New December 2006
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Marketing is as important to vegetable growers as obtaining a high yield. Often it is relatively easy to produce many vegetable crops, but finding a market outlet or the optimal combination of markets is challenging. Lower transportation costs and the ability to produce vine-ripe, fresh vegetables give Missouri vegetable growers a competitive advantage in marketing many types of vegetables. Through the use of season-extending technology such as high tunnels, the growing and marketing window of many Missouri-grown vegetables can be expanded. Missouri vegetable growers can grow varieties and types of vegetables that cannot be found on the average supermarket shelf.
There are many market outlets available for Missouri vegetable growers. These include community farmers' markets, "u-pick" (pick-your-own) sales, on-farm or roadside markets, wholesale produce auctions, restaurants, institution sales, marketing cooperatives, supermarket sales and community-supported agriculture or subscription farming.
When choosing suitable market outlets, consider factors such as
Table 1
Summary of market outlets for Missouri.
| Market outlet | Farmers' market | Roadside market | U-pick market | Produce auction | Market cooperative | Direct store sales | CSA | Institution sales | Restaurant sales |
|---|---|---|---|---|---|---|---|---|---|
| Suitable for large volumes of produce per grower? | No | No | Yes | Yes | Yes | Yes | No | Yes | No |
| Marketing time required by individual grower | High | Medium | High | Low | Low | Medium | Medium to high | Low | Medium to high |
| Degree of grower contact with consumers | High | High | High | Low | Low | Low | High | Low | Low |
| Suitable for very perishable vegetables? | Yes | Yes | Yes | No | Yes | Yes | Yes | Yes | Yes |
| Price stability | Medium | Medium | High | Low to medium | High | High | High | High | Medium to high |
Farmers' markets are an excellent outlet for direct marketing fresh, local produce to people in the community. Farmers' markets support local farmers and promote healthy eating habits while fostering community development. Farmers' markets are an excellent way for consumers to connect with their food source. By interacting with growers, consumers discover how the food is grown, experience new types of vegetables, and even learn how the vegetables can be prepared for maximum nutrition. Most consumers shop at farmers' markets for freshness, diversity and the opportunity to support local farmers.
Farmers' markets are well suited for small, individual lots of mixed produce items. Strict grading and packaging of produce is not required, and often seconds or lower grade items can be sold readily. Farmers' markets are relatively easy markets to access and do not require a significant amount of start-up capital. Most farmers' markets require vendors to grow what they sell from a specific radius around the market and will often have rules and regulations concerning how the items are sold. A rental fee may be required to sell at the market. Most farmers' markets are centrally located, open-air markets within the community, so advertising by grower-vendors is not essential. Farmers' markets are compatible with off-farm employment because most market days occur on evenings or weekends.
Since farmers' markets are well suited for small volumes of produce, they may not be the sole market outlet for a larger-scale vegetable grower. Obtaining a premium price for produce at a farmers' market may be difficult if there is a lot of competition for the same item. Farmers' markets are usually seasonal and transient, often opening in April and closing by November. However, year-round, covered farmers' markets may be available. Farmers' markets require a significant amount of time for marketing the produce and may not be an efficient use of time for all growers. Missouri has more than 100 community farmers' markets. To find a farmers' market in your area, consult the Missouri Farmers' Market Association.
Figure 1
Pick-your-own marketing works best with crops for which it is easy
to identify harvest maturity. Photo: J. Chism.
U-pick or pick-your-own marketing is popular with vegetables such as asparagus, green beans, peas, sweet corn, pumpkins and tomatoes (Figure 1). Most growers use u-pick to market vegetables for which harvestable maturity is easily recognized by pickers. Some growers will open fields at the end of the harvest season to u-pick customers to clean up the fields.
U-pick marketing of vegetables is not capital intensive and works well for perishable vegetables. U-pick lowers costs for labor, transportation, packaging and marketing but requires time for supervising customers. In sparsely populated rural areas, u-pick may not be a successful market outlet. Since the grower is inviting the public onto the farm, accident liability insurance may be required.
