The Dignity Deal:Creating Profitable, Wholesale Distribution

Networks for Mid-Sized Farmers

Community Food Security Coalition Conference

Sunday, October 17, 2010

Betty MacKenzie, Co-director, Red Tomato

The Dignity Deal Creating Profitable, Wholesale Distribution Networks for Mid-Size Farmers

I. Introductions/Context/Getting started (15 min)• Introduction• The Handouts• About Red Tomato & Some Basics• About Eco Apples

II. Typical Distribution, Deals & Effects (15 min)• Picture of Distribution• Characteristics of a Typical Deal & the Undignified Results• Losing the Middle & Strategies for the Middle

III. Product Differentiation and Dignity pricing (15 min)• How We Differentiate our Growers & Products

IV. Aggregation & Consolidation (5 min)• Making the Order Happen for the Customer

IV. The Dignity Deal and the Challenge of Scaling Up (15 min)• the Dignity Deal Basics• Characteristics of the Dignity Deal• Ways it does Not Work & Ways it does Work• Goal is Grower Satisfaction

Q&A throughout─please interrupt

Red Tomato Basics

business fundamentals—for everyone--right product, right price, on-time, paperwork, insurance,

good communication with customer, etc.

product differentiation packaging unique logistics ─transportation: grower, partner, hired ─consolidation – usually at one grower facility ─product cluster design for gaps and longevity risk management/shared risk feedback loops Dignity Deals

The Eco Apple Story

Lyman Orchards Middlefield, CT

Scott Farm Dummerston, VT

Sunrise Orchard Cornwall, VT

Alyson’s Orchard Walpole, NH

RT Co-director, Michael Rozyne, and farm manager, Homer Dunn

Picture of distribution Characteristics of typical deals Effect on midsize farms Strategies for “the middle”

II. Typical Distribution, Deals & Effects on the Market

A Picture of Distribution

Dramatic, steady loss of farms in the middle, with wholesale capacity

Picture the middle of the distribution system as the BOTTLENECK of an hourglass. Control lies at the bottleneck.

Characteristics of Typical Industry Deal

Risk shared disproportionately Remainder pricing; growers takes what’s left No feedback loops between consumer/farmer; none

or few between buyer/farmer (Silence = all is well?) Externalities (pollution, public health, farm workers,

etc.) not part of the conversation; not reflected in the cost

Large distance between grower and consumer (in space and time)

Farmer is not at the table for strategy and price making

The Undignified Result of Typical Deals

Price becomes driver Unreal costs Lower product quality Ignorance, mistrust Lacking control at the bottleneck Resulting in farm loss

We’re Losing the Mid-Sized Farms

Value-Added

Commodity

Very Small

Very Large

1. Direct Sellers

2. Cooperative Sellers

3.Low Margin/ High Volume4. TROUBLE

ZONE !!!

Farmers’ MarketsCSA’s

Internet Sales

Strategic Alliances&

Food Value Chains

Mid-sized Farms Wholesale

Commodities

Large-scalecommodity Producers

Steve Stevenson

Ag of the Middle

Strategies for Farmers in “The Middle”

Value-Added

Commodity

Very Small

Very Large

1. Specialty – Direct Sales

2. OPPORTUNITY

3. Large-scale Deals

4. TROUBLE ZONE

Mid-scaleCommodityProducers

Differentiate with Value-added Attributes Aggregate for necessary volume New kinds of business rules A Need for Dignity Deals

Steve Stevenson

Ag of the Middle

Farm Identity Intrinsic Products Packaging Advanced IPM (Integrated Pest

Management) Fair Trade Branding & Storytelling Grower Differentiation

III. Product Differentiation

We Differentiate Growers and Products (decommodify)

Examples of

“decommodified”

Red Tomato products

Locally-grown: farm identity preservation

(Farm name and location at bottom of package)

Creating intrinsic product: packaging, pack, grade, variety

Packaging

Heirloom Baskets

Heirloom Boxette

Ecologically-grown: organic and advanced IPM

Picking apples at Truncali Orchard, Marlboro, NY

Fair Trade: worker and farmer well-being

Brand and Storytelling

Grower Differentiation

IV. Aggregation and Consolidation

Kiwi CornersDanville, PA4 pallets kiwis624 cases

WFM/NoACheshire, CT

Scott FarmDummerston, VT5 pallets heirloom apples 150 cases

Black River ProduceN. Springfield, VT

Lyman OrchardsMiddlefield, CT4 pallets apples, 120 cases

Blue Hill OrchardsWallingford, CT5 pallets apples, 150 cases

Mother Earth MushroomW Grove, PA

$0

64¢

3 pallets

kiwi

1 pallet k

iwi

32¢

To: WFM/TexasArrives on Monday

$3.40

14 pallets apples1 pallet kiwis

$1.25

MondayTuesdayWednesdayFriday

Red Tomato Grower

Customer

Trucking Partner

$0

Eco Apple Logistics

Making an Order Happen for the Customer

(costs are for each leg of the trip)

The Dignity Deal Basics Characteristics of the

Dignity Deal Packaging Advanced IPM Fair Trade Branding & Storytelling Grower Differentiation

V. The Dignity Deal - the Challenge of Scaling Up

The Dignity Deal BasicsNot a formula, rather a process—our way of doing business

Based on values- Fairness, Transparency, Shared risks and rewards,

Triple bottom line accountability, (Economics, Social, Ecological)

Baseline- Striving for freshness and flavor through commitment to

continuous improvement

Origins of dignity pricing- Began with costs of production + reinvestment and

fair/limited profit- Unrealistic. Developed the Dignity Price

Characteristics of the Dignity Deal

Risk sharing- Buyer commitment- Advance planning

Dignity pricing- Farmer is at the table

for strategy and price making

Externalities - Part of the conversation

Close the distance between grower and consumer—mental and spacial

Farm identity preserved Feedback loops

- Constant communication- Continuous improvement

Some Ways It Doesn’t Work

“I have not failed. I've just found 10,000 ways that won't work.” Thomas Edison

change in personnel & relationship loss sudden death—not seeing the whole WHOLE every detail counts—a packaging design

problem your stories?

When it doesn’t work

Some ways it does

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2004 2005 2006 2007 2008 2009

Cases

Eco Apple Case Sales 2004-2009

Some more ways it does

0200000400000600000800000

100000012000001400000160000018000002000000

2005 2006 2007 2008 2009

dollars

Eco Apple dollars and acres 2005-2009

0

100

200

300

400

500

600

700

800

900

2005 2006 2007 2008 2009

acres

Grower Satisfaction

Barney and Chris Hodges

Sunrise Orchard – Cornwall, VT“…As a grower, Red Tomato has great value to my business... we have become better growers, which is exactly what we need…”

---Barney Hodges

Thank you

For more information, please visit:www.redtomato.org/resources.php

Slideshow created by Tim Huggins and RT Staff