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United States States Depar Departmenttment of Agrof Agricultureiculture

USDA Rural Development The Role of Hubs in Service Report 73 Local Food States Depar Departmenttment of Agrof Agricultureiculture

The Role of Food Hubs in Local

By James Matson, Martha Sullins, and Chris Cook

USDA Rural Development Service Report 73 January 2013 The Role of Food Hubs in Local Food Marketing 1 Editor’s Note: James Matson and Martha Sullins are consultants with Matson Consulting, Aiken, SC. Chris Cook is executive director of the Virginia Foundation for , Innovation and Rural Sus- tainability, Richmond, VA. Financial support for this research was provided via a Cooperative Develop- ment Research Grant from USDA Rural Development.

The authors wish to acknowledge the editorial assistance provided by James Barham of the USDA Agri- cultural Marketing Service.

2 Contents

Food Hubs: Issues and Opportunities 4 Food hubs as rural development 5 Local “buzz” 7 “Everywhere” is a local market 8 What is a food hub? 9 Food hub as a community entity 11 The Business Structure of Food Hubs 12 Food hubs as nonprofits 13 The evolving nonprofit entity 13 Cooperative-structured food hubs 16 For-profit food hubs 18 Multi-structured food hubs 19 Virtual Food Hubs 20 Virtual food hub as an information source 23 Varying Functions of Food Hubs 24 Market access for local foods 24 Information flow and sharing 25 Transportation and distribution 25 Brokerage services 27 Increasing market share by bundling 27 Increasing market share by extending the season 27 Maintaining a consumer-producer connection 28 Technical assistance and producer development 29 Information Sharing and Reducing Risk 31 Product assurances 32 Food hubs and community economic development 33 Constraints on Food Hubs 34 Capitalization 34 Liability 35 Local food handling and processing capacity 36 Human capacity 37 Regulatory Environment for Food Hubs 38 Federal initiatives and grants 39 Examples of USDA funding programs 39 State, county, and community support efforts 41 Private financing initiatives 42 Roadmap for Food Hub Development 46 Conclusions 48 References 49

The Role of Food Hubs in Local Food Marketing 3 Food Hubs commodities, coupled with the associated low Issues and Opportunities margins, have led to the emergence of food value chains as an option for farmers and ranchers to dif- In the commodity food chain, agricultural products ferentiate their products and enter a market that is 1 are mixed together and combined or aggregated more financially viable. into larger groups to be sold, usually with no iden- Local food sellers have determined that con- tification of the where they were grown. The sumers are willing to pay a premium if they know large scale and lack of identification in traditional 1 Adam & Barham, 2011

4 about the origins of local and Recognition of the role of food hubs is occurring regional food.2 However, a at many levels, from a growth in brick and mortar 2010 report by the United facilities and “virtual food hubs” to support from States Department of Agri- many programs, including local, State, and Federal culture (USDA), Economic grants and loans. Research Service The target One of the main constraints to noted that one markets for of the main con- the entry and expansion of local these services straints to the foods is the lack of distribution are typically entry and expan- systems for moving local foods wholesale cus- sion of local foods into mainstream markets. tomers – insti- is the “lack of tutions, res- distribution sys- taurants, and tems for moving local foods grocery stores – which have a harder time buying into mainstream markets.”3 local product in the desired volumes. Food hubs This need has spawned the can also provide greater delivery reliability than creation of collaborative can be obtained through purchasing from many supply chains and to market producers selling independently. these differentiated products.4 Food hubs have developed and evolved as One emerging collabora- highly localized businesses that are dependent on tive model is the food hub. several factors. This report presents an overview USDA’s working definition of the myriad issues facing food hubs across the of a regional food hub is “…a United States. It attempts to look for patterns and business or organization that practices that are consistent enough to be used as actively manages the aggrega- models in a wider development process. The goal is tion, distribution and mar- to ascertain what food hubs need to do to serve as keting of source-identified a viable solution for local food marketing. food products, primarily from The information presented includes defining local and regional producers a food hub, examining the rationale for food hub to strengthen their ability to formation, and exploring the economic role of satisfy wholesale, and food hubs. This paper also presents some of the institutional demand.”5 many organizational structures and services that In the past few years, are offered by food hubs, including the emerging there has been increasing area of virtual food hubs, and provides examples recognition of food hubs as that represent some of the challenges and limita- a way for a group of produc- tions faced by food hubs. The overall intent of this ers to access local markets for document is to help present food hubs within the their agricultural production. In many cases, food context of the growing local foods movement. hubs share information with end users on where or how food was produced, providing a greater Food hubs as connection between producers and consumers. rural development 2 Day-Farnsworth et al. 2009 Food hubs represent a strategy for producers, par- 3 Martinez et al., 2010 ticularly small and mid-sized producers, to market 4 Diamond and Barham, 2012 their production locally. Food hubs create new 5 Barham et al., 2012 marketing opportunities for rural food producers.

The Role of Food Hubs in Local Food Marketing 5 They help connect rural producers as directly as hurdles to overcome.6 Food hubs are part of a possible to rural, suburban, growing local and urban markets. This Consumer decisions to buy that strengthens rural creates a system of linkages, local or purchase items for by lowering developed through food specific product characteristics entry barriers and im- hubs, that enables both have proliferated into new mar- proving to rural producers and urban create, as well as expand, consumers to learn from keting opportunities for farmers regional food markets. each other. and ranchers. They can also create rural Entry into local food jobs. This rural on- and markets can prove difficult off-farm employment for many farmers, particularly small and mid-sized can expand opportunities and encourage skilled farmers, with capacity constraints and the lack of people, including youth, to remain in rural areas. distribution systems most often being the largest 6 Martinez et al, 2010

6 Local foods “buzz” What is a local food? Less than 2 percent of Americans today live The term “local food” is used often, and with various and some- on and ranches. times contradictory interpretations. The new Oxford American Perhaps because Dictionary defines a “locavore” as a local resident who tries to eat of this disconnect, only food grown or produced within a 100-mile radius. American consumers Likewise, many consumers and policymakers define local as be- have a growing inter- ing within a 100-mile radius of one’s home, while others feel that est in learning more 200, 300, or 400 miles can still be considered a local food. Even about where their the Federal Government varies its definition of local: food comes from and connecting with • The 2008 Farm Act defines a “locally or regionally produced farmers and ranchers agricultural food product” as one that is marketed less than 400 in their region. miles from its origin.” Local food is still • The Modernization Act, enacted in January 2011, a small portion of the defines local as food purchased within 275 miles or the same total food market. A State where it was produced. report by the USDA Economic Research However, Martinez et al. say that the definition of “local” dif- Service shows that fers by region and climate, because a sparsely populated area will more than $77 bil- likely have a very different definition of local than a more heavily lion worth of food populated one. was imported into In short, local food may depend on both what food item you the United States in 7 are discussing and where you are located. It may not be possible to 2007, while local have one definition that fits all circumstances. So local food should food sales totaled have a “flexible” definition that relies not only on the distance from slightly less than $5 8 which products are sourced, but also where the product itself was billion in 2008 – but produced and how extensive a system is required to get it to the its share has grown consumer. steadily over the past several decades. Over the past 10 years, there has been a surge in demand for locally produced foods. The cooperatives and Community Supported Agri- availability and amount of local food products culture (CSAs) – have grown as consumers have are unprecedented in recent history. Consumer been increasingly looking for local and regional decisions to buy local or purchase items for foods. The 2007 Census of Agriculture reported that more than 12,500 farms participated in some specific product characteristics have proliferated 9 into new marketing opportunities for farmers form of CSA. This is a dramatic increase from the and ranchers. handful of farms that used this In addition, local direct marketing oppor- method in the mid-1980s. tunities – such as farmers’ markets, retail food A National Grocers Association survey con- 7 Brooks et al., 2009 ducted in 2011 (online at: www. guru. 8 Martinez et al., 2010 9 http://www.nal.usda.gov/afsic/pubs/csa/csa.shtml

The Role of Food Hubs in Local Food Marketing 7 com/public/pdf/Consumer-Panel-Survey-2011. sors coordinate their actions for mutual economic pdf ) found that 85 percent of consumers say benefit while advancing social and ethical values, they choose their based in part on such as agricultural sustainability and farm viabil- whether it sources food from local producers. This ity (Stevenson, 2009). supports a 2008 national survey of consumer buy- ing patterns that found that 35 percent of consum- “Everywhere” is a local market ers surveyed felt that buying locally produced fresh produce was of great importance to them, while The increased demand for local foods is evident in another 44 percent said it was of moderate impor- the growth of direct marketing channels and in the tance. number of farmers using those channels to move Social values also motivate consumer behavior. their products. USDA’s Many shoppers in the 2008 survey were concerned Service lists 7,864 U.S. farmers’ markets in opera- about whether or not tion in 2012, up from their purchases helped 7,175 the previous year, to maintain local for a 1-year increase of Food hub definition farmland and the local nearly 10 percent. This ; 44 per- includes many markets cent and 49 percent, Roget’s Thesaurus (2010) defines a hub as that allow lower income respectively, indi- a: consumers to purchase cated that these public food through Federal benefits were of great 1. point of origin from which ideas or benefits pro- importance to them.10 influences originate; or grams. Those who tended 2. place of concentrated activity, influ- Consumers are ex- to shop at farmers ence, or importance. pected to continue this markets were most trend of purchasing lo- concerned with main- In agricultural systems, hubs have cally produced products. taining local farmland, emerged to coordinate some aspect of the According to a recent with 70 percent indi- production, processing and/or marketing study by USDA’s Eco- cating that this was of of food to meet consumer demand for nomic Research Service, great importance to local, fresh, organic or other value-laden local food sales through them, compared to 31 products. all marketing channels percent of those who in the United States shopped at supermar- grossed $4.8 billion in kets. 2008.11 In a similar vein, One example of such nearly 80 percent of farmers’ market shoppers were consumer-driven demand is from the Web site of most concerned that their produce purchases sup- the Weaver Street Market, a community-owned ported the local economy, compared to 43 percent grocery store and cooperative located in Carrboro, of those who identified themselves as supermarket NC. It notes that: “Almost half of the food we shoppers. sell at Weaver Street Market is produced locally, Steve Stevenson, as part of the Agriculture of including the breads, pastries, soups and salads we the Middle Project convened by Iowa State Uni- craft in our own kitchen. Local goods show up in versity, has described in a series of case studies how every department, from fine wines and gourmet farmers, distributors, retailers, and food proces- 10 McFadden, Thomas and Onozaka, 2009 11 USDA Agricultural Marketing Service, 2012

