Market Allergy-Friendly Food Using Local Vegetables, Fruit, Proteins, and Value-added Products to Increase Small Farm Sales

OBJECTIVE 1: DETERMINING WHAT FRESH PRODUCE AND PROTEINS WERE AVAILABLE:

One of our objectives was to link produce from local farmers to our clients and provide fresh, locally-grown food to those needing allergen-free food.  Our partnership with the Kansas City Food Hub (KCFH), a cooperative of farmers who live close to the Kansas City area in Missouri and Kansas led us naturally to a wealth of local produce.  The twenty farms that make up the KCFH provide a wide variety of options.  We identified the following available through the KCFH:

Fruits: apples, cherries, pears, strawberries, blackberries, blueberries, raspberries, elderberries, melons

Root crops: potatoes, sweet potatoes, radishes, turnips, carrots, beets, onions, garlic

Greens: sprouts, lettuces, arugula, mustards, beet greens, spinach

Vegetables: peppers, cucumbers, tomatoes, summer and winter squash, okra, peas, green beans, celery

Herbs: basil, chives, cilantro, dill, mint, oregano, parsley, rosemary, sage, tarragon, thyme

Proteins: beef, chicken, pork, turkey, eggs

OBJECTIVES 3, 4 & 5: REFINING & TESTING RECIPES WHILE INCREASING SCALE TO REDUCE COSTS

Another of our objectives was to explore the extent "scaling up" or producing in larger quantities and purchasing larger quantities of ingredients and packaging materials would help increase our profit per item and bring down the cost.  We have always liked to grow slowly and organically rather than make great leaps ahead by borrowing large sums and risking them.  The SARE grant allowed us to move from small batch canning to larger quantities.  For example, we purchased a five-gallon steam-jacketed kettle which tripled our capacity to cook soups, sauces, salsas, beets, and vegetable stock.  Increasing from a 7 quart pot to a 20 quart pot lessened the labor time produce our value-added products.  Cutting two hours off the production time for our quarts of soup, lowered the cost by roughly $1 per quart.  Our small, electric  water-bath canners held seven quarts.  We scaled up to an Amish canner that holds 15 quarts and was more durable than the smaller non-commercial canners.  Much of our canning was done in pint jars which saw an even greater efficiency because the Amish canner holds 36 pint jars rather than 8 in the smaller canner.  We are now looking at a 40 gallon steam-jacketed kettle and a 35 quart pressure canner.  The labor time to prepare the raw ingredients by cleaning, culling, and chopping, is roughly the same for the smaller units, but the labor to cook and can several small batches rather than one large mounts up and adds to the cost per pint or quart significantly.  Packaging costs generally decrease with an increase in quantity purchased.  However, we found that canning jars, a major cost factor of many of our products, are not discounted unless one is ready to purchase a truckload not just a pallet.  With the increase in popularity of canning during the pandemic, finding jars was a weekly search.  We often employed friends in surrounding towns to find them for us.  Lids and rings were also a challenge for Flavor Market [Ami], which led us to removing the ring before selling our product until suppliers had them available again.  

We [Ami] process a lot of meat products from our protein producing local farmers. Most meats get smoked or roasted. As we constantly examine our overhead and production costs per item produced, we recognized that adding a few pieces of equipment would free up time and labor, while also making our work more enjoyable [often overlooked]. For many reasons, we purchased a second convection oven. We often faced 'bottlenecks' in the kitchen due to space constraints with our single commercial convection oven. We also are conscientious of cross contamination issues with the allergens we do use- especially tree nuts.  Now we can keep one oven free of nuts, and not have to wait on oven time- especially when we are slow roasting turkeys or brisket.

Another piece of equipment that became critical was a meat slicer. We hand sliced meats since we opened 5 years ago. A meat slicer allowed us to keep our smoked meat prices the same, even though the cost of the meat went up twice this year. The slicer is about a 15% savings on total cost over hand slicing, in addition to creating a more commercially consistent product. We had actually lost a few customers because they criticized our meat slices as 'too thick'.

