Assessing the profitability of scaling up for retail access:
Changes to the supermarket supply chain in recent decades have “squeezed out” local and small farmers in exchange for more consolidated and global suppliers. As a result, these small-scale farmers have turned to more direct-to-consumer markets, which capture a higher price point but also bear highe...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Lyson Center for Civic Agriculture and Food Systems
2023-08-01
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| Series: | Journal of Agriculture, Food Systems, and Community Development |
| Subjects: | |
| Online Access: | http://foodsystemsjournal.org/index.php/fsj/article/view/1173 |
| _version_ | 1797766974428676096 |
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| author | Jennifer Gerhart Philip Howard |
| author_facet | Jennifer Gerhart Philip Howard |
| author_sort | Jennifer Gerhart |
| collection | DOAJ |
| description |
Changes to the supermarket supply chain in recent decades have “squeezed out” local and small farmers in exchange for more consolidated and global suppliers. As a result, these small-scale farmers have turned to more direct-to-consumer markets, which capture a higher price point but also bear higher marketing costs. Previous research indicates potential saturation and lack of profitability in this market type. Researchers have explored strategies for “scaling up” local farmers into intermediary supply chains, such as grocery retail, and have tested the profitability of hybrid marketing strategies with positive results. However, there are very few studies that utilize production costs to test market feasibility, and even fewer that include retailer willingness-to-pay estimates. To assess strategies from the perspectives of both producers and buyers, this study uses salad mix in Southeast Michigan as a pilot case. Farmer-generated production costs incurred for strategies and production types were estimated in focus groups, and retailer willingness-to-pay estimates were obtained in interviews. The analysis suggests that a combination of more efficient harvest technology and central processing would have the greatest impact on increasing profitability, but the dramatic effect that central processing has on output price makes it the most feasible strategy for small-scale farmers. In addition, the minimal costs of organic certification for small farmers are likely to be justified by the price premium that grocery retailers are willing to pay. Hydroponic production may be challenging to break even at a smaller scale but could potentially meet retailers’ price preferences at larger scales. Pairing production cost estimates with buyer willingness-to-pay estimates may generate more comprehensive assessments of the relative profitability of potential scaling-up strategies. This method could be applied to other crops, regions, and produce buyers by cooperative extension, nonprofit, or local government personnel working with small farmers on their market development plans.
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| first_indexed | 2024-03-12T20:33:01Z |
| format | Article |
| id | doaj.art-3239586d46cb4f75bede35d1c1d9f06a |
| institution | Directory Open Access Journal |
| issn | 2152-0801 |
| language | English |
| last_indexed | 2024-03-12T20:33:01Z |
| publishDate | 2023-08-01 |
| publisher | Lyson Center for Civic Agriculture and Food Systems |
| record_format | Article |
| series | Journal of Agriculture, Food Systems, and Community Development |
| spelling | doaj.art-3239586d46cb4f75bede35d1c1d9f06a2023-08-01T18:54:40ZengLyson Center for Civic Agriculture and Food SystemsJournal of Agriculture, Food Systems, and Community Development2152-08012023-08-0112410.5304/jafscd.2023.124.003Assessing the profitability of scaling up for retail access:Jennifer Gerhart0Philip Howard1Michigan State University ExtensionMichigan State University Changes to the supermarket supply chain in recent decades have “squeezed out” local and small farmers in exchange for more consolidated and global suppliers. As a result, these small-scale farmers have turned to more direct-to-consumer markets, which capture a higher price point but also bear higher marketing costs. Previous research indicates potential saturation and lack of profitability in this market type. Researchers have explored strategies for “scaling up” local farmers into intermediary supply chains, such as grocery retail, and have tested the profitability of hybrid marketing strategies with positive results. However, there are very few studies that utilize production costs to test market feasibility, and even fewer that include retailer willingness-to-pay estimates. To assess strategies from the perspectives of both producers and buyers, this study uses salad mix in Southeast Michigan as a pilot case. Farmer-generated production costs incurred for strategies and production types were estimated in focus groups, and retailer willingness-to-pay estimates were obtained in interviews. The analysis suggests that a combination of more efficient harvest technology and central processing would have the greatest impact on increasing profitability, but the dramatic effect that central processing has on output price makes it the most feasible strategy for small-scale farmers. In addition, the minimal costs of organic certification for small farmers are likely to be justified by the price premium that grocery retailers are willing to pay. Hydroponic production may be challenging to break even at a smaller scale but could potentially meet retailers’ price preferences at larger scales. Pairing production cost estimates with buyer willingness-to-pay estimates may generate more comprehensive assessments of the relative profitability of potential scaling-up strategies. This method could be applied to other crops, regions, and produce buyers by cooperative extension, nonprofit, or local government personnel working with small farmers on their market development plans. http://foodsystemsjournal.org/index.php/fsj/article/view/1173Scaling UpSalad MixMarket FeasibilityProduction CostsCentral ProcessingOrganic Certification |
| spellingShingle | Jennifer Gerhart Philip Howard Assessing the profitability of scaling up for retail access: Journal of Agriculture, Food Systems, and Community Development Scaling Up Salad Mix Market Feasibility Production Costs Central Processing Organic Certification |
| title | Assessing the profitability of scaling up for retail access: |
| title_full | Assessing the profitability of scaling up for retail access: |
| title_fullStr | Assessing the profitability of scaling up for retail access: |
| title_full_unstemmed | Assessing the profitability of scaling up for retail access: |
| title_short | Assessing the profitability of scaling up for retail access: |
| title_sort | assessing the profitability of scaling up for retail access |
| topic | Scaling Up Salad Mix Market Feasibility Production Costs Central Processing Organic Certification |
| url | http://foodsystemsjournal.org/index.php/fsj/article/view/1173 |
| work_keys_str_mv | AT jennifergerhart assessingtheprofitabilityofscalingupforretailaccess AT philiphoward assessingtheprofitabilityofscalingupforretailaccess |