8 chocolate, to shampoo as schools, hospitals, 12 and herbal remedies.” Community-based organizations nursing homes and Farmers are produc- corporate cafeterias ing more than ever to – face obstacles of lo- meet this burgeoning Several food hubs have developed out of gistics and information demand. The 2007 what can be termed as community-based in sourcing their food Census of Agriculture organizations (CBOs). Examples in- products locally. They reports that nearly clude The Intervale Center, Appalachian also frequently cite the 137,000 farms sold Sustainable Development, Agriculture difficulty in obtain- products directly to and Land-Based Training Association ing the local products consumers, totaling a (ALBA), The Minnesota Food Associa- needed in a sufficiently little more than $1.2 tion, and numerous others. large quantity for their billion. Direct sales A CBO is a public or private nonprof- needs. represented about 0.5 it organization of demonstrated effective- The abundance of percent of all sales in ness that is representative of a community, farmers markets and 2007, a 50-percent in- or significant segments of a community. It the emergence of larger crease from 2002, with provides educational or related services to scale retailers carry- an additional 20,000 individuals in the community (definition ing local products (and more farms each selling from the U.S. legal code). Perhaps most promoting them) is a about $2,000 more per importantly, it plays a leading role in in- healthy indicator of farm each year. Overall, volving new or different groups of people market responsiveness from 2002 to 2007, in the civic life of local communities. to consumer demand.14 average annual direct In agriculture, these organizations Clearly, however, there sales per farm increased have made long-term commitments to is a coexisting uncer- from $6,958 to $8,853. developing the capacity of the producers tainty about how to These statistics do not they support, and creating infrastructure develop markets that include sales to regional that supports and maintains market ac- are typically supplied grocers, restaurants, cess for them. by larger scale, conven- or institutions that in tional producers with turn sell to consumers a distinct transporta- (so-called intermedi- tion and distribution ated sales). An analysis structure built around by USDA’s Economic Research Service found that moving and selling those conventionally produced marketing of local foods via both direct-to-con- foods. sumer and intermediated channels grossed $4.8 billion in 2008—about four times higher than esti- What is a mates based solely on direct-to consumer sales.13 food hub? Many diners expect their restaurant experience Around the country, both formally and informally, to include a selection of dishes conceived from food hubs are facilitating the aggregation, mar- local products. The restaurant industry found that keting and/or distribution of products from local the rising demand for locally produced foods was farmers and ranchers to consumers (households, the Number 1 dining trend of 2011. But restau- retailers, restaurants, institutions, and wholesal- rants, grocery stores, and other institutions – such ers) by developing scale efficiency and improving 12 http://www.weaverstreetmarket.coop distribution. 13 Low and Vogel 2011 14 Martinez et al., 2010

The Role of Food Hubs in Local Food Marketing 9 Time food hubs have been in existence

20 or more years 9 percent

15 to 20 years 16 percent

6 to 10 years 9 percent

5 years or less 60 percent

Source: USDA Agricultural Marketing Service

This section will look at the emergence of food demand.”15 Although the definition focuses on the hubs, the range of centralizing and aggregating physical movement of goods, USDA notes that a roles they provide, and their importance in build- food hub can also be defined by market efficiency ing food system infrastructure in: functions, in addition to more abstract goals of building a diversified food culture. • Meeting growing consumer demand for fresh, It is worthwhile to consider a broader defini- locally produced foods that are less available tion of food hubs, in terms of function rather than through traditional markets, and form, for two reasons: • Catalyzing new marketing opportunities for producers and energizing local and regional 1. Many hubs have evolved from an educational economies. or social mission to bring consumers and producers together in the marketplace. While USDA’s working definition of a food hub is selling local foods to consumers is one func- “a business or organization that actively manages tion, these hubs may also seek to educate their the aggregation, distribution and marketing of buyers about the importance of retaining food source-identified food products primarily from dollars in the local economy or keeping agricul- local and regional producers to strengthen their tural lands in production. ability to satisfy wholesale, retail, and institutional 2. Second, some very functional hubs exist that do 15 Barham et al., 2012

10 not consist of brick and mortar facilities; rather, they “live” primarily in a virtual context and are Breakdown of Regional thus able to transmit information quickly among Food Hubs buyers and sellers of local and regional food products. This is particularly pertinent in situa- Food Hub Number Percentage tions where lack of information is the key barrier Legal Status to greater market efficiency. Virtual food hubs Privately 67 40 percent reduce the costs of access to local foods as well Held as allow for transactions to occur at any time. 16 Nonprofit 54 32 percent Cooperative 36 21 percent Food hubs as a community entity Publicly 8 5 percent Held Michael Hand identifies supply chains based on Informal 3 2 percent the proximity of the producer’s transaction to the consumer, which may be: (1) direct producer to Market Number Percentage consumer or (2) intermediated with one or more Model middlemen handling the product before it reaches 17 Farm to 70 42 percent the consumer. What differentiates this new gen- business/ eration of community-based food hubs is the focus institution on shortening the supply chain and often deliver- (F2B) ing more than just economic returns. For some of Farm to 60 36 percent these community-based food hubs, the intended consumer benefits may extend to a social good, environmen- (F2C) tal stewardship or capacity building for a group of Hybrid 38 22 percent agricultural producers. (both F2B Although food hubs still handle a small share & F2C) of total food sales in the regions where they oper- ate, they are able to reach a customer base that is typically far larger than that served by direct of social values along with the sense of social con- markets such as farmers markets and CSAs. For nection, exchange and trust that many consumers example, USDA found that, in the case of beef, the purport to value in the direct marketing experi- total volume of beef sold through an intermediate ence.19 One example is the Just Local Food Coop- supplier in Minnesota was less than that sold to erative in Wisconsin. It notes that: “The coopera- several retail supermarket locations, but 30 times tive’s mission is to provide local and fairly traded more than that sold by the local direct market goods, taking care to assure that the producers and producer. While food hubs may not move the workers involved are compensated appropriately, same volume of product as more conventional food and that consumers have access to quality products channels, some feel that hubs are able to respond at fair and reasonable prices. This co-op currently to changing consumer demand for innovation, has more than 50 suppliers.”20In that way, , and variety more deftly than any single hubs provide an important opportunity for rural producer or any conventional retail outlet.18 producers, particularly small and mid-sized pro- Food hubs may also facilitate the transmission ducers, to reach larger volume buyers in both rural 16 Matson, 2011 and urban areas. 17 Hand, 2010 19 Martinez et al., 2010 18 Tropp et al., 2008 20 Day-Farnsworth et al., 2009

The Role of Food Hubs in Local Food Marketing 11 The Business Structure of who has invested which resources, determines of Food Hubs the opportunities for growth and expansion avail- able by leveraging capital investments, and controls how different types of information are managed In general, the legal structure for a business pro- and exchanged. vides specific mechanisms for management and In an environment where information helps decisionmaking within the business and delineates facilitate efficiency in product development, the manager’s ability to seek investors or other production and marketing, and consumer feed- sources of capital. A legal business structure also back, legal structure is a critical aspect of a local defines income tax liability, general risk manage- food system. In other words, structure determines 21 ment, and liability exposure. In the case of food how the organization operates. This includes both hubs, the legal business structure also keeps track internal operations – through the decision process 21 Thompson and Hayenga, 2008 among producer-members, managers, and other

12 service providers – and how the innovation, practicality and (sometimes the sheer hub relates to those outside the adrenaline) of business, with the deliberation and organization, such as its custom- creativity of nonprofit social change. We connect ers, lenders, and other producers.22 local, family farm production with fair and USDA’s Regional Food Hub supermarket availability; fresh, in-season, perfectly Guide divides the struc- ripe produce with high standards of ecological ture of food hubs into a few or- stewardship; beautiful packaging with sustainable ganizational categories. Based on materials; risk-taking with fair trade for farmers; a working list of 168 food hubs, and science-based research with deep respect for the report finds that privately held traditional agriculture.”25 Red Tomato says its non- businesses are the most common profit status allowed it to innovate, create, react, type of food hub, accounting for learn, and share what it knows with colleagues in 40 percent of the legal entities. the sustainable food community.26 Nonprofits – many of which are The Intervale Center in Burlington, VT, pro- producer-owned and may func- vides an example of how a nonprofit entity can tion as a cooperative – are the catalyze other food system businesses and be re- next most common legal structure, sponsive to producer or other supply chain mem- accounting for 32 percent of all ber needs. An analysis produced by the Wallace food hubs, followed by for-profit Center finds that the Intervale Center’s economic cooperatives at 21 percent. Other structure leverages revenue from its most profit- types of legal structure – publicly able programs to underwrite other start-ups or held food hubs and loosely orga- initiatives with stronger social missions.27 In this nized food hubs – are relatively model, new ventures often grow out of the direct rare, representing 5 and 2 percent needs of Intervale Center farms and the broader of all food hubs, respectively.23 farm community, such as the identification and documentation of distribution and storage needs. Food hubs as The focus on, and ability to cultivate, programs nonprofits that respond to community and producer needs One overview on the business isn’t as widely seen in other business models. organization of food hubs – in terms of ownership as a commer- The evolving cial entity or a nonprofit – points nonprofit entity out that the organizing entity also defines the Over time, food hubs that started as projects or organization’s mission and evolution. For example, nonprofit entities may evolve to the point where the goals of a nonprofit may be tied more to a a different business structure is more effective, social mission than to business profitability. There- especially when it becomes necessary to manage fore, the nonprofit may emphasize products that the complexities of contractual arrangements with are more expensive to source, such as organic and third-party providers outside the hub’s member- fair trade products, but are valued by its consumer ship. Eastern Carolina Organics (ECO) started as base.24 a project of the Carolina Farm Stewardship As- One example of this is Red Tomato of Canton, sociation (CFSA) in 2004, with a $48,000 Tobacco MA. Its Web site notes: “Our work connects the Trust Fund Commission grant. The initial goal of 22 O’Brien et al., 2005 25 www.redtomato.org (accessed Jan 2011) 23 Barham et al., 2012 26 Davis and Desai, 2007 24 Davis and Desai, 2007 27 Wallace Center, 2010

The Role of Food Hubs in Local Food Marketing 13 CFSA as a nonprofit association evolved into the connection to the participating farms.30 mission of ECO as a private business to support The Agriculture and Land-Based Training emerging organic farmers and organic tobacco Association (ALBA), a locally governed nonprofit farmers while improving the supply of local or- organization in Salinas, CA, was incorporated in ganic produce.28 In 2005, ECO became a private 2001 to increase the success of small-scale minori- grower and manager-owned limited liability cor- ty farmers in central California. ALBA helps these poration with 13 growers and two staff owners. farmers overcome language and cultural barriers, a Today, ECO works with more than 40 growers lack of resources, institutional exclusion, a histori- and 100 customers.29 ECO owns its own refrig- cal lack of government support, and other barriers erated truck, which runs on biodiesel, enabling to their engagement in agriculture. ALBA provides the organization to pick up produce on farm and support to these farmers so they can learn organic deliver it to buyers the same day. ECO has evolved farming techniques and access new markets. into a year-round supplier of fresh produce that These sales outlets consist of institutional helps small, organic, rural farmers access urban markets (such as schools, hospitals and retail- markets while providing the infrastructure for ers, including Whole Foods), distributors such chefs, grocers and families to support local, sus- as GreenLeaf Produce and the Growers Col- tainable agriculture. ECO farmers own 40 percent laborative, and area restaurants. In 2002, ALBA of the company and retain 80 percent of sales, with established ALBA Organics as a licensed produce 20 percent going to three other non-farmer part- distributor to support the sales and training needs ners who manage the product brokering services. of ALBA farmers.31 One notable farmer-owned distribution com- ALBA Organics provides on-farm coolers pany is Grasshopper Distribution in Kentucky. and warehousing and delivery infrastructure at Grasshopper, which grew out of Community Farm the ALBA farm near Salinas. It also connects its Alliance (a nonprofit project), distributes food that customers with locally grown products from small- originates in Kentucky or from nearby farms in scale, limited-resource, and beginning farmers. southern Indiana. It is an independent producer- ALBA Organics also offers marketing education owned food hub that provides weekly service to for farmers on use of different direct marketing restaurants, groceries, cafeterias, school systems outlets (farmers’ markets, community supported and other food service clients. agriculture), as well as training on packing and All of its products are source verified and sales for wholesale and retail distribution. In addi- grown without the use of chemicals or . tion to providing business education and incuba- As a producer-owned business, it has developed tion, ALBA also operates a small-farm incubator its own packaging standards and price lists. Grass- that provides some graduates with land leases and hopper also has specific requirements that result access to tractors and equipment at ALBA’s 110- in a supply of similar-quality products among its acre Rural Development Center near Salinas. farmers. Requirements include following pro- As another service, ALBA’s Community Food duce packing specifications, becoming “Kentucky Systems Program connects communities with Proud” label certified, becoming Good Agricultur- locally grown fruits and vegetables, expands op- al Practices (GAP) certified, and shipping product portunities for small farmers, and improves low- in transient containers. Grasshopper’s goal is to income families’ access to healthy and diverse local pay fair prices to participating farmers, make pay- foods by establishing new farmers markets and ments to all vendors within 7 business days, and farm stands. be transparent to its consumers by having a direct 30 http://www.grasshoppersdistribution.com 28 Wallace Center, 2010 31 http://www.albafarmers.org 29 http://www.easterncarolinaorganics.com

