Developing Alternative Distribution Networks to Groceries and Food Cooperatives for Sustainably Produced Missouri Grown Food

Final Report for LNC00-178

Project Type: Research and Education
Funds awarded in 2000: $97,931.00
Projected End Date: 12/31/2002
Matching Federal Funds: $7,804.00
Region: North Central
State: Missouri
Project Coordinator:
Russell Kremer
Missouri Farmers Union
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Project Information

Summary:

After thorough research determined the demand and need for sustainably produced food by rural grocers and smaller independent retailers in the St. Louis area, several farmers and farm cooperatives in the region were organized into a marketing distribution network. This cooperative system appears to be a solution to those smaller producers and producer groups who have limited time and resources to effectively market and distribute their production. A sustainable certification brand, Heritage Acres, and a uniform set of purposes, principles, and production standards were established. Outreach and education followed the establishment of the distribution network and participants learned how this community food system could be replicated.

Introduction:

Traditional commodity farmers have seen their marketing choices and their profit opportunities severely dwindle during the last several years, prompting farmers to embrace a new vision of building direct relationships with consumers and establishing a committed, direct marketplace for their products. At the same time, food cooperatives, St. Louis area independent grocers, and rural stores are searching for sustainably produced, family farm food to use as a marketing niche for their survival. Farmers, as producers, have limited time and resources to effectively market and distribute, and also face market entry barriers such as exclusive arrangements many stores have with large suppliers. Smaller independent retailers and food cooperatives are often denied affordable service and delivery by the large corporate distribution system, which are becoming increasingly prevalent.

This project was aimed at helping farmers capture more of the food dollar and by accommodating the smaller grocers’ need of accessing local, wholesome food by establishing an effective marketing and distribution network. The establishment of this network will encourage more farmer-owned cooperatives to enter into community based, value added processing activity, and greatly improve the self-reliance of rural communities. Community based distribution networks can be easily replicated throughout Missouri.

Project Objectives:

1) To research the potential for marketing sustainably produced, Missouri grown food through small, flexible distribution networks to supply independently-owned supermarkets and food cooperatives in central and east central Missouri. Target audience: Farmers, small food processors, new generation cooperative members, and rural/urban retailers.

2) To develop a cooperative network to distribute food products from individual farmers and agripreneurs, farmer-owned cooperatives, and small processing operations to food outlets in central and east central Missouri. More specifically, to develop one distribution network to serve groceries and food cooperatives located in St. Louis and surrounding areas to provide meats, fresh produce, and selected processed foods from already existing farms and small processors. This network will serve as a model for other distribution networks in the state. Target audience: Farmers, small food processors and rural/urban food retailers.

3) To conduct workshops and state seminars under the auspices of the Missouri Farmers Union, utilizing project results in developing small distribution networks across the state. Target audience: Farmers interested in diversifying markets, and independent rural and inner-urban retailers looking for new alliances.

Cooperators

Click linked name(s) to expand
  • Julie Baker
  • Dr. Bill Heffernan
  • Dr. Mary Hendrickson

Research

Materials and methods:

The primary approach to meet the first two objectives was the use of scientific quantitative and qualitative techniques to research market potential, identify products, farmers, processors and buyers, and develop a distribution network. Missouri Farmers Union compiled the results of the project and incorporated them into its general education outreach program to meet Objective 3.

Phase I: fall 2000 to fall 2001

Existing Missouri distributors were identified and interviewed to find out which products work with the clientele, and to identify product needs. Internet searches, food publications, and Missouri Department of Agriculture directories were used to identify those existing distributors. Transportation costs for sourcing sustainably produced, Missouri grown products were researched and evaluated through interviews with Associated Wholesale Grocers, Blooming Prarie, Holloway Distribution, Ficks Distributing, Hand Distributing, Jones Poultry, and Missouri Purveyors. Local, state, and federal regulations regarding food processing and distribution were researched. The primary resource was the University of Missouri’s Office of Value-Added Science and Nutrition Department. Types of on-farm storage needed for supplying distribution networks as well as other needed infrastructure were determined.

Phase II: fall 2001 to summer 2002

Research results from Phase I were used to recruit and solicit farmers to supply products to a model distribution network. The established Missouri Farmers Union membership was contacted by mail and six successful town hall meetings were held throughout the eastern, southeastern and northeastern areas of the state. A business structure for forming a model network was researched – it looked at the Associated Wholesale Grocer model, the Holloway L.L.C. model, and the Blooming Prarie model. Farmers were assisted in the development of a series of broad principles concerning production and processing of food that would authenticate (certify) the claim of sustainably produced and Missouri grown. The work at the Midwest Food Alliance and Land Stewardship Program was used as a guide. Producers were trained in farmer-consumer promotion as part of their participation in the network. Help from Blick & Staff Communications, St. Louis, as well as marketing educators at the University of Missouri, were solicited and applied.

Phase III: summer and fall 2002

Workshops at regional meetings of the Missouri Farmers Union that encourage the development of similar networks across the state were held. Results of the projects will continue to be incorporated into educational activities of the Missouri Farmers Union as well as within activities of the University of Missouri Outreach and Extension. Missouri Farmers Union worked with state government agencies to incorporate this training with compatible programs.

Research results and discussion:

Several case studies of successful farmer-to-customer marketing strategies were discovered and investigated, including the Minnesota Food Project, Land Stewardship Project, America Fresh (CA), Good Food Direct, Organic Valley, Midwest Food Alliance, Cooperative Grocer (MN), Blooming Prairie, Kansas City Food Circle, Columbia Food Circle, and Calloway Food Circle.

Larger successful regional distribution entities were studied: Holloway Distribution, Associated Wholesale Grocers, Jones Poultry, Fick Distributing, Missouri Purveyors, Hand Distributors, and Midendorffs.

