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Maximizing Freight Movements in Local Food Markets: An Exploration of Scale-Appropriate Solutions for Local Food Distribution
 

Maximizing Freight Movements in Local Food Markets: An Exploration of Scale-Appropriate Solutions for Local Food Distribution

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This presentation is about a National Center for Freight and Infrastructure Research and Education (CFIRE) project for understanding how local food supply chains function and how the strategic use of ...

This presentation is about a National Center for Freight and Infrastructure Research and Education (CFIRE) project for understanding how local food supply chains function and how the strategic use of intermediated supply chains could increasing efficiency and reduce distribution costs. It also covers tools for small-to-mid-sized farmers looking to move into wholesale supply.

This was originally presented at the 6th Annual Wisconsin Local Food Summit in Delavan, WI, by Lindsey Day Farnsworth and David Nelson of UW-Madison.

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  • Introductions & affiliationsI’ll summarize the goals and findings of the first year of the project, and then I’ll hand it off to David who will delve into more detail about some of the innovations and speak to our progress to date on the second phase of the project.
  • The purpose of the Maximizing Freight Movements in Local Food Markets project was to Specifically, we were interested in the workings of supply chains for 2 reasons:Supply chain configuration can significantly influence the percentage of the retail food dollar that a producer keeps, so it can be key to increasing farmer profitability By extension, inefficiencies in the supply chain can reduce farmer profitability and/or price some local products out of the range of some consumersTo identify inefficiencies and innovations in a range of local food supply chains, we conducted 8 case studies, and they were roughly equally divided into 3 categories:DIRECT MARKETING—farm directINTERMEDIATED supply chains—typically locally or regional in scale but involving middle men to orchestrate distributionMAINSTREAM—conventional supply chains that have developed local distribution marketing programs or functions
  • Here are the businesses that we profiled—they range from apple growers that sell directly to rural school districts to the national food service operator, Sodexo
  • Through in-depth interviews with business owners and managers, we identified a number of challenges contributing to inefficiencies in local food supply chains:Difficulty of maintaining product identity throughout supply chainCostly physical infrastructure Need for scale-appropriate tracking technologiesNeed for improved delivery coordinationLack of knowledge about actual cost of distributionInconsistencies across interstate transport regulationsUnreliable local supply
  • But with each of these challenges, we also observed that the case study businesses had developed innovations ranging from low-cost and low-tech to expensive and high techFor instance, as supply chains lengthen, local product often loses its source identity—this typically means that it’s much more difficult for a farmer to capture a premium—slightly more profit—for local product in the food service or retail market“Quick Response” or QR codes and other tracking technologies are making it easier for farmers to make their products fully traceable for both FOOD SAFETY purposes and as a means communicate with consumers about how food was produced.So rather than relying solely on branding, by scanning a package or sign with your smart phone, you can see the farmers who grew your foodIn addition to integrating new technologies, we also heard from virtually all of the small producers that before handing their product over to a third party distributor, they would want to know that delivery driver or distributor rep really knew their product--businesses looking to serve an intermediated role in local food supply chains will have to take a unique approach to product representation and marketing to partner with many local growers.
  • Our case studies demonstrate several different approaches to building out distribution infrastructure:From smallest to largest in scale, these solutions included:Seasonal rental of temperature-controlled trailers that enable the Ecker’s to store their apples on-site during peak season without having to invest in permanent infrastructure. At the end of apple season the apples are sold and processed and the trailers are returned to a freight company.Driftless Organics utilizes an informal hubbing system by taking product to another nearby farm that has become a pick-up point for regional distributors such as Whole Foods and Co-op Partners Warehouse. Each supplier is responsible for its own sales and invoicing but by consolidating product in one place, they reduce the number of trips made to markets such as the Twin Cities and Chicago3) Localization:- Local Harvest Supply was launched by Hawkeye Foodservice Distribution- Sodexo – shifted from national model to regional model of distributors
  • Hubbing and the localization of larger food distributors & buyers directly feed into improved delivery coordination.However, increasingly, hauling companies such as Edina Couriers have also expressed interest in developing courier services focused on local food distribution.