14 The Minnesota Food Association (MFA), In 1998, MFA launched a New Immigrant northeast of Minneapolis/St. Paul, began in 1985 Agriculture Project (the Big River Farms Training as a coalition of urban and rural individuals who Program) to work with new immigrant and mi- wanted to work together to build a more sustain- nority farmers on increasing their skills in produc- able food system. MFA has a stated commitment ing certified organic vegetables, accessing and de-

to “re-localizing food systems.” It partners with veloping markets for those vegetables, and learning other organizations and government entities to the business management practices necessary to develop sustainable strategies that increase both help them develop and maintain successful small the number of sustainable/organic farmers and the farm enterprises. The association is nonprofit and number of markets in which their products can relies on donor support to provide the resources be sold. These strategies include encouraging fair required to achieve these goals. profits for the farmers, fair prices for the consumer, In 2007, Big River Farms launched the Big fair wages for the farm workers, good environment River Farms CSA. Through the CSA, the farmers- practices, good treatment of all people, and a posi- in-training gain experience in growing diversified tive influence to their community.32 crops for market while the community benefits by 32 http://www.mnfoodassociation.org gaining access to fresh, organically grown vegeta-

The Role of Food Hubs in Local Food Marketing 15 bles. Participating farmers have the opportunity to members’ needs, such as providing a fair return on sell their produce through the CSA or wholesale products sold, arranging transportation of goods market channels provided by Big River Farms. to end consumers, promoting a certain production To date, MFA has “connected” local produce practice, or serving a certain geographic area. from its immigrant farmers to eight wholesale Many cooperatives – such as the Oklahoma vendors, including Chipotle, the Saint Paul School Food Cooperative, the High Plains Food Coop- District and erative in Colo- Whole Foods. rado and the It has trained Weaver Street 140 farmers. Market in Carr- The Minnesota boro, NC – have Food Associa- evolved and cur- tion also oper- rently operate as ates Harvest for multi-stakehold- the Hungry, a er cooperatives. partnership with This business the Big River structure in- Farms CSA and cludes consum- other area CSAs ers, workers, and to provide fresh, producers in locally grown the same busi- produce to low- ness entity. An income Minne- example of a sota households. more standard produce owner- Cooperative- ship structure is structured La Montañita, food hubs based out of Al- There are many buquerque, NM. examples of Each of these food hubs formed through cooperatives, whether examples has achieved different scales of impact on producer-led, retailer-led, or with consumer mem- their respective local and regional food systems. bers. There are several advantages to the coopera- The Oklahoma Food Cooperative (OFC) is a tive business structure that make it a good fit for producer- and consumer-owned cooperative that an emerging food hub. The cooperative structure sources and distributes a variety of products across is a well-known and established community entity a 160-mile radius around Oklahoma City. OFC with strong roots in agriculture that is owned and decided to use a cooperative structure to spread democratically controlled by its members. The equity and create buy-in from its members. membership fees provide working and investment OFC began operating in November 2003, with capital for the food hub, and any surplus revenues 60 members and 20 producers (only 15 of whom are returned to the members. had products to sell during the first month). Since A co-op is managed by a board of directors that time, OFC has grown to more than 125 pro- elected by the members, which – in the case of a ducers who sell to the co-op and grow or manu- food hub – may be made up entirely of producers facture a variety of goods, including fresh fruits, who will manage the organization to meet their vegetables, grains, herbs and meats. They also

16 produce value-added food products (breads, cas- were $10,424. In 2011, sales climbed to $71,000 seroles, cookies and cakes) and non-food products and it anticipated achieving nearly $100,000 in (body-care products, soaps and clothing). sales for 2012.35 Although poised to grow, financ- From initial sales of $3,500 the first month, ing that growth – by purchasing a trailer and a sales now average $65,000 per month. OFC freezer, and hiring several full-time employees rents a 10,000-square-foot warehouse at which it – remains a challenge because it is a small, new receives all products sold online (under the co-op’s business with a limited track record of managing brand). Items are packed into trucks and delivered debt.36 to pick-up sites across the State, including several Other cooperatives with similar operations hundred deliveries each month outside the coop- to the OFC and HPFC model include the Iowa erative for low-income people who do not have Food Cooperative (Iowa), Crosstimbers Food transportation.33 Cooperative (Texas), Idaho’s Bounty Cooperative, The High Plains Massachusetts Local Food Cooperative Food Co-op, Nebraska (HPFC) is modeled Food Cooperative, Ot- after the Oklahoma tawa Valley Food Co- Food Cooperative and op (Ontario, Canada), began with the latter’s West Michigan Co- support. HPFC is a operative, and the member-owner co-op Wichita Food Co-op that started with 30 (Kansas). members and has grown to 194 members (40 pro- Weaver Street Market in Carborro, NC, began ducers and 154 consumers). The advantage of this operations in 1988. In addition to its own bakery dual membership and governance structure is that and fresh food kitchen, Weaver Street Market it creates a vested interest on the part of both pro- offers a wide variety of natural and locally grown ducers and consumers to ensure the co-op’s suc- products. Milk comes from Maple View Farms, 2 cess.34 The co-op serves customers within a 300- miles up the road. Eggs are delivered fresh daily mile radius of northeastern Colorado, with the from Latta’s Egg Ranch in nearby Hillsborough. goal of providing locally grown food from north- Flour comes from Lindley Mills in Graham, NC. eastern Colorado to western Kansas and to Colo- About a dozen local area farmers who sell their rado’s more populated Front Range. Thus HPFC produce at the Carrboro Farmer’s Market also is able to help producers who are geographically sell to Weaver Street Market. Keeping the market dispersed and/or very small-scale to find a market community owned and operated has proven to be for their products. a very popular idea. The 2011 annual report indi- Like OFC, High Plains Food Cooperative cates that the cooperative made a profit of about operates primarily online and is minimally capi- $250,000 and nearly half of its $26 million in sales talized. It owns two delivery trailers and operates was sourced from local products. The co-op has a warehouse that the co-op rents in Denver. As nearly 16,000 households as member/owners. stated on the co-op’s Web site, the products that Founded in 1976, La Montañita currently go through its distribution system are owned stocks and sells more than 1,100 products from either by the producer, or by the consumer, who re- nearly 700 local growers in New Mexico and ceives the ownership directly from the producer. Colorado. Its 2008 sales were $2.8 million. La In 2008, its first year in business, HPFC’s sales Montañita is a cooperative that supplies four retail 33 Wallace Center, 2010 35 June 18, 2012 phone interview with HPFC. 34 http://highplainsfood.org 36 McFadden, Gunter and Dyer, 2010

The Role of Food Hubs in Local Food Marketing 17 “Eco Apples” destined for sale through Red Tomato food hub of Plainville, MA.

stores in New Mexico, distributing both local sell their food products. Entrepreneurs and estab- and national brands through a co-op distribution lished businesses have pursued local food hubs as a center (the CDC). The CDC, in turn, also sells to potential area for profits. other specialty retailers and restaurants.37 La Mon- One such example is Lorentz Meats of Can- tañita started a distribution arm through the CDC non Falls, MN, a family-owned meat processing in 2007 in order to extend the operation and create and marketing business. It expanded with a new greater market access for the region’s producers. facility in 2000, based primarily on finding mar- Products are now sourced from within 300 miles kets for local meat producers. The firm believes of Albuquerque (including southern Colorado) “helping farmers with direct marketing exponen- and distributed across New Mexico. tially expands our [Lorentz Meats’] own business opportunities.”38 Lorentz Meats is looking for a For-profit “sweet spot” for a mid-scale meat processor that food hubs will yield profitability for both producers and its Food hubs may also play a “matchmaker” role, meat marketing business. helping farmers connect to a market outlet and 38 http://www.communityfoodenterprise.org/case- 37 McFadden, Gunter and Dyer, 2010 studies/u.s.-based/lorentz-meats

18 Colorado Homestead Ranches (CHR) is a western Colorado meat and processed product company – a for-profit C corporation – that has Food hub functions invested in processing capacity. Although each of the six member ranches is responsible for cattle production, all beef processing flows through two Food hub functions vary but may plants CHR acquired to reduce processing costs include the following: and to ensure its access to processing throughout the year.39 The addition of two processing facilities • Market access for local producers; in different small towns (Cedaredge and Delta) • Information sharing; has also created new marketing outlets for CHR • Transportation and distribution; beef, as well as for the producers of other local and • Brokerage services; value-added products for which CHR creates shelf • Product bundling and aggregation; space. • Season extension; Some large-scale retailers have also responded • Maintaining producer-consumer con- to their clients’ desire for local food and are stock- nections; and ing more local foods and goods. In some cases, • Producer-oriented technical assistance. these larger retailers are starting to create their own local food sales in a manner that resembles a food hub. Whole Foods Market – a national retailer of organic and natural foods – announced in February 2011 that it would use its stores in structure would entail a decisionmaking process Florida as a drop-off location for local CSA deliv- that was too slow and risk-averse to address 40 eries. emerging markets for food products. Davis and Desai report that participating farmers trust Red Multi-structured Tomato to manage the planning, logistics, market- food hubs ing and sales of their products. It uses grants to Not all food hubs have one central structure that offer economic development support to its farm- fits nicely in these “boxes.” Some food hubs are ers, and maintain its focus on limited-resource really a combination of several different busi- and small-scale, local farmers. Looking towards nesses, where business functions of the hub have the future, Red Tomato has the goal of increas- been divided into different legal structures. For ing trading income (from marketing and logistics example, Red Tomato is a nonprofit entity that is services) by 50 percent, with the remaining 50 per- linked to for-profit, farmer-owned brokering and cent originating from individual donor gifts, thus distribution entities. Red Tomato considered other eliminating the need for government funding.42 business structures, but found that the nonprofit Another example is the Sandhills Farm to provides its producers with a sense of ownership in Table Cooperative in North Carolina. This multi- 41 marketing that was more comfortable to them. tiered organization combines a farmers’ marketing Red Tomato evaluated the possibility of orga- cooperative with a CSA on the consumer side and nizing as a farmer cooperative, but felt the co-op uses a brokerage management team on the admin- 39 McFadden, Gunter and Dyer, 2010 istrative side of the enterprise. It has more than 40 http://www.bnet.com/blog/food-industry/ 1,400 members in one county in central North how-whole-foods-is-embracing-its-local-produce- Carolina. rivals/2553 41 Davis and Desai, 2007 42 Local Food Research Center, 2012

