Producer Inventory Management for Fresh Fruit and Vegetable Sales to Retail Outlets

Final Report for CNE11-090

Project Type: Sustainable Community Innovation
Funds awarded in 2011: $15,000.00
Projected End Date: 12/31/2012
Grant Recipient: University of Maryland Extension
Region: Northeast
State: Maryland
Project Leader:
Willie Lantz
University of Maryland Extension
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Project Information

Summary:

Expanding markets for local fruits and vegetables can be challenging. Most restaurants and grocery stores do not want to deal with several different individuals that provide small quantities of products. Small local producers can often individually not produce the quantities for a consistent period of time for restaurant and grocery store owners to get excited about purchasing locally.

In the spring of 2011 a group of farmers met and established an agriculture cooperative that would focus on marketing local fruits and vegetables to restaurants and grocery stores. Now, offically incorporated Garrett Growers Cooperative, Inc. has 12 farmer members and is selling local fruits and vegetables to over 20 restaurants and grocery stores in Garrett County. In 2012, they sold $28,000 worth of produce which they identify with a logo and stickers. The cooperative will soon be GAP certified by the end of 2013 which includes their normal tracking of produce source.

The cooperative coordinates the farmers’ production with the needs of the restaurants and grocery stores using QuickBooks™ managed by a marketing coordinator hired by the University of Maryland. The farmers package orders according to the Cooperative’s standards and the orders are picked up and delivered to the restaurants and grocery stores. Selling to local restaurants and grocery stores has increased the availability and accessibility of local foods to everyone in the community.

Project Objectives:

The objectives of the project were to establish a method for farmers to market local fresh fruits and vegetable through established retail outlets. The goal for the first year was to have ten farmers be able to market to two retail outlets. The goal was also to be able to increase each farmer’s fruit and vegetable production by 25%. During the second year of the project the goal was to increase the number of farmers involved in the project to 15 and increase the number of outlets to four while continuing to increase production.

During the first year of the project 11 farmers sold produce through the cooperative to 4 outlets. In 2012, the number of farmers increased to 12 while the number of outlets also increased to 12. On a survey conducted with seven of the producers at the end of the 2012 season, 86% indicated they had increased their production by 10% with two of the farmers reporting they had increased production by 50% or more. In 2013, the same 12 farmer continue to sell to the restaurant and grocery stores. The number of outlets has been increased to over 20.

While the number of outlets was much greater than the goal, the number of farmers has not increased quite as fast as expected. Additional fruit and vegetable farmers have been contacted about supplying fresh fruit and vegetables, however these producers have reported that they have sufficient markets for their production and do not have additional plans for increasing production. Most of the these producers sell retail through farmers markets and farm stands therefore they are not willing to sell for wholesale prices. To increase the number of producers in the future, the project will need to recruit new fruit and vegetable producers.

Introduction:

In the mountainous area of western Maryland, the predominate agriculture has been dairy and livestock farming. With erratic and low commodity prices for milk and livestock, an increasing number of farmers have diversified their farming operations to include fresh market fruit and vegetables. Most producers have been selling their produce at tailgate markets and farm stands. While these markets offer excellent opportunities for producers to sell products at a retail price, These markets are limited in their hours of operation and potential sales volume. The hours and locations are also not convenient for much of the population of the county.

Some producers would like to expand their production of fruit and vegetables but there is limited infrastructure to market local fruits and vegetables. Local grocery stores purchase a limited amount of “in season” local products. Local producers are not set up to aggregate products and perform pricing and labeling functions that would be necessary to deal on a larger scale with grocery stores. Another problem with the traditional method of marketing fruits and vegetables to grocery stores is that the grocery store purchases large lots of products and try to market these products over a period of time. Products offered first are fresh and sell for a higher price. As the product becomes less fresh the grocery store owner is forced to reduce the price in order to move the product. The product that remains must be discarded. This method of distributing and marketing at the grocery store results in lower prices paid to farmers to “account” for the waste in the system and less fresh fruits and vegetables for the consumers. Grocery stores do not deviate from this system for local food production resulting in low wholesale prices being paid for fresh local produce.

Other than a simple sign, local grocery stores have not promoted local produce within their produce sales areas. Local can also mean products from a wide area, such as local cantaloupes that are being produced in Ohio. Consumers who would like to purchase local foods but cannot get to the tailgate markets most often get their fruits and vegetables at local grocery stores. If more local produce was available at local grocery stores and the produce was identified, local consumers would benefit from being able to conveniently purchase local foods and support local farmers.

A group of farmers in Garrett County have organized a marketing cooperative to sell fresh fruits and vegetables to local grocery stores and restaurants. By working together to organize production and match production to the needs of grocery stores and restaurants, the cooperative will supply the volume and type of produce needed. The cooperative hired a coordinator to work between the producers and the restaurants and grocery stores. The cooperative picks up from producers and delivers twice a week to the restaurants and grocery stores. The cooperative has provided point of sales local produce advertising. The cooperative has been able to achieve higher than wholesale prices for producers while being able to provide local produce to consumers at convenient locations.

