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TRANSCRIPT
THE MILLION DOLLAR QUESTON:W H A T I S B R E A K - E V E N A N D V I A B I L I T Y F O R D I F F E R E N T
F O O D H U B M O D E L S ?
An NGFN Webinar
March 19, 2015
Presentation Outline
Technical Orientation
Welcome
Jeff FarbmanWallace Center at Winrock International
The Million Dollar Question Questions and Answers Upcoming Opportunities, etc.
WALLACE CENTER AT WINROCK INTERNATIONAL
• Market based solutions to a 21st Century food system
• Work with multiple sectors – business, philanthropy, government
• Healthy, Green, Affordable, Fair Food
• Scaling up Good Food
NATIONAL GOOD FOOD NETWORK: VISION
NATIONAL GOOD FOOD NETWORK: GOALS
Supply Meets Demand• There is abundant good food (healthy, green, fair and affordable) to meet
demands at the regional level.
Information Hub• The National Good Food Network (NGFN) is the go to place for regional
food systems stories, methods and outcomes.
Policy Change• Policy makers are informed by the Data and Analysis and outcomes of the
NGFN and have enacted laws or regulation which further the Network goals.
http://ngfn.org | [email protected]
Presentation Outline
Technical Orientation
Welcome
The Million Dollar Question
James BarhamUSDA Rural Development
James MatsonMatson Consulting
Questions and Answers Upcoming Opportunities, etc.
Presentation Overview
Food Hubs and Financial Viability Defining Food Hubs
Food Hub Operational Structures
Financial Models
Scenario Analysis
Food Hub Resources
Local/Regional Food Systems
Food Hubs
Aggregating Distributing Marketing Local Food
Regional Food Hubs
USDA Definition*
A business or organization that actively manages the
aggregation, distribution, and marketing of source-
identified food products primarily from local and regional
producers to strengthen their ability to satisfy wholesale,
retail, and institutional demand.
* Barham, James, Debra Tropp, Kathleen Enterline, Jeff Farbman, John Fisk, and Stacia Kiraly. Regional Food Hub Resource Guide.U.S. Department of Agriculture, Agricultural Marketing Service. Washington, DC. April 2012.
Regional Food Hubs
Actively linking producers to markets On-farm pick up Production and post-harvest handling
training Business management services and
guidance Value-added product development Food safety and GAP training Liability insurance
Aggregation Distribution Brokering Branding and market
development Packaging and repacking Light processing (trimming,
cutting, freezing) Product Storage
“Buy Local” campaigns Distributing to “food deserts” Food bank donations Health screenings, cooking
demonstrations SNAP redemptions Educational programs Youth and community employment
opportunities
Carries out or coordinates the aggregation, distribution, and marketing of
primarily locally/regionally produced foods from multiple producers to multiple
markets.
Considers producers as valued business partners instead of interchangeable
suppliers and is committed to buying from small to mid-sized producers
whenever possible.
Uses product differentiation strategies (e.g. identity preservation, group
branding, sustainable production practices, etc.) to ensure that producers get a
good price for their products.
Works closely with producers to ensure they can meet buyer requirements by
either providing direct technical assistance or finding partners that can provide
this technical assistance.
Aims to be financially viable while also having positive economic, social,
and/or environmental impacts within their communities
Defining Characteristics-
Regional Food Hubs
Businesses intentionally structure their core operations to produce both financial success and social benefit
Shared mission and operational values support decisions and processes
Food Value Chains
By Legal Structure?
Lines blurring between socially-driven for-profit enterprises and business savvy nonprofit enterprises
Classifying Food Hubs
Better Approach – Form follows Function
Image: USDA Flickr
Food Hub Market Typology*
Direct to
Consumer
39%
Wholesale
29%
Hybrid
32%
*Based on a working list of 302 food hubs identified by the USDA’s Agricultural Marketing Service (April 2014)
Wholesale
Produce, meats, dairy, shelf stable items
Both Direct to Store Delivery (DSD) and to Distribution Centers (DC)
Little reliance on volunteer labor
Institutional Wholesale
Serves schools, hospitals, etc.
Narrower margins, but higher volume
May need additional certifications
Food Hub Operational Models– WHOLESALE –
Direct to Consumer (D2C)
Mainly fresh produce but becoming more diverse w/increasing order customization
Individuals and families with drop off locations
Combination of paid & volunteer labor
Tends to be higher margins but lower volumes
Examples: Multi-farm CSAs, buying clubs, online farmers markets, mobile markets
Food Hub Operational Models– DIRECT TO CONSUMER –
Hybrid Model
Combines Direct to Consumer and Wholesale models
More product differentiation
Better able to match high volume/low margin markets with low volume/high margin markets
Leads to more stable seasonal sales
Food Hub Operational Models– HYBRID –
“Oxygen Mask Rule” of Food Hub Viability
Margin and Mission
Image: USDA Flickr
Collaboration between Matson Consulting and the USDA with input from various food hubs and industry participants.
