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Locally Grown Continues To Take Root

Exploring the supply chain ripple effect
Locally Grown_MS

The ongoing demand for “local” produce is propelled by many factors, from consumers seeking ultimate freshness to the desire to reduce food miles and environmental impact. Others claim it just “feels right” to consume local food. However you explain the surging sales of locally grown products, they have created a ripple effect throughout the entire food industry and the fresh produce sector in particular.

Consumer Demand
Walmart, the largest purchaser of locally sourced and sold produce in America, has big plans: to double its local produce sales by 2025. Doug McMillan, the mega retailer’s CEO, made the announcement last November, upping the ante for the nation’s independent supermarkets and chain stores.

While everyone is well aware of the local craze, these foods represent but a sliver of the total market, bringing in about $12 billion in sales in 2014 according to the USDA. This figure, however, is projected to climb to $20 billion—or beyond—in just two years. Such growth is further backed up by a recent Harris Poll, which found more than two-thirds of Americans confirmed the importance of having access to locally grown or sourced food in a grocer’s produce department.

Most consumers (72 percent) consider local to be within their state; and not only do the majority think local is fresher (68 percent), but many (37 percent) believe it tastes better, and 32 percent think it is of higher quality.

In addition to federal programs that support local and regional food systems, 36 states and the District of Columbia enacted laws between 2012 and 2014 to support local food production and access. In addition, farm-to-school programs exist in every state, from rural towns to big city centers, and more than 42,000 schools nationwide buy local produce.

Buying and Selling
The demand for local is nothing new; access to local, however, is the sticking point. “There’s been a steady increase in demand from local retailers, wholesalers, and foodservice,” confirms Dominic Russo, buying and sales director for Rocky Produce in Detroit.

“We sell as much local produce as we can get,” Russo adds, sourcing from growers in and around the Great Lakes region. Unfortunately, availability is limited to the summer months and a few weeks in the spring and fall; but during this time, as much as 25 percent of the supplier’s business is local.

Like Russo, account manager Curtis Turner of Capital City Fruit Company, Inc. in Des Moines, IA has seen demand for locally sourced produce climb in his three years with the company. About half of Capital City’s produce is grown locally during the summer, mostly from large- and medium-sized farms.

Defining Local
The controversy over what constitutes ‘local’ is akin to judging a beauty contest: it seems to be in the eye of the beholder. The 2008 Farm Act defined locally grown as produce grown within a state or a distance of no more than 400 miles between origin and point of sale. But this is by no means universal.

“We work with each individual partner and adopt their vision of local. It’s what makes sense for our customers and their consumer base. Hy-Vee, for example, which operates 240 retail stores in eight Midwestern states, defines local as Midwestern-grown,” Turner says.

Ron Balsimo, sales manager for the Wisconsin Food Hub Cooperative, agrees. “If you talk to any of the supermarket chains, every one has a different definition of local.” The Wisconsin Food Hub itself takes a regional view. “If the state touches our border, we consider that local,” he says.

The industry has also seen more state branding for fresh, local produce—but the promotions can backfire. In 2015, New Jersey sought to restrict the labeling of local produce solely to fruits and vegetables grown within the Garden State, along with penalties for mislabeling. The proposed ruling sparked a great deal of debate and pushback.

Consumer demand for locally sourced produce has sparked the growth of ‘food hubs,’ defined by the National Food Hub Collaboration as “a business or organization that actively manages the aggregation, distribution, and marketing of source-identified food products primarily from local and regional producers to satisfy wholesale, retail, and institutional demand.”

Food hubs help fill a gap in the food supply chain, sourcing from small and midsized farmers (usually with annual sales of less than $500,000) that lack the scale or infrastructure to sell to new markets or large-volume buyers. The food hubs— which can be for-profit, nonprofit, or a cooperative—then bring the fresh food together and sell to wholesalers, foodservice providers, restaurants, or directly to the public.

Growth in food hubs has been explosive: there are more than 350 food hubs currently operating in the United States, surging more than 285 percent from 2007 to 2014 according to Chicago-based Technomic, Inc., a food research and consulting firm.

Ron Balsimo is sales manager for the Wisconsin Food Hub Cooperative, which opened its doors about four years ago. The group hoped to source fresh, locally-grown food and sell to Roundy’s, a regional retail supermarket chain with a nearby warehouse. The move proved prescient; growers were happy to supply product and both wholesale distributors and retailers were happy to have it.

The Wisconsin Food Hub continues to thrive and now works with a number of area companies including C.H. Robinson Company, Sendik’s Food Markets, LLC, Caito Foods Service, Inc. (recently acquired by Spartan Nash), Indianapolis Fruit Company, Inc., and others.

Rick Van Vranken, agricultural agent and head of the Cooperative Extension of Atlantic County at Rutgers New Jersey Agricultural Experiment Station, says retailers in northern New Jersey—in close proximity to New York, Connecticut, Pennsylvania, Maryland, and Delaware—feared retaliation from growers and customers in those states. “When you use the state definition [to define local], it restricts you,” he contends.

Finding Growers
Finding local growers to meet demand requires networking. “Often, it’s word of mouth,” shares Brian Knott, president of Grow Farms, LLC based in Louisville, KY, who frequently meets new growers at conferences and other industry meetings.

There is, however, a ‘but’ in the equation: growers “must be certified and undergo a yearly GAP [good agricultural practices] audit,” Knott emphasizes, which often rules out very small farmers, who may not have enough acreage to justify the cost.

Balsimo considers certification the most critical point for food hub success. “If you go to companies like Sysco, U.S. Foods, Reinhart Food Service, and restaurant chains that look to buy from these companies, they want GAP certification, GHP [good handling practices], third-party audits, traceability, and pest control management.”

