food hubs: issues, opportunities, and propositions for practitioners

FOOD HUBS: ISSUES, OPPORTUNITIES, AND PROPOSITIONS FOR PRACTITIONERS

Richard A. Heiens, University of South Carolina Aiken

James Matson, Matson Consulting

WHAT MAKES THESE APPLES DIFFERENT?

Presented July 8, 2012 - IMDA Helsinki, Finland

ANSWER:

One was sold at an American supermarket and went through the traditional distribution channel for produce. It probably travelled at least 1,800 miles from

the farm to the consumer’s plate (25% farther today than in 1980- Halweil, 2002).

The other was sold through a developing local foods marketing channel. It only travelled 46 miles from farm to plate.


INTRODUCTION

U.S. consumers are willing to pay a premium for local foods

Food hubs are a way for producers to find local markets

Food hubs are emerging as a solution for local food marketing in the United States


LOCAL FOOD BUZZ

Last ten years have been transformative- Sales of organic foods in the U.S. tripled from 2000-2009 to almost $25 billion.

New consumer decisions to buy locally- Have led to multi-farm Community Supported Agriculture (CSA) programs, where small to medium sized farmers bundle their output to local markets.

Local food sales were estimated to have achieved $7 billion in 2011 (USDA‐ERS)


WHAT IS A FOOD HUB?

USDA’s working definitionVs

Broader Definition of Food Hubs


USDA DEFINITION OF A FOOD HUB

“A business or organization that: actively manages; the aggregation, distribution, and

marketing; of source‐identified local or regional

food products; primarily sourced from small to mid‐

sized producers for delivery to retail, foodservice, and/or

institutional buyers”.


BROADER DEFINITION OF FOOD HUBS

Should be defined in terms of function rather than form: Some food hubs exist in a virtual context,

transmitting information between buyers and sellers of local and regional food products.

Many hubs evolved from an educational or social mission:

striving to keep food dollars in the local economy keeping working agricultural lands in production


FOOD HUB MATURITY


THE VARYING FUNCTIONS OF FOOD HUBS

Market Access for Local Foods- Local consumers access to local producers

Information Flow and Sharing- Good Natured Family Farms

Transportation and Distribution- Costliest and most complicated aspects of operating a food hub

Brokerage Service- Traditional mid value chain role in food sales


THE VARYING FUNCTIONS OF FOOD HUBS

Increasing Market Share by Bundling- Community Supported Agriculture (CSA)

Increasing Market Share by Extending the Season

- Coordinating existing product lines

Maintaining a Consumer-Producer Connection- a two way informational marketing channel


FOOD HUB PRODUCT OFFERINGS


GROWTH OF U.S. FOOD HUBS

Source: USDA AMS

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201110

30

50

70

90

110

130

150

170

45 47 51 5465

7382

101

117

133145

162

Growth in the Number of Food Hubs (2001-2011)


U.S. FOOD HUB DISTRIBUTION


CONSTRAINTS TO GROWTH OF FOOD HUBS

Capitalization Liability

- Tort risk and contract risk Local Processing Capacity

- Challenge of processing of meats Human Resources Capacity

- Business management


BUSINESS STRUCTURE OF FOOD HUBS

The Evolving Non-profit Entity- E.g. Eastern Carolina Organics (ECO)

Cooperative Structured Food Hubs For-Profit Food Hubs

- E.g. Colorado Homestead Ranches (CHR)

Multi-Structured Food Hubs


VIRTUAL FOOD HUB AS AN INFORMATION SOURCE

Creation of Networks and the Linking of Buyers

- E.g. OmOrganics

Product Assurances- Assurances about product quality

Traceability- Point of origin


ROADMAP FOR FOOD HUB DEVELOPMENT: PRINCIPLES AND PROPOSITIONS

Strategic plan with clear goals

Management oversight team has all stakeholders engaged

Understanding of different direct markets and how to access them



An educational program may be part of the hub development

The hub may have to reduce risk on the buyer’s side to access markets

Capital is required for supply chain infrastructure



No one type of business structure is best fit for food hubs

Efficient management of information is critical

Legal Status of Food Hubs


DEFINITIONS:

C corporation refers to any corporation that, under United States income tax law, is taxed separately from its owners. Any distribution from the earnings and profits of a C corporation is treated as dividend for U.S. tax purposes.

S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

LLC is an unincorporated association and is not a corporation. Owners of the LLC are protected from some or all liability for acts and debts of the LLC.


POTENTIAL FOOD HUB BENEFITS

Environmental benefits- Less transportation costs and less traffic congestion

Social benefits- Supplying schools with fresh foods

Economic benefits- Higher margins for farmers

Development of local human capital- Producer training and capacity building


CONCLUSION

Conventional U.S. Food Marketing Chains are ill equipped to maintain the traceability of producer to consumer

Food Hubs serve to connect producers and buyers and maintain traceability as a value proposition


food hubs: issues, opportunities, and propositions for practitioners

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