Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Statistically, this isn’t necessarily true, and more often than not small farms and producers utilize only direct retail sales at farmers’ markets as their only venue for profit generation. If you run the numbers, and reminding yourself that “time = money,” you’ll see that vending at farm markets is often the most time expensive, most labor intensive, and results in a greater potential damage to both sold and unsold products via weather conditions and transport.
Additionally, you will find that vending at a farmers’ market is also the most statistically risky venue for generating sales as profit is directly dependent on outside forces: the weather, the number of customers any given day at the market, other vendors and insider politics, outside community events that draw your customers away, and more. Many farms find themselves spending 3-4 hours of labor per each hour of direct selling through their booths. Adding the numbers of transport costs, the cost of labor, and the cost of product losses via transport damage or inability to resell those products after the market closes; many find that selling at farmers’ markets is, what we call in business, a loss leader.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Farmers’ markets are WONDERFUL! I couldn’t speak more highly or support them more!!!!
In This Whitepaper, we’ll tackle the topics of diversifying the agricultural sales mix for small and medium producers to include farm markets, should you choose, while also laying a solid business foundation for multiple revenue sources with multiple risk variables to provide a full and sound profit foundation.
It is extraordinarily IMPORTANT that farms create 4 Separate Sales Channels for Solid Agricultural Sales. The proper product mix for an agricultural business is to mix and have all 4 modes of profit activities: Direct Retail Sales, Indirect Retail Sales, Wholesale Sales, and Partner-Profit Sales.
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In July of 2011, Jim Rogers, investment whiz, best-selling author and one of Wall Street’s towering personalities, gave this advice: If you want to become rich, become a farmer. He predicts that farming incomes will rise dramatically in the next few decades, faster than those in most other industries – even Wall Street. “We don’t need more bankers,” Jim said. “What we need are more farmers. The invisible hand will do its magic. The world has a serious food problem and the only way to solve it is to draw more people back into agriculture. Farmland has emerged as one of the hottest investments on Wall Street.”
Before you cheer for the local food movement, it is imperative to understand that this Wall Street insider is championing large, mono-cropping, not-always-edible agriculture – the kind that plants untold acres of ethanol corn whose seeds come from Cargill or Monsanto that requires untold gallons of specially formulated herbicides and pesticides, for example. Is this what he means by the “invisible hand?”
When the dot-com bubble burst in 2000, investment cash began to trickle into an area that had for decades seemed stodgy and boring: food commodities like corn, soy, and rice. And after the housing market started to unravel in 2006-'07, that trickle turned into a gusher.
How did the global food supply become a Wall Street profit center?
According to Frederick Kaufman, the history of food took an ominous turn in 1991 at a time when no one was paying attention. Until that point, agriculture had not traditionally engaged the attention of Wall Street bankers, whose riches did not come from the sale of real things like wheat or bread, but rather from the manipulation of ethereal concepts like risk and collateralized debt. In 1991, food was the only remaining business that could not be recast as a financial abstraction. So, with accustomed care and precision, Goldman Sachs’ analysts went about transforming food into a concept. They randomly selected 18 commodifiable ingredients and contrived a financial elixir that turned edible food into a mathematical formula expressed as the Goldman Sachs Commodity Index. They began to offer shares. Not only did our food got to market for sale, the entire industry became buyable by large corporations with a nod and a cheer from Wall Street.
In antitrust theory, when four players control more than 40 percent of a market, they're said to wield "market power"—that is, they can manipulate the prices they charge consumers and the terms on which they deal with their suppliers. So, rather than raise prices, the food industry has slashed costs—at the expense of workers, farmers, and the environment.
According to Mother Jones, farmers rely on a small handful of firms for their inputs. But it turns out the same thing holds true when they harvest and sell their crops. Just four companies—Cargill, Archer Daniels Midland, Bunge, and Louis Dreyfus—control up to 90 percent of the global trade in grain. In the United States, three of those firms process 70 percent of the soybeans and 40 percent of the wheat milled into flour. The bulk of corn and soy grown by US farmers ends up feeding animals in vast factories, and here, too, the consolidation is dramatic: Three companies now process more than 70 percent of all beef, and just four firms slaughter and pack upwards of 58 percent of all pork and chicken.
Wall Street LOVES Big Agriculture Industrial Byproducts
This fall, Archer Daniels Midland has ramped up construction on an initiative to build an underground carbon sequestration facility . This would make the United States the world leader in underground carbon sequestration by injecting polluted carbon dioxide gasses emitted from an ethanol facility in Illinois into porous rocks in deep saline rock reservoirs thousands of feet underground. By 2013, Archer Daniels Midland (ACM) expects to inject 3.5 million tons of CO2 underground each year.
It’s these types of environmentally risky and untested, potentially dangerous projects like these that make investors and Wall Street really happy! We have already given, without our direct knowledge, $141 Million our tax dollars to this project, and ACM already has their hand out demanding more. As the 2012 Farm Bill comes to the floor of the White House and into the daily transactions of Wall Street, you can be assured that it is projects like these that will receive a majority of funding.
The financial question is this: if a large corporate agricorporation owns the topsoil on large tracts of land, do they also own the space thousands of feet underground beneath it? If the answer is yes, you can also be assured that farmland preservation will turn its attention to protect these large tracts of land owned by the companies who own the intellectual property rights of the seeds planted in the 8-inches of topsoil on top.