Analysis Formulation
Results from a Cooperative Agreement between USDA Rural
Development and VA FAIRS
◦ Access to a variety of producers and members
◦ Suburban: within 50 miles of customers
◦ 6,500 square foot facility
Image: MS Office Clipart
Other
Fresh ProduceDairy Products
Cost of Goods (67.63%)
Cost of Sales (11.04%)
Gross Margin 21.33%
Overhead Costs (24.29%)
Net Margin (2.99%)
Labor Costs per Paid FTE: $48,867
◦ Deliberately Chosen
Specific Sales Level and Corresponding Costs/Activities
◦ Year-long Periods of Time
◦ Highlight Common Issues
Startup
Breakeven - Covering Operating Expenses
Growth - Becoming Cash Flow Neutral
Viability - Preparing for Future Growth
Direct to Consumer
• $75,000
Wholesale
• $250,000
Processing
• $1,000,000 +
Image: MS Office Clipart
Image: MS Office Clipart
Image: MS Office Clipart
Image: MS Office Clipart
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Do
llars
CASH - end of period Sales
Image: MS Office Clipart
Image: strategiclearner.files.wordpress.com
Image: morquefile.com
Image: MS Office Clipart
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Baseline $50,000 $100,000 $150,000
Sale
s ($
)
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Baseline $50,000 $100,000 $150,000
Sale
s ($
)
Other Variable
Costs
Marketing
Costs
Infrastructure
Costs
General and
Administrative
Unforseen and
Bad DebtPayments to
Producers
All Other
$935,009
$1,210,000
$1,717,396
$2,901,422
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
Sale
s ($
)
(23%) Decrease
42% Increase
140% Increase
65% Baseline:
70%75% 80%
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
Baseline $40,000 $80,000 $120,000
$1,210,000
$1,392,347
$1,580,748$1,773,508
Sale
s ($
)
◦ Baseline Loan Amount: $225,000
◦ Loan and Associated Fees for Loan Mix:
Ranges from 60-75% financed
Finance charges (including all fees) of 6.5-7%
Terms from 6-10 years
Additional Equipment
Baseline +50,000 +100,000 +150,000
Growth - Net Income $52,071 $47,501 $42,931 $38,361
Annual Loan Payment $12,519 $16,693 $20,866 $25,039
◦ Hubs can be a viable entity
◦ Hubs can operate in a range that works for rural
areas
◦ Pay attention to the details
◦ Small changes matter
Moving Food Along the Value Chain: Innovations in Regional Food DistributionBy Adam Diamond & James Barham – USDA Agricultural Marketing Service
Regional Food Hub Resource Guide Food hub impacts on regional food systems, and the resources available to support their growth and developmentBy USDA Agricultural Marketing Service and the Wallace Center at Winrock International
The Role of Food Hubs in Local Food MarketingBy James Matson, Martha Sullins, and Chris Cook – funded by USDA Rural Development
Food Hub and Distribution Resources
Electronic copies of these publications can be downloaded for free at www.ams.usda.gov/FoodHubs
Food Value Chains: Creating Shared Value to Enhance Marketing Success – joint project
between USDA and the Wallace Center
The report is designed to provide guidance to the reader on how food value chains are initiated and structured, how they function, and the benefits they provide to participants.
New Report on Food Value Chains
http://dx.doi.org/10.9752/MS141.05-2014
USDA Food Hub Technical Report Series - Published by USDA Rural Development. Authored by James Matson
and associates.
Running a Food Hub: Lessons Learned from the Field
Running a Food Hub: Business Operations Guide
Running a Food Hub: Assessing Financial Viability
Upcoming Report Series on Hubs!
Running a Food Hub
USDA’s Food Hub Portalwww.ams.usda.gov/FoodHubs
A catalogue of USDA's research findings, resources, and support for food hubs
Food Hub and Distribution Resources
National Food Hub Collaborationhttp://foodhub.info
Map and list of known food hubs, current news, webinars, conference proceedings, print resources
Food Hub Benchmarking – Farm Credit
Food Hub National Surveys – Michigan State University
www.usda.gov/knowyourfarmer
Website: One-stop shop for financial
and technical assistance resources from USDA to grow your local food enterprise www.usda.gov/knowyourfarmer
The Compass: How USDA resources
are put to work in your community www.usda.gov/kyfcompass
The Compass Map: See what’s
funded in your community and learn how others are using USDA programs
USDA’s “Know Your Farmer, Know Your Food” Initiative
Webinars are Archived
TOPICS!
http://ngfn.org/webinars
NGFN Webinars
3rd Thursday of each month3:30p EST (12:30p PST)
Apr 16: Discerning Pallets: Grower's Experiences Selling Their Crops Through Food Hubs
May 14: Crop Insurance for Small Farms: A Crash Course
Jun 18: Creative Financing for Food
http://ngfn.org/webinars
Food Hub Survey
Are you a food hub manager?
Help us continue to advance our sector
Improved survey - optimized, especially if you participated in 2013
Request your individualized survey link from:
Jill [email protected]
USDA Local Food Directories
Was
Farmers Markets
Now adds:
CSAs
On-Farm Markets
Food Hubs
http://www.usdalocalfooddirectories.com/
Direct link to register:
http://bit.ly/regmyhub
Get Connected, Stay Connected
