Direct Marketing to Large
Retailers – Risk Management
Opportunities
Jennie Popp, Ph.D. and Ron Rainey, Ph.D
Center for Agricultural & Rural Sustainability
University of Arkansas
and
Mike Faupel
Applied Sustainability Center
University of Arkansas
Local Foods
• Local food or local food movement is a
collaborative effort to build more locally
based, self reliant food economies – one in
which sustainable food production,
processing, distribution, and consumption is
integrated to enhance the economic,
environmental and social health of a
particular place.
Food Mile Facts
• In the U.S. the average grocery store
produce travels nearly 1,500 miles.
• Approximately 40% of U.S. fruit is produced
overseas.
• Broccoli is grown an average of 20 miles of
the average American’s house.
• The average broccoli at grocery stores
travel 1,800 miles.
More Facts
• Grocery stores produce purchases trickle
down 3.5 cents of each dollar to the farmer.
• A wheat farmer can expect to receive about
six cents of each dollar spent on a loaf of
bread.
• Farmers Markets return is typically 80 to 90
cents of each dollar spent to the farmer.
Why are Local Products More Popular?
• Consumers are demanding and willing to pay a
premium for local products
• Producers are doing a better job of developing
marketing strategies and demanding a bigger piece
of the pie
Its not always the best product, but the best
marketed product that sells first
• Drastic increase in fuel prices or transportation
costs
Changing Consumer Preferences for Local
Products
• Safety and quality perceptions play an
important role in consumer acceptance
• Freshness and taste influence consumer
preference
• “Home-bias”
Support for local business or preserving
agrarian way of life
Consumers associate local food systems
with the concept of “ environmental
sustainability”
Major Retailers Plan for Expanding Local Markets
• Create current supply chain visibility to local and
regional sources. Develop new local and regional
sources.
• Market local to our customers and educate on
benefits.
• Improve freshness with less road time and lead
time
• Ethnic Niches - Re-invigorate historic growing
areas to grow items popular with the US’s growing
minority communities near the consumer providing
supply, freshness, & cost advantages.
Major Retailers Plan for Expanding Local Markets
• Retailer tracked the impact of local for
a single product:
• Increase in dollars sales of 21.54%.
• Increase in units sold by 20.88%.
• Sale-through increased by 3%.
• Mark-downs decreased by 3.7%.
Community Benefits from Local Foods
• Farm diversification and sustainability
• Increased jobs and income in community
• Improved access to fresher foods
• Greater traceability and choice
• Decreased risk of widespread
contamination
• Environmental benefits such as reduced
food miles
Local/Regional Markets Can Be Risky
• Perceptions exists that local markets provide
safer food – not substantiated
• Little focus on training small/mid-sized producers
on food safety and recalls
• Small/midsized producers are more vulnerable
to risks that larger companies
• They can be driven out of business easily and
destroy the local/regional market
Local Food Sourcing Methods
• Older: farmers markets, farm/roadside stands, u-pick
operations, community supported agriculture (CSA)
• Newer: public schools, hospitals, institutions of higher
education, food retailers (grocery and restaurant)
– Market Maker and other electronic markets emerging
Questions Arise:
• Are farmers equipped to meet the demands of these
emerging markets?
• Does the infrastructure exist to connect buyers and
sellers and to move products locally/regionally?
The Food Marketing Chain
Processing
Production
Distribution
Direct Mktg
Wholesale
Consumption
Retail
Producer Faces Risks Throughout Chain
Production
Legal
Environmental
Financial
Personnel
Food Safety
Processing
Production
Distribution
Direct Mktg
Food Safety
Wholesale
Consumption
Marketing
Legal
Financial
Food Safety
Retail
Goals
Medium and Large
Scale Buyers
Facilitate the availability
of safe, consistent and
reliable supply of
relevant products for
purchase in the market
by large scale buyers
Agricultural
Producers
Identify risk mgt needs
and develop risk mgt
tools to enable
producers to participate
in direct marketing
opportunities
Enhanced Profitability and Market Sustainability
Examples of Producer Challenges
and Opportunities
Little knowledge of:
Needs to be met through:
• Emerging markets
where/how to enter
• Development of new kinds of
marketing plans (mktg risk)
• Buyers needs and
requirements space filler for
this
• Development of contract/
insurance/bonding tools
(legal/financial risk)
• State/federal regulation for
direct marketing
• Development of regs
education (legal risk)
• Emerging food safety
concerns
• Identification of BMPs
(production risk)
• Capital requirements
• Development of new debt
mgt tools (financial risk)
The Approach –
Step 1: Identify Needs
• Engage representatives from all relevant parts of the supply
chain and their supporters
--- producers
--- warehousing/storage
--- input suppliers
--- government
--- transporters
--- buyers
--- ag lenders
--- NGOs
convene group and utilize their expertise to identify current
barriers to a fully functioning local/regional food system
The Approach –
Step 2: Develop Tools
• Lead a team of university, government and private
industry experts to develop tools that fill the gaps. e.g.