The Role of Food Hubs in Local Food Marketing 19 Virtual Food Hubs food hubs can also serve as a community devel- opment tool. To the extent that emerging com- munications technologies can partially offset the Some food hubs are located either primarily or necessity of scale economies, rural communities uniquely online. Virtual hubs have the advantage may have a greater chance of maintaining service of being able to transmit and receive information 44 systems critical to viability. much more quickly than a traditional direct mar- 45 Lulus Local Food is a Richmond, VA -based keting outlet. This means that a fully functional virtual food hub software provider. Lulus’ Internet virtual hub gives consumers and other food buyers site serves as a connection point for approximately instant access to information on product availabil- 200 food producers and cooperatives with over ity and price. It establishes the “information con- 2,000 customer-families. Currently, five food hubs nection” and places the burden of completing the – four in Virginia and one in Montana – are using transaction on the two agents involved: the buyer 46 software designed by Lulus Local Food. Each and the seller. hub has multiple pickup and drop-off locations. Internet-based transactions enable a vast ar- For instance, Fall Line Farms, one of the hubs ray of products to be sold, usually at a price that using the Lulus Local Food software, has 10 site is competitive with local retailers. Successful locations in and around Richmond. The software is electronic marketing is based on “organized and designed to connect producers with retail custom- centralized trading; widely dispersed buyers and ers as opposed to institutional or restaurant buyers. sellers with remote access; and merchandising The program works on a weekly cycle, where based on product descriptions. If the non-price- producers enter their available produce online on a related terms of exchange, such as the logistics of Friday. Product is then “approved” by the food hub bringing sellers and buyers together, and ways of administrator, and the buying pages are opened to describing products and concluding transactions the buying public Saturday through Monday. Con- are found, then the focus turns to a price-centered sumers select the products they wish to buy, place negotiation. Market success depends on a high an order, and pay for their purchases. Producers trading volume, reliable grades and standards and 43 deliver purchased products to the drop-off/pickup reasonable charges.” site locations on Thursday morning. Customers Virtual food hubs leverage the Internet-based pick up their groceries Thursday afternoon. The market by finding ways to add value to exchanges food hub collects payments from the customer, in areas of logistical, financial, and information including any sales tax, and pays the producer for services. These virtual food hubs can automate products purchased, less a transaction fee. The hub business processes that lower the costs of access also pays sales tax to the State on behalf of the to local foods. The biggest advantage of virtually producers. based hubs is lowering the transaction cost of a Lulus Local Food is working on a new release sale of a particular agricultural item for both the of its software package that will allow producers producer and the consumer purchasing the prod- to sell at multiple hubs and allow hubs to network uct. with each other. It will also allow for institutional Another potential advantage of Internet-based and restaurant purchases. businesses that is sometimes overlooked is the 47 Farmer Girls is a software provider with ability to carry out the transaction at any time. This similar functionality to Lulus Local Food, using means that customers can place the order when 44 Leatherman, 2000 they wish, and producers can update their sales 45 www.luluslocalfood.com items and pricing at their convenience.Electronic 46 Matson, 2011 43 Ehmke, 2001 47 www.farmergirls.net

20 Micro-greens ready for harvest at Manakintowne Specialty Growers in Powhatan County, VA. Produce from the farm and other suppliers are ordered by members on the Lulus Local Food Web site.

The Role of Food Hubs in Local Food Marketing 21 • More than 20 percent of FoodHub’s membership is based in counties in which at least 30 percent of the population lives in rural areas. • Fifty-five percent of rural FoodHub mem- bers are sellers, of which 82 per- cent are farmers, ranchers, or dair- ies. Other sellers include brewer- ies, wineries, and fishermen. • Thirty per- cent of rural Food Hub mem- bers are buyers, of which 27 percent a weekly cycle to connect producers directly with are schools or school districts. retail customers. Its business model is different This virtual food hub seeks only to connect in that users of the software are not networked. local/regional food buyers and sellers, regardless of Farmer Girls currently has hubs in Warrenton and production methods used. Roanoke, VA. There are myriad virtual food hubs offering a Another such example is FoodHub,48 devel- variety of services. Local Dirt,50 based in Madison, oped by Ecotrust. It grew rapidly from its launch WI, connects local producers with a variety of cus- in February 2010 and has obtained more than tomers, including institutions, restaurants, schools 2,200 members throughout the greater Northwest and buyers clubs, as well as individual families. Lo- and is open to food buyers and sellers in Oregon, cal Dirt provides the connection between producer Washington, Alaska, Montana, Idaho, and Califor- and customer and creates invoices on the produc- nia, according to an article in Sustainable Business ers’ behalf, but it does not take part in the transac- Oregon. 49 tion (collect or pay money). It is branching out In a June 2012 blog post, Ecotrust provided into other States and localities. details on FoodHub’s membership: Fresh Fork Market51 “connects Cleveland, OH, area customers with local artisanal producers.” Fresh Fork Market is more like a CSA that offers 48 http://food-hub.org/ baskets of food at fixed prices. What is in the bas- 49 http://www.sustainablebusinessoregon.com/ 50 http://www.localdirt.com/ articles/2011/07 51 www.freshforkmarket.com

22 ket depends on the season; however, the more the District Nutrition Services uses FoodHub to find customer pays for the basket, the more choice the local farms and source local products for their customer gains to select what will be in the basket. Farm-to-School program. Papa Spuds is a nascent e-commerce food hub The negligible cost of participating on the based in Raleigh, NC, that was started by Rob Internet permits the rapid transmission of infor- Meyer and Ben Stone as a for-profit entity in mation for virtual food hubs, which can result in 2008. It has positioned itself as an Internet farm- reduced transaction costs for spatially divergent ers’ market that partners with more than 20 pro- consumer/producer situations. Several of these ducers from central North Carolina. The business hubs clearly evolved due to the distance between offers online payment farm production and and home delivery of The negligible cost of participating on the end consumer. For products within its ser- example, the Southwest 52 the Internet permits the rapid trans- vice area. mission of information for virtual food Colorado Guide to Local Most virtual farmers Food and Fiber 54 links hubs. markets only sell local- diverse producers in produce and other prod- southwestern Colorado ucts. A slightly different counties with institution- approach is taken by Relay,53 which currently oper- al buyers as well as household consumers. Produc- ates in two cities: Charlottesville and Richmond, ers develop their own profiles where they write a VA. Relay not only offers local produce, but also statement describing what products they have for a vast array of goods normally found in a regular sale, how their products are unique, and how they grocery store. Relay’s business model is to give the are sustainably produced. customer an experience closer to a one-stop shop A similar hub covers Gunnison County, CO,55 at a regular grocery store. In certain areas, Relay and offers information on buying and selling meat, also offers a “to your door” delivery service. eggs, and dairy products in the county. It also sup- ports a list of Gunnison County producers that sell Virtual food hub as an vegetables, beef, poultry, eggs, dairy products, pork, information source lamb, goat, honey, hay, and compost. One advantage of a virtual hub is its positioning to It has been recognized that easy access to the create networks and link buyers that are typically social and organizing potential of the Internet much harder for smaller producers to reach. For is one area where the local foods movement has example, OmOrganics began a farm-to-restaurant benefited from new technology developed over the cooperative network to assist with sales and de- past few years. According to John Leatherman’s livery direct from farmers to restaurant chefs, so study of Internet-based commerce, the social/or- restaurants, retail stores, and schools can find local ganizational function of the Internet can be used purveyors of sustainably grown foods. In addi- as a tool for rural community organization and tion, it provides a sourcing directory for wholesale goal attainment. Particularly in rural communities, buyers for produce, meat, poultry, dairy, eggs, and where so much depends on voluntary efforts by seafood. To complement its online sourcing direc- community groups, this capacity would strengthen tory, it provides links to local distributors so that local institutions.56 institutional buyers have multiple means to procure local foods. A recent post and video on the Food- 54 www.mesaverdefood.org Hub.org Web site relates how the Oregon School 55 http://www.gunnison.colostate.edu/agri/localag/ 52 http://papaspuds.com/ localagbeef.shtml 53 www.relayfoods.com 56 Leatherman, 2000

The Role of Food Hubs in Local Food Marketing 23 Christy Talbott of Richmond, VA, a member of Fall Line Farms food co-op, picks up her produce at Bon Air United Methodist Church.

Varying Functions of Food Hubs Market access for local foods Any business must serve an economic function A primary role of a food hub is to facilitate access in order to continue to exist. In economic par- for agricultural producers to market outlets (retail lance, a business must serve the needs and wants or wholesale) that would otherwise be less acces- of individuals to survive and prosper. A food hub sible or completely inaccessible due to scale or must follow this rule: it must provide a value to location of the food production with respect to the its producers and local food buyers. Some of the market outlet. market functions that a food hub may provide to Similarly, the food hub also addresses the its members and consumers are outlined in the consumer side of the equation by making it pos- proceeding section. sible for local consumers to access local producers.

24 A successful food hub often will link to a larger retail store, with the farmer being guaranteed the number of local food producers than a consumer price that was initially determined.59 could access individually. This process is transparent to all agents in- For example, Fall Line Farms is “designed to volved in each transaction. Additionally, GNFF connect family owned and operated farms in the has established this transparency through a written central Virginia area with customers in search of memorandum of understanding that outlines the local food year round.’’57 Fall Line Farms connects responsibilities of GNFF, each farmer member and more than 75 local farms in the Richmond, VA, the retail stores. This process also creates liability area58 with local food buyers and provides more protection for GNFF. Therefore, both efficiency than 2,000 customers with fresh, locally produced and equity gains come from sharing information food on a regular basis. openly in these transactions. Information flow Transportation and and sharing distribution As illustrated by the existence of many online Getting product from a production or aggre- hubs, sometimes the food hub’s only role is to cre- gation point to the designated market outlet(s) is ate and maintain a flow of information between one of the costliest and most complicated aspects the buyer and seller. Often, however, food hubs of operating a food hub of any kind; as such, these work with producers or markets that require more arrangements need to be assessed carefully. A firm than just information or a distribution channel may need to consider spreading transportation for products. When producers enter new markets costs in several ways to remain profitable on a per through new mechanisms, their education and trip basis by putting more of a high-margin prod- support needs may begin well before their prod- uct on each load transported by truck. It can also ucts arrive at the warehouse. These facilitating or reduce per unit fuel costs by moving larger loads of intermediary functions range from transporting food over shorter distances.60 products from the farm or warehouse to the buyer, Backhauling is an option for creating more effi- to building capacity among participating produc- cient transportation networks that moves produce ers. On the other hand, the rapid transmission of to and from a hub. This entails arranging for prod- information permits certain hubs to reach into uct to be loaded into the transportation vehicle larger institutional markets (see Food-Hub.org). for either the initial or return leg of the delivery or Pricing is based on information, and often the pick-up trip, such that the vehicle is always carry- brokering function of a food hub helps farmers ne- ing a revenue-generating load. For example, Los gotiate higher prices instead of being price-takers. Poblanos Organics has delivery trucks traveling However, farmers and their representatives must from its distribution warehouse in Albuquerque, also receive information on what consumers are NM, to the Los Alamos and Santa Fe areas. It willing to pay for food in their area. Good Natured is investigating the development of relationships Family Farms (GNFF) in Kansas – a 40-member with other firms to arrange for transporting that producer cooperative – and Balls Food Stores have firm’s product from the Los Alamos and Santa Fe developed a partnership that allows participating areas back to Albuquerque in order to decrease its GNFF farmers to negotiate prices. GNFF adds a transportation costs per trip. mark-up to cover packaging, labeling, administra- The Local Food Hub, based in Charlottesville, tive, and marketing costs. The final price for any VA, has designed a food delivery system around a product is negotiated between GNFF and the central hub aggregation point. The circuit-delivery 57 http://flf.luluslocalfood.com/ 59 Dreier and Taheri, 2008 58 Matson, 2011 60 Martinez et al. 2010