One of the challenges with u-pick marketing is coordinating harvest frequency with customer volume. Advertising is essential to maintain a steady flow of customers to the farm. Consideration must be paid to parking and traffic flow on the farm. Pickers must be supervised and shown the proper way to harvest each crop to maximize marketable yield without damaging the plants.
Figure 2
Roadside stands and on-farm stores are most successful in areas with
a high volume of traffic.
Figure 3
Roadside stands and on-farm stores should be clean
and neat and offer a variety of produce.
Many Missouri vegetable growers sell their produce through on-farm stores or roadside stands (Figures 2 and 3). This method of marketing works particularly well in areas with high traffic volume. Generally this form of marketing is not capital intensive and is easy to access. In addition, the on-farm store can be used to sell a variety of products (vegetables, fruits, processed vegetables, and crafts) produced on the farm or from neighboring farms.
Many roadside markets are seasonal and benefit from a steady supply of quality produce. Some roadside stands purchase produce from other growers in the region to supplement or diversify their sales volume. Labor is required to operate the stand through the season, and packaging and grading are stricter than a farmers market. Rules and regulations such as health permits, weights and measures standards, parking, sales taxes, handicap access, and sanitation must be considered before starting the market. The market should be clean and neat and have a diversity of produce items to choose from. Roadside market prices often fluctuate through the season based on local supply.
Missouri has four wholesale produce auctions. A produce auction is a marketing cooperative organized as a limited liability corporation or general partnership. Each auction has shareholders (usually growers) who provide startup capital for the auction. Produce auctions enable grower-members the opportunity to wholesale market large volumes of produce in a centralized facility to a diverse group of buyers. Grower-members are expected to grade and package their produce in standardized containers before the auction. Each auction has specific guidelines for grading and packaging produce items. The auction often sells containers or boxes to grower-members. Growers transport the produce to the auction building the morning of the auction, and by midmorning the auction commences. Growers are responsible for boxing, unloading, stacking and labeling their produce items. The auction is conducted in an open-air shed with wide floor space for loading and unloading produce. The produce items can be auctioned in lots positioned on carts on the floor or in a drive-through for bulk wagons or trailers. Each lot of produce has an index card that identifies the type, quantity, grade, and sometimes variety of vegetable or fruit in the lot. This card is the consignment sheet and is read aloud by the manager or auctioneer before auctioning each lot. Each tag has a number that identifies the grower or consigner. Each lot is systematically auctioned to the highest bidder. The auction is designed for wholesale marketing, but small lots of produce items are sold at retail prices in a separate section of the auction. Since most buyers want larger volumes of produce, most auctions sell the small lots (less than three boxes of any item) last.
Wholesale produce auctions bring buyers and sellers together for a short period of time, several times each week. Most buyers are purchasing for small supermarkets, roadside stands or restaurants. The auction does not perform any postharvest handling or store any produce item because every lot is sold regardless of price at the day of the auction. Most auctions have a "no, no-sale" policy. However, some auctions choose to set a price floor or minimum acceptable price for each lot of produce. A commission (9 to 12 percent) is deducted from the sale price of each lot to fund operating costs of the auction and salaries of the market manager, clerks and other workers in the auction.
Produce auctions are an efficient market outlet for growers who feel they don't have time to spend marketing their produce. Both top and lower grade produce can be sold at the auction. Transaction costs are lowered because the produce is transported to a central facility for market. Most produce auctions will sell only produce grown within a 100-mile radius from the auction facility. Produce grown in regions farther than 100 miles is considered "shipped or imported produce" and is usually auctioned after the local produce. Growers who wish to sell at the auction produce grown more than 100 miles away should contact the market manager before bringing the produce to the auction. During the peak growing season, most produce auctions have three sales per week. Often, special auction events are conducted for items such as flowers, bedding plants, small animals, hay/straw, or crafts. The auction system is well suited for relatively nonperishable vegetables and fruits. Given the nature of the auction system, prices are often erratic. However, an auction with low prices is often followed by auctions with high prices. Average seasonal prices for produce at most produce auctions are usually above wholesale terminal market prices or prices received from supermarket contracts. Growers should use the auction system throughout the growing season to obtain the full benefits of this market outlet.