Whether underground carbon sequestration projects are good or not good, whether you buy the argument that sweeping our emissions under the rug is a good environmental approach, and whether or not you understand that regardless of this project works or not (I’m glad I don’t live in Illinois) in flat lands on the Midwest, it won’t work in the mountainous terrain of coal country (whatever “works” means), the bottom line is that supporting big corporate agriculture is NOT supporting farmers.
Wall Street’s Love Affair with Corporate Agriculture Will Skew the Farm Bill to Indirectly Hurt Small Family Farms
Typically, passage of the Farm Bill occurs every five years and involves a lengthy process of hearings, constituent meetings, and (sad but true) many a high-priced meal on the tab of some lobbyist or other—followed by detailed negotiations between the House and Senate Agriculture Committees. It has also often been seen as an opportunity to—as one recent action alert put it—change the food system by supporting small farms, investing in rural economies, and “supporting more diversified farming and livestock systems, healthy food access, conservation, and research.”
The next reauthorization was not expected until late in 2012—if not 2013—but through an unexpected turn of events, it may be decided much faster, and with even less input from the good food movement than the last one.
And when I say faster, I mean at warp speed. Earlier this week, according to the National Sustainable Agriculture Coalition, the House and Senate Ag Committees suddenly announced that they would write the entire 2012 Farm Bill in the next two weeks. The prospect of a small group of negotiators who are not beholden to traditional farm interests working behind closed doors to slash farm spending might strike some as a sign that our long national industrial agriculture subsidy nightmare is over. But as Ken Cook, president of the Environmental Working Group (EWG) and an advocate for farm subsidy reform, said “it’s likely that we will get a ‘secret farm bill’ with ‘no accountability.’”
No one knows exactly how it will turn out. According to Grist, “there are people betting on all” possible scenarios. But one thing is certain; negotiators are desperately trying to maintain the annual flow of $18 billion in subsidies to the largest farmers who produce commodity crops like corn, soy, and cotton. This is reflected in the proposals currently circulating in Congress, specifically over a set of subsidies known as “direct payments.” Originally designed as a temporary means to get around World Trade Organization restrictions on government support of private industry, direct payments go to large farmers based on past farm yields and acreage.
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Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Let’s start with some defining terms
According to Wikipedia, Sales promotion is one of the four aspects of promotional mix. (The other three parts of the promotional mix are advertising, personal selling, and publicity/public relations.) Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include contests, coupons, freebies, loss leaders, point of purchase displays, premiums, prizes, product samples, and rebates
Sales promotions can be directed at either the customer, sales staff, or distribution channel members (such as retailers). Sales promotions targeted at the consumer are called consumer sales promotions. Sales promotions targeted at retailers and wholesale are called trade sales promotions. Some sale promotions, particularly ones with unusual methods, are considered gimmicks by many.
Sales promotion includes several communications activities that attempt to provide added value or incentives to consumers, wholesalers, retailers, or other organizational customers to stimulate immediate sales. These efforts can attempt to stimulate product interest, trial, or purchase. Examples of devices used in sales promotion include coupons, samples, premiums, point-of-purchase (POP) displays, contests, rebates, and sweepstakes
Direct Marketing
I think that it is fair to say that small and medium farmers and agricultural producers are BRILLIANT at direct marketing. Direct marketing is a form of advertising that reaches its audience directly through multiple channels including direct physical interaction – such as buying a booth at a farmers’ market, email, direct mail, etc. Businesses communicate straight to the consumer with advertising techniques such as fliers, catalog distribution, promotional letters, and street advertising. Direct marketing sends its message directly to consumers without the use of intervening commercial communication.
Indirect Marketing – E-Commerce and Digital Media
When farmers hear the words “e-commerce” or “web marketing,” they usually think of big business, fancy websites, and online shopping. When farmers think of e-mail, they sigh, and see it as another item in their long list of chores. To many, email can be as exciting as paying bills or doing taxes, and managing a website seems as realistic as winning the lottery.
However, farmers who dismiss e-commerce as an “impossible dream” are actually missing out on a tremendous business opportunity that can improve their bottom line. E-commerce is not for everyone, but farmers who already have a computer can save and earn more money by taking advantage of this existing resource (their computer) to harness technology for their marketing success.
The Rodale Institute’s Farm and Food Marketing specialists selected a pilot group of 15 farmers from Pennsylvania, Maryland, and New Jersey to study and implement web based marketing strategies. Farmers were selected based on their ability to use email and a demonstrated entrepreneurial attitude. The Web Based Direct Marketing Study showed that, with very little investment of time or money, farmers can use their computers to streamline and maximize their marketing efforts. The participating farmers found that e-commerce, web marketing, and other web based tools are technically and financially viable, can pay for themselves, and help the farmers reach their marketing and sales goals.
The Future of E-Commerce for Agricultural Businesses
In a prior blog post, Sustainable Marketing: Why Your Business NEEDS Social Media, we discussed the fast-moving world of business marketing.
In the food and farming world, the success of your sales from marketing is directly tied to the success of any one particular product and any one particular location, and is NOT tied to the strength of the organization themselves.