The Role of Food Hubs in Local Food Marketing 25 The Local Food Hub, in Charlottesville, VA, bases its delivery system around a central warehouse. format was intended to reduce transportation costs The third party was a transportation company, for all the small-scale suppliers trying to meet Lowhub, which uses electric and biodiesel vehicles. growing demand for local, sustainably produced Pricing structure is designed to encourage custom- foods. A central warehouse was established to ers to fill cargo spaces, making each journey as which all suppliers would deliver. The produce was cost-effective as possible. A trial run of this system then repackaged to form one delivery per restau- showed that while buyers were impressed with the rant or wholesale buyer, to be delivered by a third efficiency of the delivery system, the tiered pricing party. The Local Food Hub makes extensive use and invoicing was too complicated for end users of its location near an interstate highway to have to manage (especially restaurants), and the third- its product carried as a “backhaul” on other food party delivery added extra costs that buyers were 61 wholesalers’ trucks, which would otherwise be re- unwilling to pay. turning empty. This can dramatically reduce ship- ping costs and provide access to more locations for members’ production. 61 Making Local Food Work, 2009

26 Brokerage In the case of the All Natural Beef Producers services Cooperative, its goal in the late 1990s was creating Food hubs may also play the role of “matchmaker” a greater and more consistent beef supply. The beef by connecting farmers with the correct market out- cooperative eventually grew into Good Natured let to fit their scale of production and their produc- Family Farms, a cooperative of 40 farmers market- tion practices. For example, Red Tomato evolved ing 13 product categories, including beef, chicken, from the organizers’ desire to sell local produce produce, eggs, jams and jellies. By 2000, the coop- fairly on a wholesale scale. Initially, Red Tomato erative had expanded to include 20 members lo- tried to manage product handling and distribu- cated in and around Kansas City, MO, the largest tion to and other wholesale markets being Balls Food Stores, which is also the largest throughout New England, but soon realized it regional grocery chain in Kansas City. 64 didn’t have the physical and financial resources as a Several other instances of multi-farm CSA that small nonprofit.62 bundle locally produced meats and eggs and func- Because storing and transporting products is tion as food hubs include: costly, it instead decided to focus on brokering. This included creating product value, selling to • Grasshopper CSA in Kentucky; retailers, coordinating transportation, providing • Wagbo Peace Center’s Providence CSA, MI; customer service and developing point-of-sale • Alliance CSA, Nova Scotia; materials, and packaging. By contracting out for • Sandhills Farm to Table Cooperative CSA, storage and transportation, Red Tomato retains NC; about 10 percent of sales, with the rest going to • Lancaster Farm Fresh in Lancaster, PA; the farmers.63 • Common Wealth CSA, MA.

Increasing market share The clear advantage of a food hub designed by bundling around a multi-farm drop box program is that the A growing type of food hub involves the bundling program allows small- and medium-scale farmers of product through a multi-farm CSA (Com- to reach a greater number of consumers directly. munity Supported Agriculture). For example, in This type of hub also eliminates the need for each 2008, the Intervale Center in Vermont launched farmer to grow a diversity of crops to meet the a weekly food delivery program modeled after a customer needs of any one CSA. The disadvantage multi-farm CSA. As its Web site notes: “Based is that by involving an intermediary, such as the on farm and market interest, we chose to focus drop box consolidator, farmers lower their margins on developing a farmer collaborative that would compared to what they would otherwise receive if aggregate, market, and distribute local foods to the they marketed directly to consumers at a farmers surrounding community in a way that ensures fair market or through their own CSA. prices for farmers. By working together, farmers are able to benefit by providing the community with Increasing market share by increased crop diversity and greater customer ser- extending the season vice that may not be possible with a single farmer. The food hub can extend the quantity of offerings In addition, multiple farmers working together to those consumers who expect a greater variety benefit from economies of scale in both marketing and/or less seasonality in the availability of prod- and distribution, allowing them more time to focus ucts, as opposed to being a member of a specific on production.” CSA. Strategies to help producers increase their 62 Davis and Desai, 2007 share of the local foods market include: extending 63 Davis and Desai, 2007 64 Dreier and Taheri, 2008.

The Role of Food Hubs in Local Food Marketing 27 the season by coordinating existing product lines Mexico, taking advantage of the State’s various mi- to guarantee more consistent supply of local foods croclimates to produce crops nearly year round. over time (as does Sandhills Farm to Table Co- operative); providing resources for farmers’ green- Maintaining a consumer- house production to increase total supply (as does producer connection Indian Springs Farmers Association); and devel- Increasingly, the food hub model is being adopted oping shared root crop storage (as does the Local to establish and retain consumer connectivity to Food Hub). local farmers. These CSAs often strive to have a Los Poblanos Organics in New Mexico has ac- more personal touch with consumer-members. complished season extension through three mech- One example of this is San Francisco Bay anisms. First, it purchases organic products from a Area-based OmOrganics, which has developed a wide range of farmers to supplement its own farm flexible, multi-farm CSA that allows customers production, including some in Colorado and Cali- to choose a CSA from a particular farm (or a few fornia. Second, it increases its greenhouse produc- farms working together). Food delivery contains tion. Third, to grow more crops in the State, three produce only from the selected farm(s). Many additional acres for production have been added to people choose this type of CSA when they are the land owned by Los Poblanos in southern New familiar with a specific farm and know they like its Pigs at Keenbell Farm in Rockville, Virginia, are pasture raised to organic standards. The high-quality prod- ucts made from their meat are sold through the Lulus Local Food food hub website.

28 crop variety and quality, according to OmOrganics. and vegetables to sell at independent health food OmOrganics also provides consumers with stores, local grocers, and regional chains.66 the choice of a CSA or delivery service that A rural nonprofit, ASD provides pre-season combines and delivers produce from a variety of planning to its 53 organic producer-members, as farms during the course of a year, depending on well as product aggregation, sorting, grading, pack- product availability. These multi-farm CSA orders ing, shipping, and other training and technical as- are packaged by a consolidator. This type of CSA sistance. It offers support to growers to help them offers consumers greater variety and flexibility in get the proper seeds; plant fields properly; get delivery (which can occur weekly, semi-weekly, ; and fulfill the buyers’ require- monthly, or seasonally). ments for high quality. ASD The Sandhills Farm to A food hub designed around a also creates markets for Table Cooperative in Moore multi-farm drop box program useable “seconds” by raising County, NC, incorporates allows small- and medium-scale money to purchase and dis- this connection as part of tribute this still wholesome farmers to reach a greater num- its structure. It is a multi- produce (which may have stakeholder cooperative that ber of consumers directly. slight cosmetic blemishes has both 1,600 consumer- or be of less than standard members and more than 40 size grades) to a regional producers and staff members as joint owners. As . Spinoffs from AHN include wood part of its services, the cooperative sends weekly products processing and a school-based gardening newsletters to its members with recipes, conducts project, all overseen by the board of ASD. Eventu- cooking and education classes, looks for value- ally, ASD would like AHN to become a for-profit added products that customers request, and orga- subsidiary.67 nizes market days for its producers to meet directly The Local Food Hub in Charlottesville, VA, with its consumers. works with more than 60 small and mid-sized John Blue, a producer-member, says this “con- farms within a 100-mile radius of Charlottesville. sumer connection” is especially important for The hub provides an array of resources to help transitioning farmers – those who are too large orient producers to new markets, including net- to make a living by selling at farmers markets, working, liability, and traceability coverage, access but not big enough to access large-scale producer to and freezer storage space available markets.”65 The interaction with consumers allows for rent, discounted seeds, and discounted Web for the farmers to build strong relationships with site development. The hub also educates consumers consumers, which will be beneficial in regards to about local foods and participates in educational future growth. events and workshops. Producers say they have increased sales by an average 25 percent by work- Technical assistance and ing with the hub, which has reinvested more than producer development $850,000 in the local farming community since Some food hubs place particular emphasis on inception.68 building production and/or marketing capacity La Montañita in New Mexico provides pro- among their producers. For example, Appalachian ducer-oriented services, such as carrying invoices Sustainable Development (ASD), a nonprofit centrally for producers who deliver to its ware- based in Abingdon, VA, developed Appalachian house, thus facilitating direct contact with the Harvest Network (AHN) to help local farmers 66 Wallace Center, 2010 transition from growing tobacco to organic fruits 67 Wallace Center, 2010 65 Matson, 2012 68 Barham et al., 2012

The Role of Food Hubs in Local Food Marketing 29 buyer. It rents space for members’ use and buys the next few years. raw products in bulk (on behalf of members) to GROWN Locally is planning to adopt a post- help keep input prices low for value-added food harvest handling program for some of its members producers; it also assists with product development that may involve third-party certification. Because and marketing.69 member farms are small-scale operations, many of Incorporated in 1981, the Indian Springs GROWN Locally’s members cannot afford the Farmers Association, a 50-member coopera- certification process and infrastructure necessary tive based in Petal, MS, has grown to include a to formally comply with the requirements of insti- $500,000 packing facility where produce is pre- tutional buyers. These certifications include Good pared, boxed, and trucked to a wide variety of Agricultural Practices (GAP), Good Handling wholesale and retail buyers throughout North Practices, and Good Manufacturing Practices. America. However, to use its packing facility to GROWN Locally has also found that pre-season full capacity, Indian Springs needs to increase its production planning has helped its membership capacity to grow product year round. Some of the to better meet market demand. Its members plan cooperative’s farmers have winter greenhouses production ahead of the growing season, based on now, but many do not. To address this deficit, the customer demand. Prices are then set to reflect the cooperative is building a demonstration project membership’s costs of production.70 and ultimately would like to build many more over 69 McFadden, Gunter and Dyer, 2010 70 USDA Rural Development, 2010

30 Information Sharing amounts. Furthermore, growers needed to com- and Reducing Risk municate with the Market regarding the varieties they would grow, their costs of production, and any other conditions that might change their ability Some information is critical for building and to deliver in the contracted amounts (Iowa State, maintaining relationships among partners in a 2008). value chain. To address these potential obstacles, it is rec- ommended that all parties in a value chain be well • From a business management standpoint, matched in size and scale, and operate with similar producers and brokers need to understand goals and values in regards to future growth.72 In the standard or acceptable conventions of the the circumstance of food hubs, a large hub may marketplace in require a greater num- terms of typical ber of smaller farmers payment terms and Information can reduce risk to supply the products evaluating poten- required. The food hub tial partners in the and the farmers must 71 supply chain. This Information is both a constraint and an be informed and in is often an issue opportunity in developing and managing agreement as to how when smaller firms marketing opportunities through food much each farm needs or producers engage hubs. In fact, every transaction is shaped to supply, planned in transactions with and facilitated by the flow of information growth in the future, larger partners who between producers, intermediaries and and the production are used to extend- end consumers. The more efficient the capacity of the farms ing repayment terms flow of information through technology themselves. There- beyond what a or through rapid person-to-person trans- fore, the stakeholders smaller operator can mission, the more likely it is for problems involved need to be manage. to be averted and for risk to be reduced. knowledgeable about • Another potential all of the different mar- for miscommunica- kets being addressed. tion lies in partner- For example, the farm- ships where the broker or consumer may be ers who have worked with consumers in direct looking for a supply greater than the vendor(s) markets may not be used to – or may be unwilling can meet or a vendor may not be able to con- to – produce the required consistency, volume and sistently meet certain production standards quality needed for wholesale markets.73 (quality of produce, husbandry methods or land In a study conducted by Iowa State Univer- stewardship practices). sity in 2005 and 2006, farmers involved in direct sales noted that communication skills were highly Information can sometimes act as a bottle- important to their success in business “because neck to growth and change. For example, Floyd they had to relate individually to each and every Boulevard Local Foods Market in Souix City, customer.” Furthermore, they recognized that IA, wanted to expand its processing facility, but they alone were the best representatives for their growers were unwilling to increase their vegetable own products and could use customer contact for production until they were assured that the Mar- educational purposes. Producers said they needed ket would commit to buying from them in larger 72 Iowa State, 2008 71 Iowa State, 2008 73 Davis and Desai, 2007

