Increasing Hudson Valley Farm Viability Through Cooperative Bulk Purchasing

Progress report for FNE20-953

Project Type: Farmer
Funds awarded in 2020: $14,466.00
Projected End Date: 02/28/2022
Grant Recipient: Letterbox Farm
Region: Northeast
State: New York
Project Leader:
Faith Gilbert
Letterbox Farm
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Project Information

Summary:

In a region with exceptionally high costs of production, Hudson Valley farmers need a coordinated effort to source supplies and inputs at a lower cost.  Our proposal seeks to research, develop and pilot a bulk supply purchase program, in which area farmers can source needed inputs at negotiated bulk prices and/or reduced shipping costs.  After reviewing similar programs elsewhere in the country and collecting information from potential participants and potential suppliers, our farm team will organize a bulk order from multiple suppliers for a projected 40 participants.  We anticipate immediate time and money savings for participating farmers, a solid foundation and feasibility assessment for a continued bulk purchase program, and in addition, will support the replication of our efforts through a clear and accessible summary of research outcomes and lessons learned. 

Project Objectives:

This project seeks to research, develop, and pilot a bulk supply order program for farms in the Hudson Valley.  We aim to coordinate orders for 40 participants at a minimum of two drop off locations. 

 

Our primary aim is to save area farms significant costs by reducing the cost of shipping and of goods themselves, and eliminating the need for individual farms to make out-of-state supply trips.  Based on our understanding of neighboring farms purchase patterns, we anticipate providing $16,000 in cost savings between our goal of 40 participants (for calculations, see attached feasibility budgeting spreadsheet).  

 

Simultaneously, we aim to lay the foundation for a viable, ongoing bulk order program that will continue on past this grant.  By leveraging grant funds to perform initial research and organizing work, as well as collecting financial and operational lessons, we will work toward a streamlined, low-cost program that can fund itself through a percentage of supply cost savings.

 

Lastly, we will provide accessible information for other farming communities to replicate a buying club in their region.  As noted in our outreach plan, we aim to reach 50 farmer groups and service providers outside the Northeast with our materials and lessons learned.

Introduction:

Glynwood’s State of Agriculture in the Hudson Valley (2010) noted that farms in the Hudson Valley face greater economic challenges and have greater financial fragility than farms in similar regions near urban centers, such as Pennsylvania, New Jersey and Northern California.  The report noted that “...the Hudson Valley’s proximity to urbanized areas makes farming more expensive here. In 2007, farmers in the region were contending with an expense-to-sales ratio of 94%, leaving them with a very narrow margin for profit.”  One of the central reasons for this, the report noted, is that the Hudson Valley lacks the supply and distribution services present in those other regions. Farmers in the Hudson Valley source much of their materials - everything from drip tape, fertilizer, laying hen pullets, and mushroom spores - from Pennsylvania, New Jersey, and Western New York.  In the process, producers incur high shipping costs and/or high labor costs for sourcing supplies. For Letterbox Farm’s $150,000 vegetable operation, we incur over $1500 per year in shipping/delivery costs AND over 30 hours in driving time to pick up supplies in nearby states.

 

In other cases, producers simply go without inputs that would be helpful to their operations.  Vegetable producers in the area regularly post questions to a group list serve looking to source Winstrip trays (a type of seedling propagation tray), biodegradable salad bags and box liners, small-quantity herb starts and more -- items that would be available through coordinated purchasing efforts, but that inevitably don’t get purchased because no single producer is willing or able to lead the process.

 

The end picture is one in which Hudson Valley farms pay more for supplies and shipping than their counterparts in other regions, and must respond with time-consuming efforts to coordinate needs with other farms, or to pay high materials costs and accept the impact on their bottom lines, or to simply go without access to desired supplies.  

