Sometimes Size Does Matter – the Economics of Wholesale

National Heirloom Expo Squash Mountain – Baker Creek Seeds photo credit.

Most small farmers (though the USDA defines small farms as earning less than $250,000 a year, and classifies 91% of all US farms as small farms) get into farming because they want to sell direct to the end consumer. Growing products for farmers markets, providing CSA boxes (CSA stands for Community Supported Agriculture) and stocking a farm stand is all about developing a personal relationship between the farmer and their local customer. About telling your own farm story. We small farmers, in general, have wholeheartedly rejected the large scale commodity model of farming that accounts for 85% of the value of crops grown in the United States. In many cases, we don’t come from a history of farming on a large scale.

As some of you know, I’m involved in a couple of local food groups, including the Walla Walla Valley Food System Coalition. We are currently working with a good sized group of stakeholders on a USDA Local Food Promotion Program feasibility study.  We’re exploring the possibility of a Food Hub in the Walla Walla Valley, in partnership with the Blue Mountain Action Council Food Bank. Food hubs are simply defined as “a centrally located facility with a business management structure facilitating the aggregation, storage, processing, distribution, and/or marketing of locally/regionally produced food products”.

So basically, a food hub can be what our local growers need it to be. Creativity abounds with other food hubs around the country on what this could look like, from mobile cooler trucks that get parked on farm for fill up, to meet-up produce aggregation at an agreed upon location with no permanent building, to full on value-added food lines and co-packing (ie processing FOR a farm under their brand) set ups.

We’re about 8 months into this 18 month grant. One of the goals of the study is to explore value-added processing. Value-added as in everything from peeled, cut and bagged butternut squash to bottled shelf stable tomato sauces and salsas to flash frozen berries. Basically any farm product that the Washington Department of Agriculture says you need a Food Processor License to sell. Yes, our area could use another commercial kitchen for rent. We know that. But we’re trying to think beyond the needs of food trucks, caterers and local bakers to larger scale regional products that could be on a store shelf or in a freezer year round. And that utilize, in a big way, the abundance of what we are able to grow with our fantastic soils and long growing season. Studies show that successful food hubs generally have a minimum of a million dollars in annual sales. We’re not gonna get there with just a kitchen rental.

One of the hurdles to this potential end goal is produce quantity. Right now, most of the smaller growers who are excited about the idea of pooling product to reach larger industrial buyers (think hospitals, school systems and independent grocers) are mostly selling direct to consumer and to a few select restaurants. And there are several reasons for that. One is simple. It takes a lot of work to bring produce to market. Small farms want to maximize the amount of profit they make on every squash and cucumber. And the way to do that is to sell directly to the end user. Because wholesale prices are generally at least half if not more off of retail prices, it can be hard to see the benefit of selling wholesale when you’re on small acreage.

Direct to consumer farmers carefully plan and then plant what they think they can sell out of every single week. Some loss is just a given with farming. We cull when we pick. We cull again when we pack. We cull a third time when we display. And then we cross our fingers and hope every single bundle not culled sells, to help make up for that loss. If you over plant and can’t sell it all, that’s a huge amount of wasted effort. So we’re careful to fill our limited land with  produce that can fill local bellies from April into the new year. In other words, we grow diverse crops and practice a lot of seasonal crop rotation. Variety is something consumers who buy asparagus from Chile for their Thanksgiving table have come to expect from their local farmers as well.

In order to really make money selling produce wholesale, what you lose in profit by not selling direct to the end user you make up for in volume. And in order for the value-added portion of this food hub to work, we’re gonna need some farmers willing to commit some portion of their land to volume wholesale production.

Here’s how the math might work. (This example is simplified, but taken directly from the book: Wholesale Success – A Farmer’s Guild to Food Safety, Selling, Postharvest Handling and Packing Produce, by Jim Slama and Atina Diffley. 5th Edition. The book is difficult to find for sale, but some sections are available as PDF’s links here).

So by growing 20 acres of potatoes wholesale, rather than .1 acre direct to consumer, you make a LOT more money in the long run. Seeing this all penciled out was a bit of a revelation to me. Honestly, I never really understood why you wouldn’t always just want to sell direct to consumer – other than the toll doing weekly farmers markets takes on a person. But when you see these numbers, you start to understand where the phrase “get big or get out” may have originated. How awesome would it be if those wholesale potatoes actually stayed in the area and fed school kids and hospital patients, rather than being turned into a mass-market french fry or tater-tot?

Our hope is that there are farmers locally (and in this case, we consider “local” to be a 5 county area) who are willing to put part of their land into a wholesale crop, or large growers who are willing to put a small portion of their huge acreage into production of a crop that would be consumed locally rather than on the world market.

Up front costs on wholesale can be intimidating. But land can be leased. Equipment can be shared. Culled seconds can be pooled from multiple farms and turned into a value-added product. It’s all VERY doable. It’s just a matter of penciling out the numbers and finding farms willing to step-up. I’m excited for the possibilities.

© 2019 Miles Away Farm, where our little 4 acre farm isn’t big enough to sell wholesale, but there is a lot of land around me sitting fallow right now! It’s also interesting that at LEAST into the 1970’s, the Walla Walla Growers’ Association pooled produce, ensured quality, and branded their product while selling wholesale to canneries and end users on the west side of the state.