Profitability in farm-to-institution sales in Massachusetts

Final Report for ONE14-227

Project Type: Partnership
Funds awarded in 2014: $14,891.00
Projected End Date: 12/31/2016
Region: Northeast
State: Massachusetts
Project Leader:
Lisa Damon
Mass. Farm to School
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Project Information

Summary:

“Profitability in Farm to Institution Sales in Massachusetts” is assessing the impact of farm to institution sales on sustainable farm income in Massachusetts. In partnership with farmers using more sustainable farming methods we gathered knowledge about the opportunities, challenges, and profitability of farming for the institutional market that farmers can use to grow their businesses and increase their profitability. Massachusetts Farm to School Project undertook three activities with the shared goal of providing the information farmers need to make more informed decisions about selling to the institutional market. The activities included case studies of three Massachusetts farms with sustainable growing practices, an income study of Massachusetts farms participating in the wholesale market to understand the statewide participation in farm to institution sales, and an event that brought together farmers and potential institutional customers. We worked throughout the grant period with our three “case study” farms to collect information for the 2014 growing season and throughout the 14/15 winter season we conducted our income survey for approximately 175 Massachusetts wholesale farms and synthesized the information for sharing with growers across the region.  The response rate to the phone survey was 73 or 46%. The top selling products were apples, corn and tomatoes.

What we found was:

Total Gross Farm Income generated from sales to institutions in Massachusetts has increased significantly over the past 4 years.

Farms are selling to about 1/3 the number of institutions as was reported 4 years ago.

While institutional markets generated a relatively small percentage of overall sales for most farms, this sales outlet may be part of a diversified marketing approach.

Profitability is not the only factor in farmers’ decisions to start or continue selling their products to schools and institutions.

We designed and distributed the report and case studies at farmer and partner events across Massachusetts.

Introduction:

While many Massachusetts farms are currently selling to institutions, there is significant room for growth to public and private K-12 schools, colleges, and universities. However, farmers may not fully capitalize on this expanding market due to lack of concrete information about the profitability of institutional sales. Institutional demand for locally grown foods is rising rapidly, while proliferation of CSAs and Farmers Markets is resulting in saturation of the retail sales market in certain parts of the state. Sustainable farms in Massachusetts need better information to take advantage of these institutional market opportunities.

Massachusetts Farm to School Project’s (MFTSP) last accounting of the state of farm to institution sales in the Commonwealth showed that 231 of our 395 public K-12 schools (73%) preferentially purchased locally grown food in the 2011-12 school year. Participation has grown from 32 school districts in 2005-06. According to the USDA’s recent Farm to School Census, 16% of Massachusetts’ food service budgets was spent on locally grown food, accounting for $8 million dollars in sales in the 2011-12 school year. 63% of respondents indicated that they intend to increase the amount of locally grown food they purchase in the coming year. We have found, however, in our conversations with farmers, the perception that school food services are not able to afford sustainably grown local produce. Even a small increase in the percentage of sales by sustainable farms to Massachusetts schools and other institutions would result in a measurable increase in profit. Yet farmers may choose not to participate because they are unsure that it will be profitable. MFTSP conducts brief, annual surveys of Massachusetts farmers to track the number of participating farms and types of crops being sold.

Our annual surveys do not track profitability, but we have twice undertaken a more detailed Farm Income Study (the last Income Study was based on data from 2010). We determined the impact of institutional sales on Massachusetts farm income to be significant, but with much room to grow. The majority of respondents (81%) had gross sales that were less than 10% of total annual sales, but 82% felt that those institutional sales were profitable or somewhat profitable. This indicates that there is both room and reason to increase institutional sales. This Income Study has been used by colleague organizations throughout New England to inform their own outreach, however, in this changing landscape, the data requires updating, especially since our last annual survey indicated a drop in farmer participation. We propose to dig deeper into the reasons (such as increased aggregation or perceived lack of profitability). This work is critical as public interest in locally-grown increases, USDA meal pattern changes have increased the amount of fruits and vegetables served in school lunches, and college students are demanding more local foods. Farmers should be aware of this demand and prepared to provide produce for these institutions, but they also need to have compelling justification for selling to this market. Concrete data to inform technical assistance to farmers is not available.