We want consumers to support YOUR ORGANIZATION – we want them to support YOUR FARM, regardless of any current or future product or farm market vendor booth location. Consumers – even those who shop at farmers’ markets – are particularly slow to understand that farmers are different from each other, that they are individual entities and businesses. For the most part, farms who sell retail through farm markets have their individual farm’s brand and name erased and replaced with the name of the farmers’ market. Most consumers know that they go to the farm market and buy things . . . . They are coming to the market itself not directly to you as an individual and separate farm business. This is one of the few downsides of vending at farmers’ markets – this watering down or minimizing of your farm’s individual brand under the banner of the larger market itself.
It is imperative that small farming and agricultural organizations utilize online media outlets to build a direct and loyal fan base specific to their individual brand and farm. Doing so will enable you to sell your product at a farmers’ market in the typical catch-as-catch-can consumer craze AND maintain your own specific branding separate from the market itself.
Outbound Marketing Techniques to Generate Profit
Outbound marketing techniques such as email blasts, anonymous booths at farmers’ markets are getting less and less effective over time for two reasons. First, your average human today is inundated with over 2000 outbound marketing interruptions per day and is figuring out more and more creative ways to block them out, including caller id, spam filtering, and more.
Second, the cost of coordination around learning about something new, shopping for something new, or engaging with new, independent media using the internet (search engines, blogs, and social media sites) is now much lower than physically going to a seminar at the Marriott, or flying to a trade show, or even visiting a farmers’ market.
Keep in mind that the percentage of those have an ability to purchase local products is 1/10th of 1% of all interested purchasers – and those who do, purchase haphazardly and generically at farmers’ markets without allegiance to any particular farms at that market. To rely solely on your booth at the farmers’ market as your only sales generator means that you’re NOT selling your businesses’ products to 99.99999% of your potential consumer base. You’re missing out! Additionally, studies show that while only 1/10th of 1% of all interested local food purchasers actually and physically buy local food from farms every week, 40% of folks wish that they could. Perhaps they had a business meeting and couldn’t attend the market that week. Regardless, those 40% of potential consumers must be reached by digital media to secure and generate physical sales when they are able to attend your farmers’ market and/or in another venue that is more suitable to that particular consumers’ needs.
In order to do this, you need to set your website and social media feeds up like a "hub" for your industry that attracts visitors naturally through the search engines, through the blogosphere, and through the social media sites. From this HUB, your loyal followers will then locate you at your outbound sales venues – like your farmers’ market booth – directly and specifically, regardless of the branding of the market as a whole and regardless of your customers’ personal schedules.
Inbound Marketing, using E-Commerce and the Web
Inbound Marketing is marketing focused on getting found by customers and building relationships with them. These relationships build loyalty. Loyalty builds future sales and support. Loyalty is the single most important competitive edge between small and medium scale farming operations. In traditional marketing (outbound marketing) companies focus on finding customers. They use techniques that are poorly targeted and that either interrupt people or hope that people haphazardly find them. These techniques are hit-or-miss and are very expensive.
Sustainable Marketing Solutions and Inbound Marketing flip outbound marketing on its head and instead creates content and an online culture around your products and services that potential customers want to see. Inbound marketing builds long-term relationships which, over time, attracts highly qualified customers, buyers, and investors to their businesses like a magnet.
Smart agricultural and farm businesses will use BOTH direct and indirect e-commerce marketing for the greatest potential for sales and profits!
Diversifying your Agricultural Sales Mix Blog Series
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Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Agritourism
According to a recent NYT article, most small farms are not self-sustaining in a very basic sense: they can’t make ends meet financially without relying on income from jobs off the farm. In a clever way to make ends meet, you should consider, if you can, incorporating agritourism opportunities. Many farms have opened bed-and-breakfasts, or created opportunities for farm stays by partnering with folks such as Feather Down Farms. Others operate corn mazes, seasonal amusements, hunting opportunities, dude ranch amusements, and more!
Agritourism activities bring important economic boosts and direct marketing awareness to farms and the movement is fueled by city dwellers who want to understand where their food comes from or who feel an urge to embrace the country life.
The United States Department of Agriculture predicts that this year the average farm household will get only about 13 percent of its income from farm sources. Agritourism is appealing because it increases the family’s income from the farm, potentially reducing the need for off-farm jobs.
The U.S.D.A.’s census of agriculture, which is conducted every five years, estimated that 23,000 farms offered agritourism activities in 2007, bringing in an average of $24,300 each in additional income. The number of farms taking part fell from the previous census, in 2002, but at that time the average agritourism income per farm was just $7,200.
World Wide Opportunities on Organic Farms acts as an online clearinghouse for people who want to trade labor for lodging on a farm, with stays ranging from days to months. Ryan Goldsmith, who manages the group’s branch in the United States, said that interest had grown strongly. Currently more than 11,600 people are registered as members of the American branch, with access to a database of about 1,300 farms, in all 50 states.
Exploring Value-Added Products
A great many farmers include direct and retail sales as at least one component of their marketing mix. This might include a Community Supported Agriculture operation, sales at farmers' markets, selling through their farm stand, and selling wholesale to area restaurants and retail stores. And then, most small and medium farming operations stop there.
Most commonly, value-added products derive from fruit or vegetables that are transformed into gourmet food items. According to Jeri Ohmart in Direct Marketing with Value-Added Products, any product can be considered value-added if it is originally grown by the farmer and increased in value “by labor and creativity.”