 

Those problems could be directly addressed by a central, coordinated bulk supply purchase program, that can identify key needs for both commonly sourced products and desirable but hard-to-source products, and to make them available through coordinated shipping and/or negotiated bulk prices. The proposal below describes our planned efforts to organize such a program in New York’s Hudson Valley.

 

Our project scope includes a community of small- to medium-scale vegetable and livestock producers throughout the Hudson Valley, with the majority of producers in Columbia, Dutchess, and Ulster counties.  From crossover with other farm community programs we participate in, such as the Hudson Valley CSA Coalition and the Hudson Valley Young Farmers Coalition, we can estimate that there are approximately 200 farms active in community networks in this region that might participate in this program.  

Cooperators

Click linked name(s) to expand
  • Cara Fraver
  • Megan Galeucia

Research

Materials and methods:

Part I: Research 

 

Gather starting data for producer input costs and labor costs associated with sourcing supplies.

We developed, disseminated, and summarized a farmer survey asking questions about purchasing habits, priorities for sourcing bulk supplies, and opinions about a bulk order program.  We met our response goal, with approximately 40 farmers responding.  Clear patterns emerged, including:

  • Geographic patterns: the highest number of respondants were concentrated in Columbia and Ulster counties.
  • Purchasing preferences: Out of 22 potential supply categories, 7 categories received more than 20 votes for including in the bulk program, including potting soil, amendments, cover crop seed, irrigation supplies, seed potatoes, and greenhouse trays and pots. 
  • Program goals: The majority of respondants were enthusiastic about the program, stating it was "of very high value."  40% were interested to participate if they could save 10% on their supplies, and another 40% were happy to participate just to support the bulk order program.

Full survey responses will be included in our final report.

Gather information and lessons learned from existing bulk supply programs.

We consulted with NOFA Mass about the detailed workings of their bulk order program, including their pricing strategy and systems for organizing information.  The information provided was invaluable to getting our systems in place.

We struggled to find other relevant bulk order programs that were similar enough in size and purpose to provide meaningful advice.  Realizing this, we pivoted and opted to interview a handful of area farmers instead, all of whom had organized some version of a bulk order on their own farm.  We gleaned from their lessons learned on splitting pallets of fertilizer and other bulk buying efforts, while also gathering their input on what would make the bulk order program most successful.  We feel this pivot was strategic and successful in encouraging farmers to feel invested in the program and to better inform our work.

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Gather information from suppliers.  Following the producer survey, contact identified suppliers.

We contacted 9 vendors to discuss bulk pricing discounts and shipping.  We discovered that many had bulk order frameworks already in place, such as a standard free shipping on a certain order size.  All were willing to work with us.  A few were very enthusiastic and supportive.  Product discounts ranged from 0-10% on the supplies themselves, but shipping reductions were possible in all cases, and often represented an even greater percentage savings.  Overall, we were able to offer producers an average savings of 7-10% without difficulty, while retaining an additional 3-5% to cover future operational costs.

Research options for order organization and fulfillment systems, for storing and sorting orders and transmitting to suppliers. 

In addition to consulting with NOFA Mass on their systems, we researched a variety of options for setting up ordering.  We considered online shopping platforms, custom excel order forms, online survey forms, evaluating their cost and applicability to our program.  Detailed analysis of the options will be made available in our final report.  In the end, we chose a custom excel order form, because it was the most time-effective to manage item listings, and was free to use.

Consult with legal and accounting professionals on options for for receiving payments.

In addition to our own research, we had an initial consultation with an attorney on the considerations for different entities. whether the project should enter a fiscal sponsorship relationship, or form a separate entity or association to hold a bank account, bill participants and record payments.  We gathered enough information that it became clear that forming an entity before piloting the program was not advantageous if it could be avoided.  We explored fiscal sponsorship as our first option, and were lucky to have Good Food Farmers, an informal farmers cooperative organized as an LLC, offer to host the program as part of its business activities.  While not traditional fiscal sponsorship in that Good Food Farmers is not a non-profit, they presented an excellent fit because they were already embedded in the farmer community we sought to serve, had aligned visions for growth of a cooperative economy, and were expedient and practical about getting systems set up.  They were able to provide us limited administrator access to their quickbooks account, so we could effectively manage the bulk order finances with no middle man (a privilege the non-profits we reached out to were not able to provide).  We will continue to explore entity options after our pilot bulk order concludes, and make our findings available in our final report.

