facility is within fi ve hours of 14 million people, including four major STRENGTHS metropolitan areas, and within one hour of • Thirteen organic growers have been two of these. identifi ed as promising candidates for • No other wholesaler off ers a full product participation (rated 4 or 5). line of organic produce in Texas. • These 13 farms have 800 acres of certi- • The organic produce industry is growing at fi ed organic land available: enough for a 10-12% annual rate, and is now at least 7% $24,000,000 in sales. of grocery store produce sales. • An additional 20 growers have been • Many direct-market growers are frustrated identifi ed as having some potential for with their low net incomes and ready to try participation (rated 2 or 3). something diff erent. • Many hundreds of farmers are not certifi ed organic but use at least some organic pro- THREATS duction methods., and can be considered part of the hub’s recruitment pool. • There may not be enough farm participants • The state’s top two organic produce to sustain the business. There are currently retailers (H-E-B and Whole Foods) have only 75 certifi ed organic specialty crop expressed strong interest in buying from growers in Texas. such a hub. • Other mid- to large-sized Texas organic • The central hub facility will be less than one growers could expand their product lists, hour from the central warehouses of both becoming competitors. H-E-B and Whole Foods. • The new Food Safety Modernization Act creates uncertainties about food safety WEAKNESSES requirements, and these could aff ect hub operations or costs. • More than half of respondents had little or Organic farmers face many crop production no knowledge of wholesale marketing. • risks, because of pest and weed pressures. • Many growers are located far from the likely central hub location in Guadalupe County • Only a limited amount of research has been done on organic farming methods appro- • As a new business, the hub may have priate to Texas. trouble winning acceptance by grocery produce buyers. • Weather conditions could cause actual pro- duction to be far lower or higher than esti- • Low net profi t levels will create cash fl ow mates by hub management. risks and less fl exibility to adjust to unex- pected market conditions. • Actual prices received by hub could be far lower than those estimated by hub man- agement. OPPORTUNITIES • Conventional growers who are interested in • Texas has a year-round growing season and transitioning to organic production report can grow most commonly eaten fruits and a lack of information and services support vegetables. regarding organic production methods.

