Increasing Hudson Valley Farm Viability Through Cooperative Bulk Purchasing

Final 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
Faith Gilbert Cooperative Consulting
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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 sought to research, develop and pilot a cooperative purchasing program, in which area farmers source needed inputs at negotiated bulk prices and reduced shipping costs.  Our farm team organized a bulk order for 63 producers, purchasing $135k in supplies from 9 agricultural vendors in late winter of 2021, passing on $20K in discounts.  Program participation and spending exceeded our expectations by a full 50%.  The program was proved feasible and we went on to organize a bulk order again in 2022, with discounts to farms and overall spending both increased.  Using our two years of bulk order organizing experience, we generated a set of templates and tools for other farmers and service providers to use to replicate our program.

Project Objectives:

This project sought to research, develop, and pilot a bulk supply order program for farms in the Hudson Valley. 

We aimed to...

  • Coordinate orders for 40 participants at a minimum of two drop off locations.
  • Save area farms significant costs by reducing the cost of shipping and of goods themselves, aiming for $16,000 in cost savings between 40 participants.
  • Lay the foundation for a viable, ongoing bulk order program that could self-sustain without grant funds.
  • Provide accessible information for other farming communities to replicate a buying club in their region, and 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 posted 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.  

 

We believed those problems could be directly addressed by a central, coordinated bulk supply purchase program, that identified 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.

 

Our project scope included 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 estimated that there are approximately 200 farms active in community networks in this region that might participate in this program.  

Description of farm operation:

Letterbox Farm is a nine-year-old diversified commercial farm in Hudson, NY. In 2020, our team of seven full-time farmers raised 2.5 acres of specialty vegetables and herbs, 28 hogs, 300 laying hens, 2600 broilers and 500 meat rabbits, for gross farm sales of $300k.

Cooperators

Click linked name(s) to expand/collapse or show everyone's info
  • Cara Fraver
  • Megan Galeucia

Research

Materials and methods:

In brief, our organizing process included:

  • Research and learning
  • Survey of area farms
  • Vendor Inquiries
  • Identifying distribution sites
  • Choosing an ordering platform
  • Securing fiscal sponsorship or other legal/financial home
  • Building website with key information
  • Select key items and suppliers.  
  • Building the catalog (and determine pricing)
  • Setting up billing/payment platform
  • Running our first bulk order and distribution

 

Research and Learning

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.

Farmer Interest Survey

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 respondents 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 respondents 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.

Vendor Inquiries

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 10-12% without difficulty, while retaining an additional 5% to cover future operational costs.

Identifying distribution sites

We sought 2-3 pickup locations around the region, that had some indoor space, could receive a tractor trailer, and had loading equipment - and were enthusiastic about the project.  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.  

Choosing ordering platform  

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.  Our results and decisions are below.  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.

Seeking a legal/financial home for the program

We researched the possibility of developing a new entity for the program, such as an agricultural purchasing cooperative.  In addition to our own research, we had an initial consultation with attorney Jack Hornickel on the considerations for different entities. We weighed 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 continued to explore entity options after our pilot bulk order pilot concluded.  Members of our organizing group participated in a cooperative development training program, to explore the possibility of setting up and managing a cooperative entity for the program.  While we learned critical information about the accounting and legal responsibilities of forming a producer's cooperative, that learning confirmed our belief that this program works best as a component of an existing entity.  

Selecting key items and suppliers.  

We selected 9 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 the pilot 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.

Building the catalog  / Setting up billing platform

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 5% markup for the program for future operations, adjusting where needed.

To process payments from the farms, we sought a system that provided extremely low cost digital payment processing.  As a program aiming for a 5% margin, it was very important that we not absorb credit card handling fees.  As a remote program with no central office space, relying on a fiscal sponsor's bank account, we needed payments to be digital (we also felt this would be important to keep administration time low).  We settled on Quickbooks Online digital invoicing and payment processing, using ACH transfer.  The catalog/order form calculated the total price of each order, and that sum was used to create a Quickbooks invoice to pay via online bank transfer.

Research results and discussion:

Our pilot bulk order & distribution

January-March, 2021, we coordinated an initial bulk supply order, to test our chosen systems, provide real cost and time savings to area farms, and to note our findings.  We set up a website with key information, such as the order opening/closing dates, and FAQs.  After settling terms with the vendors, we developed our online catalog/order form and set bulk order prices for each item.  We spread the word about the program to a series of emails to a popular list serv (the Hudson Valley Young Farmers Coalition list serv) that we had used previously to collect survey responses.  We had a slow initial response, followed by a cascade of orders in the final two days of ordering.  All in all, participation exceeded our goals by a full 50%.  

