An NGFN An NGFN Webinar binar THE MILLION DOLLAR QUESTON: WHAT IS BREAK -EVEN AND VIABILITY FOR DIFFERENT FOOD HUB MODELS? March 19, 2015
Presentation Outline Technical Orientation Welcome Jeff Farbman Wallace Center at Winrock International The Million Dollar Question Questions and Answers Upcoming Opportunities, etc.
W ALLACE C ENTER AT W INROCK I NTERNATIONAL • Market based solutions to a 21 st 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 | contact@ngfn.org
Presentation Outline Technical Orientation Welcome The Million Dollar Question James Barham USDA Rural Development James Matson Matson 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 Aggregation “Buy Local” campaigns On-farm pick up Distribution Distributing to “food deserts” Production and post-harvest handling Brokering Food bank donations training Branding and market Health screenings, cooking Business management services and development demonstrations guidance Packaging and repacking SNAP redemptions Value-added product development Light processing (trimming, Educational programs Food safety and GAP training cutting, freezing) Youth and community employment Liability insurance Product Storage opportunities
Regional Food Hubs Defining Characteristics - 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
Food Value Chains Businesses intentionally structure their core operations to produce both financial success and social benefit Shared mission and operational values support decisions and processes
Classifying Food Hubs By Legal Structure? Lines blurring between socially-driven for-profit enterprises and business savvy nonprofit enterprises Better Approach – Form follows Function Image: USDA Flickr
Food Hub Market Typology* Direct to Wholesale Consumer 29% 39% Hybrid 32% *Based on a working list of 302 food hubs identified by the USDA’s Agricultural Marketing Service (April 2014)
Food Hub Operational Models – WHOLESALE – 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 – DIRECT TO CONSUMER – 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 – HYBRID – 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
Margin and Mission “Oxygen Mask Rule” of Food Hub Viability Image: USDA Flickr
Analysis Formulation Collaboration between Matson Consulting and the USDA with input from various food hubs and industry participants.
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 Produce Dairy 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 Wholesale Processing Consumer • $75,000 • $250,000 • $1,000,000 + Image: MS Office Clipart
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$180,000 $160,000 $140,000 $120,000 $100,000 Dollars $80,000 $60,000 $40,000 $20,000 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec CASH - end of period Sales
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Image: strategiclearner.files.wordpress.com
Image: morquefile.com
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1,400,000 1,200,000 1,000,000 800,000 Sales ($) 600,000 400,000 200,000 - Baseline $50,000 $100,000 $150,000
2,500,000 2,000,000 1,500,000 Sales ($) 1,000,000 500,000 - Baseline $50,000 $100,000 $150,000
All Other Payments to Unforseen and Bad Debt Producers Other Variable Costs General and Marketing Administrative Costs Infrastructure Costs
$2,901,422 $3,500,000 140% Increase $3,000,000 $2,500,000 $1,717,396 42% Increase Sales ($) $2,000,000 $935,009 $1,500,000 $1,210,000 ( 23%) Decrease $1,000,000 $500,000 $- Baseline: 65% 75% 80% 70%
$1,773,508 $1,580,748 $1,800,000 $1,392,347 $1,600,000 $1,400,000 $1,210,000 $1,200,000 Sales ($) $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 Baseline $40,000 $80,000 $120,000
◦ 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
Food Hub and Distribution Resources Moving Food Along the Value Chain: Innovations in Regional Food Distribution By 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 development By USDA Agricultural Marketing Service and the Wallace Center at Winrock International The Role of Food Hubs in Local Food Marketing By James Matson, Martha Sullins, and Chris Cook – funded by USDA Rural Development Electronic copies of these publications can be downloaded for free at www.ams.usda.gov/FoodHubs
New Report on Food Value Chains 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. http://dx.doi.org/10.9752/MS141.05-2014
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