– Legal information related to regulations, estate planning, and
insurance and their associated financial implications
• New insurance tools for direct marketing
– Financial information related to all debt management
• New financing opportunities to support market infrastructure
and production expansion
– Marketing information related to marketing co-operatives,
general contracting, minimum price contracting
• New individual and collective selling strategies
– Evaluation of potential new production areas
• Seasonal land use changes in US
The Approach –
Step 3: Develop/Provide Training
• To the producer
– New risk management tools and lender/ buyer requirements
• To the buyer
– Means to reach potential sellers (availability of local markets
throughout the year)
• To the greater agricultural industry
– Opportunities for agricultural lenders, input suppliers, market
managers
• To the trainers
The Approach –
Step 4: Facilitate Communication
• Facilitate communication throughout the supply
chain and to industry/government agencies that
support agriculture
– Meet current needs
– Anticipate future needs
Progress to Date
Collaborations and Partnerships
•
Uniqueness of University of Arkansas
– Center for Agricultural and Rural Sustainability
– Cooperative Extension Service
– Applied Sustainability Center
– National Agricultural Law Center
•
Strong partnerships established with:
– Industry – Walmart, C.H. Robinson, L & M Produce, Delmonte, Dole
– Government - USDA RMA, Southern Risk Management Education Center, AR
State Department of Agriculture, CSREES Program Leaders
– Agricultural Lenders
– Tribal Entities
– Other Land Grant Universities
– Marketmaker
Step 1: Identify Needs
• USDA RMA Partnership
• Arkansas and Oklahoma Focus
• Need for legal/marketing risk management tools for
producers
– Contracting
– Direct marketing risk management
– Engage producers in Arkansas and Oklahoma
• Fact Sheets
• Networking Development
Step 1: Identify Needs
• Walmart Supply Value Network
• National Focus
• Identification of producers to supply local stores and
distribution centers
– Initial success in Arkansas and with some Tribal entities
• Merging of needs of retailers/consumers with needs of
producers
Step 1: Identify Needs
• Survey of Horticultural Producers
–
–
–
–
–
Risk management needs
Marketing outlets
Contracting
Familiarity with electronic markets
Interest in marketing to large retailers
Step 2: Develop Tools
• Stakeholder Summit June 30-July 1, Fayetteville, AR
• Land-grant universities, other academics, producers, retailers,
distributors, NGO’s and CBO’s, and government
• Goal: design and launch projects to bridge the gap between
market demand for local/regional ag products and the current
supply
• Could include:
– Legal information related to regulations, estate planning, and
insurance and their associated financial implications
– Financial information related to all debt management
– Marketing information related to marketing co-operatives, general
contracting, minimum price contracting
– Evaluation of potential new production areas
Step 3: Develop/Provide Training
Currently:
• To the producer
– Legal aspects of contracts
– Managing risks associated with direct marketing
For the future:
• To the buyer
– Means to reach potential sellers (availability of local markets throughout
the year)
• To the greater agricultural industry
– Opportunities for agricultural lenders, input suppliers, market
managers
• To the trainers
The Approach –
Step 4: Facilitate Communication
• Facilitate communication throughout the supply
chain and to industry/government agencies that
support agriculture
- developing a network of producers in Arkansas
with Arkansas State Department of Agriculture
- communicating through SVN meetings and
producer meetings
We Need You!
• All are invited to work with University of Arkansas
and its partners to develop and extend risk
management materials for producers and to
provide agricultural information to retailers and
consumers
• Please contact Jennie Popp (jhpopp@uark.edu)
or Ron Rainey (rrainey@uaex.edu) to see what
you can do!
Interested in Attending the Summit?
• We are seeking broad representation across both
geographical area and expertise, thus space for
any type of individual is limited
• We are currently gathering potential stakeholder
information
• If you are interested, please contact Mike Faupel
at mfaupel@walton.uark.edu.
• The initial round of invitations will be made in
mid-April
Contacts for More Information
Jennie Popp, Ph.D.
jhpopp@uark.edu
479-575-2279
Ron Rainey, Ph.D.
rrainey@uaex.edu
501-671-2175
Mike Faupel, M.S.
mfaupel@walton.uark.edu
479-575-4594