After orders closed, we submitted the information to the vendors.  The pandemic strongly influenced our vendor experience - their overwhelm, staff shortages, and supply chain issues made for a difficult time working with them.  We learned that our guesses about the time vendors would need were incorrect, and we ended up pushing our pickup weekend date back 2 weeks.  We also learned that getting items shipped on time was a hands on process requiring regular checking in.  Despite our best efforts, a significant number of items (and one entire vendor order) arrived too late for pickup weekend.  Nevertheless, 90% of items did arrive, were packed out by the hardworking host sites, and distributed to farms over a two-day period.  The pickup sites were extremely valuable partners in the effort.  

We collected exit ticket surveys from each farm participating.

A month after pickup weekend, we handled the missing and backordered items by hosting a second-round "backorder day."

In the year following, we made key program improvements, wrote up out results, made template tools, and prepared for outreach.  We hosted a second bulk order in late winter of 2022, which made significant improvements in operational smoothness, discounts provided, and financial self-sufficiency.

Summary of our project results in 2021:

  • 63 farms participated, collectively purchasing $135k in farm supplies.  
  • Our joint purchasing retained $27,000 in our farm community - about $21k in discounts passed on to farms, plus retained operating funds to ensure the program continues.  
  • Participation and order volumes exceeded our expectations - by a full 50%. 
  • Despite Covid-related delays and shorts, participants told us they were 91% satisfied with their bulk order experience. 

Based on those statistics, the program was deemed an overall success, and decided to run again in 2022.  Our 2022 season, while outside the scope of this grant, yielded improved results in many areas: we achieved nearly $40k in discounts, and handled $175k in product for 62 farms. The program appears to be financially self-sustaining after its second year.

Research conclusions:

Key Ingredients for Success

  • Critical mass of small farms concentrated geographically: We needed about 30 farms per host site to make compelling orders for vendors.  We were able to draw from a large network of about 200 farms to get this participation for each site.  Farms needed to be within an hour's drive of each host site.
  • Similarities in purchasing patterns: We were able to predict purchasing patterns with a fair amount of accuracy, thanks to a strong similarity in growing practices and active communication between farms.  We were able to meet order minimums with all vendors who participated.
  • Established communication systems (a good email list): our region’s small farms are connected by an active email listserv that was established about 10 years prior and has over 1,000 members.  Our outreach efforts were very simple and relied only on several emails to this listserv, yet participation exceeded expectations by 50%.
  • Anchor vendor(s): We had one farm supplier with good prices and diverse offerings that regularly supplies the vast majority of small farms in our region.  Not only were they willing to work with us, they extended excellent discounts.  They provided an essential backbone of the program (60% of our sales go to this vendor).
  • Willing host-sites with reasonable equipment/infrastructure and organization skills:  We were lucky in identifying two willing host sites that were invested in the success of the program and able to handle the requirements and pressures of organizing distribution.
  • Willing lead organizer with strong excel skills and ability to organize information.

 

Feasibility Assessment

We sought to develop a program that could self-sustain without further grant funds.  We understood financial feasibility to be a combinations of factors, including: (1) number of participants, (2) participant spending, (3) program costs, and (4) the cost savings possible from vendors.  The cost savings possible needed to be great enough that the program could withhold a sufficient percentage to cover its operating costs.

  • Participation and participant spending: As stated previously, participation and spending have exceeded expectations, two years running.  We have reliably received more than 60 orders each year (though, most of them in the final hours!).  Participant spending was as expected (approximately $2k) in 2021 and increased to over $2500 in 2022.  Operationally, ~60 participants, ~30 farms per site, with orders averaging $2.5k, seems like a good place to be.
    • We consistently meet order minimums from vendors
    • Sites are at max capacity without being really overwhelmed 
    • At this scale, we can makes use of existing infrastructure, equipment, and hired staff, and direct program funds to our working farm site partners
  • Program Costs: We calculated that after its start-up year, the program cost about $10k annually (at the current scale of participation and spending - currently 62 participants, $175k in supplies).  After our pilot, we found it helpful to convert our main costs into simple percentages of program revenue; i.e.
    • 2.5% goes to distribution sites
    • 3% goes administrative person / team
    • .5% in billing service charges, supplies and misc.

All in all, the program needs a minimum 6.5% markup to operate. 

  • Cost Savings: We were able to attain a greater cost savings than we had anticipated, particularly in reducing shipping costs.  We had aimed for 12-15%, but for many items, we were able to achieve 25% or over (when shipping was factored in).  This left room for the program to collect a higher percent markup than planned.  We had aimed for 3%, but ended up needed around 6.5% to operate well.