Feasibility Study for a Texas Organic Food Hub Page 27 Reference List Matson, James, Jeremiah Thayer, and Jessica Shaw. 2015. Running a Food Hub: Lessons Learned from the Field Volume Abellera, Diana, Diane Del-Signore, Erin Derden-Little, One. USDA Rural Development. Washington, DC. Ariane Michas, Dave Runsten, and Megan Sabato. October 2014. Making the Invisible Visible: Looking Back at Fifteen Murphy Andrea. November 2014. America’s Largest Private Years of Local Food Systems Distribution Solutions. Companies 2014. Community Alliance with Family Farmers, Davis, CA. www.forbes.com/largest-private-companies Angrisani, Carol. March 2014. H-E-B Launches Organic Store National Good Food Network. September 2014. Food Hub Brand. http://supermarketnews.com/private-label/h-e-b- Benchmarking Study 2014. Webinar . http://ngfn.org. launches-organic-store-brand National Good Food Network. 2014a. Resources: Baier, Ann. 2005. Organic Certifi cation Process. ATTRA Publication US Food Hubs- Full List. IP262. National Center for Appropriate Technology. Butte, MT. http://ngfn.org/resources/food-hubs#section-4 Barham, James, Debra Tropp, Kathleen Enterline, Jeff Farbman, Organic Trade Association. 2014. State of the Industry. Organic John Fisk, and Stacia Kiraly. April 2012. Regional Food Hub Trade Association. Washington, DC. www.ota.com/contact-ota Resource Guide. USDA Agricultural Marketing Service, Washington, DC. Post, Emily and Jeff Schahczenski. November 2012. Understand- Betancourt Jennifer & DesRoberts Amanda. 2015. Current ing Organic Pricing and Costs of Production. ATTRA Publication Options in Cheese Aging Caves. Silvery Moon Creamery. IP431. National Center for Appropriate Technology. Butte, MT. www.albc-usa.org/dairy/documents/FinalCheeseCaveReport.pdf Pressman, Andy and Chris Lent. July 2013. Food Hubs: a Bloom J. Dara & Hinrichs C. Clare. 2011. Moving local food Producer Guide. ATTRA Publication IP455. National Center for through conventional food system infrastructure:. Renewable Appropriate Technology. Butte, MT. Agriculture and Food Systems. Rodriguez G. Veronica. June 2006. Farmers Markets. The Brockhouse W. John, Jr & Wadsworth J James. 2010. Vital Small Business Development Center Network and National Steps: A Cooperative Feasibility Study Guide. USDA Rural Information Clearinghouse. www.sbdcnet.org/small-business- Business-Cooperative Service Report 58. research-reports/farmers-markets-2 Constance, D. H. & Choi, J. Y. January 2010. Overcoming the Schahczenski, Jeff . 2012. Crop Insurance Options for Specialty, Barriers to Organic Adoption in the United States: a Look at Diversifi ed, and Organic Farmers. ATTRA Publication IP438. Pragmatic Conventional Producers in Texas. Sustainability National Center for Appropriate Technology. Butte, MT. 2010, 2, pp. 163-188. Edwards, Richard, Charles Hall, and Jeff Johnson. No Date. USDA-Agricultural Marketing Service. No Date. Market News: Guide to Marketing Organic Produce. Texas A&M University Fruits and Vegetable Portal. USDA- Agricultural Marketing AgriLife Extension. http://aggie-horticulture.tamu.edu/ Service. Washington, DC. www.marketnews.usda.gov/mnp/ vegetable/guides/guide-to-marketing-organic-produce fv-home Farm Marketing Institute. May 2014. Supermarket Sales by USDA-Agricultural Marketing Service. June 17, 2015. National Department – Percent of Total Supermarket Sales. List of Allowed and Prohibited Substances. www.ams.usda. http://bit.ly/1p5Z8CC gov/AMSv1.0/NOPPetitionedSubstancesDatabase IMPLAN Group website. Sourced June 2015.www.implan.com USDA-Agricultural Marketing Service. 2014. 2014 List of Karst, Tom. 2014. Fruits and Vegetables Continue to Show certifi ed USDA organic operations. Sourced from http://apps. Organic Gains. May 16. The Packer. http://bit.ly/1rvBTtI ams.usda.gov/nop. USDA Agriculture. Agriculture Marketing Service,. Washington, DC. Lerman, T. 2012. A Review of Scholarly Literature on Values-Based Supply Chains. Agricultural Sustainability Wiswall, Richard. The Organic Farmer’s Business Handbook 2009. Institute, University of California, Davis., CA Chelsea Green Publishing Company, White River Junction, VT. Local Harvest. Community Supported Agriculture. Wolfe, Pamela and Rex Dufour. An Illustrated Guide to Sourced June 2015. www.localharvest.org/csa Growing Safe Produce on Your Farm. 2010. ATTRA Publication Maggiani, Robert. 2015. Organic Specialty Crop Production IP382. National Center for Appropriate Technology. Butte, MT. in Texas: a Grower's Handbook. ATTRA Publication IP488. York, Mary, Douglas Constance, Roger Hanagriff , and Michael National Center for Appropriate Technology. Butte, MT. Lau. October 2007. Identifying Barriers to Entry into the Marks, Tod. March 19, 2015. The Cost of Organic Food. Organic Market and Possible Strategies to Increase the Consumer Reports. Sourced from Likelihood of Success for Potential Organic Producers. Texas www.consumerreports.org. Department of Agriculture.

Page 28 Feasibility Study for a Texas Organic Food Hub Qualifications Texas Department of Agriculture (TDA) as a Direct Market- ing Specialist in 1985. His responsibilities were to organize The national non-profi t National Center for Appropriate grower co-operatives and train growers in production plan- Technology (NCAT) has conducted many previous feasibility ning of fruits and vegetables. He was the fi rst staff person in studies,related to institutional food markets, beef marketing, the TDA Marketing Division to be assigned to their eff orts to energy conservation, irrigation systems, and many kinds of start an organics certifi cation program in 1987. In 1989 Texas renewable energy. As a non-profi t organization, NCAT has became the second state in the nation to have its own organ- no fi nancial interest in a potential Texas organic food hub, ics certifi cation program. In 1991 Robert became the Chief of accepts no corporate advertising, and is well-qualifi ed to Marketing in the San Antonio Regional Offi ce of TDA, super- conduct an independent and objective study vising a staff of four specialists. He served in that position for the next 20 years and developed extensive contacts in Texas NCAT’s ATTRA Project (www.attra.ncat.org), in operation since with growers, retailers, wholesalers, restaurants, and specialty 1987 and funded through USDA Rural Development, is widely crop trade associations. viewed as the leading source of technical information on organic and sustainable farming in America. ATTRA provides Dr. Mike Morris is Director of NCAT’s Southwest Regional direct technical assistance to farmers, ranchers, and educators Offi ce, and a writer and researcher for NCAT’s ATTRA Program. around the U.S. In 2014, the ATTRA web site off ered over 400 He has a Ph.D. in Philosophy from the University of Pittsburgh. publications and received more than 2 million website con- Dr. Morris’s recent projects and publications have included tacts. Responding to high demand from Texas farmers and irrigation effi ciency, renewable energy training for agriculture ranchers, NCAT opened a Southwest Regional Offi ce in San professionals, and a support program for beginning farmers Antonio in 2010. in the state of North Carolina. He is currently a principal inves- tigator for the Subtropical Organic Agriiculture Research proj- The Co-Directors of this feasibility study are Robert Maggiani ect, a three-year partnership with the University of Texas Pan and Dr. Mike Morris. American, funded by USDA’s National Institute of Food and Robert Maggiani is an NCAT Sustainable Agriculture Specialist, Agriculture. He is also director for the project “Beyond Fresh: and has BBA degree and an MS degrees from the University Expanding Markets for Sustainable Value-added Food Prod- of Texas at Austin. He was organic vegetable farmer in South ucts in Texas,“ funded by the Southern Sustainable Agricul- Texas and Mexico in the 1970’s and 1980’s before joining the turel Research & Education program.

