 The Farm to Food Opportunity Online series was funded by a grant from the USDA Agricultural Marketing Service. This module is about food value chains. Please share your feedback using the link to the evaluation found in the video description below. Learning Objectives In this module, you will learn key partners in the value chain. You will learn about the opportunity for food hubs. You will learn how food hubs differs from traditional supply chain operations. You will learn how food hubs can increase consumer demand through brand advancement. You will learn how food hub partners can create value on both ends of the supply chain. For additional resources, you can consult the USDA Agricultural Marketing Service publication, Food Value Chains, creating shared value to enhance success. The food supply chain is a continuous cycle of production, aggregation, distribution, consumption, reclamation and resumption. For this training, we will be focused on production, which is the initial link in the chain which starts with our farmers and ranchers growing the food that eventually ends up on our tables. Aggregation and distribution are the links which incorporate transportation and storage of harvested food on the way to the consumer. These are the usual functions of a food hub and the main focus of this training. Consumption happens when food arrives at restaurants and retail stores to be purchased by the consumer, who is the final link in the supply chain being considered in this training. During this session, we won't be focused on the reclamation and resumption aspects of this food supply chain. However, they will be noted. Understanding that external factors impact every link in the supply chain is crucial as we consider a food hub operation. Each link in the chain is dealing with a host of internal variables as well as impact from external factors. These factors often fall into three general categories, including finance, service providers and the policy considerations. Factors like access to credit and capital impact each link in the chain, but differently. Taxes and insurance are also in play across the supply chain, impacting each link differently. For instance, food safety regulations are in place across the chain, but producers experience different regulations from distributors or retailers facing consumers. External factors work in every step of the supply chain. Taxes impact everyone. Insurance impacts everyone. Regulations impact everyone and more. This table is a simple overview of the external environment. In a food value chain versus a standard food supply chain, the participants work together in a constant cycle to feed and clothe us. Each participant deals with a host of individual challenges, but believes that another level of success and sustainability can be achieved by working collaboratively. Successful value chain partners often have a common goal and a shared set of values. When partners approach these values, intentionally the food chain supply can be transformed into a food value chain. Examples of these values might include commitments to certain production practices like organic vegetables, grass-fed beef or free-range poultry. It could include commitments to healthy food access or preservation of farmland. The important thing to remember here is that the members of the collaborative are committed to the shared values, whatever they may be. These values become a way of work and a part of the brand. A typical supply chain is defined as a set of trading partner relationships and transactions that delivers a food product from producers to consumers. A food value chain or value-based food supply chain is defined as a set of strategic alliances between farmers or renters and other supply chain partners that deal in significant volumes of how quality differentiated food products and rewards are distributed equitably across the chain. Volume, quality, and differentiation are critical to establishing a food value chain. Volume, quality, and differentiation are critical to establishing a food value chain. Product differentiation occurs when a set of meaningful differences are defined that make your product different from a competitor's. A product can be differentiated based on quality, production methods, or the place of origin. We will look at this idea more later in this module. Since the food value chain is a collaborative model from producer through the supply chain to the consumer, it can be established and led by any link in the chain. Across the country, this leadership has happened differently depending on the local situation and local assets in the supply chain. Here are some examples of producer-led, aggregator-led, and consumer-led food value change, which emerge from different circumstances at the local level. Sometimes a food hub is established by producers because in a food value chain, farmers and renters are strategic participants, not just commodity suppliers. Farmers who participate in a food value chain approach can access new markets and often retain a higher percentage of revenue. Good Nature Family Farms sells hormone and antibiotic-free beef to bald food stores, henhouse markets. This example of a producer-owned and operated Cooperative Food Hub operation is Good Nature Family Farms located in Kansas City, Missouri. The tagline for the hub operation is Good Earth, Good Food, Good Life. Good Natural Family Farms represents over 100 small family farm producers from the Kansas City area. All of the participating producers adhere to the national by fresh, by local criteria. Good Nature Family Farms' key retail partner is Bald's Food Stores. Good Nature Family Farms has grown from one producer with two mini-tomatoes to include a diverse product line and recognize brands sold in 11 hens house and 17 price chopper stores owned by Bald Foods. Rainbow Organic was the founding partner and now serves as the quality coordinator and processor. The collaborative works closely with Bald Foods, their primary retail partner and is a valuable outlet for small and mid-sized producers. In 2011, GNFF growth sales topped $3 million. Visit GNFF online at www.goodnaturefamilyfarms.com. Aggregation and distribution are the real jobs of a food hub. This section we will look at an aggregator that sustains itself by bringing value to both the producer and consumer ends of the supply chain. Since this entire training focuses on the nuts and bolts of a food hub operation, we will take a look at a successful regional food hub that has built a strong product brand in the northeastern U.S. Red Tomato proudly proclaims righteous produce as a tagline to their effort to boost small and mid-sized farmers across the region of the northeastern United States. Based in Canton, Massachusetts, Red Tomato works with participating producers to ensure that produce is of the highest quality, picked at the right time and delivered at the height of freshness and flavor. Red Tomato also interprets market trends back to participating producers which might mean a new crop opportunity like a hairline plant or change in production methods like pasture-raised pork. Red Tomato has been able to develop a value chain in the region which has extended the season for local food for by expanding the region of participating producers. By developing packaging, branding, and marketing materials that tell a story, Red Tomato has capitalized on differentiating on quality, production process, and place of origin. Visit Red Tomato online at www.redtomato.org. Consumer