While wholesale produce auctions are marketing cooperatives, other forms of marketing cooperatives can be established in Missouri. Growers in a region who produce similar types of vegetables or use similar growing practices (e.g., organic) may consider joining together to form a cooperative. A cooperative is a business organization owned by grower-members. Cooperative ventures can be organized as partnerships, corporations, cooperatives or limited liability companies. In Kansas, for instance, eight growers joined together to form a community supported farm that offered a wide variety of crops and served a larger number of members than could have been done by individual producers. In northeast Iowa, a small number of growers cooperatively own a packing/grading facility and a delivery truck that serves nursing homes and other institutional customers.
Cooperative marketing can offer many benefits to growers. These include specializing in vegetable crops best suited to their soil type, labor availability and management skills; marketing a larger volume of production, which reduces the marketing costs per product and allows access to new markets such as wholesale distributors; complimenting their own skills and abilities with other necessary production, grading and marketing skills; and spreading investment costs in equipment and facilities among a larger number of producers. Most wholesale market outlets desire a consistent quality and quantity of produce. The cooperative structure enables growers to sequence their planting so there is a steady supply of produce for each market. Using a cooperative, growers are able to label and differentiate their produce. The cooperative can aid in harvesting, processing, cooling/freezing, packaging, labeling and transporting the produce to market. Growers market a specific quantity of produce through the cooperative relative to the amount of capital they have invested. The cooperative has a market manager who is responsible for coordinating production of the cooperative and seeks new markets for the cooperative. With a diligent market manager and a larger volume of produce, each grower-member spends less time marketing relative to producing the crop. The cooperative can purchase input items such as fertilizer or seed in bulk quantities, resulting in significant price reductions. Labor and equipment for planting and harvesting can be pooled and shared among members of the cooperative.
Depending on its size, a cooperative can have significant capital requirements such as packing equipment, freezing units, and coolers. In order for the cooperative to succeed, growers must work together and put self-interest aside. A marketing agreement among members which specifies the type and volume of vegetables sold by each member must be implemented. Some cooperatives do not take possession of member's produce but serve only to connect members with buyers. Quality control is essential, and the cooperative must enforce grading and packing requirements. Growers should use the cooperative as the dominant marketing outlet for their vegetables. Growers considering any form of cooperative entity should read The Farmer's Legal Guide to Producer Marketing Associations by Doug O'Brien and coauthors and should seek expert legal assistance.
Community supported agriculture farms (CSAs) appeared in Missouri in the mid-1990s after being imported from Europe and Japan to the Northeast in the mid-1980s. CSAs are community farms, where consumers interested in healthy, safe food join in an economic partnership with growers seeking stable markets. Consumers pay in advance for a whole season of produce through a membership fee that ranges from $300 to $600, depending on size of share. In return, members receive a supply of six or more varieties of vegetables on a weekly basis from roughly mid-May until October. CSAs have traditionally had "core groups" of consumers who take on some tasks of planning, organizing and other labor. Members of these traditional CSAs are expected to provide some labor (e.g., weeding, hoeing, harvesting, marketing, distribution or coordination) in addition to the membership fee. A more common form of CSA in Missouri is subscription farming, which normally eliminates the work requirement for members. These CSAs may charge an advance fee for the entire season or growers may opt to have a nominal membership fee with weekly or monthly invoices for the market basket provided.