Feasibility Study for a Texas Organic Food Hub Page 29 Glossary GHP: Good Handling Practices, a voluntary USDA program to reduce the risk of microbial contamination, aimed mainly at AMS: the Agricultural Marketing Service of the U.S. packing houses. Department of Agriculture HACCP: “Hazard analysis and critical control points.” A food ATTRA: The national sustainable agriculture information safety system that focuses on preventing hazards that could service operated by NCAT: Appropriate Technology Transfer cause food-borne illnesses. The USDA requires all meat pro- for Rural Areas. (www.attra.ncat.org) ducers to have HACCP plans. Backhaul: The return trip of a commercial freight truck that Income statement: Shows the profi t or loss that a business is has delivered its load. expected to incur by detailing revenue and expense streams. Balance Sheet: A fi nancial statement that gives an overview Also known as a profi t and loss statement. of a business’s fi nancial state, usually including assets, liabilities, and owner equity. LTL: Less Than Loaded or Less Than Truckload. A term used in the shipping industry to refer to partially empty freight trucks. Box club: Subscription service where the consumer pays a Shipping LTL quantities makes shipping much more subscription fee and receives boxes of food on a regular basis. expensive per container than shipping a full truckload. Broker: Someone who connects buyers and sellers without NCAT: National Center for Appropriate Technology, the taking legal ownership or physical possession of the product. national non-profi t organization that conducted this study. Co-branding: Branding that credits two companies. NGFN: National Good Food Network. Off ers extensive Commodity: Agricultural product that is unspecialized and resources for food hubs on its website. usually sold in large quantities, such as corn, wheat, rice, or cotton. Distinguished from specialty crops. NOP: The National Organic Program of the U.S. Department of Agriculture. Conventional produce: Produce that is not certifi ed organic. Organic (or certifi ed organic): A legally defi ned term that CoolBot: Device allowing a standard air conditioner to cool may not be used by farms or food handlers unless they meet a space far below the usual minimum of around 60° F. Often the standards defi ned by USDA’s National Organic Program. used by farmers to create a low-cost walk-in cooler. CSA (Community-supported agriculture): a subscription Produce: Crops in a fresh, harvested state. This includes fruits, arrangement where the consumer pays a fl at rate and vegetables and nuts. receives regular deliveries of produce. Profi t and loss (P&L) statement: See income statement. Direct marketing: Sales from producer to consumer, with Pro forma statement: Projection or estimate of a company’s wholesale no intermediary. Distinguished from . fi nancial perfoemance in the future. Distributor: Someone who buys, aggregates, and re-sells Returns: Unused produce for which—on account of spoilage to customers who are not the end user. (Synonymous with or some other reason—the customer is not charged.. wholesaler in the produce industry.) Enterprise budget: Estimate of the overall cost and profi tabil- Specialty crop: USDA term for raw fruits, vegetables and nuts ity of an agricultural operation such as growing a particular for human consumption. crop, usually based on the cost of producing one acre. Sub-hub: Branch of a food hub that is used to store produce Farm gate price: The price available at the farm, not including temporarily before it is shipped to the central facility. delivery costs. TDA: The Texas Department of Agriculture. FDA: the Food and Drug Administration, an agency of the TDSHS: the Texas Department of State Health Services. U.S. government responsible for administering the Food Safety Modernization Act. TOFGA: the Texas Organic Farmers and Gardeners Food hub: Organization that manages the aggregation, dis- Association, a non-profi t member organization for sustainable tribution, and marketing of source-identifi ed foods primarily and organic farmers and ranchers. from local and regional producers to strengthen their ability Transitional farm: A farm in the process of becoming to satisfy wholesale, retail, and institutional demand. certifi ed organic. Conventional farmland must generally be FSMA: the Food Safety Modernization Act. Passed in 2010, managed under organic standards for three years before it and will require changes in food safety regulations. can receive certifi cation. GAP: Good Agricultural Practices, a voluntary USDA program Wholesale (or wholesaler, etc.): Sales to a retailer, aggregator promoting safe production, fi eld handling, and packing prac- for the purpose of resale or processing. In general, sales to tices for fruits and vegetables, aimed mainly at farmers. anyone but the consumer.