Farmers cite three major reasons for expanding their farming business to include value-added products: to use excess produce, to supplement their regular farming income, and to provide an outlet for their creative talents.
Value-added products eliminate waste and use excess produce
If there's one thing farmers detest, it's waste. They hate to see perfectly good fruit rot on the ground or be added too early to the compost bin. The first response to the question of what motivates farms to develop value-added products was that it was an excellent solution to the waste problem.
As farmers have discovered, less than perfect fresh fruit is not valued in today's competitive and cosmetic market. Those who sell to exclusive restaurants, niche markets and restaurants that specialize in high quality, organic produce know their fruit and vegetables must be in near-perfect condition. Chefs like Alice Waters or retail markets like Monterey Market in Berkeley hire "foragers" to seek out the highest quality, fresh, seasonal food; hence, the quality requirements are high and the competition is fierce. Much of the fruit off the trees and vines is not cosmetically perfect enough to sell to our high-end customers.
But the blemishes are minor and don't interfere with the quality of the fruit. Sometimes the fruit is just overripe, becomes ripe at a time that is not quite right for their customers, or there is a bumper crop of overabundance. Value-added products provide an excellent use for this extra, less-than-premium-quality produce.
Value-added products add profit, stabilize farm income, and boost direct retail sales
Close on the heels of the desire to use all their produce is the potential profit that value-added products offer farmers. Off-season months present a problem to farmers, especially small farmers who rely solely on direct marketing through retail sales at farmers’ markets. By putting your excess produce to good use, you can supplement your regular farm income in the slow season. It also allows you to recoup some of the loss incurred from vegetables or fruit that does not receive top dollar due to minor damage, and to mitigate the market fluctuations of any particular products’ market pricing.
During the peak summer season, about 90 percent of his farm income is derived from fresh fruit sales, but during the off-peak winter season, the proportions should be reversed with value-added products contributing about 90 percent to the farm income. The value-added portion of the direct marketing business plays a critical role in the farm's year round income.
Overall sales at farmers markets are boosted by value-added products, especially during the off season. Farmers can charge about 10 to 20 percent more than wholesale prices for a value-added product at the farmers’ market. Because several holidays occur during winter months, farmers should partner together to create products that complement holiday tables or that can be used for gifts. Nuts, spreads, sauces, pies and pastries, and home decoration items such as wreaths and herbal sachets move especially well during late fall and winter when fresh fruit and vegetables are not as abundant.
Additionally, the imagination of most farmers is limited to condiments with their value-added products. Keep in mind that condiments have a long shelf-life and are replaced occasionally – sometimes 6-8 months later. And yet, consumers LOVE their pre-packaged and processed convenience products. When 70% of the retail food dollar is spent on convenience, small farmers and producers should be reaping the profit benefits of offering these opportunities to their consumers – trail mixes, dinners in a box, food-to-go, and all other clever things non-condiments!
Creating Value-Added Product Partnerships to minimize Stress and Costs
Value-added helps with overall farm income, but there are extra costs as well. Many of these additional costs are extensions of their normal operating costs. However, there are new costs, and depending on the operation, these can be quite substantial. For an investment like this, you must feel fairly confident of a consistent, and even growing, market for your new products. Even if the market seems to be reliable, these investments add pressure to your farm enterprise. There are many entrepreneurial training programs to assist with exploring and mastering the business of value-added product expansion. And too, don’t forget your neighbors!!!!!!
One downside to the farmers’ market model is that under one “roof,” farmers are left to fend for themselves at their individual booths. The current agricultural landscape seems to favor individualism and segregation from other farmers and producers. I, for one, would like to see that trend reversed.
The notion that ONE BUSINESS has to do it all is misguided and dangerous. Agricultural Cooperatives are extraordinarily effective generators and marketers of value-added products! No one farm or producer needs to meet the needs of every potential retail customer alone.
Value-Added Agriculture
Depleting grain prices, lower farm subsidies, changing consumer habits and intense competition for agricultural commodities have created an immediate need to explore alternative production and marketing strategies. The establishment of farmer owned, value-added processing cooperatives will provide farmers with opportunities to enhance sustainable profit.
In our current system, middlemen still harness more profit than the real owner of the produce. As a result, farmers receive only 2-3% return on their investment. And yet, if you can move up the food chain – so to speak – by getting involved in processing and direct marketing, rather than selling raw commodities to middlemen, you’d realize a much higher profit return on your investment in the short term, and a greater stability of reliable income in the long term.
Today's food consumers want taste, nutrition, freshness, variety, and convenience. Ethnic populations are growing and niche markets are becoming available. By engaging in value-added agriculture, farmers are increasing their net farm profits that would otherwise go to the middlemen in the food chain. The value-added concept transforms growers from 'price takers' to 'price makers'.
The world has shrunk, and, increasingly peoples and nations have grown completely inter-dependent on one another. Why should our individual small farms be different? Why should we expect them to stand alone and provide all things to all consumers?
Emily’s Wishlist for Value-Added Products at the Market
Form value-added strategic alliances with your farming compatriots and add value-added products to your sales mix alongside raw and whole products. And, don’t go it alone. Share the costs, share the profits, share the extra work load, and share the experience with your consumers!