The last piece of equipment we purchased was a large smoker. We can now smoke 9 turkeys [24+ chickens] and over 20 large cuts of beef and pork at a time, besides numerous side dishes such as smoked apples, butternut squash, and baked beans. The commercial scale of this smoker allows us to custom smoke for customers looking for meats for events. We make all of our own rubs and seasonings, guaranteeing no gluten, dairy, soy, or other allergens. These products used to be only used in house, but as people discover our foods, they are requesting these 'simpler' spice combos free of chemicals and allergens.  Also, our keto customers love that they can request sugar free products.

COST OF GOODS SOLD  in Value-added Processing for the small farm

When calculating the Cost of Goods Sold (COGS) in our small farm operation, we calculate 1) the value of the labor, 2) the cost of ingredients, and 3) the cost containers and labels needed to produce the finished product.

THE PROCESSING FORM 5.9.21 Latest Version Processing Form

Each time we process a product, we record the activity on a processing form.  Simple examples of this are freezing strawberries and butternut squash for later use.  The strawberries are culled, de-capped, washed, and vacuum sealed before freezing.  The butternut squash are washed, skinned, deseeded, and chopped into pieces before freezing in bags.  These examples are simple processes intended to preserve the product for a later time when that raw product will be turned into a finished product.  We freeze ripe berries so we can later make jam.

Sometimes the processing has been more complex as when we us fresh tomatoes, onions, and peppers to make salsa.  These complex processes are also recorded on the processing form where we indicate all the steps we followed by circling them on the form.

The Processing Form tracks the labor, the initial raw quantity, its source, the finished quantity, and the number and size of containers used to store the product and its storage location.  The pH and temperature of the product is recorded if that is needed.  The recipe used is recorded on the form so we can make correct labels and determine another Cost of Goods Sold component—ingredient cost.

INGREDIENTS’ COST

The second component of COGS is the cost of the ingredients used.  How much does the vinegar in a pint of pickles cost?  The pickle crisp?  How much does the pectin cost in a half-pint of jam?  Knowing these answers helps to set cost and know whether one is making money or losing it.

We made a lookup chart in a spread sheet to track ingredient cost Ingredients Lookup Spreadsheet.  If your recipe calls for 4 ounces of vinegar per pint of pickles, our chart shows us that a $5 gallon of vinegar (128 ounces) costs  4 cents per ounce of conventional vinegar and 15 cents per ounce of organic vinegar.  We found it handy to compose a chart so we wouldn't have to recalculate.  If the price changed, we could plug in the new price.  If you look up the cost of sugar purchased in 25 pound bags, you'll find it costs 24 cent per cup (notice our conversion shows a cup of sugar weighs 1/2 pound).

If you buy ingredients from outside the farm, the calculation is easy, but what if you grow your own ingredients?  If you grow your own beets, does that mean they are free?  Should you calculate them at the value you could have sold them at market? What if they are seconds with blemishes that still make good jam or soup but couldn’t bring a full market price?  What if they are market returns that would end up in the compost pile?  Each farmer will have to answer these questions.  Market returns and seconds are free or nearly free.  They are a real reason to do value-added processing in the first place.  One can add value to something that didn’t have much value to begin with.  We all know the feeling of having perfect beets, cucumbers or tomatoes that we can’t sell.  The seeds, labor, fertilizer, weeding that didn’t produce! 

Initially I calculated the cost of beets in a pint of pickled beets as the same value I could have sold those beets at market or included them in my CSA.  Our processing form tracks the quantity of beets in each batch and the quantity of finished product.  So I know it takes one pound of beets to fill a pint jar.  Note too that shrinkage occurs when processing.  This means the raw product weighs more than the finished product.  We boil and slip the skins from our beets before pickling them.  This is why we have a raw quantity and processed quantity on our Processing Form.  It took more than a pound of raw beets to yield the pound of chopped beets for our pickles.