Page 30 Feasibility Study for a Texas Organic Food Hub Appendix 1: Grower Survey Results

How long have you been growing fruits and vegetables? # Responses % Responses <1 year or never 5 11.6% 0-5 years 12 27.9% 6-10 years 8 18.6% 11-25 years 9 20.9% 25+ years 9 20.9% Skip 9

What percentage of your current sales is to wholesale accounts? # Responses % Responses 0% 21 51.2% 1-25% 6 14.6% 26-50% 5 12.1% 90-100% 9 21.9% Skip 11

Are you currently a USDA certifi ed organic producer? # Responses % Responses Yes 23 46.9% No 26 53.1% Other 11 Skip 3

If not organically certifi ed, how likely is it for you to become certifi ed in the next 5 years? # Responses % Responses Very Likely 13 52% Somewhat Likely 6 24% Not Very Likely 6 24% Skip 27

Are you already Good Agricultural Practices (GAP) certifi ed? # Responses % Responses Yes 8 15.7% No 28 54.9% I don’t even know what that is. 15 29.4% Skip 1

Feasibility Study for a Texas Organic Food Hub Page 31 How would you rate your level of interest in selling to an organic-only food hub? # Responses % Responses Very Interested 32 61.5% Defi nitely Interested 9 17.3 % Slightly Interested 8 15.4% Not Interested at all 2 3.8% I would be more interested in a 11.9% non-organic food hub Skip 0

What would make you more likely to participate in the food hub? (Please select all that apply.) # Responses % Responses The food hub is grower owned 17 34% The food hub is owned by Texas residents 11 22% The food hub is a grower owned cooperative 21 42% You are off ered the opportunity to become an investor 12 24% None of the above matter as long as you get a fair mar- 24 48% ket price for your produce Skip 2

Would you be willing to participate in preseason crop planning with the food hub and other growers to schedule type, quantity, and approximate timing of the produce? # Responses % Responses Yes 42 82.4% No 9 17.6% Skip 1

What concerns do you have that might prevent you from selling wholesale produce to the food hub? (Please select all that apply.) # Responses % Responses Doubtful that the price would be high enough to make 24 54.5% it profi table. Lack of knowledge about GAP certifi cation. 15 34.1% Lack of on-farm storage. 15 34.1% Lack of farm labor to harvest. 14 31.8% Unsure if I grow enough to sell into a food hub. 15 34.1% Unsure about liability insurance and my responsibility. 14 31.8% Lack of transportation for delivery to the food hub. 5 11.4% Cannot aff ord GAP certifi cation. 3 6.8% Skip 8

Page 32 Feasibility Study for a Texas Organic Food Hub Appendix 2: Seasonal Availability of Texas Crops