The Role of Food Hubs in Local Food Marketing 31 more information on how to access markets that co-op also asserts that all raw materials have been buy large quantities, as well as training in cost con- produced, traded and/or distributed sustainably, trol, risk management, and understanding the tax equitably, and responsibly, in accordance with the requirements of cooperatives and limited liability ideals and principles of the co-op. As further as- corporations.74 surance, producers must maintain documentation or other evidence of their products’ origins, such as Product certifications from TransFair USA, Smithsonian assurances Institution, Rainforest Alliance, or ForestCare. Consumers may be targeted with information Good Natured Family Farms (GNFF) uses its about product quality, production or handling Web site to provide informal consumer assurances protocols, helping them distinguish between com- through a list of all the products offered, which peting products in the marketplace and to make include general descriptions of how these products purchases based on environmental or social values were produced. The GNFF Web site then allows important to them. These are vol- untary protocols that, according to the Center for Fair and Alterna- tive Trade, “must attract enterprise participation and consumer interest to be successful.”75 These claims can vary from infor- mal assurances to standards-based certification programs such as USDA certified organic. Examples include Certified Humane and the World Fair Trade Organization. The Texas- based Cross Timbers Co-op says that producers consumers to search for producers within a 200- may only sell products they themselves have grown mile radius of Kansas City, KS. Consumers can or processed. Cross Timbers will not handle ge- also find restaurants where chefs incorporate these netically modified (GMO) foods or products, nor products into their menus. The Oklahoma Food market any meat, poultry, or egg products originat- Co-op enforces a requirement that all products ing from confined animal feeding operations. The from new producer- members must be reviewed by 74 Hardy, Holz-Clause and Chase, 2006 the co-op’s Compliance and Standards Committee 75 Center for Fair and Alternative Trade, 2009 to ensure that they are eligible for sale through the

32 cooperative. that provide consumers with information about At La Montañita, the Beneficial Farms Eco where, how, and by who their food is produced.78 Label is a project of the Co-op Trade Initiative. This brand is linking 40 farms with more than Originally a nonprofit collaborative of farmers 200 retail outlets in New England. The next steps and ranchers, the Beneficial eco-label became part in the program include the implementation of a of the Co-op Trade Initiative in 2007. According recall and traceability system throughout the Red to La Montañita’s Web site: “The Co-op Trade Tomato network. Initiative collaborates with the New Mexico Food- Shed Alliance, The New Mexico Agricultural Task Food hubs and community Force of the Middle Rio Grande Council of Gov- economic development ernments, The University of New Mexico Sustain- In an article written in 2000 about rural commu- ability Studies Program, and others in an effort to nity development, John Leatherman, an agricul- push regional food-shed and sustainability forward tural economist at Kansas State University, said: into mainstream consciousness.” “Among the ubiquitous economic trends that may When formalized, third-party verification pro- be observed in rural areas are the consolidation and vides assurances that may come from the product increasing scale of economic activity. Such con- processor, or from a government or membership solidation has long been underway in agricultural organization that is charged with creating measur- production systems. Similar trends can be noted able standards, “that require producers, retailers, in the consolidation of retail sales activity as small, consumers, or a combination of those groups, to specialized proprietors are replaced by large retail adhere to social, environmental or some other discounters. Even at the scale of communities, specialized criteria that is not followed in tradi- retail and service activities continue to consolidate tional markets.”76 Red Tomato is a member of the in regional trade centers as many small rural com- Domestic Fair Trade Association77 and also has its munities stagnate or decline.” own certification program, Eco, which is defined Food hubs can have a strong influence on com- as: “grown on family farms by stewards of land, munity economic development in both rural and and wildlife; using natural methods and urban areas. In rural areas, food hubs can support minimal spray; closing the distance from farm to entrepreneurial agriculture that leads to retention table. Ecological farming covers a spectrum of en- of the rural population base. By providing new vironmental and conservation practices including marketing opportunities for local producers and organic, biodynamic and advanced integrated pest connecting the producers with buyers they could management (IPM).” not reach individually, they may increase farm sales Red Tomato has a formalized production and encourage strong agriculture-based economies. protocol to reduce the application of pesticides in They can also build community among a group apples and stone fruits grown for its program; all of stakeholders interested in developing the local of its farmers are certified by the Integrated Pest food system, although the structure of the commu- Management Institute. It has also instituted a nity and potential for networking depends on how voluntary program to provide training, assessment much of the interaction among hub members oc- and GAP certification for all Red Tomato grow- curs in “virtual markets,” as opposed to “in person.” ers. Red Tomato’s Web site states that, as of 2010, In urban areas, food hubs can bring fresh, locally 21 farms had been assessed and 17 more were to produced foods into underserved communities and be GAP-certified within a year. Red Tomato’s help consumers learn more about where their food Eco Apple brand is currently packaged with labels comes from. 76 Center for Fair and Alternative Trade, 2009 77 http://www.thedfta.org/, 78 Diamond & Barham, 2012

The Role of Food Hubs in Local Food Marketing 33 Food hubs can encourage economic development in both rural and urban areas.

management plan. Other constraints may take lon- Constraints on food hubs ger for a new entity to address, such as a staffing plan that includes human resource development, or As the Wallace Center points out in its study of having access to local facilities. community food enterprises, the overall market environment for local foods is becoming more Capitalization favorable, but the capital investment to support Although there are many examples of well-planned infrastructure development is still lacking. Like and successful food aggregation and distribution all nascent businesses, there are many potential systems, some food hubs struggle with undercapi- constraints to the development and growth of food talization. This in turn can lead to a relatively weak hubs. The primary constraints can be challenging organizational and/or product delivery structure. for a new organization as they may involve the lack Food hubs have addressed this challenge in of sufficient financial resources and/or a robust risk a number of different ways. Some organizations

34 choose not to rely on grants or loans (for example, percent of its assets. Furthermore, the Market has the Oklahoma Food Cooperative) and try to grow encountered difficulties trying to obtain a standard their membership or sales revenue to capitalize bank loan, because it needs to finance more than their operations. Some reach a point where cer- 25 percent of the expanded enterprise. Most of tain constraints (for example, distance to market) its farmer-suppliers are small operations with few can be overcome only with further investment in assets. transportation infrastructure; in these instances, These examples point to financing and growth the food hubs may be forced to seek outside fund- issues for organizations that have relied heavily on ing. For example, the High Plains Food Co-op in grant funding but may wish to grow in scale based Colorado cannot grow its sales until it can move on debt financing. Often, there are few options, more products to the co-op’s urban-based markets; and such businesses may wish instead to solicit this requires additional freezer capacity to store loans from their members. Furthermore, as evi- the product and a trailer to move the product. The denced by a case study of Colorado value chains, co-op pursued grants to fund this sales market access to capital is frequently related to the scale of expansion. the operation, where the smallest operation stud- Access to capital is a particular challenge for ied was the most under-capitalized and the most new food hubs. Operating expenses for the Ap- constrained in terms of potential market expan- palachian Harvest Network (AHN) could not be sion.81 This is further verified with a survey of food covered by sales alone in its first years of operation. hub operators, as reported in USDA’s Regional Therefore, it relied on grants and individual dona- Food Hub Guide, where only half of the reporting tions, with the goal of becoming financially viable food hubs said that they were currently economi- in the near future.79 cally viable. Floyd Boulevard Local Foods Market is a for-profit arm of Sustainable Food for Sioux- Liability land – a marketing initiative started by a group of Liability is an issue that all agents in a value chain consumers and farmers looking for ways to make must consider. In general, there are two types of local food sources available to the tri-state region liability risk exposure: tort risk and contract risk. (Nebraska, South Dakota and Iowa) around Sioux A tort is an intentional or unintentional harm City, IA. It operates a commercial kitchen and to the person or property of another, and can be processing facility that produces value-added prod- minimized using insurance products. Contract risk ucts under a regional brand, Sioux City Sue.80 At is the primary risk of a buyer abrogating a legally the time of the case study reviewed for this report, binding agreement. In regards to food hubs, this the processing facility was not yet operating at ca- type of risk can be encountered by value chain pacity, nor had it attained its break-even point. To agents who enter into financing contracts or con- scale up the operation, the Market would need to tracts with brokers, vendors and customers. make a capital investment in equipment and certi- Some food hubs are designed to remove the fied procedures. These involve some very detailed potential for product liability claims or contract processes, including the development of a Hazard risk from the hub itself by having producers retain Analysis and Critical Control Points (HACCP) product ownership until the product is loaded plan and standardizing commercial recipes. into a truck for delivery to the end consumer. For Floyd Boulevard derives 34 percent of its gross example, both High Plains Food Co-op and Okla- revenue from grants, donations, and member- homa Food Cooperative members retain product ships; and there is substantial debt financing on 35 ownership, as well as the responsibility that all 79 asdevelop.org 80 Schweser. 2009. 81 McFadden, Gunter and Dyer, 2010

The Role of Food Hubs in Local Food Marketing 35 State and Federal food safety regulations have been for one occurrence and a $1 million umbrella pol- followed. icy. Any grower who sells through a channel other On its Web site, the High Plains Food Co-op than Red Tomato must carry an applicable liability notes: “At no time does the cooperative ever have policy to insure his or her products. This coverage title to any of the products. We have no inventory. is similar to the umbrella policies carried by some The products that go through our distribution farmers’ markets, where the transactions made by system are owned either by the producer or by all vendors selling in that market are covered, but the consumer who purchases “title” to the product those same vendors need additional insurance for from the producer. All complaints should first be any transactions they make outside the farmers’ brought to the attention of the producer, unless market venue. it is a situation where the cooperative itself is at In general, it is costly to determine who bears fault.” risk for product or contract liability and how those Good Natured Family Farms uses a memo- risks will be mitigated. Often, it is hard-won expe- randum of understanding that outlines the re- rience that helps the management team determine sponsibilities of all partners in each transaction to how to handle risk, given local conditions and the limit the organization’s exposure to contract risk. relationships between buyers and sellers. Another form of risk may arise when hubs rely on one or a very limited number of suppliers for Local food handling and a particular product; this introduces the risk that processing capacity if a supplier is unable to meet production goals, A lack of access to processing facilities or services the hub will not have the product to supply to the is an impediment to increasing the supply of local end customer. Mitigating this risk often involves products in many areas. Processing facilities may spreading production over multiple producers, struggle to maintain a consistent schedule given where possible. variations in seasonal supply; will need robust food Other hubs assume some or all of the liability safety protocols; and may face costs associated risk by purchasing insurance to cover parts of the with adherence to specific production methods or transactions made under their auspices. For exam- processing claims that producers use to market to ple, Appalachian Sustainable Development (ASD) consumers. has a $2 million general product liability policy For example, organically produced meat can in addition to a $2 million umbrella policy that only be processed in a certified organic facility if it covers the handling and delivery functions of the is to qualify for an organic certification. According hub.82 Producers who supply ASD are not covered to the Organic Trade Association, “In processing under this policy, so they need to ensure they have operations that handle both organic and non- adequate liability insurance for their own farm in organic meat products, processors must segregate the event that a health-related product safety issue their handling of organic and non-organic meat.”83 is traced back to their on-farm growing or han- Several co-ops and producer alliances have dling practices. made significant capital investments in order to Grasshopper Distribution has a $6 million ag- ensure adequate access to processing for their gregate policy that covers all farmers’ products that products. For example, the All-Natural Beef flow through Grasshopper’s channels, since most Cooperative initially required its producers to of its members would not be able to afford ade- individually process and distribute the beef they quate coverage on their own. Red Tomato also has produced. This resulted in high costs for individual a policy that covers all growers who sell through farmers and inefficiencies for the co-op, especially the hub: a $4 million total policy, with $2 million 82 Markley, 2010 83 OTA, 2010b