  • Their interest in the local food market has raised important questions about the cost of distribution and where the break-even point is for local farmers who have historically done their own hauling and marketing.Over the past 9 months, CIAS and CFIRE have been working with the MN-based Land Stewardship Product to explore the development of tools and resources to help farmers calculate their distribution costs This information will also be helpful for businesses like Edina Couriers that need a better understanding of the producers’ cost and service constraints to fill this niche in the local food supply chain
  • LSP has three cost of distribution worksheets for the following supply chains: farm-direct, intermediated, and third party hauler
  • States vary in their licensing requirements and fees, making it difficult for small operators located near state boundaries such as Wisconsin apple and vegetable growers who are geographically closer to the Twin Cities market than Madison or MilwaukeeThis is fundamentally a policy issue, but something to consider as we scale up regional food systemsChanges in interstate meat sales--state-inspected meat and poultry plants are nowable to ship their products over state lines without federal inspections—may be a useful precedent for harmonizing some of these regulations
  • This challenge was primarily identified by the larger companies that we interviewed—Local Harvest Supply, Bix Produce, and Sodexo who expressed concerns about smaller growers lacking the volume and preparedness necessary for the wholesale market-Meaning that product was not always washed and packed properlyAnd that deliveries hadn’t always been made on timeAggregation can typically solve the problem of small volumes from individual farmersAnd there are now a ton of resources to help growers prepare for wholesale markets—including resources assembled by distributors themselves.
  • Read 3 major pointsAs such, the project’s original goal of developing a singular software or route-planning tool shifted to a focus on developing multiple more targeted resourcesHand off to David
  • From our work on the food supply chain thus far, farmers who have found success with direct marketing understand the power of their story to capture value when marketing their produce. For those considering entering the wholesale market, there are two feasibility hurdles:Typically, as the supply chain lengthens, the farmer’s story gets lost, altered, or weakened so that the product loses value. Farmers looking at wholesaling understand this and want to find ways to amplify their story so that it makes it all the way to the customer.Farmers not yet wholesaling may be underestimating the costs of distribution and may not be aware of the services distributors offer.Conversely, supermarkets and institutional food service are concerned about traceability because of food safety concerns. No market wants to be associated with tainted spinach, beef, or other products. Smaller growers entering the market can use what wholesale growers have developed w/ traceability technologies to market their story, thereby adding value to their product.We ask… How can these tools be redesigned to meet the needs and constraints of both small producers and wholesale markets?Image from stock photo file.
  • Will the technology be cost-effective for farmers seeking to meet more of the demand for their product?What is a reasonable period of time between technology investment and the improvement of a farm’s bottom line?Are there ways to organize the supply chain to better share costs and benefits of new technologies? Some organizations arrange for common use of hardware and software in order to spread the implementation cost of new technology.What are their needs and constraints for information flow through the supply chain?
  • Traceability is a method to relax information constraintsAggregation complicates traceability.When produce is aggregated, the farm story is lost, altered or weakened. The product must remain special.When produce is aggregated, an outbreak of disease is difficult to trace backwards from consumer to producer.
  • Communication along the supply chain is increased by allowing all partners access to product flow information from (producer, hauler and distributor) to (retailer or institution). The traditional consumer is also a partner in some senses.Full transparency in a supply chain requires considerable trust between participants. This results in increased cooperation which allows effective preseason planning of product types and quantities. Information is shared in both directions.Chart Accessed via Wikipedia.
  • UPC codes are the most familiar type of bar code. The above example is one of the most common versions.QR codes are the most successful of the 2D (Matrix) type of Barcodes. QR codes draw millions of customers to product websites every month.RFID tags are miniature antennas with the potential to convey information much like QR codes. Unlike barcodes, RFID tags do not require a line-of-sight aiming of the reader, but can be “swiped.” At this point in time, RFIDs are more expensive to manufacture and few consumer devices read them.Images from wikipedia.