Key: S=South, E=East, C=Central, W=West, N=North

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Asparagus S S,E,C C,E,N N,W

Artichokes S S,E,C S,E,C C,E,N

Arugula S,E S,E S,E S,E,C E,C E,N,W E,N,W E,W E,W E,W,N,C S,E,C,N S,E,C

Beets S,C S,C S,C S,E,C S,E,C W W W W,C W,C,E S,C,E,W S,C,W

Blackberries C,E C,E C,E,N

Blueberries C,E C,E C,E,N N

Broccoli S,C S S S,E,N E,N E,N ALL ALL

Brussel Sprouts S,E S,E S,E S,E,C S,E,C ALL E,C,N,W C,W C,W ALL ALL ALL

Cabbage S,E S,E S,E S,E,C S,E,C ALL E,C,N,W C,W C,W ALL ALL ALL

Cantaloupes S ALLALLC,E,WC,E,WALLS,ES

CarrotsSS SS,E,CS,E,CN,WN,WWWWWS

Caulifl ower S,C S S S,E,N E,N E,N ALL ALL

Collards S,E S,E S,E S,E,C E,C E,N,W E,N,W E,W E,W E,W,C,N S,E,C,N S,E,C

Cucumber S S,E ALL E,C,N,W E,C,N,W E,C,N,W ALL S,E,C,N S

Fennel S S S S,C,E S,C,E N,W N,W S

Figs S S S S,E,C E,C E,C,N N C,E,N C,E,S S

GrapefruitsSSSSS SSS

Green Beans S S,E,C S,E,C E,C,N N,W N,W N,W C,N,W S,C S

Honeydews S ALLALLC,E,WC,E,WALLS,ES

Kale S,E S,E S,E S,E,C E,C E,N,W E,N,W E,W E,W E,W,C,N S,E,C,N S,E,C

Leaf Lettuces S,E S,E S,E S,E,C E,C E,N,W E,N,W E,W E,W E,W,C,N S,E,C,N S,E,C

Leeks S S S,E S,E,C,N ALL C,E,N,W W W W S,E,N S,E,N S,E,N

Mustard Greens S,E S,E S,E S,E,C E,C E,N,W E,N,W E,W E,W E,W,C,N S,E,C,N S,E,C

Onion (Dry) S S S,C,W S,C,W C,W,N,E C,W,N,E E,W W

Onion (Green) S S S,E S,E,C,N ALL C,E,N,W W W W S,E,N S,E,N S,E,N

OrangesSSSSS SSS

ParsnipsS,CS,CS,CS,C,ECWWWWC,E,WC,E,WS,C,E,W

Peaches S S,E C,E,N C,E,N,W C,E,N,W E,W

Pear S S,E C,E,N C,E,N,W C,E,N,W E,W

Pepper (Bell) S S S,E,C E,C,N N,W W W ALL ALL S,E

Peppers (Hot) S S S,E,C E,C,N N,W W W ALL ALL S,E

Plums S S,E C,E,N C,E,N,W C,E,N,W E,W

Pomegranates C,E C,E C,E

Potatoes (Red) S S,C S,C,E S,C,E,W W W

Potatoes (White) CCNNN,WWW

Potatoes (Yukon) CCNNN,WWW

Pumpkins C,E C,E,W,N C,E,W,N N,W

Snap Peas S S S,C,E C,E C,E,N N,W N,W C,E,S C,E,S

Snow Peas S S S,C,E C,E C,E,N N,W N,W C,E,S C,E,S

Squash (Yellow) S S,C ALL C,E,W,N C,E,W,N N,W N,W C,E,W,N S,C,E S

Tomatoes (Cherry) S S,C S,C,E ALL N,E,W N,E,W N,E,W E,W C,S,E C,S,E

Tomatoes (Slicing) S S,C,E ALL N,E,W N,E,W N,E,W E,W C,S,E C,S,E

Tomatoes (Roma) S S,C,E ALL N,E,W N,E,W N,E,W E,W C,S,E C,S,E

Tomatoes (Heirloom) S S,C,E ALL N,E,W N,E,W N,E,W E,W C,S,E C,S,E

Spinach S S S C,E C,E,N,W N,W N,W ALL ALL

Sweet PotatoesEEEEE C,E,WC,E,WC,EC,EC,E

TurnipsS,CS,CS,CS,C,ES,C,EWWWWC,E,WALLALL

Watermelon (Seed) S S,C,E S,C,E,N C,E,N,W C,E,N,W C,S S

Watermelon (Seedless) S S,C,E S,C,E,N C,E,N,W C,E,N,W C,S S

Winter Squash S S ALL ALL S

Zucchini S S,C ALL C,E,W,N C,E,W,N N,W N,W C,E,W,N S,C,E S

Feasibility Study for a Texas Organic Food Hub Page 33 Appendix 3: Organic Certifying Agencies Operating in Texas