Cooperators

Click linked name(s) to expand
  • Charles DeBerry
  • Cheryl DeBerry
  • Kiley Royce

Research

Materials and methods:

In December of 2010, local fruit and vegetable producers were invited to a meeting to discuss opportunities to expand production and marketing of local fruits and vegetables. Many models were discussed such as CSAs, food buying clubs, produce auctions, etc. The farmers were most interested in selling their produce in a way that would require less of their time and involvement in the marketing process. The group agreed to explore the idea of forming a cooperative to market their produce to existing outlets primarily grocery stores and restaurants. Four outlets were targeted as potential buyers for local products. The outlets included: two traditional small chain grocery stores, one high end pizzeria/coffee shop and a local owned convenience store. These outlets were selected based on past interest in local products and interaction with farmers purchasing local products. While some of these outlets had purchased local products from farmers in the past, it was a very small part of the farmers and outlets fresh produce business. The outlets were surveyed in person by a committee selected by the farmers. The surveys included questions about deliveries, produce packaging, volumes, etc. From the surveys, the farmers together planned their production to meet the demands of the outlets.
The outlets were asked about the idea of providing a service of placing the fruits and vegetable in displays and removing produce that was no longer of quality to sell. The grocery stores were not interested in such a system as they had a produce manager and needed to keep displays and pricing consistent with other produce items. The convenience store was very interested in the idea that we would place the produce and return not saleable items. The convenience store did not previously sell fresh fruits and vegetables.
In May of 2011, University of Maryland Extension hired a marketing coordinator to work with the local outlets and the group of farmers. The marketing coordinator communicated buyer’s needs with the products farmers had available. For this first year the coordinator contacted farmers about available produce, collected orders from the outlets, delivered produce and worked with outlet owners and employees to display produce with point of sale local advertising. In the second year, the coordinator was hired to coordinate the marketing and a separate person was hired to do deliveries. The coordinator worked 20 hours per week making phone calls to the farmers, contacting the sales outlets, coordinating the deliveries and working with outlets on point of sale advertizing. The delivery person worked 10-12 hours per week making the deliveries two times per week.

In the spring of 2011, the farmers decided to form an agriculture cooperative, however due to a lack of local lawyers’ knowledge of forming a cooperative and the prevailing produce season the cooperative was put on hold until the fall. In the fall, the group engaged the Keystone Development Center for assistance with forming the agriculture cooperative. With their help the group filed articles of incorporation as an agriculture cooperative in December of 2011. The group completed and passed their bylaws, elected a board of directors and established membership in January of 2012. The new business is known as Garrett Growers Cooperative, Inc. Eleven farmers joined the cooperative.

After attaining incorporated status as an agriculture cooperative, Garrett Grower’s members began planning for 2012. The four outlets that purchased produce in 2011 were surveyed to determine their satisfaction and plans for purchases in 2012. From the information that was gathered members created a spreadsheet, displaying the amount of each type of produce needed weekly. From this information the producers determined the amount of each type of produce each producer would sell through the cooperative. Producers were encouraged to plant additional produce to sell to additional outlets. To assist with inventory management and sales, members explored an online web based inventory management and sales software. While the software was impressive it would require major modifications to meet the needs of the cooperative. The cooperative decided to use QuickBooks to manage inventory and sales. One of the major components of the inventory and sales management was creating uniform product codes. Another important aspect that was developed in 2011 was product labeling that included a trace back system that allowed for any given product to be traced back to the individual producer. The cooperative members also agreed to pursue a new Good Agriculture Practices (GAP) program developed by Maryland Department of Agriculture for producers who direct market. The members attended a GAP training and wrote a GAP plan for their farm. The members are planning to complete the final phase of the certification in 2013 which requires an on farm audit.

Research results and discussion:

The project has increase local fruit and vegetable sales and increased the accessibility of fresh local foods for the community. A survey was conducted with 7 of the cooperative members at the end of 2012 season. 86% of the farmers indicated they had increased the percentage of farm income from fruit and vegetables in the past two years. The farmers were asked to report the amount of fruit and vegetables sold to various outlets. Before the beginning of the SARE Grant only one producer sold 10% of their produce to wholesale outlets (restaurants and grocery stores). After participating in the project, the farms averaged 44% of their produce sold to wholesale outlets. 86% of the farms also indicated they had increased their sales of fruits and vegetables with two farms indicating they had greatly (over 50%) increased their sales. All of the participants indicated they were satisfied or very satisfied with marketing their fruits and vegetables through the cooperative. All of the participants indicated that marketing fruits and vegetables through the cooperative was important or very important to the success of sustaining or increasing profitability on their farm. Producers were also asked to rate from less important to very important eight functions of the cooperative. The two highest ranked functions were “Produce picked up and delivered to the customer” and “Having a person to contact and work with potential buyers”. The least important to the participants were “Focusing on producing larger volumes of a few vegetable types rather than producing a wide variety of vegetables” and “Marketing under one brand rather than developing your own brand”. While 43% of the producers in the future planned to increase production and 43% planned to remain the same, 86% indicated that they planned to increase sales to the cooperative in the future.

