Commercial buyers want local, regional food: with quality, quantity, dependability
Contracts and lower prices may, or may not, be part of the quest for end-user satisfaction

By Darcy Maulsby

editor's NOTE

The Leopold Center for Sustainable Agriculture (www.leopold.iastate.edu) in Ames, Iowa, recently hosted a gathering to update findings from 30 of its farmer-centered marketing and regional food system development.

Darcy Maulsby attended and reports here on what she discovered.

Click here for electronic versions of some of the conference presentations.

Posted January 12, 2006: Independent restaurants, foodservice operators and grocery stores throughout Iowa say they want to buy more locally-grown foods. Across the state, a host of Iowa State University (ISU) Extension staff and other specialists are helping to connect Iowa farmers with these promising markets.

The farmer-centered business tools and strategies they are developing can help farmers everywhere identify what to market for commercial and institutional and how to succeed.

What does it take to partner with SYSCO?

Identifying your intended end-user is the key to success when you sell to food distributors, said added Craig Watson, vice president of quality assurance and agricultural sustainability for SYSCO, a broadline foodservice distributor. “It’s easy to say, ‘This is what I have to sell.’ But what does your customer want to purchase? If you haven’t identified an end-user and their needs, your chances of success are lower.”

It’s easy to say, ‘This is what I have to sell.’ But what does your customer want to purchase?

SYSCO, which has over $30 billion in sales, will work with farmers who can show why their product is different and tell the story with romance and authenticity, added Food Alliance Midwest’s Jim Ennis, who spoke at the Leopold Center for Sustainable Agriculture’s recent “Marketing and Food Systems Initiative Workshop” in Ames, Iowa.

Telling your story to people who aren’t familiar with your product starts by focusing on what makes you unique and identifying what messages will hit home with potential buyers:

  • Your product is picked at the height of freshness, which creates a quality eating experience.
  • Because the food is locally raised, it doesn’t have to travel thousands of miles to reach the consumer.
  • The farm where the food is grown focuses on sustainable agricultural practices that protect the environment.

These kinds of points help SYSCO’s marketing associates help sell your products to independent restaurant owners, for example, who have to find ways to compete against the national chains, Ennis said. Getting into SYSCO’s system, however, is only half the battle, agreed Ennis and Watson. The other half is getting your product pulled through the distribution chain.
“That’s why you need to understand your end-user,” Watson said. “If customers aren’t asking for your product, it won’t move out of the warehouse, and you’ll die on the vine.”

Understanding customers’ needs starts with knowing what they want to buy. In 2005, a survey conducted in southwest Iowa showed that institutional buyers are especially interested in buying tomatoes, peppers, potatoes, onions, lettuce, eggs, strawberries, apples, green beans, carrots, beef and two-percent milk.

While franchise restaurants, movie theaters, bowling alleys and caterers had little or no interest in buying local foods, school districts, independently-owned restaurants, and foodservice providers like senior citizen centers and Meals on Wheels were interested in buying local foods,

“While franchise restaurants, movie theaters, bowling alleys and caterers had little or no interest in buying local foods, school districts, independently-owned restaurants, and foodservice providers like senior citizen centers and Meals on Wheels were interested in buying local foods,” said Steve Adams, an ISU Extension community and economic development field specialist. “By identifying the products buyers say they want, next we need to pinpoint how much demand exists and help more farmers supply food to these institutional markets.”

Separate research conducted by ISU shows that restaurants, wholesaler/retailers, and university foodservice appreciate the value of local produce and are willing to invest in it. These buyers have sometimes had trouble receiving the quantity and quality of local produce they need, noted Jason Ellis, an ISU Extension specialist in the Department of Apparel, Educational Studies, and Hospitality Management.

Contracts: Yes, no and flexible

On the flip side, he found that Iowa produce growers were interested in selling to brokers or foodservice operators but felt it was risky to increase their production to provide the quantity and quality required. That’s where contracts might help minimize both the producer’s and the foodservice operator’s risk.

In general, foodservice operators don’t use contracts, he said. “They like the flexibility of calling to order what they want, when they want, and not calling when they don’t want anything.” The exceptions are large foodservice organizations that trade in high volumes, including universities and large hospital systems, but the agreements aren’t exclusive. In some cases, 70 percent of their food will come from a certain supplier, but the institution is allowed to purchase the other 30 percent from other vendors, Ellis said. From a regional produce broker’s standpoint, a contract may be the necessary tool to prove you’re a reliable supplier.

On the production side, growers sometimes are reluctant to consider contracts. Some farmers may not know what price to charge or how to negotiate pricing, Ellis noted. “Others may feel their pride is at stake. ‘Isn’t my word good enough? Why do I need a contract?’ they ask. But if you get into $10,000 or $20,000 worth of sales, you need the assurance from your buyers that the money will be there.”

In general, foodservice operators don’t use contracts. “They like the flexibility of calling to order what they want, when they want, and not calling when they don’t want anything.”