36 La Montañita Co-op in Albuquerque, NM, is an example of a food hub spurring economic development by investing in its food producers.

in transportation and scheduling.84 All-Natural a consistent supply for its customers and to help decided to purchase a State-inspected plant in producers adjust their cattle feeding accordingly.85 order to standardize meat quality and address Human resources scheduling issues for its member producers. One capacity of the co-op’s largest producer-members (who also served as a co-op manager) obtained a personal Some food hubs face a challenge in hiring and re- loan to finance the plant’s purchase, and he retains taining individuals skilled in areas such as record- ownership of the facility. The co-op then signed an keeping, accounting, and financial management. exclusive marketing and delivery agreement with This is especially true in producer-based organiza- the processing facility. One co-op member handles tions, where the key managers may have extensive all of the slaughter scheduling in order to ensure knowledge of production agriculture, but less 84 Dreier and Taheri, 2008 85 Dreier and Taheri, 2008

The Role of Food Hubs in Local Food Marketing 37 knowledge of business management. A University cies that may intervene at different levels. For of Wisconsin report concludes that cooperative example, a county health department usually has food hubs need to develop or hire skilled manage- more specific criteria for developing a commercial ment: “The co-op model offers a horizontal leader- kitchen than does the State health agency. Other ship structure. Without clear responsibilities and regulatory concerns for some food hubs may in- delegation, however, this model can result in disor- clude the costs of continually monitoring produc- ganization, leadership imbalance, and fatigue.”86 tion and processing to ensure ongoing compliance, For example, GROWN Locally in northeast- as well as monitoring the status of local, State, and ern Iowa determined it was more cost-effective Federal regulations. to hire a professional manager than to rely on While the regulatory environment presents volunteer members, interns, or inexperienced staff challenges to food hubs, there is still a great deal to oversee its administrative One typical constraint faced of opportunity for them to tasks. In 2008, the cooperative by food hubs is a lack of expand. Food hubs may be in hired a full-time coordinator a much better position to meet with a background in business skilled management. certain requirements than are management and marketing individual farmers, thus once to coordinate pre-season planning and pricing and again showing how crucial food hubs could be to distribution, which allows the growers to focus on the growth of local and regional food systems. production. In general, it is costly to identify and analyze Appalachian Harvest Network, based in south- regulatory information pertaining to any form of western Virginia, recognized how important it physical food hub. These costs (in staff time and was to monitor the organization’s financial health financial resources) increase as the hub engages in by keeping good records. This included hiring an more complex processing and handling of food (or accountant and using generally accepted account- assumes more product liability). Producers work- ing standards. Although AHN is still recording ing with the High Plains Food Co-op, for exam- data by hand, it is updating its system to electroni- ple, bear the burden of understanding and comply- cally assemble, track, monitor, and analyze business ing with regulations pertaining to food safety and data, which should help identify strengths and handling, including meat processing. This lowers weaknesses of the current business model.87 the operating costs for the co-op, but increases the costs for participating producers who must insure Regulatory Environment their own products and be certain that each prod- uct they market fully complies with Federal, State, for Food Hubs and local health and food safety regulations. In addition, there is uncertainty surround- The Federal, State, and local regulatory environ- ing the final rules under the Federal Food Safety ment governing food processing, manufacturing, Modernization Act (FSMA) and how it will affect packing, holding and transporting of food and farms and food businesses. FSMA will potentially food products destined for human consumption affect recordkeeping practices, food safety plan- influences the costs of participating in certain ning and monitoring, and inspection protocols for markets – both directly and indirectly. There is certain farm and food businesses, including food the uncertainty associated with certain regulatory hubs. requirements, especially when they span multiple Regulatory uncertainties such as those dis- jurisdictions, such as local and State health agen- cussed above may offer an advantage for virtual 86 Borst, Alan. USDA Rural Development. food hubs, which facilitate connections between 87 The Wallace Center, 2010 consumers and producers but do not physically

38 handle or transport any food or food product. agencies that can be used for regional food systems What remains to be seen, however, are the com- development were added to the map in October pliance costs for those food facilities that connect 2012.89 producers to consumers and play a vital role in USDA also recently released the Regional making transactions that would be too difficult Food Hub Resource Guide, which provides a com- for individual agricultural producers to complete prehensive list of Federal and non-Federal grant on their own. Compliance costs may involve the and loans programs that could potentially fund development of food safety plans, traceability pro- food-hub-related activities.90 tocols, or other recordkeeping systems. In September 2010, the Vernon Economic In addition, for food hubs selling to institu- Development Association (VEDA) and the City tional or wholesale buyers, their producers may of Viroqua, WI, received a $2 million award from need to be GAP-certified (under USDA Good the U.S. Department of Commerce, Economic Agricultural Practices guidelines) as a food safety Development Administration, for a food process- assurance for the intermediary’s end customers. ing and distribution center in Viroqua, a small Compliance, recordkeeping, and the formal audits rural community in the western part of the State. required for GAP certification may impose costs The project includes renovating a 100,000-sqare- on small-scale producers which could, in turn, foot manufacturing plant into a food processing increase the prices at which they will have to sell and distribution center, in addition to providing their products through a hub. much-needed storage for regional farmers. The center also includes rental space for local food Federal initiatives businesses and a home for the newly incorporated and grants Fifth Season Cooperative, which works to aggre- Some food hubs have taken advantage of Federal gate and market local food products. resources to conduct research, develop their busi- The executive director for VEDA explains: ness models, purchase or upgrade infrastructure, “This facility is a tremendous resource to the or conduct trainings for their suppliers. USDA’s agricultural industry in our region. It provides the “Know Your Farmer, Know Your Food” initiative aggregation, processing, and distribution infra- began in 2009 to provide information that helps structure to help small producers increase their community stakeholders identify some of these market opportunities and business capacity. We’re Federal resources for local food system develop- creating jobs, increasing the tax base, and engaging ment. It also shares information about successful our own local entrepreneurs to grow the economy.” food system models from around the country that The executive director also states that the project have made use of Federal funds. will create an estimated 120 jobs and generate $5.7 The “Know Your Farmer, Know Your Food” million in private investment. Web site highlights a number of existing USDA programs that can fund local food system develop- Examples of USDA ment projects.88 The initiative has also created the funding programs “Know Your Farmer, Know Your Food” Compass, USDA Rural Development’s Community Facili- which is an online multi-media narrative with ties loan and grant program supports a wide variety stories, pictures, and video about USDA’s support of essential community facilities, everything from for local and regional food systems. The Compass health clinics to fire stations to schools and daycare includes an interactive map of USDA-supported 89 www.usda.gov/kyfcompass local and regional food activities in all 50 States. 90 This guide and other resources for food hubs Grant and loan programs from nine other Federal can be accessed on USDA’s food hub portal at 88 www.usda.gov/knowyourfarmer www.ams.usda.gov/foodhubs

The Role of Food Hubs in Local Food Marketing 39 centers in rural communities with a population • The Virginia Foun- less than 20,000. The program can also finance the dation for Agri- physical assets of local food projects owned by mu- culture Innovation nicipalities or nonprofits including buildings and and Rural Sustain- equipment for farmers markets, school kitchens, ability (FAIRS) community kitchens, and food banks; food stor- used a USDA rural age and distribution centers; and food preparation community develop- centers. As long as the infrastructure is based in a ment grant funding rural community (under 20,000 people), it could to assist a number qualify for the program. Examples could include a of local food hubs, cold storage facility, warehouse, processing facility, including providing or greenhouse that facilitates sales to any market, technical assistance urban or rural. to the Local Food USDA Rural Development’s Rural Business Hub in Charlottes- Enterprise Grant Program can also assist in local ville, VA, and efforts food efforts. Under this program, for example, to assist community- $140,000 was provided to Shore Gourmet on based organizations Maryland’s Eastern Shore to help with start-up in Floyd, VA. This and operational costs, including marketing materi- funding helped to als, product development, and other activities, to create virtual food raise awareness of local food and promote agri- hubs and sponsor culture in the region. Shore Gourmet, created by several training con- the Mid-Shore Regional Council, functions as ferences throughout a distributor for value-added agricultural prod- Virginia. ucts produced by farmers on the Eastern Shore. The grant will be used to gain expertise in food The Value-Added packaging design, pricing and marketing for local Producer Grant Pro- farmers and other food businesses. gram (VAPG) is an- USDA Rural Development’s Rural Coopera- other USDA Rural Development program that tive Development grants have been used for co- can be used to fund intermediary food marketers operative development that can support local food that increase producer income – a nearly perfect systems infrastructure. For example: definition of a food hub. Only producer-owned entities (independent producers, farmer-owned • The Federation of Southern Cooperatives/Land cooperatives or businesses) are eligible for VAPG. Assistance Fund in Alabama received a grant For example: to establish a vegetable processing and market- ing cooperative and a regional goat processing • Fertile Grounds of Noxen, PA, received a and marketing cooperative. The Federation also VAPG of $300,000 in 2012 to assist its work trains and supports members involved in direct with small-scale family agriculture producers in marketing activities, such as selling at urban Pennsylvania. The group operates a community- farmers markets, redeeming nutrition assistance supported agriculture program, which promotes coupons and selling direct to schools. Part of Pennsylvania agricultural products and encour- the grant focused on business planning and ages buying and eating locally. The funds will training for community development credit be used to promote small business expansion unions. and entrepreneurship opportunities in the local

40 community by expanding its marketing cam- and other institutions. The vision, in part, is to paign to reach an increased number of local create commercial kitchens and other facilities that businesses and farmers. offer business development and marketing resourc- es and outlets for more dispersed rural businesses. State, county, and community The Fifth Season Cooperative grew out of the support efforts recognition that many small to mid-sized fam- Throughout the country, there are numerous ways ily farms in western Wisconsin have consider- to use State and local funding to support the able capacity to produce high-quality foods, but development of local food efforts. For example, the lacked access to local markets, as well as structured New Mexico Food and Agriculture Policy Council coordination, processing and distribution infra- is looking at numerous ways to improve the fresh structure. Support for this new hub came because system to under-served rural and the community recognized that many dollars were urban communities around the State using State flowing outside of the community for food pur- resources. This includes encouraging the use of chases. An impact study estimated that consumers vacant or under-utilized buildings in rural com- in western Wisconsin spent $208 million buying munities to catalyze economic activity and create food from outside their region.91 This informa- community. It also supports expanding and mod- tion convinced key stakeholders that developing a ernizing kitchen facilities in schools, senior centers, 91 Fifth Season Cooperative is Launched. 2010.

