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Scaling Up Local Food (SSIR)

Scaling Up Local Food (SSIR)

Carman Ranch, a family-owned operation in eastern Oregon, raises grass-fed, grass-finished cows. Cory Carman, who runs the ranch, has developed a model that allows customers to buy a share in a live cow.

Carman Ranch, a family-owned operation in eastern Oregon, raises grass-fed, grass-finished cows. Cory Carman, who runs the ranch, has developed a model that allows customers to buy a share in a live cow; the ranch will then harvest and process the animal according to customer specifications. Carman works with a small local company that processes her cows, and she and her family have cultivated a strong following among a tight group of Portlanders who seek an alternative to industrial meat.

When Carman moved to expand her business, however, she entered the no-man’s-land (or no-woman’s-land) that analysts call “ag of the middle” (AOTM). This category includes farms and ranches that are too small to compete in commodity markets but too large to rely exclusively on direct-to-consumer channels such as farmers’ markets and farm subscription programs. In many ways, producers that operate at this mid-level scale are ideally suited to act as suppliers to regional food economies. Yet a lack of adequate infrastructure and an absence of efficient markets make producing at that scale financially problematic. Carman has struggled to find food processing, cold storage, and delivery services that will support her growing enterprise. She has also found that when those services are available, the cost of using them erodes the margins of what is already a very lean business.

Last year, my colleagues and I at Ecotrust, a nonprofit based in Portland, conducted a research project that explored the challenges faced by AOTM producers. Our goal was to identify the barriers that prevent local food economies from scaling beyond farm-direct channels and into mainstream outlets. We focused on food systems in Oregon, and we interviewed farmers and ranchers from around the state, along with processors, wholesale buyers, and other participants in the Oregon food economy. We also toured warehouse, storage, and processing facilities. We then generated a report (titled “Oregon Food Infrastructure Gap Analysis”) that describes the plight of AOTM enterprises like Carman Ranch—enterprises that combine “local values and wholesale volume,” as we write in the report. These producers, we found, confront a challenge that has grown especially acute in recent years.

Back in the late 1990s, socially and environmentally conscious consumers flocked to farmers’ markets. Driving that movement were a wide range of concerns about the dominant food system in the United States. Most of the food available at US grocery stores, restaurants, and cafeterias is sourced from global supply chains that are designed to maximize efficiency, shelf life, and profit. Production of that food is often highly reliant on pesticides and antibiotics, and the food itself is often highly processed. For consumers, patronizing vendors at farmers’ markets offers a way to support “local food”—a catch-all term that encompasses not only food grown near where it’s sold, but also food grown under conditions that favor sustainable agriculture, climate adaptation, community development, the fair treatment of farm workers, and a high concern for animal welfare.

But the growth of farmers’ markets reached a plateau around 2007. These and other farm-direct channels remain important, but they are out of sync with the needs and expectations of most consumers. The vast majority of Americans still get most of what they eat from mainstream grocery stores, restaurants, and cafeterias. And in those channels, sourcing local food at a significant scale remains exceedingly difficult.

At Ecotrust, we are building on our study of the AOTM problem by working to fill the infrastructure gap that stands in the way of midsize farmers and ranchers who want to reach more customers. Today in Portland, at a campus that we call the Redd, we are developing a space where producers and entrepreneurs can create systems that will make local food an economically sustainable proposition.

The main finding of our study is simple: The existing food infrastructure (which encompasses warehouses, processing facilities, and so on) and the standard frameworks for doing business in the food industry (frameworks that cover pricing, wholesale marketing, and the like) do not serve the needs of midsize farmers and ranchers. In their go-to-market strategies, AOTM producers face significant barriers to entry that commodity producers typically don’t face. They often don’t meet the volume minimums that buyers require, for example. For rural producers, warehousing and logistics present especially daunting obstacles. For urban producers and entrepreneurs, the main challenge is a lack of access to affordable processing and distribution facilities.

Along with revealing a deficit in “hard” infrastructure for AOTM producers, our research uncovered a gap in “soft” assets. Few of these producers have experience in market development. They often forgo any effort to pursue a brand and marketing strategy. Many of them scramble to patch together a logo and a product label, some basic sales material, and a website.

