THE MILLION DOLLAR QUESTON: WHAT IS BREAK -EVEN AND VIABILITY FOR - - PowerPoint PPT Presentation

THE MILLION DOLLAR QUESTON:

WHAT IS BREAK -EVEN AND VIABILITY FOR DIFFERENT FOOD HUB MODELS?

An NGFN An NGFN Webinar binar

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.

WALLACE CENTER AT WINROCK INTERNATIONAL

• Market based solutions to a 21st 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  On-farm pick up  Production and post-harvest handling training  Business management services and guidance  Value-added product development  Food safety and GAP training  Liability insurance  Aggregation  Distribution  Brokering  Branding and market development  Packaging and repacking  Light processing (trimming, cutting, freezing)  Product Storage  “Buy Local” campaigns  Distributing to “food deserts”  Food bank donations  Health screenings, cooking demonstrations  SNAP redemptions  Educational programs  Youth and community employment

• pportunities

 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

Defining Characteristics-

Regional Food Hubs

• Businesses

intentionally structure their core operations to produce both financial success and social benefit

• Shared mission and
• perational values

support decisions and processes

Food Value Chains

By Legal Structure?

• Lines blurring between

socially-driven for-profit enterprises and business savvy nonprofit enterprises

Classifying Food Hubs

• Better Approach – Form follows Function

Image: USDA Flickr

Food Hub Market Typology*

Direct to Consumer 39% Wholesale 29% Hybrid 32%

*Based on a working list of 302 food hubs identified by the USDA’s Agricultural Marketing Service (April 2014)

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

– WHOLESALE –

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,
• nline farmers markets, mobile markets

Food Hub Operational Models

– DIRECT TO CONSUMER –

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

Food Hub Operational Models

– HYBRID –

“Oxygen Mask Rule” of Food Hub Viability Margin and Mission

Image: USDA Flickr

Collaboration between Matson Consulting and the USDA with input from various food hubs and industry participants.

Analysis Formulation

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 Consumer

• $75,000

Wholesale

• $250,000

Processing

• $1,000,000 +

Image: MS Office Clipart

Image: MS Office Clipart

Image: MS Office Clipart

Image: MS Office Clipart

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dollars CASH - end of period Sales

Image: MS Office Clipart

Image: strategiclearner.files.wordpress.com

Image: morquefile.com

Image: MS Office Clipart

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 Baseline $50,000 $100,000 $150,000 Sales ($)

• 500,000

1,000,000 1,500,000 2,000,000 2,500,000 Baseline $50,000 $100,000 $150,000 Sales ($)

Other Variable Costs Marketing Costs Infrastructure Costs General and Administrative Unforseen and Bad Debt

Payments to Producers All Other

$935,009 $1,210,000 $1,717,396 $2,901,422 $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Sales ($)

(23%) Decrease

42% Increase 140% Increase

65%

Baseline: 70%

75% 80%

$0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 Baseline $40,000 $80,000 $120,000 $1,210,000 $1,392,347 $1,580,748 $1,773,508 Sales ($)

• 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

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

Food Hub and Distribution Resources

Electronic copies of these publications can be downloaded for free at www.ams.usda.gov/FoodHubs

• 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.

New Report on Food Value Chains

http://dx.doi.org/10.9752/MS141.05-2014

USDA Food Hub Technical Report Series

• Published by USDA Rural Development. Authored by James Matson

and associates.

• Running a Food Hub: Lessons Learned from the Field
• Running a Food Hub: Business Operations Guide
• Running a Food Hub: Assessing Financial Viability

Upcoming Report Series on Hubs!

Running unning a F a Food H

• od Hub

ub

USDA’s Food Hub Portal

www.ams.usda.gov/FoodHubs A catalogue of USDA's research findings, resources, and support for food hubs

Food Hub and Distribution Resources

National Food Hub Collaboration

http://foodhub.info Map and list of known food hubs, current news, webinars, conference proceedings, print resources

• Food Hub Benchmarking – Farm Credit
• Food Hub National Surveys – Michigan State University

www.usda.gov/knowyourfarmer

• Website: One-stop shop for financial

and technical assistance resources from USDA to grow your local food enterprise www.usda.gov/knowyourfarmer

• The Compass: How USDA resources

are put to work in your community www.usda.gov/kyfcompass

• The Compass Map: See what’s

funded in your community and learn how others are using USDA programs

USDA’s “Know Your Farmer, Know Your Food” Initiative

Jeff Farbman

contact@ngfn.org ngfn.org moderator

Questions and Answers

James Barham

202-690-1411 James.Barham@wdc.usda.gov www.rd.usda.gov

James Matson

803-233-7134 jmatson@matsonconsult.com www.matsonconsult.com

Webinars are Archived

TOPICS!

http://ngfn.org/webinars

NGFN Webinars

3rd Thursday of each month 3:30p EST (12:30p PST)

 Apr 16: Discerning Pallets: Grower's Experiences Selling

Their Crops Through Food Hubs

 May 14: Crop Insurance for Small Farms: A Crash Course  Jun 18: Creative Financing for Food

http://ngfn.org/webinars

Food Hub Survey

 Are you a food hub manager?

 Help us continue to advance our sector  Improved survey - optimized, especially if you participated in

2013  Request your individualized survey link from:

Jill Hardy hardyjil@msu.edu 517-775-6507

USDA Local Food Directories

 Was

 Farmers Markets

 Now adds:

 CSAs  On-Farm Markets

 Food Hubs

 http://www.usdalocalfooddirectories.com/  Direct link to register:

http://bit.ly/regmyhub

Get Connected, Stay Connected

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