The traditional CSA arrangement can provide benefits for growers. Harvest risk is shared with members, who join knowing they may receive reduced harvests or variety depending on weather conditions or other problems. Traditional CSAs also excel at creating loyal customers and friends that result in tremendous community partnerships. In either form, the greatest benefit of CSA is the financing available from upfront membership fees, which enable the grower to buy seeds, supplies and labor.
CSAs require excellent management skills, and planning is essential to provide the expected variety and quantity of crops through a 20- to 24-week season. Growing such a wide variety of crops (usually 60 or more different vegetables, herbs, fruits or other crops) throughout the growing season requires knowledge of different growing techniques and carefully planned planting and harvesting, in addition to extra labor. By charging weekly or monthly fees based on the market value of vegetables provided, subscription CSAs can exert less pressure on growers to supply a good variety every week than traditional CSA arrangements. Growers considering developing a CSA should have several years of vegetable farming experience and good planning skills in order to manage the variety of crops, planting and harvesting schedules required to produce vegetables for 20 to 24 weeks. Growers considering a traditional CSA arrangement should also be adept at managing members' labor to make the most productive use of the member work requirement.
Some growers may consider a cooperative CSA with other vegetable growers or producers of eggs, meat and honey. Such formats allow producers to specialize in different crops that are better suited to their land assets and management skills. While cooperative partnerships can take a great deal of time to plan and manage, much of this can be done during the off-season. CSAs in general have medium to high marketing costs, but can help to stabilize farm incomes, minimize risk from specific crop failures, and provide outlets for extra produce. CSAs are almost always used in conjunction with wholesale or farmers' market outlets to diversify funding sources.
Selling to chefs and institutional food services can help growers diversify their markets. The most likely market targets are independently owned and operated restaurants that change menus frequently. Many are high-end, white tablecloth restaurants that depend upon high-quality ingredients to serve a sophisticated and discerning clientele. Such restaurants tend to use a limited amount of product and have little storage space on-site, which means they need multiple deliveries during a week. Lower priced or high-volume restaurants can also be potential clients, particularly for highly perishable items that suffer from long shipping distances (e.g., tomatoes or strawberries). With today's food trends, many chefs feel market pressure to source locally produced, high-quality products.
Benefits of marketing to chefs include
An intangible benefit of selling to chefs is the invaluable feedback that growers can receive on their product from food professionals who may recommend earlier harvesting or different postharvest handling or packaging. To sell to chefs, growers need to have good postharvest handling and sorting, grading and packaging capacity. Growers will also need to be able to provide a standard business invoice that can be entered into the restaurant's accounting system, and in most cases, cannot expect payment upon delivery. (The exception is if growers can receive credit card payments. Setting up such a system can have multiple advantages in working with larger volume customers.) Growers should also consider that chefs have a schedule almost opposite to their own (chefs finish cleanup from the dinner service after midnight), which means that farmers need to be able to accept orders by e-mail, fax, or as a last resort, an answering machine. Growers should also be able to provide advance product price lists and availability on a weekly basis.
A great way to break into restaurant sales is to offer chefs samples of product to see if it is of the quality they can use. Chefs expect the products they order to be delivered as promised, and need to know far enough in advance about crop failures to order replacement product from other distributors. Never deliver to a chef during lunch and dinner service (11 a.m. to 2 p.m. or 5 p.m. to 10 p.m.) or you are likely to lose the sale because of the inconvenience to the chef.
Another potential marketing outlet is institutional food services such as campus dining, K-12 school cafeterias, hospitals and nursing homes. Many of the benefits and rules about selling to chefs also apply here. Note that most food services will require product liability insurance, standard packaging and grading, and readable invoices. Many food services use a purchase order system that can require growers to be approved as vendors before placing an order, unless they have a credit card system in place. Food services generally pay the standard wholesale price, but are often interested in contracting for product throughout a season, which can even out price fluctuations. In addition, many food services require that suppliers have a hazard analysis and critical control points (HACCP) safety audit system in place to protect them from legal claims.
