Good Food Economy Digest
New financial data to help local food sector grow
People building strong places with local and regional food
Good Food: Healthy, green, fair, and affordable
By Patty Cantrell, Regional Food Solutions
Tina Prevatte and Jennifer Curtis knew they were going against the grain when they started selling local pasture-raised meats to North Carolina restaurants, cafeterias, and retailers. Their business, Firsthand Foods, chooses to deal with independent farmers in the region even though the cost of handling product from many vendors in relatively small amounts can be tough on the bottom line. Most companies in the low-margin distribution business trade in larger volumes to make money.
The point of Firsthand Foods’ “regional food hub” business, however, is to build up family farms and local economies by opening new routes to market.
Analysis approachTo provide a clear financial picture across different food hubs, Counting Values separates business-related income and costs from program-related costs and associated grant and donation income. This allows for comparison on a common gross profit margin basis.
To round out the food hub operational picture, another study by the Wallace Center and partners – the National Food Hub Survey -- provides more information on food hubs overall activities and impacts. Results for the most recent Survey are expected in the fall.
“We’re building something that is very intentionally different than the traditional food industry,” Prevatte said. “Slim margins and operating near breakeven are actually signs of success when your intention is to make good food accessible to all while also paying farmers fairly and equitably.”
Business Data Support
Now a national study of the financial and operational performance of food hubs like Firsthand Foods sheds new light on their delicate balance of profitability and social change. The study comes from the Wallace Center at Winrock International, home of the National Good Food Network, in partnership with the Farm Credit Council.
The COUNTING VALUES: Food Hub Financial Benchmarking Study draws on financial and operational data from 48 of the more than 300 regional food hubs in the nation. It provides comparative data, or benchmarks, that food hub managers can use to analyze and adjust operations.
Financial supporters also can use the benchmarks to evaluate and target investment opportunities, whether loan, grant, or equity.
Such regional food finance initiatives are growing. The new Michigan Good Food Fund, for example, is a public-private partnership that aims to grow the entire supply chain from production through processing to retail. The U.S. Department of Agriculture recently outlined in its new “Made in Rural America” report $800 million it has invested over six years in 29,100 local and regional food businesses and infrastructure projects.
The food hub financial benchmarking study can help these and other financing and funding efforts navigate opportunities in the regional food sector, said Sarah Brannen, program manager with the Local Economies Project. In 2013, LEP produced “Financing a Better Food System,” a white paper exploring infrastructure and financing needs in New York’s Hudson Valley.
“A lack of reliable information to gauge investment opportunities and risk impedes the growth and development of regional food systems,” she said. “This new study offers much needed benchmarking that will help get capital off the sidelines."
Kate Danaher is lending manager for RSF Social Finance, which has provided more than $5 million in loans to 11 food hubs. She said the study makes operational trends among food hubs more visible, which can help lenders, grant makers, and others target their support better.
“Over time, these trends will inform how we support and capitalize this movement, anywhere from providing technical assistance to understanding and applying the appropriate types of capital based on an organization’s unique set of needs.”
No More Flying Blind
Knowing how other food hubs fare financially, where expenses are high or low, for example, can help food hub developers steer their own businesses, said Haile Johnston, co-director of Common Market. The Philadelphia food hub supplies 250 customers, including 20 hospitals and 90 schools, with products from 85 farms. It expects to generate $3 million in sales in 2015.
Johnston said such benchmarking information was not available seven years ago when Common Market began.
“We started in the dark,” he said. “This study will quite literally be a benchmark for startups as well as established food hubs seeking to professionalize their operations and structure their finances.”
Counting Values adds to a growing list of new local food market data resources available to business developers, funders, and investors in the emerging business sector. To evaluate a loan application, for example, bankers need comparison data to determine how realistic the business’ projections are. The U.S. Department of Agriculture has recently begun collecting and publishing local food price data to meet such financial analysis needs.
The challenge for regional food businesses is that they are social enterprises on the cutting edge of a multipurpose emerging market.
The new financial benchmarks are useful for planning and evaluation,” said Michelle Franklin, manager of the La Montanita Cooperative Distribution Center (CDC). “But there are also many gains that do not come to light in the profitability line.”
The La Montanita CDC is a subsidiary of New Mexico’s five-store La Montanita retail cooperative. It sources from more than 1,300 New Mexico food and farm suppliers for sales to its own stores as well as other retailers and food buyers, including competitors like Whole Foods. The CDC’s sales in 2013 approached $5 million.
“Our La Montanita co-op retail stores benefit from the CDC’s work every day in ways that improve their margins and productivity” Franklin said.
The co-op’s member customers want local products. They also want local economic development; many put up money to get the CDC started for such benefits.
“Our local vendors receive consulting and technical services, and our community economy is enriched because of what we do,” Franklin said.
Teri Lowinger co-founder of the Sustainable Local Food Investment Group recognizes these more intangible returns along with the investor’s need to be repaid. Since 2011, the angel investment group has moved more than $1.2 million into food- and farm-related businesses in the Chicago region.
“We know food hubs are necessary. What we don’t know is if they can exist without nonprofit grants and low-interest capital,” she said. “This study aggregates data that can begin to clarify the policy levers to support market growth. More aggregated data will help attract the market capital that’s essential for regional food systems to really take off.”
Return on Investment
Firsthand Foods’ experience in North Carolina demonstrates the kind of economic change that regional food investments can make.
The number of niche meat producers in North Carolina has ballooned to more than 800 from just a handful 12 years ago, according to Sarah Blacklin, program manager for N.C. Choices, a program at the university-based Center for Environmental Farming Systems (CEFS). The emerging industry generated $19.6 million in sales in North Carolina in 2013, according to a report co-authored by N.C. Choices and based on a survey of about 300 small-scale farmers.
A number of smaller independent meat processors are also expanding to accommodate demand and keep product flowing.
One is 23-employee Acre Station Meat Farm, a processing facility 120 miles east of Raleigh in Pinetown, NC. Acre Station had been operating at maximum capacity and recently expanded its 12,000 square feet footprint by 25 percent.
“We don’t want to have to turn away any new business,” co-owner Richard Huettman said.
Economist Noah Ranells at North Carolina Agricultural and Technical State University says technical assistance programs like NC Choices and social enterprises like Firsthand Foods are helping “all parties in the supply chain work together to help this niche market grow.”