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January 12, 2006: Independent restaurants, foodservice
operators and grocery stores throughout Iowa say they want
to buy more locally-grown foods. Across the state, a host
of Iowa State University (ISU) Extension staff and other specialists
are helping to connect Iowa farmers with these promising markets.
The farmer-centered business tools and strategies they are
developing can help farmers everywhere identify what to market
for commercial and institutional and how to succeed.
What does it take to partner with SYSCO?
Identifying your intended end-user is the key to success
when you sell to food distributors, said added Craig Watson,
vice president of quality assurance and agricultural sustainability
for SYSCO, a broadline foodservice distributor. “It’s
easy to say, ‘This is what I have to sell.’ But
what does your customer want to purchase? If you haven’t
identified an end-user and their needs, your chances of success
are lower.”
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It’s easy to say, ‘This
is what I have to sell.’ But what does your customer
want to purchase? |
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SYSCO, which has over $30 billion in sales, will work with
farmers who can show why their product is different and tell
the story with romance and authenticity, added Food Alliance
Midwest’s Jim Ennis, who spoke at the Leopold Center
for Sustainable Agriculture’s recent “Marketing
and Food Systems Initiative Workshop” in Ames, Iowa.
Telling your story to people who aren’t familiar with
your product starts by focusing on what makes you unique and
identifying what messages will hit home with potential buyers:
- Your product is picked at the height of freshness, which
creates a quality eating experience.
- Because the food is locally raised, it doesn’t have
to travel thousands of miles to reach the consumer.
- The farm where the food is grown focuses on sustainable
agricultural practices that protect the environment.
These kinds of points help SYSCO’s marketing associates
help sell your products to independent restaurant owners,
for example, who have to find ways to compete against the
national chains, Ennis said. Getting into SYSCO’s system,
however, is only half the battle, agreed Ennis and Watson.
The other half is getting your product pulled through the
distribution chain.
“That’s why you need to understand your end-user,”
Watson said. “If customers aren’t asking for your
product, it won’t move out of the warehouse, and you’ll
die on the vine.”
Understanding customers’ needs starts with knowing
what they want to buy. In 2005, a survey conducted in southwest
Iowa showed that institutional buyers are especially interested
in buying tomatoes, peppers, potatoes, onions, lettuce, eggs,
strawberries, apples, green beans, carrots, beef and two-percent
milk.
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While franchise restaurants, movie
theaters, bowling alleys and caterers had little or no
interest in buying local foods, school districts, independently-owned
restaurants, and foodservice providers like senior citizen
centers and Meals on Wheels were interested in buying
local foods, |
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“While franchise restaurants, movie theaters, bowling
alleys and caterers had little or no interest in buying local
foods, school districts, independently-owned restaurants,
and foodservice providers like senior citizen centers and
Meals on Wheels were interested in buying local foods,”
said Steve Adams, an ISU Extension community and economic
development field specialist. “By identifying the products
buyers say they want, next we need to pinpoint how much demand
exists and help more farmers supply food to these institutional
markets.”
Separate research conducted by ISU shows that restaurants,
wholesaler/retailers, and university foodservice appreciate
the value of local produce and are willing to invest in it.
These buyers have sometimes had trouble receiving the quantity
and quality of local produce they need, noted Jason Ellis,
an ISU Extension specialist in the Department of Apparel,
Educational Studies, and Hospitality Management.
Contracts: Yes, no and flexible
On the flip side, he found that Iowa produce growers were
interested in selling to brokers or foodservice operators
but felt it was risky to increase their production to provide
the quantity and quality required. That’s where contracts
might help minimize both the producer’s and the foodservice
operator’s risk.
In general, foodservice operators don’t use contracts,
he said. “They like the flexibility of calling to order
what they want, when they want, and not calling when they
don’t want anything.” The exceptions are large
foodservice organizations that trade in high volumes, including
universities and large hospital systems, but the agreements
aren’t exclusive. In some cases, 70 percent of their
food will come from a certain supplier, but the institution
is allowed to purchase the other 30 percent from other vendors,
Ellis said. From a regional produce broker’s standpoint,
a contract may be the necessary tool to prove you’re
a reliable supplier.
On the production side, growers sometimes are reluctant to
consider contracts. Some farmers may not know what price to
charge or how to negotiate pricing, Ellis noted. “Others
may feel their pride is at stake. ‘Isn’t my word
good enough? Why do I need a contract?’ they ask. But
if you get into $10,000 or $20,000 worth of sales, you need
the assurance from your buyers that the money will be there.”
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In general, foodservice operators
don’t use contracts. “They like the flexibility
of calling to order what they want, when they want, and
not calling when they don’t want anything.” |
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Contracts can be flexible to fit your needs and your buyers’
needs. For example, producers can work with their attorney
to include an advance notification clause that they must notify
the buyer a certain number of days in advance if they won’t
be able to deliver the specified quantity and quality of produce.