The Role of Food Hubs in Local Food Marketing 41 cooperative with a diverse membership base (the and total sales exceeding $12 million. Later that cooperative is a multi-stakeholder group of pro- year, the co-op bought out another co-op in Gal- ducers, producer groups, food processors, distribu- lup, NM, and, in the transition, leased a larger tors, buyers, and workers of the cooperative) could location, purchased equipment, and hired and create the physical and organizational infrastruc- trained staff. At the same time, Santa Fe’s only ture and coordination needed to increase sales of independently owned natural foods grocery was local food in western Wisconsin. struggling to compete against larger retail food The National Association of Counties chains, so it asked the co-op to buy it out. The (NACO)92 highlights several roles for county gov- co-op obtained a National Co-op Bank loan of ernments in helping to develop the infrastructure $1.7 million in 2005 and purchased the Santa Fe to support local food systems. These include: location. As of 2011, La Montañita had more than • Streamlining permit processes for storage, pro- 13,000 member-households and employed about cessing and distribution facilities; 200 full- and part-time staff. The co-op encourages • Providing mini-grants to­ward their creation; team management within each department, pays • Donating county resourc­es; and a living wage, and provides a generous employee • Helping farmers establish partnerships with benefit package. community stakeholders who can offer these As part of its effort to build local food system services. infrastructure in New Mexico, the La Montañita began extending pre-payment for product loans NACO also points out that counties can work that have gone to farmers, ranchers, and other local with farmers and agriculture industry groups to food producers who sell their products at the co- sup­port new products and certification standards. op stores or through the Co-op Trade Initiative’s They can also offer incentives, such as tax rebates, Co-op Distribution Center. The demand for these to retain businesses that are critical to the local loans far outstripped the co-op’s ability to fund food system infrastructure. Counties and other them. In response, it developed the La Montañita local government entities can promote conserva- Fund, which allows all co-op members who reside tion easements, financial aid for farmers, economic in New Mexico to invest in the fund by purchas- success strategies for local agriculture and zoning ing interests at $250 each. In 2011, 400 units were as ways to encourage agricultural business to con- offered for sale to raise $100,000 for the fund. tinue investing in the local economy. La Montañita Co-op in New Mexico is an Private financing example of a food hub spurring economic develop- initiatives ment by investing in its food producers in unique At the local level, it is often difficult for beginning and innovative ways. La Montañita grew out of or unconventional farms and food-based business- a natural foods market that was incorporated in es to gain financing from traditional lenders, which 1976. It was managed for 3 years, largely as a col- may be unwilling to work with businesses that lective, with the board of directors serving as staff. have an unproven financial track record, produce In 1987, the co-op obtained a loan from National unfamiliar products, utilize new or uncommon Co-op Bank (NCB) for $284,000 and moved into business models, or work with an unusual array of a larger location. In 1999, La Montañita opened a partners, including nonprofits. Food hubs are most second location in an under-served neighborhood often categorized under these headings, thus they in the North Valley of Albuquerque. By 2004, the can also face issues when attempting to obtain co-op had more than 10,000 member-households financing. The organizations highlighted below are 92 NACO, 2007 examples of organizations that provide financing

42 to small-scale, local and socially responsible agri- Another community infrastructure financ- cultural ventures. ing model relies on a mix of public and private Finance for Food and Farming, located in New investment. Pennsylvania’s Fresh Food Financing Mexico, is an example of a working group that is Initiative is a $120 million fund that has provided addressing the funding gap for small-scale busi- low-interest, long-term loans to finance more than nesses that are frequently otherwise undercapi- 60 locally owned food markets in neighborhoods talized. This group comprises organizations that and small towns that lacked places to buy fresh create micro-financing opportunities directed at food. The fund was developed using $30 million growing small food-based businesses across New from the State, leveraged with private investment Mexico. During the past 2 years, lending programs guided by The Reinvestment Fund, The Food through the Permaculture Credit Union, the New Trust, and The Urban Affairs Coalition. The objec- Mexico Farmers’ Marketing Association, and La tives of the program include: improving health and Montañita Co-op have generated $250,000 in nutrition outcomes for populations living in areas micro-loans to farmers’ market vendors to invest designated as food deserts; stimulating investment in new production technologies and new products, of private capital in low-income communi­ties; and and to support local food systems processors and removing financing obstacles and lowering operat- distributors. ing barriers for supermarkets­ in poor communities.

The Role of Food Hubs in Local Food Marketing 43 As a national trend with intentionally local the necessary resources to meet demand for locally roots, Slow Money93 is part of a groundswell of in- based foods and services, such as farming enter- vestors interested in socially responsible investing. prises, food processing facilities, food hubs, and These investors seek to lend capital to local food small value-added businesses. Although investors systems and small food enterprises to give them may make a 3- to 6-percent profit, the real goal is to revitalize local economies by supporting smaller 93 www.slowmoney.org scale agricultural businesses and direct market

44 well as local and regional economies.”94 The Carrot Project creates, tests, and operates financing programs that sup- port profitable, sustainable farm busi- nesses that are unable to find traditional financing by partnering and leveraging the assets of community-based lenders, socially responsible investors, farm sup- port organizations, and farmers. LION (Local Investing Opportu- nities Network) in Washington State facilitates private investment agree- ments between small business owners and investors who want to invest their money locally to promote economic self-sufficiency, job growth, and eco- nomic development.95 Business owners apply to the program to receive support from a local investor (via loans or eq- uity shares), and LION coordinates the match with an appropriate investor. The investment agreement is then devel- oped and agreed upon by the individual investors and owner/borrowers. LION also promotes citizen activism and involvement through community gar- dening with dedicated harvests for area food banks, farm to school programs, and waste reduction and recycling. In addition to these notable exam- ples of alternative community financing for developing local food systems, there are numerous innovative paths that small-scale food businesses are forging to create capital and build community support. These include creating com- munity buy-in by selling subscriptions to a business (much like the investment development. CSA members make each year in the producer The Carrot Project, a New England-based or- who grows the food share), or issuing gift cards ganization, “is helping rebuild a food and agricul- for a new business that can be redeemed when the ture system that creates opportunities for smaller business opens, at greater than face value to com- farmers; provides healthful, locally produced food pensate the “lender” for use of the money. for citizens; and is good for the environment, as 94 www.thecarrotproject.org, 2011 95 www.l2020.org

The Role of Food Hubs in Local Food Marketing 45 In sum, the resurgence of interest in local food marketing and packaging, inventory man- system development – combined with the recog- agement and quality control, and that can nition that the food system extends beyond food engage meaningfully with farmer/business production and into its processing and distribu- owners. tion – has created some unique opportunities c. Making sure that all parties are well for stakeholders at all levels to pave the way for matched in size and scale, and operate with building the needed infrastructure in physical, similar goals and values. environmental, and human resources. This includes d. Enlisting producers and members with fostering a policy environment that encourages previous experience growing and supplying business investment and retention in food pro- food for local markets. duction, processing and marketing, and looking 3. Understanding the location of different direct at how an array of traditional economic develop- markets and how to access them. ment tools can be used to support newer business a. If the market outlet is geographically models, including food hubs, that actively connect distant from the production unit, how will producers with consumers interested in purchasing transportation occur and how can products locally grown foods. be priced to cover those costs? b. Is backhauling feasible to generate revenue Roadmap for Food Hub on an otherwise empty return load? c. If the market is one with a customer base Development that is less familiar with purchasing and preparing fresh foods (some urban or at- The development and evolution of food hubs are risk populations, schools without scratch- highly localized and dependent on several factors. cooking experience), education may be vital Even so, there are some lessons that can be applied to the hub’s success. from reviewing examples from across the country. 4. Providing an educational program that may There appear to be some factors that contribute to be an integral part of the hub development. success more than others, including: This may include partnering with an outreach entity, such as a university Extension Service or 1. Having a strategic plan with clear goals and nonprofit, that can deliver information about a vision for developing the food system helps what the hub provides and when the product ensure that the hub’s original intents are main- can be delivered to the consumer. Producers tained (for example, fair prices for farmers or may need training on post-harvest practices, sustainable agricultural production methods). such as quality control, packaging and delivery. 2. Getting all stakeholders engaged early on in the Likewise, there may be a need for training in process and defining their interests and areas of coordinated practices, such as common produc- expertise. This limits some risk that may arise in tion practices or season-extension techniques. fulfilling contracts with vendors and buyers and 5. Reducing risk on the buyers’ side in order to involves: access markets. HACCP (hazard analysis and a. Making sure there is a management or critical control points) are mandated by law in oversight team that is inclusive and that regards to certain products. In circumstances hears farmers’ concerns, as well as those of where a HACCP is not required by law, many other businesses and investors. end users may still request them to be imple- b. Ensuring that the team has individuals with mented by producers or processors before skills and proven experience in financial receiving product. GAP (good agricultural management, the regulatory environment, practices) are also often required by end users

46 prior to the purchase of products. While these plans are used to ensure consumers of the quality and safety of the prod- ucts, they may necessitate additional costs in pro- ducer/business. Owner training and the develop- ment of specific protocols and quality assurance will most likely be required in order to meet the end user’s requests. Another type of pro- ducer support that may be necessary is securing affordable product liabil- ity insurance for individ- ual vendors, or umbrella insurance coverage for vendors that can be purchased through the hub, helps the stakeholders meet their goals for since this is critical for hubs accessing institu- financial, marketing and production planning tional markets, such as schools or hotels. Such and growth. It appears that a certain initial flex- requirements for accessing a market may also ibility is key, and the management team should cause some business owners to withdraw from identify the point at which a particular business the supply pool. structure constrains further investment. An 6. Providing capital for supply chain infrastruc- alternative structure (such as incorporating one ture, such as vehicles, storage facilities, and business function or outsourcing distribution) retail locations. Capital availability can be a may sometimes be the only way the hub can significant barrier to starting local aggregation maintain its market share or expand into new and distribution businesses. A certain level and markets. type of infrastructure is necessary to operate a 8. Identifying all sources of technical and financial food hub, including: support, including those considered less con- a. Technical infrastructure, such as billing ventional. protocols, Internet management systems a. There are emerging areas of public and and payment processes. private financial support for food hubs, b. Physical infrastructure may also be essential including micro-lenders, private investors, (such as product warehousing or process- economic development entities, and non- ing capability) in order to ensure increased profit community-based organizations. product quality and packaging control b. There are also businesses with technical across suppliers. Distribution infrastructure expertise in processing, distribution, or may also be required. transportation with which a hub could con- 7. Exploring a variety of business structures. tract to more efficiently execute some of the Whatever that structure is, it must be one that more complex or cost-prohibitive functions

The Role of Food Hubs in Local Food Marketing 47 of direct marketing through a hub. At issue Conclusions here is how comfortable the stakehold- ers are with alternative lenders or certain Food hubs fulfill various roles, including function- subcontractors. This sort of “comfort level” ing as aggregators, processors, distributors, and assessment is an important component in marketers of local food. In all of these roles, food developing a strategic business plan for a hubs provide a critical supply chain link for rural food hub. communities and farmers to reach consumers inter- c. Donated or shared equipment and facilities ested in purchasing local products. Food hubs are can substantially reduce the capital required also beneficial in creating new marketing opportu- to start and operate the food hub. nities for farmers and ranchers, allowing them to d. It is essential that members, producers, and expand the scope of their consumer market. owners have “skin in the game.” That is, all Depending on their structure, business model, owners need to have a capital stake in the mission and customer base, food hubs can have ad- success of the venture. ditional benefits, including: increasing access to lo- 9. Managing information efficiently. This is criti- cal foods in underserved communities and schools; cal to the success of a food hub. providing farmers and ranchers with higher prices a. Timely and accurate information flow than they might receive through other wholesalers; between producers and consumers, or developing human capital through producer train- between producers and wholesalers, helps ing and capacity building; and strengthening the to minimize or avoid risks, such as price or ties between producers and consumers in the same marketing risk, production risk and some community. legal risks. The success or failure of a food hub should b. Information management – supported by not be measured solely in terms of its aggregating dedicated staff and technology – impacts function or in terms of total volume of product the hub’s ability to manage orders accu- moved. It should also be valued in terms of the rately, to monitor product quality, and to places its products go and the people who benefit convey product attributes to consumers and from it. With growing demand for local or re- other vendors. gional food products, some conventional marketing c. Information is needed to remain in compli- channels may be ill-equipped to supply local food ance with certain Federal, State, and local where and how people wish to purchase it. Food food safety regulations, and to maintain hubs can fulfill important roles that create new transparent working relationships across opportunities for producers and consumers. Many multiple partners in a value chain. also fulfill social and other community functions.

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