And for goodness sake, THINK OUTSIDE OF THE BOX!!!! My wishlist?
- Dinner to go: like a package of gound beef, rolls, lettuce, tomatoes, and a condiment in one bag, for example
- Macerated fruit in containers that I can add to my plain yogurt for breakfast or lunch
- Sampler Packages: small containers of different condiments so that I can try them all or give them as gifts
- Beverages: iced tea or fruit drinks made from your farm that I can drink while you’re away
- Old-fashioned fermented foods like sauerkraut or kimchi or old-fashioned katsup
- Oh . . . . the list goes on and on!!!!!!!!!!
PS. Remember that livestock is considered a value-added product because livestock increases the value of pasture and feed grains. Just a tidbit of knowledge . . . . . .
Diversifying your Agricultural Sales Mix Blog Series
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Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Let’s start with some defining terms.
Partner-Profit Selling, or a Cooperative (also co-operative; often referred to as a co-op), is a business organization owned and operated by a group of individuals for their mutual benefit. Cooperatives are defined by the International Cooperative Alliance's Statement on the Cooperative Identity as autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through jointly owned and democratically controlled enterprises. A cooperative may also be defined as a business owned and controlled equally by the people who use its services or by the people who work there. Cooperative enterprises are the focus of study in the field of cooperative economics. A cooperative is a legal entity owned and democratically controlled by its members. Members often have a close association with the enterprise as producers or consumers of its products or services, or as its employees. Cooperatives are based on the cooperative values of "self-help, self-responsibility, democracy and equality, equity and solidarity" and the seven cooperative principles.
Cooperatives bring tremendous value to people and communities around the world. They are businesses that are owned and controlled by the people who use them and that return profits back to their members. EVERY FARM and agricultural producer should be involved in some form of cooperative and profit-sharing or Partner-Profit sharing venue.
Depleting grain prices, lower farm subsidies, changing consumer habits and intense competition for agricultural commodities have created an immediate need to explore alternative production and marketing strategies. The establishment of farmer owned, value-added processing cooperatives will provide farmers with opportunities to enhance sustainable profit.
In our current system, middlemen still harness more profit than the real owner of the produce. As a result, farmers receive only 2-3% return on their investment. And yet, if you can move up the food chain – so to speak – by getting involved in processing and direct marketing, rather than selling raw commodities to middlemen, you’d realize a much higher profit return on your investment in the short term, and a greater stability of reliable income in the long term.
Cooperatives
Cooperatives exist in every industry, every geographic area, in rural and urban areas, serving rich and poor. It is a way of doing business as old as human life. Co-ops are owned by consumers, producers/farmers, workers, businesses/organizations, municipalities and governments, and other co-ops.
Cooperative businesses exist to meet their members' needs and they are focused more on service than investment. Cooperatives are owned and controlled by their members. Increased local control keeps the co-op in the community. In this business structure, profits return to members, thus money is kept within a community. Consumers believe co-ops have better products and services at a lower cost.
The most common types of cooperatives are:
Consumer Cooperative: A consumer cooperative is a purchasing organization, usually retail in nature, that is formed by and for the benefit of the consumer. Consumer cooperatives are guided by the principle that the process of producing and distributing goods and services shouldn't be controlled by major corporations with the goal of maximizing profit. Instead, they should be owned, controlled and directed by the consumer to supply his or her economic needs. Members benefit by gaining access to quality goods and services, many otherwise unavailable, based on their level of involvement with the cooperative. By acting together, members have an economy of size and increase their bargaining power. Members also share the earnings. When the organization generates profits, members receive earnings based on their level of involvement with the cooperative. Some examples of of consumer cooperatives are credit unions, natural food co-ops, rural electric co-ops, and other co-ops such as Mad River Glenor REI.
Worker Cooperative: A worker-owned cooperative is just that -- an organization owned and operated by the workers or staff of the business. Although one of the smallest segments of the cooperative community in the U.S., it's also one of the fastest-growing, as people realize that the surest way to love and keep your job is to own it. Worker co-ops may be formed by freelancers joining forces, entrepreneurs eager to share the ups and downs of founding a business, or conversion of existing businesses to worker ownership as a retirement strategy for owners. Larger companies can also explore the option of Employee Stock Ownership Plans or ESOPs, which give workers a stake in the success of the business and allow for similar kinds of participation and democracy in the workplace (though these are not required for ESOPs, as they are for co-ops). Special tax incentives exist for owners selling their companies to worker co-ops or ESOPs. Employee-owned companies are "fast companies." They are usually well managed, they encourage innovation and they achieve high levels of productivity.
Producer Cooperative: Owned and operated by producers working either separately or as a group, a producer cooperative is an organization formed to offer its members expanded marketing capabilities and production efficacy. After allowing for the expenses of operation and funds allocated for expansion or reserves, it operates on a cost basis for the mutual benefit of its members and stockholders, as producer or patrons.
