Farmer-Retailer Supply Contracts - Sustainable Food Systems: Marketing and Finance

As individuals, our nation’s small farmers cannot finance sustainable food systems because they do not generate the cash flow needed to compete with conventional foods. This is NOT to say that small farmers and gardeners have no place in the future of sustainable agriculture, or that direct sales methods are misplaced. In fact, local growers already serve as the public face of sustainable agriculture. Their role should be greatly expanded - with backing from local retailers and investors.

Food manufacturers and distributors can also help, but retailers are in the best position to support change because they are in daily contact with consumers. They also have far more pricing power than small growers and cooperatives. Retailers include restaurants, grocery stores and food services – any food business that directly serves the public.

We are working to link sustainable farmers with local retailers by developing a system of standard supply contracts that call for specific production practices, negotiated prices and fair wages. These contracts are essential if urban and rural farmers, field hands and packing house workers are to make enough money to care for the their land, families and communities. These agreements will be supported by bar-coded labels with websites that are backed by field inspections.

Our farmer-retailer contracts will be based in part on the existing USDA National Organic Program standards. However, we intend to make extensive additions for contract purposes. These additions will be based on the following principles:

• Steady farm profits
• Living wages, safe working conditions and benefits for field and packinghouse workers
• Competitive returns to investors and landowners
• Effective soil, water and wildlife management
• Healthy, affordable foods

There is no doubt that it will take time to define sustainble production standards and build the costs into our contract prices. But the task is by no means impossible. For example, it is not hard to count the number of cows that spend their summer days outdoors on pasture. Based on our experience in organic agriculture, we expect more middle and upper income consumers to buy certified pasture-raised meat, dairy and poultry products - once the benefits are clearly defined and effectively communicated. These benefits include the potential to reverse the damage to our soils and water caused by conventional farming practices.

For example, conventional farmers supply much of the hay and grain to large confinement feeders. But mega feeders return only a small percentage of the manure to the fields that produce their feed. Defining and communicating the costs and benefits of local livestock production is central to financing new pasture-based farms that are located near population centers. As money and manure return to the land around cities, we expect that better soil fertility will also help sustainable grain, vegetable and fruit production. The results will include more healthy foods at affordable prices.

Market Information

In addition to defining production practices, our supply contracts will list the market information that growers receive from retailers. Reliable demand data for competing products is critical to justifying higher prices for sustainable foods. This data will come from UCC-type labels that track food from the farmer to the retailer. The following diagram outlines the data flows.

Local Investors

This product-specific data will be analyzed and used in meetings with farmers, landowners and investors who are interested in building economies-of-scale from production through distribution - without undue financial risks to any member of the food chain. We plan to be actively involved in raising private risk capital for new sustainable farms in Eastern Nebraska and Western Iowa.

Private-sector leadership is essential because government agencies, non-profits and land grant universities are not positioned to lead on financing. Conflicts of interest are only part of the problem. While many talented researchers and non-profit managers are genuinely interested in food issues, they frequently depend on short term grants and donations. By definition, sustainability requires steady profits. And although foundations, government agencies and non-profit organizations can and must help capitalize new food systems, sustainable agriculture must also learn to earn its profits in the existing retail system. There is no economic, environmental or social justification for ignoring the established food system, including warehousing and distribution firms that are capable of tracking products with modern scanning technology and database tools.

Economic Development

Big cities have an economic interest in working with near-by rural communities to capture a bigger share of the consumer food dollar. For example, the Omaha trade area has an urban population of over 870,000. Assuming $7.00 per day in food purchases, the residents of Council Bluffs, Omaha, Bellevue and Lincoln spend over 6 million dollars each day on food. This amounts to 2.2 billion dollars per year, most of which is spent on food and food products from outside of our trade area. In other words, our dependence on non-local conventional foods drains money out of our area economy.

Since the Metropolitan area needs new jobs and more healthy food, we also need a new economic development strategy for local foods. As noted elsewhere on this website, the vast majority of new producer-owned food businesses are small direct-sale ventures that have no measurable impact on local tax revenues and wages. At the other end of the spectrum, large food manufacturers and distributors seek to drive down farm prices and wages for the benefit of shareholders and management.

Offering the consumer benefits listed above depends on achieving low cost economies-of-scale in both production and processing. Since efficient distribution and retail systems are already in place (except for food deserts), this new strategy should focus on:

• Measurable increases in producer income
• Private investors
• Coordinating urban and rural economic development efforts

Clearly, sustainable food economies must meet the needs of land and labor as well as capital and management. With these needs mind, I have started conversations on economic development with elected state and local officials, and with economic development agency heads. This page will be updated from time to time with the results of these efforts.

Entrepreneurs

Investors will be attracted to entrepreneurial growers and retailers who can develop sustainable brands and rapidly increase sales and profits. As discussed on the next page, these new brands will also require professional marketing and other business services, including production advice and financial accounting.

In closing, Woody Tasch in his Inquiries into the Nature of Slow Money (Chelsea Green) offers a set of essays on money, food and soil that contrasts the effects of unbridled economic power with the potential benefits of food cultures organized along the lines suggested by E.F Shumacher and Wendell Berry. The proposals offered here might well expose these authors to a much wider audience by building on the work of sustainable farming advocates, including my late father Bob Steffen, formerly farm manager for Father Flanagan at Boys Town. The challenge is to find the economies of scale that lie between Small is Beautiful and the realities of the established food system – all without ignoring the real needs of land, labor, capital and management.

End, 03-22-2011