Roundy’s Supermarkets, headquartered in Milwaukee and a major client of the Wisconsin Food Hub, will visit farms in the cooperative to develop relationships with growers. Along this line, the food hub holds grower-buyer meetings in January and February of each year. “Buyers sit down with farmers and seed manufacturers and go over what products they want and the specifications they’re looking for,” explains Balsimo.

Mitigating Risk: Legal Aspects to Sourcing Local
Risk is inherent in the fresh produce industry, and possibly more so when buying and/or selling local product from small growers. Production risks include both the quantity and quality of crops due to weather, disease, pests, or contamination. So how can trading partners protect themselves in these situations? With a carefully worded, legally-binding contract between the parties.

First, a ‘subject to availability’ clause will cover growers if product is not available, in low supply, or won’t be ready to fulfill obligations in time. There is also the question of who gets what product if there is a dearth of supply.

“The buyer can be protected with an option for the lion’s share of a crop, if there is a ‘first right’ to be supplied before anybody else,” notes Lawrence H. Meuers, managing member of Meuers Law Firm PL in Naples, FL. “Otherwise, if there is a shortage, the grower can prorate produce amongst its customers.” An ‘output contract’ specifies that the grower will sell the entire crop to the purchaser; however, there is no guarantee on what that output will be.

A force majeure provision is a nonperformance clause relieving both parties of their contractual obligations when circumstances, such as catastrophic weather events beyond either party’s control, occur. “It’s often called an ‘Act of God’ clause,” explains attorney Mark Amendola of Martyn & Associates in Cleveland, OH, which covers circumstances like tornadoes, hurricanes, earthquakes, landslides, or floods—all of which can wipe out seasonal crops.

Additionally, buyers can include a ‘right to reject’ or ‘grade specification’ clause in the contract to further spell out specifications for both sellers and buyers to understand what is required. Buyers can also stipulate that growers have some sort of food safety programs in place, complying with U.S. Department of Agriculture good agricultural practices certification and/or written verification of third-party audits.

Lastly, in the case of a food safety event, a small or midsize grower may not have the financial wherewithal to indemnify downstream vendors. For this reason, any insurance policy should identify risk and name the purchaser as an additional insured.

Surprisingly, some farmers in the region who sold to canneries and gave up on the business due to low margins, have come back—now that demand is in high gear. “There’s a vast difference in profit margin between selling to canneries and selling fresh,” Balsimo explains. “But you have to get folks trained, qualified, and up and running.”

“We will not buy from a grower that is not certified,” asserts Turner. So Capital City’s food safety specialists visit new growers, see what food safety protocols are already in place, and what’s needed to become certified.

“We help prepare them for U.S. Department of Agriculture (USDA) certification,” he confirms. Further, he notes, “Our local team will visit three or four times a year or whenever there’s a new regulation or procedure.”

Pros and Cons
Buyers see numerous benefits to the local food trend, including support of the local economy, faster time to market, cheaper transportation costs, smaller carbon footprint and, in some cases, better product—as certain perishables lose nutrients far more rapidly than others during transit. “If we buy a tomato from one state away, it can stay on the vine longer to ripen,” points out Turner. “It’s fresher and tastes better; that’s what drives demand.”

Still, there are barriers that limit the purchase of locally sourced produce. For most states, with the exceptions of California and Florida, growing season is short. And when these regions are in bloom, wholesale and intermediate food purchasers can have difficulty getting sufficient supply. “If we can’t get local, we can offer conventional and then provide local when available,” notes Turner.

Balsimo believes the Wisconsin Food Hub is “at a crossroads: our growth process is limited by the products and quantities we can grow. The farms we have are at capacity. We need to find more farms to produce the products our customers are looking for.”

Consistent quality also can be an issue. Van Vranken notes that a wholesaler buying from a big California grower is dealing with one grower-shipper; it can be a challenge dealing with multiple smaller growers and to ensure all are complying with the product specifications retailers want—from both a quality and safety standpoint.

Robertino Presta, chief executive officer of Caputo’s New Farm Produce, Inc., a retail chain headquartered in Carol Stream, IL near Chicago, brings up another point—local product often doesn’t have the shelf life of produce that has been precooled. “If corn picked in 100-degree weather is not precooled, that’s a problem.”

And while the rising demand for local product has not had a significant impact on most wholesaler staffing, Knott considers labor “a huge issue” when it comes to farms at harvest time, when dozens of workers can be needed. “One grower employing laborers through the H-2A program found out two days before harvest time that the workers had been denied,” he relates. “Labor has to be reliable.”

Where Does Local Go From Here?
Consumer purchase decisions and preferences are always changing. There is a question as to whether interest in local sourcing of fresh produce will be sustained. Some farmers’ markets are seeing a dip in sales, and growth of new farmers’ markets slowed to 1.5 percent from 2013 to 2014. A USDA January 2015 report noted that between 2007 and 2012, direct-to-consumer sales were flat.

Turner believes greater competition is part of the reason. “I think farmers’ markets are down because retailers are doing so much more with locally grown,” he says. “When I was a kid, we would go to the farmers’ market for locally grown produce because it wasn’t sold in the supermarket; now I can get locally grown tomatoes there.”

Most wholesalers do believe the demand for locally grown will continue to increase. “I don’t see any reason for it to trend down,” comments Russo. “It’s established and it’s going to stick.”

For Caputo’s stores, locally grown has been its business model since the first store was established in 1958. Managers always source locally when they can. “It’s what we are, and who we are,” says Presta. “For us, it will continue.”

Image: LuckyImages/Shutterstock.


Irene E. Lombardo is an award-winning writer/editor with more than thirty years’ experience covering a variety of subjects, including the food and financial services industries.