Agency Main offi ce E-mail Website A Bee Organic (ABO) De Luz, CA [email protected] www.abeeorganic.com Agricultural Services Salinas, CA [email protected] www.ascorganic.com Certifi ed Organic (ASCO) Americert International (AI) Gainesville, FL [email protected] http://americertorganic.com/home CCOF Certifi cation Services, Santa Cruz, CA [email protected] www.ccof.org LLC (CCOF) Ecocert ICO, LLC (ICO) Greenwood, IN [email protected] www.indianacertifi edorganic.com Global Organic Alliance, Inc Bellefontaine, OH [email protected] www.goa-online.org (GOA) International Certifi cation Medina, ND [email protected] www.ics-intl.com Services, Inc (ICS) Guatemala City, Mayacert S.A. (MAYA) [email protected] www.mayacert.com Guatemala Natural Food Certifi ers (NFC) Spring Valley, NY nfccertifi [email protected] http://nfccertifi cation.com Nature’s International dave@naturesinternational. Viroqua, WI www.naturesinternational.com Certifi cation Services (NICS) com OneCert, Inc. (ONE) Lincoln, NE [email protected] www.onecert.com Oregon Tilth Certifi ed Corvallis, OR [email protected] www.tilth.org Organic (OTCO) Organic Certifi ers, Inc (OC) Ventura, CA [email protected] www.organiccertifi ers.com Organic Crop Improvement Lincoln, NE [email protected] www.ocia.org Association (OCIA) Quality Assurance San Diego, CA [email protected] www.qai-inc.com International (QAI) Quality Certifi cation Gainesville, FL [email protected] www.qcsinfo.org Services (QCS) Texas Department of Mary.Holliman@texas Austin, TX [email protected] Agriculture (TDA) agriculture.gov

Page 34 Feasibility Study for a Texas Organic Food Hub Appendix 4: Certified Organic Specialty Crop Farms in Texas

Farm Name County Farm Name County Eugene Martinez Farm Atascosa Strohmeyer Family Farm, LLC Hidalgo Animal Farm Austin Triple J Organics Hidalgo San Domingo Ranch Bee Terra Preta Hidalgo Sidney Kacir Ranch Bell Good Earth Organic Farm Hunt Nature’s Sweet Bexar H and M Farms Jeff erson Aquatic Greens Farm Brazos Morrison Organic Farm Johnson Hairston Creek Farm Burnet Whispering Hills Pecan Orchard Inc. Kerr Wet Weather Creek Farm Burnet Hilltop Herb Farm, LLC Liberty Aloe Laboratories Inc. Cameron ANT JV Lubbock Mid Valley Agriculture, LLC Cameron Carl Pepper Farm Lynn MO Produce, LLC Cameron Buena Tierra Mason Yahweh’s All Natural Farm Cameron Melissa’s Farm Medina Spring Creek Organic Farm Collin Boggy Creek Farm Milam Rife Vineyards Collin Kacir Wheeler Farm Milam KDJ Pecan Farm El Paso Spiral Sprouts Of Houston Montgomery Jones and Naegelian, JV Frio Generation Farms Navarro Texas Organic Mushrooms Grayson Hewett Orchard & Ranch Navarro My Father’s Farm Guadalupe Cimarron Organics Potter M & R Farm Guadalupe King’s Crossing Farm San Saba Scott Arbor Guadalupe Genes Greens, LP Tarrant Springwood Farms Harris Bingham Family Vineyards Terry Hibiscus Hill Plantation Harris Johnson’s Backyard Garden Travis Amy’s Food Service Inc. Harris Dr. Dirt Organic Productions Travis Rio Grande Organics Harris Texas Produce Farm Travis Morrison Organic Farm Haskell Tecolote Farm Travis The Farm at Montesino Ranch Hays Rancho Bendicion de Dios Travis Millberg Farms Hays Clover Hill Farms Travis Onion Creek Farm Hays Green Gate Farms Travis Austin Organics Hays Keep It Real Farm Travis Pure Luck Inc. Hays Barr Mansion Travis Texas Hill Country Olive Co. Hays Oakridge Valley Farm Organics Van Zandt Berry Best Farm Henderson Dos Brisas Ranch Washington South Tex Organics, LLC Hidalgo Gundermann Acres Wharton Gearhart Farms Hidalgo Gabriel Valley Farms Williamson Donald E. Thompson Hidalgo Angel Valley Organic Farm Williamson Ruby Red Harvest Hidalgo Day Star Organic Farm, LLC Williamson William B. Davis Farm Hidalgo Orange Blossom Farm Zavala Joe A. Garza Hidalgo

Feasibility Study for a Texas Organic Food Hub Page 35 Appendix 5: Job Descriptions

Four positions were identifi ed as key to making the hub run effi ciently: general manager, marketing manager, sales manager, offi ce and IT manager, and transportation worker.

