Behind Regional Distribution Success

Even during a recession, San Francisco-based organic produce distributor Veritable Vegetable and its retail partners are helping regional farmers garner millions of dollars in sales for their organic crops. They do this by pursuing a simple marketing strategy: maintaining the farm label along the value chain, allowing consumers to know exactly where their produce comes from as it makes its way from field to kitchen.

The strategy has worked: Veritable Vegetable has recently enjoyed massive growth in sales, a 46-percent increase from 2004 to 2009, when annual sales reached $38 million. And many of the retail partners it sells to are also thriving. “We are making money, even during this bad economy,” says a manager at Sacramento Natural Foods Co-op, which buys much of its produce from Veritable Vegetable. “We are getting more people coming in because in this economy, people want to keep local business supported.”

Regionally based supply chains—which link farmers to nearby consumers, businesses and institutions, often through distributors—are growing in popularity around the country, and are driven by strong consumer demand. But not all are successful. The lesson to be learned from the Veritable Vegetable example, says Gail Feenstra, a food systems analyst at the University of California, Davis Agricultural Sustainability Institute, is that consumers do not want food that is merely local—they want food with a story. Marketing counts.

Feenstra and consultant David Visher, supported by grants from SARE and other programs of USDA’s National Institute of Food and Agriculture (NIFA), studied five values-based supply chains in California, including Veritable Vegetable and Sacramento Natural Foods Co-op, to identify the challenges and opportunities associated with local food distribution and share findings with people thinking of starting such an operation.

Western SARE awarded Feenstra’s 2010 grant in response to a special listening session it conducted in California, during which a diverse range of stakeholders said more research was needed on these alternative distribution channels. Her work revealed many findings that illuminated winning and losing strategies for all the players involved.

For example, along with marketing savvy, a deep understanding of the produce distribution industry is crucial for people embarking on this distribution model. Margins are so thin and price information so ubiquitous that in many cases, business acumen is crucial to success, Feenstra and Visher say. As a result, they found that nonprofits can easily struggle to support these supply chains compared with private businesses, largely because nonprofits often have less industry experience.

Also, a farmer who wants financing to start a new distribution strategy will likely find obstacles at the bank, because traditional financers are not familiar with alternative distribution methods.

“Farmers can’t get loans to try new distribution strategies, for example if they want to try a branding strategy, or join an aggregation system, which might be a little riskier than going to your conventional wholesaler,” Feenstra says.

That is what leads Feenstra and her UC Davis colleague, Shermain Hardesty, to the next phase of their research: learning more about the external participants in a values-based supply chain, including financers, policy makers and regulators, and the business community, so that these stakeholders might become more knowledgeable about these supply chains and provide more effective support.

Want more information? See the related SARE grant(s) SW10-810, Developing regional distribution networks to enhance farmer prosperity: Retail value chains.