During the 20th century, centralized forces made a long-lasting impact on the US food system. An economic and social structure of common markets supplying food produced by local farmers was slowly and steadily dismantled as food production, processing, and distribution consolidated into corporate agri-business.
These changes, on a national scale, created fundamental market barriers for small and midsize farms.
A return to roots
Today, Detroit’s Eastern Market, first established in 1891, is a revitalized food hub, returning to the historical practice of actively offering processing and aggregation support to small and midsize farmers, facilitating relationships between local producers and institutional buyers, and strengthening Michigan’s regional food system. Its evolution says much about the history of our food system and a transformation currently taking place across the country.
From the coasts to the middle of the country, people are seeking new ways to change and sustain the food system.
Nationwide, consumer demand for locally grown food is growing exponentially. The number of farmers’ markets is skyrocketing, Community Supported Agriculture (CSA) programs are on the rise, and restaurants, retailers, schools, and other institutions are seeking to source locally.
What else will it take to transform our food system into one that delivers healthy, sustainable, affordable food for all?
A key and often overlooked lever for capitalizing on this momentum is the infrastructure needed to help move food from where it is grown and processed to where it is consumed. Food hubs can help meet that need by offering key infrastructure support and facilitating market opportunities for smaller producers. USDA Deputy Secretary Kathleen Merrigan commented on those opportunities recently, saying,
Food hubs are not a flash in the pan. They are incredibly innovative business models specifically addressing some of our producers’ most overwhelming challenges.
Across the country, food hubs are creating a direct connection between farmers and institutional customers, much like farmers’ markets connect growers and consumers.
They also provide a transformative opportunity for triple bottom line impact investing, by providing important growth opportunities for farmers, offering viable alternatives to large-scale consolidated markets and distribution, and revitalizing local economies. Food hubs achieve an environmental outcome by reducing food miles while their social outcomes are realized by delivering healthy, fresh, and often affordable food to the people who need it most.
What is a food hub?
The USDA’s working definition of a food hub is “a centrally located facility with a business management structure facilitating the aggregation, storage, processing, distribution and/or marketing of locally/ regionally produced food products.”
The USDA has identified over 100 existing food hubs and a preliminary sample survey reported that 75 percent are less than 10 years old, with large clusters appearing in the Midwest and Northeast. They offer organizational and production capacity across the supply chain to move local food into mainstream markets in an effective and cost efficient manner.
Food hubs facilitate market access for producers who sell to retail or wholesale market outlets that would otherwise be less accessible due to scale or location. They can provide wholesale and retail vending space and offer space for health and social service programs, community kitchens, and community meetings. Food hubs also play an important social equity role by increasing access to fresh, healthful, and local products in communities underserved by full-service food retail outlets. Over 40 percent of existing food hubs are specifically working in food deserts.
Average food hub sales are nearly $1 million annually; the median number of small and midsize suppliers served by an individual food hub is 40, and, on average, each food hub creates 13 jobs.
Non-profit driven models
USDA data shows that nearly a third of food hubs are non-profit driven. Successful non-profit food hubs include California’s ALBA Organics, Vermont’s Intervale Center, Massachusetts’ Red Tomato, and Pennsylvania’s Common Market Philadelphia (CMP), which is funded via Rudolf Steiner Social Finance’s Program Related Investing (PRI) Fund.
CMP is a values-driven wholesale consolidator and local food distributor in Philadelphia. They support regional farmers while making healthy, local food accessible at a wholesale level to Philadelphia schools, hospitals and other large institutional clients. “Common Market is actively changing the distribution system for local food by creating a much needed link between local farmers and the urban marketplace,” said Taryn Goodman, Senior Manager, Impact Investing at RSF.
Producer/entrepreneur driven models
Some food hubs are the result of savvy producers and business entrepreneurs, many of whom have years of experience working in the food system. Examples include Good Natured Family Farms in Kansas, Tuscarora Organic Growers in Pennsylvania, New North Florida Cooperative, and Blue Ridge Produce in Virginia.
Two entrepreneurs recently started the Blue Ridge Produce food hub, noting that only seven percent of Washington, DC’s $16 million produce market was sourced locally. They raised private investment capital to create efficient and high-value markets, provide training and technical assistance (including food safety certification) to Virginia’s smaller farmers, while increasing community access to healthful local food.
Retail driven model
Based largely on the food cooperative model, some retail stores have used their facilities and combined consumer support to launch successful food hubs, such as Wedge’s Coop Partners in Minnesota and Weavers Way Coop in Pennsylvania.