Regional wholesale marketing of vegetables to chain or independent supermarkets is a viable marketing outlet for both large- and small-scale vegetable producers in Missouri. Many consumers are requesting that their local supermarkets buy locally grown produce. To evaluate this market outlet, identify all food retailers in your area, and visit or call each store to determine if they are interested in purchasing locally grown produce.
By selling wholesale to a supermarket, growers can market large lots of produce. Direct marketing to supermarkets eliminates the need for a broker and allows the grower to label his or her produce. Direct store sales can be a market outlet for small-scale producers as well since there are marketing niches for produce items that supermarkets cannot purchase through traditional wholesale channels. Many upscale or specialty supermarkets may be looking for premium, farm-fresh produce items such as organic, ethnic, heirloom or baby vegetables.
Harvest scheduling is crucial for marketing to supermarkets, since produce cannot be delivered to market every day. Supermarkets require a consistent supply and quality of produce. Coolers for storage may be necessary to preserve postharvest quality and for short-term storage. Labor or equipment must be available to harvest the produce on a timely basis. Product liability insurance is required by most supermarkets. Supermarkets may require growers to attend food safety training, have a third-party auditor and have specific requirements for harvesting, packaging and handling produce. For example, most supermarkets require the items to fit on a 40-by-48-inch pallet for ease of handling in the warehouse or store.
Some supermarkets will accept locally grown produce at the local store or may require the produce to be delivered to a central warehouse facility. Contact the local produce manager from the supermarket you are interested in selling to, and establish a relationship with the buyers. Buyers may wish to inspect the farm and discuss production practices used to grow the crop. Prices for produce are negotiated with each buyer, but price levels do not fluctuate significantly.
Setting price is a critical component of successful marketing. Vegetable growers have a greater level of control than most other growers over marketable yields, input costs and price. The closer a grower is to the consumer, the more control over price he or she has. Price is perceived by buyers to represent value of the product. Underpricing (pricing too low) gives the perception that the product is inferior, while setting the price too high will often drive many customers away. Many growers make the mistake of setting the price too low at the beginning of the marketing season when competition is less and demand is strong and then find it difficult to increase price later in the season. Before setting price, gauge the level of competition and demand for your product by the consumer. For example, organic produce may have a stronger demand in urban areas, and prices can be set at a higher level. Also, early-season tomatoes have high demand with little competition in most markets, resulting in a higher price range.
There are several techniques used for setting price. The most direct method of setting price is termed "relative pricing." Relative pricing involves acquiring price information from competitors and setting your price relative to that level. This is a direct, easy way to set price, but may not be the most profitable method because individual growers have different production costs and quality. Local produce is fresh and often vine ripe, and thus should receive a higher price than imported produce at most supermarkets. Therefore, the price of imported vegetables can often be used as the base price.
Cost-oriented pricing is the best method for setting price for vegetables. With cost-oriented pricing, it is important to know costs of production. If a grower knows the costs of producing his or her vegetables, they are able to determine the break-even price. Costs of production include fixed costs and variable costs. Fixed costs, commonly called overhead costs, are costs that do not change regardless of the level of production. For example, land rent, property taxes, and depreciation are common fixed costs. Variable costs are input costs (seed, fertilizer, boxes, fuel, labor, etc.) that vary with each production season and type of vegetable. Variable and fixed costs added together are the total costs of production and can be averaged over the marketable yield to get an average total cost per pound, box or bushel. Break-even price is the price for a produce item at a certain level of yield where total costs are covered. This is the price floor for a grower's vegetables. Selling below this price level for a significant period of time will lower net income. However, once this price level is determined, most growers establish a price margin above this level to secure a profit.
Since most supermarkets, institutions, and restaurants contract with growers, these market outlets maintain a relatively stable price through the marketing season. Wholesale produce auctions, farmers markets, and roadside markets experience variable pricing based on local supply and demand.
G6221, new December 2006