Business or Organization-Owned Cooperative: A business or organization-owned cooperative is an organization owned by a group of businesses or organizations, such as municipalities, for their mutual benefit. These businesses cooperate with each other, forming an alliance to purchase goods and services at a total cost that is substantially less than the costs that would be incurred by individual businesses acting alone. By purchasing cooperatively, their buying activity becomes more efficient. They also save through lower administrative costs and guaranteed levels of business with vendors and suppliers. The member businesses that belong to the co-op agree to pay set fees, participate in governing the co-op and use its services. A business-owned co-op has a democratically-elected Board of Directors to oversee policies and operations and hire management personnel, who in turn hire staff and implement the Board's policies. Business-owned cooperatives are common in the telecommunications and electric utility industries. Some well known shared services co-ops include True Value and Ace Hardware stores, Best Western hotels, and the Associated Press (AP).
Creating 4 Sales Channels for Solid Agricultural Sales: the proper product mix for an agricultural business is to mix and have all 4 modes of profit activities: Direct Retail Sales, Indirect Retail Sales, Wholesale Sales, and Partner-Profit Sales.
Diversifying your Agricultural Sales Mix Blog Series
Check out our:
Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Let’s start with some defining terms.
Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services. In general, it is the sale of goods to anyone other than a standard consumer.
According to the United Nations Statistics Division, "wholesale" is the resale (sale without transformation) of new and used goods to retailers, to industrial, commercial, institutional or professional users, or to other wholesalers, or involves acting as an agent or broker in buying merchandise for, or selling merchandise to, such persons or companies. Wholesalers frequently physically assemble, sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots. While wholesalers of most products usually operate from independent premises, wholesale marketing for foodstuffs can take place at specific wholesale markets where all traders are congregated. Traditionally wholesalers were closer to the markets they supplied than the source they got the products.
Wholesale options for local foods is regional specific and TRICKY!
Depending on what area of the country you’re in, wholesaling your locally grown food and products is either embraced with open arms, or shunned as the most evil thing ever conceived! For instance, in a few Mid-Atlantic States, most farmers refuse to sell at farmers’ markets and prefer wholesale only because it is less labor intensive. On the other hand, I know of a few New England states where the farmers refuse to sell wholesale simply because the point-of-sale profit margin seems higher. Why sell tomatoes at wholesale when you could charge double at a farmers’ market? It’s a good question.
Labor is the single most expensive and costly line item on any business’ spreadsheets. Considering that prime costs for all food produced on the farm includes: labor, soil health, seeds, fuel and machinery, gas and transportation, electricity, insurance, and everything else imaginable. Using pretend numbers, say it costs a farmer a total of $0.70 to grow a zucchini for sale at a farmers’ market, and they sell it there for $1.20. That is $0.50 profit per zucchini for the farmer at direct retail.
Remembering that TIME = MONEY. Many farms find themselves spending 3-4 hours of work per each hour of direct selling through their booths. Selling a zucchini wholesale costs less in labor costs. That same farmer may cost a farmer a total of $0.35 to grow a zucchini for wholesale, and it is sold at wholesale prices for $0.85 each. That is $0.50 profit per zucchini for the farmer at wholesale.
Adding wholesaling to a small and medium farm operation’s sales mix is crucial. It is a reoccurring order – a KNOWN sale, a known and reoccurring order that that farm can rely on. The profit margins are comparable to direct-to-consumer farmers’ market sales with less risk, less labor, and guaranteed returns.
The most crucial element is TIME. Selling some of your product wholesale requires less of your TIME. That time could be spent on other revenue generating activities.
Creating 4 Sales Channels for Solid Agricultural Sales: the proper product mix for an agricultural business is to mix and have all 4 modes of profit activities: Direct Retail Sales, Indirect Retail Sales, Wholesale Sales, and Partner-Profit Sales.
Diversifying your Agricultural Sales Mix Blog Series
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Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Let’s start with some defining terms.
Indirect Retail Sales or Mail order is a term which describes the buying of goods or services by mail delivery. The buyer places an order for the desired products with the merchant through some remote method such as through a telephone call or web site. Then, the products are delivered to the customer. The products are typically delivered directly to an address supplied by the customer, such as a home address, but occasionally the orders are delivered to a nearby retail location for the customer to pick up. Some merchants also allow the goods to be shipped directly to a third party consumer, which is an effective way to send a gift to an out-of-town recipient.
A mail order catalogue is a publication containing a list of general merchandise from a company. Companies who publish and operate mail order catalogues are referred to as cataloguers within the industry. Cataloguers buy or manufacture goods then market those goods to prospects (prospective customers). Many cataloguers, just as with most retailers, are increasingly buying goods from China. Cataloguers "rent" names from list brokers or cooperative databases. The catalogue itself is published in a similar fashion as any magazine publication and distributed through a variety of means, usually via a postal service and the internet.
Selling Local Food ONLINE!
Of course, you could create an online marketplace through Shopify where you directly control all the orders yourself. Amazon offers the same opportunity to sell your products directly to consumers but offers the additional services of warehousing and shipping your products for you (would work best with value-added items).
There are more out-of-the-box opportunities too! In Europe, farmers are using vending machines to sell their wares! What a brilliant idea for burgeoning college campuses, apartment complexes, and other areas of congregated consumers!
One of the most impressive new business models is Local Dirt which acts as a middleman providing you with online sales opportunities with included outbound distribution for both wholesale and retail customers.
Local Harvest has launched a retail mail-order catalog for value added products! Additionally, if you didn’t want to set up your own online e-commerce food store, you could list your products for sale directly in your own storefront on Local Harvest and consumers can buy directly from you online!