It is the goal of Mass. Farm to School Project (MFTSP) to work towards increasing farm profitability by partnering with Massachusetts farmers to develop detailed case studies, a farm income study and a statewide event. Through these we will research, analyze, and promote relevant information that can be used in our work, and by our colleagues, to inform and educate farmers of the opportunities and challenges of selling to institutions and the profitability of that market.

Project Objectives:

This project has three objectives with the collective goal of supporting increased profitability of institutional sales by sustainable farms in Massachusetts. 

Case Studies: We partnered with three Massachusetts farms to participate in case studies and requested they document their financial costs of raising crops and bringing them to institutional markets and the profitability of those sales. We requested farms track income in real time and record annual expenses at the end of the 2014 calendar year. 

Farm Income Study: For a picture of statewide participation in farm to institution sales, we have surveyed Massachusetts farmers’ participation in institutional sales during the 2014 growing season. We created the survey tool and administered it electronically and via a phone call throughout the first few months of 2015 (January – April). We selected 175 wholesale farms in Massachusetts with current or past ‘institutional’ relationships to survey and alerted all farms of the upcoming survey via email or U.S. mail to encourage participation. We also alerted them to the chance to win one of two $100 VISA gift cards through their timely participation. Once all phone calls had been made and online surveys completed, we analyzed the data to quantify the number of farms in Massachusetts selling wholesale, the number that participated in our survey, and that participate in farm to school sales. Individual financial data was kept confidential, but we are able present aggregate financial information.

Statewide Farm to Institution Gathering: Lastly, to compliment the research, and in order to increase the marketability of sustainably grown local produce, and strengthen farmers’ relationships with their customers, we hosted a statewide gathering of farmers and institutional food purchasers in conjunction with our statewide Farm to Cafeteria conference in January 2015. During the morning of January 13th, 2015 we organized a buyer trade show to attract farmers and institutional food service staff. Seven distributors and local food aggregators displayed information and networked with MA farmers to establish relationships for increased institutional sales. Regional networking sessions were also held in order for individual farmers, schools, distributors, and food service management companies to participate in regionally focused discussions about opportunities and challenges to procurement relationships between farmers and school districts, colleges, and hospitals.

Although our original workplan was to share preliminary case study and survey results during this statewide event, we determined that holding the farmer meet and greet during our scheduled Farm to Cafeteria Conference in January 2015 was more productive and had greater potential for increased relationship development for attending farmers. Unfortunately the timing of this event could not wait until these research results were available but we determined the quality of holding concurrent events in 1/13/15 was of priority. Instead we alerted attendees to the status of the research during the event and made plans to disseminate the findings in two ways upon completion of the research. We presented the preliminary information at the Northeast Regional Farm to Institution Summit, which was held in April 2015 in Amherst, MA and we electronically distributed research results to attendees of our January conference, along with other MA stakeholders.  We continue to make these resources available to stakeholder groups, legislators, and partner organizations as needed.

Cooperators

Click linked name(s) to expand
  • Jim Buckle
  • Michael Cecchi
  • Rick Melone

Research

Materials and methods:

We set out to undertake three activities with the collective goal of supporting increased profitability of institutional sales by sustainable farms in Massachusetts. These activities included detailed case studies of three Massachusetts farms with sustainable growing practices, an income study of Massachusetts farmers to understand the statewide participation in farm to institution sales, and an event to share our research findings and bring together farmers and customers.

Case Studies: As the centerpiece of this grant we partnered with three Massachusetts farms to participate in case studies that documented the financial costs of raising crops and bringing them to an institutional market, and the profitability of those sales. Our three case study partners are representative of a variety of farm sizes and crops grown so that the results are relevant and meaningful to other farmers who share common characteristics. The farms we partnered with included a large vegetable producer, a small organic farm, and an IPM orchard. The case studies were undertaken by our staff over a period of eight months and were proactive, looking ahead at the coming year and tracking expenses and income as they occur. With the farmers, we developed tools to track monthly income and expenses related to their institutional sales using common software such as Microsoft Excel. We began with in-person meetings to finalize the tracking tools, develop a workplan and conduct an intake survey to ascertain key data such as the full scope of crops grown, number of staff, number of acres armed, and current sales channels. We also gathered information about their current farm to institution relationships to document what elements, besides profit, such as building relationships with the community, promoting farm-based education, and/ or supporting childhood nutrition, they feel makes it worthwhile. Following that, we used periodic check-ins to work directly with farmers to encourage them to track finances, staff time, equipment maintenance costs, and other expenditures to plan, plant, tend, harvest, and market the crops. 