There are two ways I look at valuing the ingredients we grow.  If I am selling the canned beets at market, it doesn’t matter whether we value the raw beets at the market price at zero.  I have still sold my beets rather than throw them away.  I do think it is smart to value them at close to market price so I can know where to set my price and recoup my labor and materials.  If I am wholesaling pickled it is very important to know how much money is in each jar so you don’t lose money while thinking you are making money.

LABOR COSTS

The Processing Form charts the time spent on each batch and the quantity produced.  We found that a “labor coefficient” could be determined for each product we made.  Labor by far is the largest component of COGS.  Over time the ingredients didn’t change that much.  A gallon of vinegar may change a little, but labor costs change quickly.  When figuring labor costs, the cost of matching FICA and Medicare withholding should be calculated as well as the hourly wage.  A worker earning $13 per hour costs an additional 7.65% federal payroll taxes which equals $13.99 per hour.  Our “labor coefficient” Using Labor Coefficient to Determine Cost per Unit  is a ratio of hours of labor it takes to produce unit of product.  If it takes 8 hours labor to produce 24 pints of pickled beets, the coefficient is 3.  Divide labor cost per hour (in our hypothetical case $13.99 per hour) by 3 and you get the labor cost per unit (pt in this case)=$4.66.  The chart above explains the labor cost for quarts of soup base at $11 per hour.

CONTAINER COSTS

One must also include the cost of the bags, bottles, jars, labels and boxes to determine COGS.  This is not nearly the challenge of the ingredients and labor.  If you buy canning jars at Walmart or Tractor Supply, fill out the sales tax exemption form for resale.  Here in Kansas it saved us 9.1%.  If a dozen pints costs $10.99, each jar costs 91.6 cents (without the sales tax exemption $1.00! each.)  We purchased a thermal printer which sped up the process and reduced the cost of labels.

Overhead costs. Our partner farm and value added processor, Flavor Market [Ami], uses a similar COGS including the above costs, but also includes overhead. Overhead is all the expenses not directly related to a single item, but necessary for the business to 'be in business'. Examples include insurance, utilities, paper towels, and office expenses such as staples and tape. The simplest way we have of calculating these costs is to look annually at these totals [a tax season project!]. Calculate the overhead for the year, then determine the overhead per hour your business or farm is operating. If you need to just calculate a 'per day' overhead, then divide the total by 365. For our business, we know how many total hours a year the business is open, so we can tightly determine an hourly rate for those hours. Since we don't add income at 2am, for example, we want to know the overhead per hour that we are actually working. Then when we make a new product, we determine how much time the entire batch takes, then calculate how much time each item takes. If a project takes 10 hours and in that 10 hours we make 100 items, then each item took a tenth of an hour. Therefore, I can assign a tenth of the hourly overhead cost to each item, and I know my insurance and utilities [etc] are paid for.  Each year we look at the previous year's overhead and recalculate.  

OBJECTIVES 2 AND 6: IDENTIFYING NEEDS IN AND MARKETING TO THE LOCAL COMMUNITY FOR ALLERGEN-FREE PRODUCTS

During 2020, we reached out to several businesses before Covid slowed down our progress.  We found the most interest in small retail establishments, such as coffee shops, and other small town retail markets, such as a shop in Buckner, MO.  Three coffee shops expressed interest in our value added and finished breakfast items.  They were also interested in value added canned goods that are both shelf stable and refrigerated.  Once the pandemic closed most doors, we continued to do business with 2 shops that seemed to figure out a way to grow, even with the pandemic.  One of these accounts has grown from a few random sales once a month to almost weekly orders approaching $250-$400 each week.   This shop loves our focus on using locally procured ingredients, no fillers, and no artificially derived flavors- for example, the apple pies she is purchasing are made from locally procured granny smith apples.  The other business was a new business that began during the pandemic.  While they are only ordering about once a month, it is usually a $400 order, focusing on value added products.  During 2021, we added 2 more small businesses that had both opened during the year.  These businesses give us hope in the tenacity of entrepreneurs. 