La Montañita Coop is a community-owned, consumer cooperative in New Mexico. In addition to retail stores, La Montañita runs a regional Coop Trade Food Shed Project. It creates wholesale market oppor- tunities, providing product pick-up and distribution, supply delivery service, and refrigerated storage for local farmers and producers. La Montañita also runs a Cooperative Distribution Center, a facility which provides 10,000 square feet of refrigerated, frozen and dry storage space, for local producers.
Consumer driven models
The Oklahoma Food Coop began as a small buying club in 2003 with 20 local producers. On its opening day, it did $3,500 worth of sales. By last year, the Coop had $70,000 in monthly sales and 3,000 members purchasing from 200 Oklahoma-based producers. The organization manages storage space, a warehouse, owns several trucks, and has inspired other similar businesses in Nebraska, Iowa, and Massachusetts.
Hybrid market models
Detroit’s Eastern Market and New York’s Syracuse Regional Farmers’ Market are two good examples of how hybrid markets can expand into food hubs. The Syracuse Regional Farmers’ Market combines wholesale/retail space where growers and other merchants sell fresh products to businesses and individual customers. Detroit’s Eastern Market continues to thrive as it offers a range of tenant services, including aggregation, distribution, processing, and new market opportunities.
Virtual food hubs
Virtual food hubs can lower the costs of access to local foods for both producers and consumers by automating the sales process. Internet-based food hubs offer the advantage that both producers and customers can carry out a transaction at any time. With the growth in Web based services, examples include Locally Grown, Local Dirt, Local Orbit, and Market Maker.
Last year, Portland Oregon’s Ecotrust launched Food-Hub, a farm-to-table online matchmaking service, which has grown to more than 2,000 users. In addition to farmers, the service provides connections for livestock producers, fisherman, and vintners to sell wholesale. Food-Hub has received over $250,000 in USDA support and Deborah Kane, Ecotrust’s Vice President for Food and Farms, has been recognized as a Champion of Change by the White House for successfully creating infrastructure support for local farmers to expand their market opportunities.
In order to build a successful food hub, start-up capital is often needed to renovate facilities for aggregation, storage, packing, light processing, and distribution.
In addition, working capital is necessary for business management systems to coordinate supply chain logistics. Financial support is also needed for enterprise development training and technical assistance to increase grower capacity to meet wholesale buyer requirements.
“As with any infrastructure-heavy project, a food hub will likely require several different forms of capital to launch successfully,” said Elizabeth Ü, Founder and Executive Director of Finance for Food, and author of the forthcoming book, Finance for Food: A Sustainable Food Entrepreneur’s Guide to Raising Mission-Aligned Capital.
Ü noted that a food hub might need to structure a variety of points of entry to appeal to potential investors, who may have different risk tolerances, time horizons, and investment amounts. She said,
A little creativity can go a long way; in addition to USDA grants and traditional loans, there are several innovative investment models that food entrepreneurs are using to raise capital, including revenue-sharing agreements, advance sales, and crowdfunding. The challenge is finding a good fit between investment terms and the values of both the food hub management and each investor.
The USDA sees food hubs as ripe investment opportunities and is currently funding nearly 30 percent of the food hubs it surveyed. Preliminary analysis shows that food hubs have great economic potential and are a sound investment. The USDA is preparing a more comprehensive resource guide for food hubs to be released later this year. The guide will feature a mix of government and non-government resources available for food hub development.
For now, according to those most closely following the development of food hubs, it’s too early to speculate as to whether they are financially viable over the long run, but many see them as a social investment in a unique, alternative business model. Jim Slama, Founder and President of Family Farmed, a non-profit dedicated to expanding the production, marketing, and distribution of locally grown food commented that,
As a social enterprise, food hubs are critical and an integral part of our social investment. The movement’s got the talent to take something old and make it new again.
Food hubs are an emerging business concept in current local food system investment strategies and they are gaining significant traction very quickly.
Cities like Los Angeles and Baltimore are investigating how to weave food hub development into their strategic food policy plans. And New York State recently passed legislation to enhance distribution of local foods to the state’s institutional buyers using food hub models.
A recent meeting of the Sustainable Agriculture and Food Systems Funders that featured a dedicated panel on food hub development attracted a packed house. In each situation, both private and public funders are eagerly exploring how food hubs as business models can have broad economic and social impacts. As food hubs continue to grow and serve wholesale and institutional markets across the country, so will their ability to build stronger regional food systems.
For more information, review the work of the National Food Hub Collaboration.
–Naomi Starkman, Transition Voice
Cross-posted from Rudolf Steiner Social Finance.