Farmers who commit totally to sell locally can make a profit

Farmers can make a profit selling their produce directly to local businesses, but they must not let possible new costs weaken their commitment to the new venture, according to an international team of researchers.

“We found that the farmers who really made a conscious decision to sell local and who made more of a commitment tended to do better than those who are just testing the waters with local direct selling,” said Amit Sharma, associate professor of hospitality management, Penn State.

Sharma added that farmers who were only testing the idea of selling to local restaurants tend to either never try to reach the local market, or quickly opt out of local selling.

The researchers, who reported their findings recently in the Journal of Agriculture, Food Systems and Community Development, said that farmers face a number of higher costs when they sell to local restaurants and shops, especially locally owned businesses that are not associated with national chains. Their research was supported by the Leopold Center for Sustainable Development at Iowa State University.

The added costs include money for additional marketing and transportation and delivery costs.

Costs can also increase when local businesses require special packaging, according to Sharma, who worked with Catherine Strohbehn, extension specialist and professor of apparel, events and management, Iowa State University; Rama B. Radhakrishna, professor of agriculture and extension education, Penn State and Allan Ortiz, lecturer, University of Costa Rica.

However, farmers can manage most of the costs, Sharma said.

“For some farmers, it may seem like making a website, for example, is a monumental task,” Sharma said. “But, it actually may be easy to make a website, or even hire someone to create one for very little money.”

In addition, many farmer organizations, extension units, and state agencies host websites with templates that producers can use to market their products. These organizations often use grant money to make the templates free for the farmers.

Farmers can capture additional revenue for the venture through higher prices and improved sales margins, the researchers said.

“The local foods movement is huge and retailers are wishing to meet the desires of their customers,” Sharma said. “Other research conducted by our team has found that 40 per cent or more of people will pay a premium for identified local ingredients.”

Most local outlets can charge a slightly higher price for goods, giving farmers a premium on products sold to those businesses. Selling produce themselves, instead of through a distribution company, may also improve margins for the farmers, since they are not losing revenue to the distributor.

“Farmers may find that their margins may be higher when they sell locally,” Sharma said. “They are cutting out the middleman.”

To study the costs and added work for farmers who want to enter the local market, the researchers interviewed 10 farmers who were selling food to the local market near a Midwestern university. The farmers, who were identified through a local growers’ directory, were then asked about direct and indirect costs of their operations, including production, storage, packaging, marketing, transportation and delivery.

“A lot of times there’s a status quo that exists and it’s difficult for farmers to get out of that mindset,” said Sharma. “Farmers are reluctant to take on these extra costs.”

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