We reached out to daycares, and found a strong interest in foods that are free of the top 8 allergens.  Unfortunately, they need to be made in a contaminant free space, and since we use tree nuts, eggs, and dairy in some of our recipes, we would need a separate kitchen in order to guarantee the safety of these items.  We are considering adding that space, but would need to assess the need in our community for this service to weigh the costs of building a separate kitchen.  

We have found a lot more success direct marketing to individuals and families during this past year, while many of our potential wholesale partners were closed or operating in a limited fashion.  We have designed and marketed individual serving-type meals that have become popular, using the model we created last year with containers that are microwavable or oven-able.  This is a better system for many people, over the larger meals and family sized portions.  These individual servings of soups, quiche, casseroles, smoked meats and sides have become a staple item for many of our customers looking for healthy, convenient, and local foods for school and work lunches.  

Because the pandemic shut down schools, restaurants, some farmers' markets, and access to nursing facilities, we decided to increase our on-line presence and paid to create an on-line store where orders could be made by individual customers.  People could then pick up at the farm or drive to the market and pick up their preorder.  This helped alleviate fear and encourage clients to continue to shop with us.  It also extended the time we asked to complete our grant research from one year (2020) to two years (2020 & 2021).

PARTNERSHIPS:

The pandemic caused us to pull back and study closer what trends were being turned upside down and what our community needed. We have always responded, pivoted, and changed based on community input, and I think that is why we are still here. During 2020, everyone wanted delivery. Customers who no longer shopped with us, came back in full force because we were willing to deliver to parking lots in their neighborhood. We were told over and over by customers coming to our store how they felt secure walking into our shop and buying, whereas the big box stores felt like a toxic environment. Then 2021 came and everyone got comfortable going back to convenience; deliveries plummeted, and many of the new customers disappeared as they went back to their old habits of shopping and somehow forgot their 'pledge' to shop local and keep money in their community. We did gain some new and loyal customers through the 2020 panic, but many did not 'stick'. The most loyal customer still tends to be the person who finds us on their own, or who finds us through a friend who gives us good 'word of mouth' advertising.

One trend – and maybe we are biased- but we are seeing rural small business owners [coffee shops, cafes, and specialty stores mostly] jumping on board with our products. They tend to be very excited to offer our goods, and we don't seem to have much competition- as most producers like us seem to focus their efforts in the larger cities and towns in the Kansas City metro area. We have gained several new wholesale accounts by looking in the smaller towns where selection is limited, and enthusiasm for our products is abundant. Food selection in bigger towns like Blue Springs and Lee's Summit is often taken for granted. When you live in a small rural town and your only choices for groceries are the gas station/convenience store [heat lamp chicken anyone?], or a longer drive to a bigger neighboring town, it really does feel like you live in a food desert, even though these rural towns don't often meet the definition requirements. Our value added products made with fresh ingredients and no fillers are eagerly purchased especially by those needing allergy sensitive foods. We have also found these businesses are so eager to have our products, they will come to us to pick them up, whereas businesses in Kansas City expect delivery. Now that is a huge savings for us.

We gained 3 new farmer partnerships this year; local farmers who were struggling to sell direct to consumer due to market shifts. I feel like our value added production facility and retail space is becoming a community staple. We gained 5 new wholesale accounts in the past 2 years. While we feel like we could have tripled that amount in a 'normal' cycle, we were pleased with this growth when we were hearing about so many businesses closing due to a lack of customers and distribution issues.

As our product selection gets stronger, we are actually talking about going back to a farmers market for one season- using it as a marketing tool to reach new customers who would potentially then shop our store, or sign up for delivery services.  Marketing must be ongoing and smart; not necessarily expensive.  Going back to the markets feels like it may be expensive for us, so we will have to weigh the pros and cons for this as sit at the kitchen table and have our meetings this winter.