While official surveys were not conducted with consumers who purchased fruit and vegetables at the grocery stores, several consumers has mention seeing the point of sale advertising and appreciated the convenience of purchasing at the grocery stores.

Participation Summary

Education & Outreach Activities and Participation Summary

Participation Summary

Education/outreach description:

To promote the marketing of produce through the cooperative, presentations have been made at the West Virginia Small Farms Conference and at the Mt. Top Fruit and Vegetable Conference. Approximately 50 farmer attended the presentations. The cooperative has also had a display at the 2013 Western Maryland Buyer-Grower meeting held in Hagerstown sponsored by the Maryland Department of Agriculture. The cooperative has also participated in the Taste of Garrett County and the first annual Serve it Up Local event which featured a cook off with local foods and a fifty-mile dinner. The Serve it Up Local event attracted over 250 people.

Point of sale advertising materials have been used by all of the outlets that have purchased local products. Grocery stores have been provided with plastic signs with the Garrett Growers logo and additional space for adding product and pricing information. Grocery stores have also utilized standard plastic crates used by the cooperative for display purposes. Individual fruit and vegetable stickers have been added to tomatoes, zucchini, yellow squash and peppers to aid in identifying local products. Restaurants have utilized table tents and menu labels to help identify the use of local products.

Garrett Growers Cooperative has also developed a brochure for promoting locally grown produce and maintains a web site at www.garrettgrowers.com.

Project Outcomes

Project outcomes:

The project established a method for marketing fresh fruit and vegetables through local established outlets. The formation of the agriculture cooperative provided the mechanism for a group of farmers to work together to be able to market local products to grocery stores and restaurants. The cooperative allows local products to be aggregated, labeled and delivered much like other food distributors. Even though the farmers are actively engaged in the process, the farmer spends minimal time on marketing activities. Grocery stores and restaurants can purchase local products from small farms without needing to deal with a large number of individuals on a weekly basis. Consumers in Garrett County now have convenience of being able to purchase local fruits and vegetables while shopping for other grocery items.

In 2012, the total number of outlets that sold local fruits and vegetables through Garrett Growers increased to twelve (12). With the new outlets, the cooperative provided fresh fruits and vegetables to three grocery stores, one fast food restaurant, one convenience store, six restaurants and a caterer. The cooperative also provided local foods for a Garrett County Health Department project to provide local foods for six weeks to three head start programs. The cooperative increased local sales of fresh fruits and vegetables over 100% with gross sales of over $28,000 in 2012. The total cost of operation of the cooperative was around $10,000 for 2012. Approximately half of that cost was coordinator salary which was paid through the grant. The cost represents approximately 35% of the value of the produce sold.

Garrett Growers is continuing to operate in 2013 without any type of government assistance. The producers have set a goal of $50,000 in sales and have increased the commission on sales to 20% (up from 15%). The group has hired a new coordinator who will work 20 hours a week on a salary basis and will be additionally paid hourly to do the deliveries. The cooperative has secured a van for deliveries. Increasing sales and the higher commission should cover the cost of operating the cooperative in 2013.

Assessment of Project Approach and Areas of Further Study:

Potential Contributions

The idea of farmer banning together to form marketing cooperative is not a new concept in the United States. Many food projects have also focused aggregating products at a centralized facility before being distributed to restaurants and grocery stores. The two components of the Garrett County project that are unique are distributing directly from the farms and developing a need based production system. Distributing directly from the farm presents the challenge of ensuring that all farmers are uniformly packaging products. The advantage of this system is that it greatly reduces the costs associated with distribution which often cannot be sustained by the organization. The added benefit is that farmers get product picked up at their farm which was especially important to the group in Garrett County since half of the producers are Amish. Being able to estimate the amount specific fruits and vegetables that restaurants and grocery stores would be willing to purchase from local producers on a weekly basis, allows the farmers to divide up production and plan plantings accordingly. While early season production remains a challenge, more farmers are constructing high tunnels and looking at other means of extending the season to spread out their production to better meet the demands of the restaurants and grocery stores. Garrett Growers Cooperative hopes to continue to expand the number of farmers and produce available to restaurants and grocery stores. Garrett Growers plans to remain a local supplier of fresh fruits and vegetables and would be willing to share their experiences and materials with other grower groups.

Future Recommendations

Information is needed that can assist similar projects with uniform packaging and labeling. The investigators and farmers spent many hours researching vegetable standards. Labeling information is also not readily available for small farm applications.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.