Indirect retail sales offer slightly less profit than direct retail sales at farmers’ markets, but are less risk adverse and take less labor! The prime costs are lower, making the overall profit margins much higher than direct retail sales!!!!!!! All farming operations should have a few opportunities like these in their mix!
Creating 4 Sales Channels for Solid Agricultural Sales: the proper product mix for an agricultural business is to mix and have all 4 modes of profit activities: Direct Retail Sales, Indirect Retail Sales, Wholesale Sales, and Partner-Profit Sales.
Diversifying your Agricultural Sales Mix Blog Series
Check out our:
Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Let’s start with some defining terms.
Direct selling is the marketing and selling products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct selling includes sales made through the party plan, one-on-one demonstrations, and other personal contact arrangements as well as internet sales. A textbook definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs."
Direct selling is distinct from direct marketing because it is about individual sales agents reaching and dealing directly with clients. Direct marketing is about business organizations seeking a relationship with their customers without going through an agent/consultant or retail outlet. Direct selling often, but not always, uses multi-level marketing (salesperson is paid for selling and for sales made by people he recruits or sponsors) rather than single-level marketing (salesperson is paid only for the sales he makes himself).
Farmers’ markets are FANTASTIC opportunities for direct retail sales. The opportunity to create a community and directly interact with consumers is unparalleled. As with all retail sales mixes, direct consumer engagement is fundamentally the most important as it allows consumers to engage directly with your farm’s brand, personality, and business ethos. The downside of direct selling at a farmers’ market is that it is the most variable of all retail sales outlets, and therefore carries the most profit risk.
Overlooked Direct Retail Sales Opportunities
One area that small farms seldom engage in direct selling is via the multi-level marketing route – an equally viable, and extraordinarily clever way of increasing retail sales. As this is an ancient form of sales, but completely misused by farming and agricultural operations, creating multi-level marketing venues would work extremely well as a profit generator.
Secondly, another form of retail sales that is completely overlooked by farms is franchising. Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a (transitive) verb. For the franchisor, the franchise is an alternative to building 'chain stores' -- or in this instance “chain farms’ or ‘chain farmers booths at retail markets’ to distribute goods and avoid investment and liability over a chain. The franchisor's success is the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.
I can’t wait to see the creation of farm franchises among small to medium agricultural producers. The large corporate farms use this model all the time! Just look at Tyson! There has been a lot of research done about franchising dairy farms, but what about fruits and vegetables? In addition to other farming operations that could be franchised to produce specific products like mushrooms or heirlooms, non-farmers such as backyard gardeners, Master Gardeners, and Community Gardeners could all be franchisees of a viable small farming operation. The buy in? More stable and more profitable than selling CSA shares!!!!!
Creating 4 Sales Channels for Solid Agricultural Sales: the proper product mix for an agricultural business is to mix and have all 4 modes of profit activities: Direct Retail Sales, Indirect Retail Sales, Wholesale Sales, and Partner-Profit Sales.
Diversifying your Agricultural Sales Mix Blog Series
Check out our:
Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
For many farmers, marketing and selling their products are the most challenging parts of the farm enterprise, especially when selling directly to consumers. However, direct markets for fresh and unique food products are among the most rapidly growing farm opportunities.
People around the country are looking to buy tasty, healthy food directly from farmers — farmers with whom they can talk, ask questions and build relationships. However, these new market opportunities, particularly in farmers' markets, community supported agriculture (CSA), roadside stands, restaurants and cooperatives, require expertise in selling as well as marketing, production and financial management.
Over the next 4 weeks, we’ll tackle the topics of Creating 4 sales Channels for Solid Agricultural Sales for small and medium producers to include farm markets, should you choose, while also laying a solid business foundation for multiple revenue sources with multiple risk variables to provide a full and sound profit foundation.
To follow along, you can check back here often. As new articles are added to the series, they will be hyperlinked below. You can also subscribe to our blog by email to catch the articles as they are posted.
More importantly, let’s talk together. What have you learned?
Creating 4 Sales Channels for Solid Agricultural Sales: the proper product mix for an agricultural business is to mix and have all 4 modes of profit activities: Direct Retail Sales, Indirect Retail Sales, Wholesale Sales, and Partner-Profit Sales.
Diversifying your Agricultural Sales Mix Blog Series
Check out our:
Small and Medium sized farms are BUSINESSES and must be run as a business. With the plethora of fantastically fun farmers’ markets springing up like wildfire, there is a sense of false security that direct retail sales, by being a vendor at a farmers’ market, is the best and most valuable avenue for generating business profit from your farm.
Smart farm businesses diversify their sales mix to add on other forms of profit generation to minimize the high risk of vending at farmers’ markets while still enjoying all the positive benefits that farm markets bring – direct consumer interaction, community involvement, business and branding exposure, and much, MUCH more!
Let’s start with some defining terms
A sales mix is the proportions of sales coming from different products or services. Changes in sales mix often affect profits because different products often have different profit margins, therefore a change in the sales mix can have an impact on profits even if total revenues are unchanged.
Selling less of a more profitable product but making up the sales with a less profitable product still leaves one with lower profits.