Farm Income Study: For a picture of statewide participation in farm to institution, we conducted a survey of Massachusetts farmers’ participation in institutional sales during the previous year. We documented what types of institutions were sold to (public and private schools, colleges, hospitals, and others) and virtually mapped the means by which farmers brought their product to market (through direct sales, participation in cooperative distribution organizations, or through more conventional distributors). We also tracked gross sales numbers, type and volume of produce sold during that year. Farmers were also asked to comment on the challenges to selling to institutions, in order to enable Mass. Farm to School Project to understand how we can work to better support their efforts. The survey also included questions about season extension, frequency of orders, and plans to continue with institutional sales.

Our methodology for this exercise was to create an online survey and to contact Massachusetts farmers via mail and email to alert them of the opportunity to participate. We incentivized participation by offering gift cards for random participants by a given date. While we invited participation by all farmers identified in the MDAR database as selling wholesale, we prioritized our outreach to farmers who identified as participating in farm to institution sales in the past. After an initial period, we made phone calls directly to those who have not completed the online survey to invite them to complete the survey over the phone. We called this group two or three times, as necessary in order to maximize participation. Personal phone calls offered the opportunity for feedback specific to each farm on issues and barriers to increasing sales to institutions, and opportunities for new relationships, or improving existing connections to increase farm profitability. This method worked well for us in the past and had provided roughly 70% participation >Once all phone calls had been made and online surveys completed, we analyzed the data to quantify the number of farms in Massachusetts selling wholesale, the number that participated in our survey, and that participate in farm to school sales. Individual financial data has been kept confidential, but we have presented aggregate financial information in the report. We measured profitability in dollars earned. We also gathered data to compare to past years in order to chart the growth in participation in farm to institution sales. Results determined estimated farm sales to institutions during the 2013 calendar year and what percentage institutional sales were of overall farm sales for the year.

Statewide Farm to Institution Gathering: Lastly, to compliment the research, and in order to increase the marketability of sustainably grown local produce, and strengthen farmers’ relationships with their customers, we planned to host a statewide gathering of farmers and institutional food purchasers. This “meet and greet” had hoped to offer opportunities to hear preliminary survey results, case study findings, and to participate in regionally focused discussions about opportunities and challenges to procurement relationships between farmers and school districts, colleges, and hospitals. Because of timeline adjustments, the case study findings and preliminary survey results were not available at the time we organized our gathering.  Instead this final information was disseminated to participants following the event. The event was announced via email and our website and social media outlets, through partner publications such as UMass Extension Vegnotes, and several regional meetings we attended before the event. We also reached out directly to individual farmers, schools, distributors, and food service management companies. While the outcome of this gathering was better relationships between farmers and institutional food service customers, this is harder to track by the end of this grant period.

2015 Accomplishments:
January – March 2015 – Final phone or email check-ins were made to Case Study farms to collect data.
January 2015 – Finalized invites to farmers, distributors, and institutions to statewide gathering and meet and greet.
January 2015 –Hosted Farm to Institution gathering along with farmer/institutional meet & greet
January 2015 – April 2015 –Contacted farmers for survey response via phone and/or email.
March 2015 –May 2015 –Conducted follow up calls to clarify responses to Farm Income Survey as necessary
February 2015 –May2015 – Compilation and analysis of Farm Income Survey results
January 2015 –June 2015 – Compilation and analysis of Case Study results  
June – July 2015 –Drafted Case Study reports

2016 Accomplishments:
January 2016 –- Finalized Case Study publication.
January 2016 –- Finalized Farmer Survey publication.
January – April 2016 – Distributed Case Study and Farmer Income Survey publications via website, social media, colleague organizations, email newsletter

 

Research results and discussion:

In the Farm Income Survey conducted, 155 commercially active Massachusetts farms were contacted in early 2015 and asked to answer a one-page questionnaire, resulting in 70 responses – a 45% response rate.  Similar data was gathered as in the 2011 study with a few additional questions for more in-depth information, including any expansion in volume that has occurred to meet the demand for institutional sales, a percentage break-down between retail and wholesale overall for the farm, and interest in potential collaboration among farmers for delivery.  This study provided an updated profile of Massachusetts farms that sold to institutions directly or through a distributor in 2014.  