General Manager Job Description: The general manager will have overall responsibility for the management of the Food Hub. The general manager will work with farmers to aggregate and distribute product to meet customer demand, expand the customer base by exploring new mar- kets, ensure Food Hub standards are met by farmers, and maintain good communication between staff , customers, and other local food system stakeholders. The ideal candidate will have excellent time management skills, outstanding verbal and written communication skills, and be comfortable utilizing technology to communicate with farmers and customers. Previous experi- ence with sustainable farming practices is preferred. Responsibilities: • Recruit new farmer/suppliers by networking, conducting farm visits and phone calls; • Place orders directly with growers, confi rming quantities needed for production; • Oversee all receiving, storing, and issuing of inventory; • Develop invoicing, ordering, and other business procedures. • Identify, evaluate, and explore market channels to increase sales. • Organize production lines and oversee entire production process, including maintaining the integrity/quality of product and accurate order fulfi llment; • Establish, monitor and improve production systems to maximize effi ciency and product quality; • Maintain records to verify certifi cation status and/or production practices of farmer/suppliers; • Recruit, interview, and hire all team members for the Food Hub; • Responsible for training all staff of the Food Hub in their respective positions; • Review employee schedules weekly to ensure adequate staffi ng is available during shifts; • Oversee all cleanliness and upkeep of Food Hub facility per USDA requirements. Qualifications: • Minimum 5 years managerial experience in foodservice or produce distribution; • Highly motivated and capable of working independently; • Experience managing a group of employees; • Must have excellent verbal and written communication skills and be a good motivator; • Must project a positive attitude and promote a safe, effi cient and productive workplace; • Must possess a valid driver’s license; • Must be able to continuously lift 75 lbs and work standing up for 8 hours per day; • Required be punctual, onsite and ready for work at scheduled hours; • Must have good math skills and be profi cient in EXCEL and other computer software; • Must be forklift certifi ed and/or trainer certifi ed and be able to maintain all equipment, coolers, heavy equipment including scheduled maintenance.

Marketing Manager Job Description: The Marketing Manager is responsible for growing brand awareness and for marketing the Food Hub in the most effi cient and engaging way possible. As the voice of the Food Hub, this high energy individual will represent the Food Hub to new suppliers and customers by identifying and executing local marketing opportunities and will work closely with the General Manager.

Page 36 Feasibility Study for a Texas Organic Food Hub Responsibilities: • Plan, schedule, manage & execute initial launch events and ongoing marketing events; • Frequently update General Manager on marketing activity and calendar of events; • Continuously identify marketing gaps and opportunity areas in the market; • Regularly contribute to the Food Hub’s social media presence; • Actively participate in discussions across communities, social networks & blogs; • Serve as the source of marketing information within the Food Hub team, including regular communication with sales and operations staff ; • Work on local partnerships with events, businesses, and brands; • Build and maintain relationships with community groups, organizations and institutions; • Identify and attend events to engage with customers and build brand awareness; • Facilitate successful advertising as well as internal communications; • Participate in evaluation of marketing initiatives and report writing. Qualifications: • Bachelor’s Degree required, preferably within Marketing; • 5 years marketing or project management experience; • Exceptional written and verbal communication skills required; • Must be extremely organized and have the ability to multitask; • Willing to identify and attend events and engage with customers and prospective customers on a daily basis; • Team player, self-motivated, effi cient, outgoing, fl exible, reliable; • Must take initiative without constant supervision; • Easily adapts to rapidly changing environment and demands; • Strong knowledge of MS Offi ce, database, email and internet systems; • Active online presence and familiarity with social media; • 100% comfortable putting yourself out there and talking to customers; • Passion and excitement about local, sustainable food and expanding the Food Hub; • Ability to work evenings and weekends and adjust to a varied and fl exible schedule. Sales Manager Job Description: The Sales Manager will be responsible for growing the sales of fresh market produce from small- and medium-sized growers to wholesalers, institutions, and retailers. Will work collaboratively with a small team on the day-to-day functioning of the Food Hub. He or she will establish and carry out strategies, goals, policies, pricing, operating budgets, grower relations, trade relations, reporting and communications to achieve profi table growth of the Food Hub. The Sales Manager is responsible for contributing to sales growth through new customer acquisition, customer retention and growth opportunities with current customer base. Responsibilities: • Work with General Manager to establish sales goals and operating budgets and communicate sales results; • Sell produce by utilizing strategies and tactics that will result in the best possible daily, weekly and seasonal pricing; • Work with General Manager, growers and buyers to plan, coordinate and implement production plans and sales plans; • Work with General Manager and growers to establish grower protocols and practices for food safety and other purposes; • Communicate with growers and work with General Manager towards achieving consistent quality among growers; • Coordinate with Offi ce Manager to ensure accurate and timely grower payment; • Manage, develop and sustain relationships with growers/suppliers; • Manage sales operations, develop and prepare sales reports; • Work with customers to develop plans and address their specifi c needs; • Identify new sources of sales and sources of produce in an eff ort to extend sales; • Coordinate freight and logistics in a manner that keeps costs low.