Understanding Your Product Mix RISKS
There are a wide range of financial and product risks that producers assume when marketing their products. An important step in understanding and managing those risks is to take time to identify potential risks that might be encountered. Marketing risks can occur in a number of areas, including products, transactions, operations, pricing, and public policy. Managing each of these areas of marketing risk can involve a range of strategies and tools depending on the market and regulatory environment you operate in.
Producers may tend to focus their efforts on managing risk on the production side at the expense of improving their management of consumer risks. Producers and other suppliers, in general, are increasingly being required by large volume customers to assume more consumer risks.
Although less tangible than other types of marketing risks, the possible decline of product relevance to consumers should be an ongoing concern for savvy farmers. Staying in touch with the wants and needs of consumers can be a full-time job. With ever-changing purchasing patterns, eating habits, dietary fads, and shifting demographics, maintaining product relevance can be a challenge. It is essential to understand how relevant your products are to today’s consumers. Understanding your Sales Mix, and understanding how to run the financial numbers will assist you in modifying your sales mix to match and marry consumer needs and demands.
Sale mix--Definition and Explanation of the Concept:
The term sale mix refers to the relative proportion in which a company's products are sold. The concept is to achieve the combination that will yield the greatest amount of profits. Most companies have many products, and often these products are not equally profitable. Hence, profits will depend to some extent on the company's sales mix. Profits will be greater if high margin rather than low margin items make up a relatively large proportion of total sales.
Changes in sales mix can cause interesting variation in profits. A shift in sales mix from high margin items to low margin items can cause profits to decrease even though total sales may increase. Conversely, a shift in sales mix from low margin items to high margin items can cause reverse effect-total profit may increase even though total sales decrease. It is one thing to achieve a particular sales volume; it is quite a different thing to sell most profitable mix of products.
Sales Mix and Break Even Analysis:
If a company sells multiple products, break even analysis is somewhat more complex than discussed in the topic break even point calculation. The reason is that the different products will have different selling prices, different costs, and different contribution margins. Consequently, the break even point will depend on the mix in which the various products are sold.
Example:1
|
AB Company
|
| |
Product A
|
Product B
|
Total
|
|
Sales
|
$20,000
|
100%
|
80,000
|
100%
|
100,000
|
100%
|
|
Less Variable expenses
|
15,000
|
75%
|
40,000
|
50%
|
55,000
|
55%
|
| |
-------
|
-----
|
------
|
-----
|
------
|
----
|
|
Contribution margin
|
5,000
|
25%
|
40,000
|
50%
|
45,000
|
45%
|
|
Less fixed expenses
|
=====
|
=====
|
=====
|
=====
|
27,000
|
|
|
|
|
|
|
|
-------
|
|
|
Net operating income
|
|
|
|
|
18,000
|
|
| |
|
|
|
|
=====
|
|
|
Computation / Calculation of break even point:
Fixed expenses / Overall contribution margin
27,000 / 0.45
$60,000
|
|
$60,000 sales represent the break even point for the company as long as the sales mix does not changes. If the sales mix changes, then the break even point will also change. This is illustrated below.
Example:2
|
AB Company
|
| |
Product A
|
Product B
|
Total
|
|
Sales
|
80,000
|
100%
|
20,000
|
100%
|
100,000
|
100%
|
|
Less variable expenses
|
60,000
|
75%
|
10,000
|
50%
|
70,000
|
70%
|
|
|
-------
|
-----
|
------
|
-----
|
------
|
-----
|
|
Contribution margin
|
20,000
|
25%
|
10,000
|
50%
|
30,000
|
30%
|
|
|
======
|
======
|
======
|
======
|
|
======
|
|
Fixed expenses
|
|
|
|
|
27,000
|
|
| |
|
|
|
|
------
|
|
|
Net operating income
|
|
|
|
|
3,000
|
|
| |
|
|
|
|
======
|
|
|
Computation / Calculation of break even point:
Fixed expenses / Overall contribution margin
$27,000 / 0.3
$90,000
|
Although sales have remained unchanged at $100,000, the sales mix is exactly the reverse of what it was in example1, with the bulk of sales now coming from the less profitable product A. Notice that this change in the sales mix has caused both the overall contribution margin and total profits to drop sharply. The overall contribution margin ratio (CM ratio) has dropped from 45% to 30% and net operating income has dropped from $18,000 to $3,000. The company's break even point is no longer $60,000 in sales. Since the company is now realizing less contribution margin per dollar of sales, it takes more sales to cover the same amount of fixed costs. Thus the break even point has increased from $60,000 to $90,000 in sales per year.
Agricultural Operations WITHOUT Diversified Sales Mixes
Well . . . . ummmmmm . . . . . if you don’t have one, you’re taking a HUGE RISK. At any given time in any given business sector, the international politics, local politics, weather, and consumer demand can vary wildly. Diversifying the different ways a farming operation will generate profit, allows that farm to manage their potential risks better. Farmers who rely solely on farmers’ markets for their primary income and revenue source are at a much greater disadvantage – and are much more prone to the sways and swails of all the outside factors that directly influence agriculture.
It is in every farmers best interest to examine their sales mix, know their break-even point on every item produced and sold, and understand the financials of their profit margins VERY CAREFULLY.
Those who do, and those with a wider mix of sales and profit generating activities will be able to adapt to the market fluctuations more quickly and with less loss of revenue.
Diversifying your Agricultural Sales Mix Blog Series
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