Yet our research also brought to light the great potential that exists for creating strong regional food economies. Efforts to build scale-appropriate infrastructure, we concluded, can enable the resurgence of a “missing middle” in agriculture. The production capacity of midsize producers is highly suitable for meeting regional demand. (Large corporate farms, by contrast, operate on a scale that requires them to serve national and global commodity markets.) The next step, in our view, is to help these producers achieve better economies of scale. Doing so will rationalize pricing and allow for greater production volume and more consistent product quality. Equally important are steps that will make wholesale buying channels more accessible to midsize farmers and ranchers.

Flexibility in those channels is essential to AOTM producers. To remain financially viable, these producers need to differentiate their products, and they must be able to manage multiple steps in their supply chain. Instead of merely providing raw inputs and accepting the prices set by a commodity market, successful AOTM producers take responsibility for various parts of a supply system—from production, processing, and packaging to storage, sales, and distribution. They also work with buyers to negotiate sustainable pricing arrangements.

When they prosper, AOTM producers deliver important (albeit hard-to-measure) benefits that are a function of their size—benefits that stem from local ownership and active community engagement. But midsize producers can thrive only if an infrastructure is in place that connects them to regional markets.

Our research on the AOTM infrastructure gap took place on the nonprofit side of Ecotrust. Following up on that work, one of our for-profit subsidiaries—Ecotrust Capital Partners—acquired a two-block parcel near downtown Portland and began to develop the site as a working hub for the Portland regional food economy. We’ve dubbed this facility the Redd on Salmon Street. The name refers to the nest that a salmon makes in a riverbed for laying its eggs.

Phase I of the Redd project focuses on a building that we call the Marble, which will serve as a cold storage, aggregation, and distribution center. The Marble will officially open this summer, but a few early tenants have been operating in the space since late 2015. One such entity is B-Line Sustainable Urban Delivery. B-Line manages the cold and dry storage warehouse at the Redd, and it offers last-mile logistics and delivery services for downtown Portland. Under its model, midsize rural producers need to take responsibility only for getting their product into the city. B-Line then handles deliveries to restaurants, retailers, and institutions. Drivers for B-Line navigate downtown traffic using a fleet of “truck tricycles” that run on clean pedal power. Those vehicles, which can carry a 700-pound payload, relieve congestion both on city streets and on receiving docks. The Marble will also accommodate three “maker spaces”—dedicated production areas for a variety of food-related businesses.

We will open Phase II of the Redd in late 2017, following the restoration of an industrial building on the property that we call the Foundry. (It was an ironworks at one time.) This part of the campus will offer additional maker spaces; areas for related wholesale and retail activity; space for conferences and other events; and offices for providers of finance, legal, and marketing services, as well as other organizations that serve food producers’ needs.

In launching the Redd, we’re also responding to one of the most notable findings in our research: the need for “container” structures that facilitate collaboration among producers. Participants in regional food systems, we found, have a penchant for working together—but existing vehicles for collaboration tend to be inefficient. Workshops, meet-and-greet events, and hackathons are often too superficial to promote the kind of deep engagement that allows people to wrestle with the intrinsic complexities of a food system. The Redd will provide a setting where producers and entrepreneurs can interact with each other in a sustained way. (Franklin Jones, the founder of B-Line, has already become a human hub for idea sharing and problem solving among customers who use his service.) Particularly for producers based in far-flung rural areas, access to the wisdom of their peers is likely to be as valuable as access to urban infrastructure.

For Carman, the Redd presents an opportunity to transform the scope of her operation. “At Carman Ranch, we can’t grow our business until we have access to more freezer and cooler space, and we won’t become more profitable until we have value-added processing, which ensures that we can sell every cut in the animal for a good price,” she explains. That gap in scale-appropriate infrastructure remains a serious impediment for both rural and urban producers. But “with investments in projects like the Redd,” Carman says, “that reality is changing.”

Part distribution hub, part accelerator, part gathering place, the Redd will serve as both a container and an ecosystem for a diverse set of producers and entrepreneurs. Together, we believe, these participants will help spawn a new food economy—one that promotes equity, prosperity, environmental resilience, and healthy living.

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