 

Part II: Developing a Hudson Valley Bulk Supply Framework

Select key items and suppliers.  

We selected 8 vendors for our pilot run, based on a variety of factors.  Several supply categories, like potting soil and seed potatoes, had high interest but also special considerations that added extra factors: seed potatoes need to be kept from freezing, and many farms buy both potting soil and seed potatoes in December instead of the new year.  We determined that a January-March timeline worked best for the program, so omitted those products for this year.  Other items had strong interest from a few farms, but likely wouldn't meet a bulk order discount volume.   We omitted those as well.  Some items only had interest from a few farms, but the potential savings were so great that we added them in to our offerings to draw in more users.

Develop site criteria and select/coordinate drop points (2-3 drop points depending on interest for 2020)

Only a handful of farms offered to host the bulk order distribution. We chose two drop points, in Ghent NY and Kingston NY, at two willing farms that met most or all of the above criteria and were in the counties where we had the most farmers indicate interest to participate.  Particularly in our pilot year, we felt it was important that the host sites be willing and enthusiastic, as we anticipated there were likely to be unexpected challenges and annoyances that would be easier to handle if the hosts had readily volunteered for the role.

Develop ordering logistics

After trialing an online store platform, we decided to have farms place their orders through a custom excel spreadsheet.  We used formulas to set pricing and determine discounts, aiming for a 10% savings to farms and a 3% markup for the program for future operations, adjusting where needed.

We settled on (and are currently setting up) a system for processing payments.  The excel order form calculates the total charge to the farm. We are setting up quickbooks online invoicing to input that amount into a digital invoice that farms can pay directly through online bank transfer or credit card.  This will keep payments and billing fully digital with little room for error and keep the administrative burden low.

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Part III: Piloting Bulk Order Program

January-March, 2021, we will coordinate an initial bulk supply order, to test our chosen systems, provide real cost and time savings to area farms, and to note our findings.  Our findings will be written up into public-facing materials and disseminated.

We are on track to meet our timeline goals.

Research results and discussion:

See above for additional information.

Our project has largely proceeded as planned.  We made a change in our research methods, after failing to find a number of other similar bulk order programs to consult with, we chose to direct our research time to talking directly with farmers who had organized informal bulk orders at some point in their farm career.  That method proved so valuable to building overall buy-in in the program, that we are continuing to contact farmers wherever possible to ask for small amounts of input (such as looking for a good source of wax boxes).

We are largely on track to provide significant discounts to participating farms, and have built savings calculators into our order forms so we and the farm purchasers can both assess the value of the service we've provided.

While we had originally envisioned a single pilot with a very wide variety of offerings, it began to look advantageous to instead consider a gradual build.  We are aiming for a smoothly run ordering and distribution process that doesn't overwhelm or burden the distribution site hosts.  With so many unknowns in the first year, we selected a set of supply offerings from 8 vendors that had similar considerations for storage, timeline, and temperature control.  We think this will allow us to get the core offering down before adding more variables.  We are hopeful that taking this more "lean startup" approach will leave room for a second round of bulk order organizing before the grant cycle is complete.  We believe we will learn more, build better long-term systems, and provide better value to other bulk order organizers if we are able to organize multiple rounds, building in the second year off a strong core offering.

 

 

Research conclusions:

We will have much more to share after our pilot, which is about to launch on January 7th.  However, our project is proceeding largely as planned and with positive responses from the farm community.  We feel confident in its ability to accomplish many or most of its goals.

Participation Summary
6 Farmers participating in research
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.