Interviews with rural grocers were completed and a comprehensive survey was developed and completed by grocers to determine barriers and needs.

A strong working relationship was established with Missouri Grocers Association and Associated Wholesale Grocers, a cooperative of independent retailers, and Hometown Merchants Association.

Heritage Acres brand was developed to certify and validate sustainably produced products that will be distributed by the network.

Research was completed on local, state, and federal regulations regarding food processing, distribution, branding, and labeling.

Existing distributors (Fick Distributing, Halloway Distributing, Mt. View Processing, Swiss Meats, Schwan’s, Central Dairy, Heather Hand, Blooming Prairie, Ozark Foods) were interviewed and possible alliances were negotiated.

Consumer focus group studies were conducted to determine demographic and marketing information for targeted areas of central and east Central Missouri.

A list of available sustainably produced products in Missouri was compiled by surveying members of the Missouri Farmers Union, Missouri Organic Association, Sustaining People through Agriculture Networks, the Missouri Vegetable Growers, as well as farmers listed in the Missouri Department of Agriculture’s Direct Market Directory.

Alliances with existing cooperative grocery suppliers were arranged.
Outreach and education activities have been incorporated into Missouri governmental agencies’ programs.

Research conclusions:
Impact of Results/Outcomes

Seventy-six new fruit and vegetable farmers have been recruited. They will produce in a sustainable production system, which will save them nearly $100 per acre in production costs as well as providing consumers with safer, residue-free food products.

Thirty-nine natural pork farmers have been recruited to supply antibiotic-free, sustainably produced pork, which will save them approximately $10 per hog produced and net them nearly $45 more at the marketplace while providing consumers wholesome, safe pork. Thirty people in this distressed community will be employed because of this project.

Sixty-two sustainable beef producers will supply the distribution network with local, fresh beef products, which will fetch them an additional $150 per animal.

One organic family farm dairy and another community-based dairy representing 20 farms will participate in the distribution network. They currently are facing huge barriers to marketing and anticipate improved profit margins through this distribution and marketing service.

Missouri Poultry Processors plans to process approximately 1,000 free range chickens per day, and plans to utilize this distribution service to save them nearly $0.50 per unit.

Farmer owned cottage industries, such as producers of salsas, jellies, honeys, soaps, and baked goods, have long awaited this effective service that is crucial to their survival.
Thirty-two rural grocery stores and 10 independent St. Louis retailers will use this distribution service. Many of these were on the verge of closing due to the discontinuation of large distribution service. Most plan to promote these goods as differentiated Missouri “homegrown” products, and use this as a competitive edge.

Three rural communities are developing cooperative grocery stores and plan to utilize the distribution network. Each store feels confident that they can support three full time employees at an average wage of $25,000.

Economic Analysis

It will cost $3,000 per month to rent a warehousing and distribution facility in the St. Louis area. The facility is needed to dry and refrigerate sustainably produced food for the network. Operating costs at the warehouse facility (labor, insurance, repairs, etc.) are estimated at $4,000 per month. The cost of trucking will be approximately $8,000 per month. Total costs per month are estimated at $15,000. The average commission rate charged by the network will be approximately 15%. Therefore, $100,000 in volume from the enlisted producers is $120,000 per month. This yields an estimated profit of $3,000 per month.

Farmer Adoption

All farmers who joined together to organize this distribution network have agreed to work cooperatively instead of independently. Together, they developed the purpose and principles that guide their activities: provide an equitable return to family farmers to ensure quality of life, produce in a manner that protects and enhances the environment, create economic activity that sustains and strengthens communities, provide fair wages and dignity to labor, and provide consumers with the safest, most wholesome food.

Traditional commodity farmers had learned that in order to get off the “production treadmill” they had to produce a differentiated or niche product desired by consumers. This differentiation starts at the farm level, continues at processing and ultimately at the marketing phase. Conventional vegetable growers had to learn new techniques as they made the transition to organic production, and natural swine producers have learned more sustainable approaches to maintaining herd health.

Individual, independent direct marketers learned that cooperative marketing and distribution is the effective approach to their challenges of limited time and resources. Many realized that it is almost impossible to carry out all phases effectively – production, financial management, processing, marketing, and distribution. They now concentrate on the first two segments.

Participation Summary

Educational & Outreach Activities

Participation Summary

Education/outreach description:

Articles or other communications regarding related project actives include:

Show-Me Ag: New Generation Co-ops: A one-half hour program on KMOS-TV, Warrensburg, Missouri, featuring Missouri Farmers Union’s progress in community development, including distribution cooperatives.

Cooperation Works!: Missouri Farmers Union efforts recognized in assisting the development of processing, marketing, and distribution systems for Ozark Mountain Pork Cooperative, one of the participating groups in the distribution network.

National Farmers Union News: A featured article on the young and growing Missouri Farmers Union and how new visionary projects such as distribution networks are the keys to successful growth.

Family Farm Focus: Various articles describe how farmers and rural communities will benefit though these new opportunities of marketing and distribution.

Howell County News: Local newspaper features Ozark Maintain Pork Cooperative for innovative marketing and distribution.

Project Outcomes

Recommendations:

Areas needing additional study

As farmers form marketing and distribution cooperatives, networks, coalitions, or other community based groups, they must have access to and a clear understanding and knowledge of the financial information. They must know how to evaluate the information as well as how to give directions to the manager based on this evaluation.

Farmers and farm groups still need intense training on what consumers want to buy, what they want it to look like, what they are willing to pay, etc. We must embrace some of the techniques of larger industry.

More investigation is needed to determine the ideal business structure or makeup (i.e. bylaws) to keep cooperatives and other groups truly sustainable – ecologically, economically, and socially sound.

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.