demand for local food has grown tremendously over the last two decades. High-end restaurants and celebrity chefs begin celebrating local seasonably available slow food as an alternative to commodity production fast food. Retailers, restaurants, and institutions are increasingly recognizing and valuing locally sourced food. One of the challenges for these food value chain partners is being able to consistently source product that meets the quality demands of the final consumer. La Montanita begin with the consumer and reach backward into the supply chain to build a strong network of retail and wholesale local food options. As a food hub, La Montanita is an example of a consumer-side supply chain link reaching back into the chain to handle the aggregation and distribution function. La Montanita is a community-owned retail co-op located in Albuquerque, New Mexico. The first store was started in 1976 serving 300 customers who wanted access to locally grown produce. There are now four stores serving 1,600 families carrying over 1,100 products from over 400 local producers. The co-op distribution center serves small community groceries, restaurants, and commercial kitchens. La Montanita operates the aggregation and distribution functions in order to serve the final consumer through its retail and wholesale trade. Visit La Montanita online at www.LaMontanita.coop. A closer examination of the markets and business opportunities will demonstrate the case for collaborating in a food value chain. Serving intermediate markets like retail chains, restaurants, and institutions like schools require scale that many small and mid-sized producers cannot achieve. The market for local food has seen tremendous growth in the last two decades. The total market for local food sales was estimated in 2015 to be $8.7 billion. While 85% of local food farms are small farms, grossing $75,000 cash income annually, these farms account for just 13% of local food sales. On the other end of the spectrum, 5% of the local food farms are larger, grossing $350,000 income annually. And these large farms account for 67% of local food sales. Any farm of institutional distribution of local food requires volume. Small producers need aggregators to achieve volume. The graphs show that the largest portion of revenue derived from local food sales is realized by large producers. While small farms make up the vast majority of farms selling locally, the economic benefit largely goes to large producers. A typical supply chain is defined as a set of trading partner relationships and transactions that delivers a food product from producers to consumers. A food value chain or values-based food supply chain is defined as a set of strategic alliances between farmers or ranchers and other supply chain partners that deal in significant volumes of high-quality, differentiated food products and rewards are distributed equitably across the chain. Volume, quality, and differentiation are critical to establishing a food value chain. Product differentiation occurs when a set of meaningful differences are defined that make your product different from a competitor's. A product can be differentiated based on quality, production methods, or place of origin. We will look at this idea more later in this module. Spending at locally-owned businesses generates greater economic benefit from the same spending at chains. Total economic effect value comes from direct, indirect, and induced sources. Direct sources examples include the food that is produced and income earned by workers involved in the production. Indirect sources include items locally supplied inputs like seed or equipment and services that support production. Induced sources include all of the earnings spent in the region by workers in the direct and indirect sources. For example, a farmer buys clothing for her family with earnings from her work. As we consider the scope and size of the market for local food, it's helpful to understand the way that local spending benefits the community. Studies have shown that local-owned businesses generate greater local benefit than comparable spending at chains. A multi-study showed that independent retailers generate 3.7 times the local economic impact as compared to chains. Restaurants have been shown to generate 2.15 times the economic impact locally. Total economic value for local food is derived from adding the direct, indirect, and induced earnings. We will take a look at the direct earnings difference to better understand the value of local food. Direct economic benefits primarily come with consumers substitute a local product from a product that originates in another region. This is called import substitution. The other source of direct economic benefits comes from the multiplier effect, which occurs when a dollar spent locally generates additional spending and economic activity. In the food system, multiplier effects occur when a local producer sells to a direct customer or aggregator who then sells to a customer. The earnings generated by the producer and the aggregator are then spent on goods and services in the region. Food hubs have shown multipliers of 1.63 to 1.82, meaning that each dollar spent through a food hub generates additional economic benefit to the local community. One of the critical roles that successful food hubs play in the food value chain is building the brand through differentiation. The participating producers contribute their harvest to the food hub aggregator that assures the consumer that a steady supply of high quality, differentiated food product is a valuable reason to purchase from the hub. Value proposition is a reason for customers to choose your product or service others. Brands are built on value proposition. When we consider product differentiation in terms of the food system, we are particularly focused on extraordinary product quality. For instance, chef quality heirloom vegetables. Sometimes production processes like organic heirloom or grass-fed is a differentiator and place of origin can be hallmark of a differentiated product like fruit from a specific county or region. Throughout this module, we have learned key partners in the value chain. Specifically, we are looking at operations in the aggregation and distribution work of food hub. We have learned that by collaborating with a food value chain, a producer could gain access to larger markets and retain a greater portion of the revenue. A food hub can bring value throughout the supply chain by building a high quality differentiated brand. A food hub featuring local and regional products can generate more income for the region that circulates within the region because of substitutions and multipliers. The shared values that participants in the food value chain agree to live by can be used as part of the brand building effort. For instance, the food value chain might all agree to grow organically or meet common national standards. The food hub will then build out the story of differentiation to potential buyers, increasing demand for those products and commanding a higher price. Food value chains differ from standard food supply chains because of the shared mission and values. Farmers and renters are strategic partners, not just interchangeable suppliers. Food value chains afford small and mid-sized producers to unlock new markets by collaborating to build volume and brand. We hope that you found this video helpful. Please follow the link in the video description below to complete the evaluation.