Also, a clause can specify that the buyer needs to notify
the producer a certain number of days before the next delivery
if they won’t need the set volume.
To help growers analyze whether increased contract production
is feasible, Ellis is also working with specialists in ISU’s
College of Business to develop forecasting spreadsheets for
growers. Perhaps you’re currently producing one bed
of carrots on 0.10 acres but have the opportunity contract
10 acres of carrots through the summer. “This user-friendly
spreadsheet will help you analyze potential expenses to meet
the demands of a contract, along with your return after expenses,”
Ellis said. “It’s a full-cost accounting to see
if it makes financial sense to expand.”
Ellis hopes to make this tool Web-based or downloadable from
the Internet by this fall.
Kitchen Project cooks up interest in local
foods
Contracts may prove more valuable as enterprises like southwest
Iowa’s Kitchen Project take shape. ISU Extension specialists
and local small-business trainers have developed a business
plan for a home-meal-replacement venture that relies on locally-grown
foods.
“The challenge for small and niche producers is to
find a sufficient market so they can be sustainable,”
noted Lynn Adams, an ISU Extension community resource development
specialist. “We want to have a market ready for growers
who participate in the Kitchen Project and help keep the dollars
local.”
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The demand for a home-meal-replacement
service continues to grow, Adams said. “Dual-income
families have little time to cook, although surveys
show that more families want to share meals at home.
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The demand for a home-meal-replacement service continues
to grow, Adams said. “Dual-income families have little
time to cook, although surveys show that more families want
to share meals at home. Also, consumers’ use of convenience
foods and fast food at dinner continues to grow.”
The Kitchen Project is designed to be an LLC (rather than
a cooperative) that’s funded by investors, including
producers. Meals (which would have a price point comparable
to fast-food meals) from locally-grown foods will be prepared
in a centrally located commercial kitchen. The business plan
calls for delivering meals six days a week. “There could
be drop-off points like factories, and we could deliver meals
at the end of the workers’ shifts,” said Adams,
who reports that next steps will include forming the Kitchen
Project LLC. “We hope the Kitchen Project will also
foster the development of other new businesses, such as delivery
services and a packing house for produce.”
Frozen assets prove profitable
Are commercial buyers ready for frozen local foods for year-round
menu planning? Yes, reports Kamyar Enshayan, director of the
University of Northern Iowa’s Local Food Project, who
surveyed 16 institutions in the Cedar Falls/Waterloo, Iowa,
area. All these buyers expressed interest in buying locally
grown, frozen products (especially frozen strawberries and
corn).
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"Profitability among processed
products varied considerably," said Craig Chase,
an ISU Extension specialist. Most items that required
further processing into jams, jellies, or purees proved
more profitable than products requiring only freezing. |
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The buyers were after increased sales and customer satisfaction
because of better taste, and six said they would pay more
for it. In response, ISU Extension developed Project Freeze,
a small-scale demonstration project to help farmers supply
local corn and strawberries year-round from 2001 to 2004.
“Profitability among processed products varied considerably,”
said Craig Chase, an ISU Extension specialist. Most items
that required further processing into jams, jellies, or purees
proved more profitable than products requiring only freezing,
including whole or sliced strawberries. In addition, higher-end
products like cobettes (cobs of corn cut in half) for restaurant
use were more profitable than bagged, frozen cut corn.
“The key is to match your product to markets that are
likely to achieve higher prices and margins,” Chase
said.
Enterprise budgets maximize income
Chase and his ISU colleagues have also studied central Iowa
farmers’ production budgets to help producers boost
their profit potential. Crop budgets were run for asparagus,
basil, carrots, cherry tomatoes, eggplant, garlic, green beans,
greens, potatoes, red raspberries, snow peas, strawberries,
sweet potatoes, and heirloom tomatoes. All except strawberries
were developed to represent a 4-foot by 100 foot-bed.
The ISU researchers studied farm income by tracking price
and volume to determine gross revenue. They also factored
in pre-harvest expenses (including seed, fertilizer, labor
and other inputs), along with harvest expenses (including
labor, packaging, overhead, machinery and land). They found
that produce that receives a high price on high yields with
reasonable production costs such as heirloom tomatoes, can
net $500 or more. Produce such as sweet potatoes and asparagus
netted only $27 to $35 per bed.
The research shows that producers should have about 70 beds
per acre of produce that can be sold, Chase said. “A
reasonable goal would be to net $70 after total costs per
bed, for a total goal of $5,000 net per acre.”
Of the 14 budgets, basil, cherry tomatoes, eggplant, greens,
red raspberries, and heirloom tomatoes received above average
returns. Strawberries returned approximately
$4,000 per acre above all costs.
To help producers run enterprise budgets, ISU is developing
a PDF tool that can be downloaded from the Internet. ISU Extension
plans to release a publication outlining production budget
results in early 2006. 
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