Contracts can be flexible to fit your needs and your buyers’ needs. For example, producers can work with their attorney to include an advance notification clause that they must notify the buyer a certain number of days in advance if they won’t be able to deliver the specified quantity and quality of produce. Also, a clause can specify that the buyer needs to notify the producer a certain number of days before the next delivery if they won’t need the set volume.

To help growers analyze whether increased contract production is feasible, Ellis is also working with specialists in ISU’s College of Business to develop forecasting spreadsheets for growers. Perhaps you’re currently producing one bed of carrots on 0.10 acres but have the opportunity contract 10 acres of carrots through the summer. “This user-friendly spreadsheet will help you analyze potential expenses to meet the demands of a contract, along with your return after expenses,” Ellis said. “It’s a full-cost accounting to see if it makes financial sense to expand.”

Ellis hopes to make this tool Web-based or downloadable from the Internet by this fall.

Kitchen Project cooks up interest in local foods

Contracts may prove more valuable as enterprises like southwest Iowa’s Kitchen Project take shape. ISU Extension specialists and local small-business trainers have developed a business plan for a home-meal-replacement venture that relies on locally-grown foods.

“The challenge for small and niche producers is to find a sufficient market so they can be sustainable,” noted Lynn Adams, an ISU Extension community resource development specialist. “We want to have a market ready for growers who participate in the Kitchen Project and help keep the dollars local.”

The demand for a home-meal-replacement service continues to grow, Adams said. “Dual-income families have little time to cook, although surveys show that more families want to share meals at home.

The demand for a home-meal-replacement service continues to grow, Adams said. “Dual-income families have little time to cook, although surveys show that more families want to share meals at home. Also, consumers’ use of convenience foods and fast food at dinner continues to grow.”

The Kitchen Project is designed to be an LLC (rather than a cooperative) that’s funded by investors, including producers. Meals (which would have a price point comparable to fast-food meals) from locally-grown foods will be prepared in a centrally located commercial kitchen. The business plan calls for delivering meals six days a week. “There could be drop-off points like factories, and we could deliver meals at the end of the workers’ shifts,” said Adams, who reports that next steps will include forming the Kitchen Project LLC. “We hope the Kitchen Project will also foster the development of other new businesses, such as delivery services and a packing house for produce.”

Frozen assets prove profitable

Are commercial buyers ready for frozen local foods for year-round menu planning? Yes, reports Kamyar Enshayan, director of the University of Northern Iowa’s Local Food Project, who surveyed 16 institutions in the Cedar Falls/Waterloo, Iowa, area. All these buyers expressed interest in buying locally grown, frozen products (especially frozen strawberries and corn).

"Profitability among processed products varied considerably," said Craig Chase, an ISU Extension specialist. Most items that required further processing into jams, jellies, or purees proved more profitable than products requiring only freezing.

The buyers were after increased sales and customer satisfaction because of better taste, and six said they would pay more for it. In response, ISU Extension developed Project Freeze, a small-scale demonstration project to help farmers supply local corn and strawberries year-round from 2001 to 2004.

“Profitability among processed products varied considerably,” said Craig Chase, an ISU Extension specialist. Most items that required further processing into jams, jellies, or purees proved more profitable than products requiring only freezing, including whole or sliced strawberries. In addition, higher-end products like cobettes (cobs of corn cut in half) for restaurant use were more profitable than bagged, frozen cut corn.

“The key is to match your product to markets that are likely to achieve higher prices and margins,” Chase said.

Enterprise budgets maximize income

Chase and his ISU colleagues have also studied central Iowa farmers’ production budgets to help producers boost their profit potential. Crop budgets were run for asparagus, basil, carrots, cherry tomatoes, eggplant, garlic, green beans, greens, potatoes, red raspberries, snow peas, strawberries, sweet potatoes, and heirloom tomatoes. All except strawberries were developed to represent a 4-foot by 100 foot-bed.

The ISU researchers studied farm income by tracking price and volume to determine gross revenue. They also factored in pre-harvest expenses (including seed, fertilizer, labor and other inputs), along with harvest expenses (including labor, packaging, overhead, machinery and land). They found that produce that receives a high price on high yields with reasonable production costs such as heirloom tomatoes, can net $500 or more. Produce such as sweet potatoes and asparagus netted only $27 to $35 per bed.

The research shows that producers should have about 70 beds per acre of produce that can be sold, Chase said. “A reasonable goal would be to net $70 after total costs per bed, for a total goal of $5,000 net per acre.”

Of the 14 budgets, basil, cherry tomatoes, eggplant, greens, red raspberries, and heirloom tomatoes received above average returns. Strawberries returned approximately
$4,000 per acre above all costs.

To help producers run enterprise budgets, ISU is developing a PDF tool that can be downloaded from the Internet. ISU Extension plans to release a publication outlining production budget results in early 2006.