Cooperative Food Hubs

Food hubs fill the ‘missing middle,’
helping small producers tap local markets

By Alan Borst
Agricultural Economist
Cooperative Programs
USDA Rural Development

food hub is a facility that is central to producers and has a business management structure that facilitates the aggregation, storage, processing, distribution or marketing of locally or regionally produced food products. Food hubs differ from decentralized markets, where producers and consumers are directly linked — as occurs at farmers’ markets, community supported agriculture (CSA ) associations, produce stands or any other direct sales arrangements by individual farmers.

A food hub functions as an intermediary that — by pooling producers and consumers — adds value to the marketing of produce and facilitates the development of a local food supply chain. Food hubs serve as aggregation points through which smaller producers can collectively market to larger buyers that they would otherwise not have access to. Food hubs, for example, can purchase sufficient liability insurance to enter institutional food markets.

These facilities provide storage and logistics services for both buyers and sellers. The development of food hubs has been driven by idea that there is a “missing middle” in local food infrastructure in most regions across the country. Food hubs identify and capitalize upon such gaps by developing and operating the needed infrastructure.

Consumers have become increasingly concerned about the sources of their food, with a sizeable market niche having developed for locally produced foods. Smaller producers have been searching for market outlets that provide better returns for their produce.

The cooperative model of business is one way through which such aggregation has been organized by both producers and consumers. Cooperatively organized food hubs can be distinguished from other business models, such as hubs organized by an individual grower, the government or an intermediary, such as retailers.

A 2008 study from Cardiff University in the United Kingdom analyzed producer cooperative food hubs. It concluded that cooperatives are likely to be established as mechanisms to enable profit generation from the activities of member-owners, rather than through the food hub identity.

A potential strength of co-op food hubs, the university study found, is that they are able to draw upon the expertise and resources of their membership. Coops also promote collaboration and understanding of each member’s skills and business attributes in ways that may lead to greater resilience. This depends upon the sharing of priorities among cooperative members. Producercooperative hubs are able to specialize in marketing while allowing their membership to focus on food production.

Producer cooperative food hubs
An example of a mature producer cooperative food hub is the New North Florida Marketing Cooperative (NNFC), which was established by a group of African-American farmers in 1995. Their goal was to provide marketing services to their membership, helping them to collectively sell produce to markets such as local school districts, and — ultimately — to increase the volume of produce.

After six years of operations, the coop had greatly expanded sales to 15 school districts in Florida, Georgia, Alabama and Mississippi. It currently provides food for about 200,000 students.

NNFC has adapted to meet the needs of its membership and its customer base. Since 2002, the cooperative has functioned as a coalition that promotes networking functions by facilitating connections between farmers and schools. NNFC has established a niche market and has been able to negotiate a price that is fair to the school district and profitable for its membership. As part of its marketing and promotion, the cooperative developed posters showing the life cycle of a crop – from planting to harvesting.

Another example of a producer cooperative food hub is GROWN Locally, which is described in a University of Wisconsin Extension publication, available online at: www.cias.wisc.edu/wpcontent/ uploads/2010/01/grown_locally .pdf . This co-op was started in 2000 by a group of small growers in northeastern Iowa with the goal of reducing competition between farms and increasing their access to institutional markets through product aggregation and co-branding. There are now 22 members.

The cooperative is now focused on the institutional market. Its institutional clients prefer to receive as few deliveries as possible. Therefore, the co-op has been aggregating products for these customers.

GROWN Locally is exploring the development of a processed-vegetable product line for the cooperative’s institutional clientele. The co-op has recently partnered with an entrepreneur who plans to convert a restaurant into a licensed processing facility and CSA packing and distribution hub.

Bringing in professional
management
Over time, GROWN Locally discovered that it was more cost effective to hire a professional manager than to rely on volunteer members, interns or inexperienced staff to oversee its administrative tasks. In 2008, the cooperative hired a full-time coordinator with a background in business management and marketing to coordinate pre-season planning, pricing and distribution. This allows growers to focus on production.

The University of Wisconsin Extension report concluded that cooperative food hubs need to develop or hire skilled management: “The co-op model offers a horizontal leadership structure. Without clear responsibilities and delegation, however, this model can result in disorganization, leadership imbalance and fatigue.” The charge has been made that cooperative food hubs can suffer from the model of management by consensus.

Because their farms are small-scale operations, many of GROWN Locally’s members cannot afford the certification and infrastructure necessary to formally complete certifications needed by their institutional buyers. As a result, GROWN Locally plans to adopt a post-harvest handling program for some of its members that may involve third-party certification.

GROWN Locally has found that pre-season production planning has helped its membership to better meet market demand. GROWN Locally’s members plan production ahead of the growing season, based on customer demand. Prices are then set to reflect the membership’s costs of production.

Consumer cooperative
food hubs
In 2008, Marina Michahelles completed a thesis (at the University of Vermont) in which she studied the role of consumer cooperatives as local food hubs in the Northeast. Interviews were conducted with co-op managers and workers on the question of barriers to local food sourcing. Among the findings were that: The Wedge hitting stride
An example of a mature consumerowned cooperative food hub is the 36- year-old Wedge in Minneapolis. According to the Minneapolis Star- Tribune, the Wedge is one of the largest single-store natural foods cooperatives in the United States, with $30 million in retail sales in its last fiscal year, and another $12 million in wholesale markets.

It has been consistently profitable since the late 1980s. The Wedge has done particularly well this year, refunding 80 percent of its membergenerated profits. The grocery co-op’s annual patronage refund to its members has hit $1 million for the first time, marking one of the largest such distributions in the country.

In 2007, the Wedge purchased one of its long-standing grower suppliers. The farm is currently in full production under the supervision of an experienced manager. It is now the Wedge’s primary supplier of organic produce. The farm also serves as an organic farming education site.

Both farmers and consumers have used the cooperative model of business successfully to organize food hubs to expand market opportunities for smaller agricultural producers, create rural jobs and increase local food sales.




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