  • The farm story has value to the consumer. Even those local food enthusiasts who have never farmed appreciate hearing the story of their food. Scanning tags for a web link is more immediate than browsing the Internet. It happens quickly and often at the point of sale.This leads to successful branding of local products. The Internet provides a method of replacing some of the familiarity lost when a small farm employs lengthened supply chains.The ideas of fair dealing, reliability and uniqueness are also claimed by mainstream supply chains, but the product offered may not resonate as strongly as one attached to a smaller locality.
  • Wholesale distribution requires aggregation of small to midsize farms to hit the market at a scale and in a way that is compatible with grocery and institutional markets.Aggregation is the point of leverage in the system. If farmers control aggregation they are in a competitively better position to ensure a fair price for their products, and tell the story of the values embodied in their products.Farmers can aggregate through a variety of means:Distribution hubs (physical or virtual)Processing facilities (packing houses, creameries, etc.)Coops, joint businesses, shared contracts, informal arrangements
  • Virtual hubs carry out some of the aggregation, distribution and marketing functions normally performed by actors in a physical supply chain.Virtual hubs vary widely in the services offered, prices charged and how their online presence is organized.The utility of a virtual hub will depend on the real world distances between the participants.
  • Virtual hubs allow farmers to communicate their story to buyers without having to actually meet them at the loading dock.Virtual hubs facilitate farmers in aggregation without having to actually co-locate product. (Important because farmers need to enter the wholesale market with enough quantity to meet market needs.) Buyers purchase aggregated product through the Internet, but the product is often comprised of distinct boxes from multiple producers.Virtual hubs like physical hubs may be economically vulnerable during slow periods. However, the point of these technologies is to facilitate improved information through an alternative supply chain so that markets can communicate to their customers (e.g. why there are no tomatoes in June).Task 1 Deliverable: Technical memo outlining available tools and an accompanying matrix that outlines benefits and capabilities of each.
  • Realistically estimating and comparing the costs of distributing one’s own product and contracting services is critical to making the decision to sell product wholesale.Small scale farms are uncertain whether hiring transportation services will improve their bottom line compared to doing it themselves.Determining cost of self-distribution is not just a matter of keeping track of all fuel, labor, insurance and infrastructure costs. It is crucial to know which farm activities use specific resources and in what proportion.Farmers delivering to multiple stops may also run errands, drive to an appointment or visit friends during the same trip making assessment of distribution costs difficult.It may boil down to “If it ain’t broke don’t fix it”. But if a grower wants to make more money, diversify markets, spend more time farming and less time running around, these are indications that quality of life could be better if other distribution approaches are considered.
  • While this tool was developed with school food sales in mind, it is useful in other situations with minor modification.It estimates costs per mile by specific crop based on Fuel, Maintenance, Tires, Depreciation and Labor..Developed by Professor Rodney Holcomb and Anh Vo of the Department of Agricultural Economics at Oklahoma State University.
  • LSPs paper form version of the tool is more convenient for users who prefer working at the kitchen table over using a computer.And for them “If it ain’t broke….”
  • Sales can be tracked for each market by crop. Transportation costs can be calculated for each market, but not simultaneously by specific crop.The individual form approach of the Farm to School Tool is easier and more functional for comparing costs between distribution methods, although it lacks the overall planning functionality of Veggie Compass.Developed by Jim Munsch along with Paul Mitchell - UW Assistant Professor AAE, Erin Silva - UW Organic Production Specialist Agronomy, and John Hendrickson - UW Outreach Specialist CIAS. Currently being worked on by UW Agronomy Research Specialist, Rebecca Claypool.
  • However, this tool does not break down the costs in the detail found in the Farm to School tool.Task 2 Deliverable: Technical memo that summarizes detailed distribution costs based on commodity type.Developed by many people: http://www.extension.iastate.edu/agdm/authorsmain.html
  • Cost of Distribution tools provide information for determining RFPs.Examining RFPs helps to identify areas with high demand for hauling services.An area showing high demand for hauling may suggest good locations for distribution and aggregation services.Minnesota’s Land Stewardship Project has been conducting cost of distribution workshops in the Driftless area. CIAS is helping to fund additional workshops and focus groups to share information with and learn from local supply chain participants.Grower transportation workshop is planned for NE Iowa or NW Illinois the in first two weeks of April.Grower / hauler workshop is planned for May 21st. We are also developing a dictionary of terms for growers and haulers.