Summary of Results:

  • 155 farms were contacted and asked to participate in the questionnaire, with 70 completed responses: a 45% response rate.
  • 36 farms, 51%, of respondents, sold their farm products to institutions.
  • 22 respondents provided their 2014 gross institutional sales, which totals $2,967,695.
  • 78% of respondents estimated their institutional sales were less than 10% of their total farm gross sales; 15% estimated institutional sales were 10 – 30% of total farm sales; 7% estimated institutional sales were 30 – 90% of total farm sales.
  • 65% of responding farms that sold to institutions in 2014 thought that it was profitable.
  • 36 farms sold their products to 48 institutions, a marked decrease from 146 total institutions reported as buying from farmers in the 2010 survey. 
  • 83% of responding farms that sold to institutions in 2014 plan to continue; 14% answered Maybe; and 3% (1 farm) answered No.  Top challenges to those that said No or Maybe are:
    • Price
    • Growing enough volume
    • Delivery
  • 24% of respondents have expanded volume to meet institutional demand, by expanding acreage, increasing production on existing acreage, winter extension/greenhouse production, processing, freezing products, picking differently, or storing root crops.
  • Top 3 Products sold by both volume and profitability:
    • Apples
    • Tomatoes
    • Corn

Further details and a full report on the findings can be found in the attached Final Report in the Outreach section below.

Research conclusions:

Farm Income Survey:

Out of the 155 farms contacted, 70 completed questionnaires were returned, a 45% response rate. Of the 70 respondents, 36 farms (51%) stated that they sold to institutions in 2014. 

Farmer Survey Questions FINAL 1-8-15 Word

Survey letter FINAL 12.1.14

Farm Case Studies:

Our goal was to gather sales data to calculate net income from institutional sales and to understand price differentials between institutional sales and alternative sales channels such as farmers markets. In reality we found this detailed information to be difficult to obtain and tease out from whole farm expenses and income.  Although our partnering farmers were cooperative, it was too cumbersome and would result in inaccurate data to pull apart expenses by marketing outlet.  Instead we gathered as much holistic financial data as possible, while still being accurate, and used the case study model as an opportunity to explore the qualitative information to support our farm income survey results.  The resulting case studies are three interesting stories of varied farm participation in institutional sales. 

Participation Summary

Education & Outreach Activities and Participation Summary

Participation Summary

Education/outreach description:

The results of the Farm Income Survey and Case Studies were shared widely within our networks of producers, partner organizations and government officials.  We were able to use social media, our electronic newsletter and partner networks to distribute these publications widely. We were able to design and print copies of the Survey and Case Studies to distribute at attended events to reach a diverse audience of stakeholders.  These published reports are attached in this section.

FINAL report MFTS 2014 survey FORMATTED

Clearview-Case-Study

Cecchi-Case-Study

Allandale-Case-Study

Project Outcomes

Project outcomes:

Analysis of Findings:

Total Gross Farm Income generated from sales to institutions in Massachusetts has increased significantly over the past 4 years.  About half the number of farms generated more than double the amount of gross sales from this market in the 2010 study.  In 2014, 22 responding farms reported a total of $2,967,695 in total gross sales.  Compared to a similar study of farms’ 2010 data in which 42 farms reported gross sales of $1,321,900, the reported total gross sales more than doubled, increasing approximately 125% over 4 years.  The average gross sales per participating farm increased significantly from $31,474 in 2010 to $134,895 per farm in 2014.