 

Key Learnings:

  • Lead time for vendors should be minimum 4 weeks.  We had originally planned a 2-week turnaround time between orders closing and receiving the supplies.  That was not enough time for vendors to assemble and ship large orders, particularly while supply chains were disrupted by the pandemic. We needed to push back the pickup date 2 weeks, amend our materials for the adjusted date, and notify participants of the change.
  • Vast majority of farm orders will come right before the deadline.  Two years running, most farms waited until the final hours to place their order.  In both years, we processed 70% of orders within the last 48 hours.  
  • Plan for backorder items. In 2021, 93% of items went out as planned, but 7% of items were backordered or missing due to supply chain issues.  Vendors were not able to give us notice in advance, which created communication challenges and pressure on the organizers on the pickup weekend.  We did not have organization systems in place for such a volume of backordered items and needed to use labor-intensive methods to track items, communicate with farms,  and issue refunds.  Because we had not set clear expectations, we felt obligated to follow through on backordered items, and in some cases had items shipped directly to the farms, at additional cost to the program.  For 2022, we scheduled a single, staffed backorder day for items that don’t arrive as planned, and collected information needed (like mailing addresses for refund checks) in advance.  We planned to help coordinate shared pickups of backordered items as well, since some farms may need to drive an hour to get one backordered item.  Participants can opt in on their order form to share their location information.
  • We need to lean on vendors to get the orders correct and on time.  Our suppliers run complex, low-margin businesses not unlike our farmers… and some need a good amount of follow up and pressure to get our orders correct and shipped on time.  We follow up with vendors typically 3-4 times over a month, and failing to do so at a critical moment could mean the supplies don’t arrive on time.

Program Workflow and Efficiencies

In addition to these lessons, we collected valuable information on how to run the program well, such as workflow, time required to organize the program, timing of key tasks, and more.  We improved efficiency and tweaked our organizing tools between the two years.  These lessons are best represented in our tools for organizers, including the Organizer's Workbook, presentation slides, and instructional video, available on the hvfarmbulkorder.com bulk order website, and attached to this report as information products here: https://projects.sare.org/sare_project/fne20-953/.

Based on all the above, we concluded that this program brings significant financial benefit and generates positive responses from the farm community.  We believe this program is highly replicable in other communities.

Participation Summary
63 Farmers participating in research

Education & Outreach Activities and Participation Summary

7 Curricula, factsheets or educational tools
2 Published press articles, newsletters
1 Webinars / talks / presentations

Participation Summary:

50 Farmers
107 Number of agricultural educator or service providers reached through education and outreach activities
Education/outreach description:

As our project drew to a close, we summarized 2 years of bulk order organizing lessons and experience.  We created a series of helpful tools, templates, and reports to share our experience and lessons learned.  We hosted these on the project website, at hvfarmbulkorder.com, under the “Start a Bulk Order Program” page. Most are also available as information products attached to this report here: https://projects.sare.org/sare_project/fne20-953/.

Tools include:

  • Organizer’s workbook: a template workbook to guide new organizers and collect important program information.  It contains a detailed workplan, pages to collect vendor and site information, scripts for calling vendors, and an example budget.
  • Pricing and Order Form Template: this sheet is for creating an order form, and includes calculations to help determine product pricing.
  • Webinar:  Faith explains key details about how our program works, the organizing process, and resources it takes to run the program.
  • Slides: The slide deck used in the webinar, explaining key details of our project.
  • Instructional Video: Faith demonstrates how the bulk order program receives and processes orders. 
  • Example farmer survey
  • Example exit ticket

We collaborated with Cornell Cooperative Extension to host a webinar for farmers and service providers outside our region.  157 participants from a wide variety of states and organizations registered, and either attended or received the recording after the event.  

 

Learning Outcomes

63 Farmers reported changes in knowledge, attitudes, skills and/or awareness as a result of their participation
Key areas in which farmers reported changes in knowledge, attitude, skills and/or awareness:
  • Utilizing bulk purchasing to save money and time
  • The value of cooperative organization and collaboration

Project Outcomes

64 Farmers changed or adopted a practice
1 Grant applied for that built upon this project
1 Grant received that built upon this project
$1,000.00 Dollar amount of grant received that built upon this project
13 New working collaborations
Project outcomes:

As stated previously, this project generated $21k in savings for the farm community in 2021, and went on to provide a further $39k in cost savings in the following year.  Our 91% satisfaction rating indicates that the program was popular and appreciated. 

“Thanks so much for doing this! It's so nice to get everything in one place, avoid shipping, AND get a discount!”

-Farmer participant in 2021 Bulk Order

Assessment of Project Approach and Areas of Further Study:

We achieved our project goals and answered the questions we set out to answer.  While the project will continue to evolve, refine, and make operational improvements, the program launched successfully and continues past the grant cycle.

We believe this project is highly replicable and would benefit any other farm region with the "ingredients for success" outlined above.

Information Products

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.