Feasibility Study for a Texas Organic Food Hub Page 37 Qualifications: • Bachelor’s Degree; • 5-10 years of relevant (specialty food, agriculture, natural and organic produce) related experience in sales with proven success; • Appreciation for principles of sustainable agriculture and food; • Knowledge of buyers in the wholesale food service and retail business; • Experience working with small and medium growers; • Experience with accounting and computer software in accounting and logistics; • Experience with transportation and logistics, including warehousing; • Excellent analytical, problem solving, and negotiating abilities; • Excellent verbal, written and interpersonal skills for representing the Food Hub through emails, phone, and in-person meetings with customers and suppliers; • Positive attitude and commitment to customer service; • High attention to detail and accuracy, good decision making skills; • Strong knowledge of MS Offi ce.

Office Manager and IT Manager Job Description: Assist in the operations and logistics of a regional multi-farmer Food Hub, providing fresh, locally-grown fruits and vegetables to customers in the Food Hub distribution area. Work collaboratively with a small team on the day-to-day functioning of the Food Hub. The Offi ce Manager/IT Manager will oversee all administrative functions of the Food Hub. The ideal candidate will be proactive, hands on, an eff ective communicator, fast learner, will possess strong leadership abilities, always maintain a professional image and have a good sense of business management. Responsibilities: • Provides clerical and administrative support to the General Manager; • Drafts any needed letters and documents; collects and analyzes information; initiates telecommunications as requested; • Maintain Food Hub website, including use of social media; • Responsible for offi ce supplies procurement and inventory; • Assists in the recruitment and hiring process as needed; • Coordinates payroll functions as needed; • Performs data input and other information in a timely and accurate manner; • Ensures that all HR and Employee Safety matters are directed to the General Manager; • Facilitates communication with local Government Agencies. Qualifications: • Bachelor’s degree (business administration, accounting or related); • At least 3 years of experience as offi ce manager, administrative or executive assistant; • Experience in Outlook, Word and Excel (tables, fi lters, graphics and reporting); • Basic knowledge of accounting and/or human resources is a plus; • Self-motivated and able to multi-task responsibilities; • Experience working with cross functional team; • Able to maintain confi dential information; • Excellent verbal and written communication skills; • Motivated and capable of working independently; • Profi cient in website & social media management; • Ability to operate a variety of offi ce equipment including personal computer, photocopier, and fax machine.

Page 38 Feasibility Study for a Texas Organic Food Hub Transportation Worker Job Description: Assist in the operations and logistics of a regional multi-farmer Food Hub, providing fresh, locally-grown fruits and vegetables to customers in the Food Hub distribution area. Work collaboratively with a small team on the day-to-day functioning of the Food Hub. Ensure that orders are delivered to customers safely and effi ciently. Responsibilities: • Pick up produce from area farms and deliver to the Food Hub; • Unload produce in Receiving Area, including product staging and proper storage; • Provide delivery reports for inventory management staff ; • Maintain quality of service by following operational and food safety standards; • Pack produce in proper volumes daily to ensure accurate order fulfi llment; • Assess produce quality before and during packing, and implement a system of feedback and education for farmers to address any quality issues; • Deliver orders using refrigerated box truck, ensuring timely delivery; • Work with customers to trouble shoot delivery or pickup concerns; • Assist in daily monitoring of operational needs of delivery vehicle and cooler facility, and schedule maintenance as needed in order to ensure proper operation of essential equipment; • Assist daily in maintaining a clean and organized packing site; • Provide customer service to ensure customer satisfaction and represent the Food Hub in a professional and thoughtful manner. Qualifications: • High school diploma or equivalent; • 2 years of driving experience in delivery operations; • Clean driving record; • Experience handling produce and assessing produce quality; • Experience in commercial farming, wholesaling, supervising of produce preferred; • Able to lift boxes up to 50 pounds, able to move freely within warehouse environment; • Previous customer service experience; • Outstanding communication skills; • Good time management skills, experience working on a deadline; • Strong organizational skills; • Familiarity with basic computer skills; ability to learn and use new software; • Able to use standard warehousing tools; • Friendly, reliable, high energy level, comfortable performing multiple tasks in conjunction with day-to-day activities; • Good interpersonal skills; team player, able to interact with diverse personalities, tactful, fl exible; • Good reasoning abilities and sound judgment; • Self-motivated and directed; ability to work well within a rapidly changing environment.

Feasibility Study for a Texas Organic Food Hub Page 39 Notes The National Center for Appropriate Technology is an equal opportunity provider.