Farms are selling to about 1/3 the number of institutions as was reported 4 years ago.  2010 survey results indicated that 146 institutions purchased from 51 responding farmers.  These 2014 results identified only 48 institutions that purchased from 36 responding farmers.  The number of farms that reported selling products through a distributor is about the same as it was in 2010 (12 farms sold to a distributor in 2014; 13 farms sold to a distributor in 2010).  However, respondents were asked in both studies to only identify distributors that they know sold their products to institutions.  Because some farms may not be aware of where their products end up after selling them to a distributor, there could be more products going to institutions through distributors than is captured by this study.  More research is needed to determine whether institutions are actually buying less local farm products than a few years ago, or whether they are obtaining them through other sources, such as through distributors.

While institutional markets generated a relatively small percentage of overall sales for most farms, this sales outlet may be part of a diversified marketing approach.  While a few farms generated a significant portion of their overall farm sales from institutions, most responding farms (38 out of 41 responding farms, or 93%) reported institutional sales at less than 30% percent of total gross farm sales.  The vast majority of respondents indicated a division between retail and wholesale sales for their farm and the majority of respondents plan to continue selling to institutions.  It can be inferred from these results that while institutional sales alone is not a major revenue source for most participating farms, combined with other revenue sources it remains part of a diversified marketing approach for many.

Profitability is not the only factor in farmers’ decisions to start or continue selling their products to schools and institutions.  22 of 34 respondents (65%) that sold to institutions in 2014 thought that it was profitable for them.  30 of 36 respondents (83%) that sold to institutions in 2014 plan to continue selling to institutions.  So a higher percentage of respondents plan to continue selling to institutions than found it profitable.  Comments from respondents indicate other reasons that farms have decided to sell to institutions, such as maintaining existing relationships within the community.  One respondent stated, “(We) don’t do it because its profitable in itself, but because we have existing relationships, gives our business face time, which might benefit us.”  Another comment was, “ (The) reason I sell to schools: for cash flow 9 months of the year and to local schools to get our name out there.”  And a third respondent stated, “it is important to me philosophically to sell to schools, part of why I run the farm is to introduce children to farming”.

Conclusion

Results from this questionnaire provide updated information about the number of farms selling to institutions in Massachusetts, how profitable it is for participating farms, what products are being sold, what is working or not working, and how this is influencing decisions about whether farmers will continue selling their products to this wholesale market outlet.  This information is valuable to MFTS staff to provide continued assistance to connect farmers and institutional buyers to expand the volume of institutional sales of local farm products in Massachusetts.

There are challenges to farms selling directly to institutions in Massachusetts from the farmers’ point of view, including getting a high enough price to cover the costs of production, growing enough volume to meet institutional demand, and the time and fuel costs associated with delivery.  Comments also indicate some difficulties with knowing what products to grow that institutional buyers will follow through and buy, and the limited amount of time that most dining services staff have for food preparation.  Seasonality is a concern, with schools not open during summer months when much of the fresh farm products are available in Massachusetts, and it is a challenge to provide fresh products to institutional dining services staff when some may be used to purchasing processed or commodity products that require less preparation and can be stored longer.  MFTS can help address some of these challenges by helping to build stronger relationships and systems of communication between farmers and the institutions that they are selling to, in order to help both parties understand each others’ needs.

There are opportunities for farms to sell to institutions in Massachusetts as well, as indicated by the significant increase in total gross sales to institutions reported by farms since 2010.  Some farms are expanding acreage or transitioning their growing and storage methods to meet the demand for institutional sales.  Greenhouse production, root cellars, freezing products, and cold storage are methods being utilized to extend the season and increase the volume of products available when school is in session.  Processing is an option that a few farms are pursuing to provide products suitable for dining services staff that often do not have a lot of time or may not have the appropriate equipment to prepare fresh food from scratch.

Since 2010, there are fewer farms selling directly to a smaller number of institutions in Massachusetts.  The majority of responding farms sold less than 30% of their overall gross sales to institutions in 2014.  However, this market sector is generating more than $2.96 million in sales to 22 farms.  Compared to a similar study of 2010 farm data in which 42 farms reported gross sales of $1,321,900, the reported total gross sales more than doubled over 4 years by about half as many farms.  The average gross sales per participating farm increased significantly from $31,474 per farm in 2010 to $134,895 per farm reported in 2014.  Institutions can contribute to a diversified mix of sales for farmers that are able to develop wholesale relationships with institutional customers, supply them with products that they are looking for, and, for some, adapt their operations to meet the needs of this market.

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.