Maximizing Freight Movements in Local Food Markets: An Exploration of Scale-Appropriate Solutions for Local Food Distribution Maximizing Freight Movements in Local Food Markets: An Exploration of Scale-Appropriate Solutions for Local Food Distribution Presentation Transcript

  • Maximizing Freight Movements in Local Food MarketsAn Exploration of Scale-Appropriate Solutions for Local Food Distribution Lindsey Day Farnsworth ldfarnsworth@wisc.edu David Nelson danelson3@wisc.edu WI Local Food Summit . January 27, 2012
  • Research: Phase IPhase 1 Goal:To understand how local food supply chains function to make themmore efficientSupply chain inefficiencies are obstacles to:  Fair prices for farmers and consumers  Support local economy & sustainable production practices8 case studies of local food distribution operations  Farm-direct  Intermediated  Mainstream
  • Businesses profiled Ecker’s Apple Farm Grass Run Farms Driftless Organics Keewaydin Organics Local Harvest Supply Bix Produce Edina Couriers Sodexo Courtesy of Driftless Area Initiative
  • Challenges Difficulty of maintaining product identity throughout supply chain Costly physical infrastructure Need for scale-appropriate tracking technologies Need for improved delivery coordination Lack of knowledge about actual cost of distribution Inconsistencies across interstate transport regulations Unreliable local supply
  • Maintaining product identity throughout supply chain Innovations:  QR codes  Knowledgeable product representatives Jepsen Family, Grass Run Farms Rufus Hauke, Keewaydin Organics
  • Costly physical infrastructureInnovations: Low-tech, low-cost storage  Seasonal use of freight containers Formal and informal hubbing and shared equipment Localization of large enterprises Hawkeye Foodservice distribution range  Large distributors & food service operators launch subsidiaries to focus on local markets
  • Improving delivery coordinationInnovations: Formal & informal “food hubs” Localization of larger food distributors Supply chain partnerships Outsourcing to independent haulers
  • Lack of knowledge about actual cost of distributionInnovations: Cost of distribution workshops  Land Stewardship Project www.landstewardshipproject.org/cbfed/foodtransportation- costs.html Edina Couriers
  • Cost of distribution Worksheets
  • Inconsistencies across interstate transport regulationsInnovations: Small, in-state operations can contract with larger haulers for interstate deliveries Policy makers can work to harmonize interstate regulations to increase regional trade
  • Unreliable local supplyInnovations: Aggregation Producer training & resources  Local Harvest Supply //localharvestsupply.com/pages/our-growers/resources-for-growers.php  Family Farmed’s “Wholesale Success” http://www.familyfarmed.org/wholesale-success/
  • Summary of Phase I Strategic use of intermediated supply chains shows promise for increasing efficiencies that could reduce local food distribution costs. Many distribution challenges & tools appear to be scale-specific:  Inventory management systems (IMS)  Retention of product identity  Route-planning The scale-specific nature of many of the innovations designed to improve efficiencies in transportation and logistics means that there’s no silver bullet
  • Phase IITools for moving into the wholesale marketplace
  • Task IAssess the feasibility of integrating technology toolsinto distribution infrastructure of small to mid-sizedgrowers.
  • Traceability Technology Tracking of produce from the field to final delivery through the use of software, handheld readers and tags Resulting data available to trusted supply chain partners through the Internet Makes quick detection and solution of food safety problems in the supply chain more likely Technology is becoming easy to implement
  • Traceability Technology Traceability increases communication in a supply chain when information is freely shared between partners.http://www.paripassuaplicativos.com.br/editor/ingles/Produtos/1152010211843_Traceability%20-%20Diagram.JPG
  • Traceability Technology Supply chain tags are usually in the form of UPC symbols or increasingly as Quick Response (QR) style barcodes, particularly when intended for use by consumers. Radio Frequency Identification (RFID) tags are also used in traceability, although few consumer applications are available at this point. UPC QR RFID
  • Tracing Local Food: The Consumer Consumers learn about local products from websites by using mobile devices (e.g. iPhones) to scan tags on product packages and store shelving. Local Food Websites can distinguish themselves by offering a message of fair dealing, reliability and uniqueness. http://www.countrynaturalbeef.com/ http://localharvestsupply.com/
  • The Limits of Local Knowledge Distribution is often about aggregation. Tags on aggregated foods are less likely to offer information about individual farms. Farms can be featured on a distributor website even if their produce is aggregated with other growers. The common values and practices of the farmers, and the quality of the region can still be expressed.
  • Virtual Food HubsVirtual Food Hubs match producers and suppliers with consumers through the Internet
  • Virtual Food Hubs Virtual hubs may combine their coordination services with traditional physical services. Physical hubs and virtual hubs employ many of the same technologies (e.g. web presence and inventory software). Can virtual hubs effectively help mid-scale farmers meet increased demand? How efficiently?
  • Task 2Identify “cost of distribution” for growers operatingin direct and intermediated supply chains
  • Cost of Distribution Tools The Farm to School Distribution Cost Template is a cost of distribution tool available from the Oklahoma Farm to School website. Each form determines the cost of using a specific type of marketing for one type of product (e.g. direct marketing costs for Watermelon).
  • Farm to School Distribution Cost Template The Land Stewardship Project (LSP) in Minnesota has adapted this Excel based tool into forms for the use of farmers attending cost of distribution workshops. LSP’s challenge has been to encourage more producers to try out this tool. Many farmers are not interested in scaling up distribution, or not convinced that using this kind of tool would be worth their time.
  • Cost of Distribution ToolsVeggie Compass – Whole Farm Profit Management is a costtracking tool being developed through the University ofWisconsin - Madison.With slight modification, Veggie Compass could determinethe cost of self-distribution for specific crops by amountsold and distribution method.
  • Cost of Distribution Tools The Ag Decision Maker is a website of resources collaboratively developed at Iowa State University. The site has many documents and tools designed to aid farmers in determining costs and making decisions related to crop planning, marketing and other aspects of farming. One tool, Evaluating Marketing Outlets Using Whole-Farm Records, provides a way to outline costs associated with different marketing options.
  • Task 3Use what we have learned about the cost of self-distribution to develop a Request for Proposal(RFP) Template to aid small farms interested inhiring transportation
  • ResourcesFinal Report: Maximizing Freight Movements in Local Food Marketshttp://www.wistrans.org/cfire/2011/10/final-report-0423/Lands Stewardship Project – Cost of Distribution Resourceshttp://www.landstewardshipproject.org/cbfed/food-transportation-costs.htmlUSDA Resources for Supporting Food Hub Workhttp://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5091484Veggie Compass – Farm Profitability Resourceshttp://veggiecompass.com/default.aspxWallace Center’s - Food Hub Centerhttp://ngfn.org/resources/food-hubs/food-hubs