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Mike Hamm - Does size matter?
1. Wallace Center | Winrock International
@NGFN
FOOD HUBS & SCALE FOR FOOD
Michael W. Hamm
C.S. Mott Professor of Sustainable Agriculture
Senior Fellow, CRFS
Michigan State University
2. Wallace Center | Winrock International
@NGFN
FOOD HUB BASICS
‘A financially viable business that demonstrates a
significant commitment to place through
aggegration and marketing of regional food.’1
2Their numbers are growing:
2013 – 107 total responses; 2015 - 151 total responses
Food hub suppliers and customers are almost entirely
regional.
Food hubs are good for small and medium agricultural
operations.
Food hubs strive to increase community food access
and improve health outcomes.
1Fischer, Micaela, R. Pirog, M. Hamm (2015). Food Hubs: Definitions, Expectations, and Realities. Journal of Hunger & Environmental
Nutrition 10(1) 92-99.
2Hardy, J., Hamm, M., Pirog, R., Fisk, J., Farbman, J., & Fischer, M. (2016). Findings of the 2015 National Food Hub Survey. East Lansing,
MI: Michigan State University Center for Regional Food Systems & The Wallace Center at Winrock International. Retrieved from
http://foodsystems.msu.edu/activities/food-hub-survey
3. Wallace Center | Winrock International
@NGFN
OPERATING EXPENSE RATIO
n Avg. Median Range
All hubs 2013 77 1.09 1.00 0.04-6.79
All hubs 2015 86 0.88 0.94 0.01-3.10
Hubs with
OER for both
years
n Avg. Median Range
2013 28 .96 1.00 0.11-1.85
2015 .84 .99 0.04-1.50
Hardy, J., Hamm, M., Pirog, R., Fisk, J., Farbman, J., & Fischer, M. (2016). Findings of the 2015 National Food Hub Survey. East Lansing,
MI: Michigan State University Center for Regional Food Systems & The Wallace Center at Winrock International. Retrieved from
http://foodsystems.msu.edu/activities/food-hub-survey
4. Wallace Center | Winrock International
@NGFN
SCALE OF PRODUCE PRODUCTION
AND SOME THOUGHTS
Current Farms
(total, all sizes)
Needed
(2020)
Needed
(2050)
0.8 hectare fruit/
vegetable farms
194,000 5,600,000 7,000,000
8 hectare fruit/
vegetable farms
194,000 560,000 700,000
8 hectare fruit/
vegetable farms*
194,000 840,000 1,350,000
U.S. Farms (Current and Needed)
Table 1
*this assumes U.S. consumer increases consumption of
produce 50% to approach dietary guidelines
Back of the Envelope Calculations – M.W. Hamm (2015); Current from 2012
USDA Census of Agriculture
Editor's Notes
These figures show categories of total gross revenue.
In 2015, 113 food hubs reported total gross revenues in excess of $370 million . The percentage of hubs in each revenue category looks similar. Even with many fledgling food hubs entering the market the pieces of the revenue pie appear relatively stable. This stability can be interpreted as when new hubs enter the market with presumably lower revenues, older hubs are not stagnating, but rather moving up to higher revenue pieces of the pie. In fact, here’s the average years in operation for each revenue category, and you can see as we pointed out earlier, age of the hub is correlated to revenue.
Business efficiency ratios can be useful to help measure the financial health of a business. While they can’t reflect the nuances of the different value propositions of individual businesses, they can allow comparison of different businesses or business types. In this report, we explored Operating Expense Ratio abbreviated as OER which indicates operating expenses as a function of gross revenue.
This graph shows that one in four hubs had OER greater than 1.00 which means that their expenses exceeded their revenue. Conversely, 3 out of 4 hubs were breaking even or better, with an OER of 1.00 or less.
The report contains an analysis of both this and a more conservative estimate of OER. In either case, hubs have OER less than 1.
Operating Expense Ratio (OER) = Total Operating Expenses 70% have OER <1.0
Total Gross Revenue
Let’s take a closer look at the operating expense ratio in 2013 and 2015.
The top table show operating expense ratio for all hubs in 2013 and 2015. (click) In 2015, the average OER for all hubs was 0.80 and the median was 0.88. Recalling that a lower OER or a decrease in OER is financially favorable, in 2015, hubs reported and average OER 19% lower than in 2013 and a median OER 6% lower.
More compelling, is the bottom table. It shows operating expense ratios in 2013 and 2015 for 28 hubs that completed both years of the survey and for which I was able to calculate an operating expense ratio for both years. (click) Same hub same hubs comparisons had an average OER decrease of 13% between 2013 and 2015.
The question remains what makes a food hub profitable? The number of years in operation, the number of product categories carried, the number of employees, warehouse square footage, the number of enterprises from which hubs purchases/procures product, the total revenue received from government or foundations, or whether or not a hub has updated business documents aren’t predictive of operating expense ratio. The implication is that there either there is some other yet to be investigated factor or factors that are associated with OER and/or there is a general OER trend dependent of some mix of variables we think might be important, but there are enough exceptions to the trend to reduce statistical significance.
What can be said is that OER has improved since 2013. The report contains an analysis of both this and a more conservative estimate of OER. In either case, hubs have operating expense ratios less than 1, on average.
The categories of social mission related activities shown here are related to helping farmers disadvantaged by size or minority status gain access to markets, growing communities by ensuring fair wages or access to healthy food, animal welfare and environmental concerns. Hubs were first asked how strongly these activities were related to their mission. Then, shown in this chart, hubs were asked how strongly these activities were related to their day-to-day operations.
In general, hubs were more likely to rank their day-to-day activities higher than their stated missions. One interpretation is that hubs are walking the walk, that is doing what they said they would in their missions and, based on the hubs ranking, doing better in practice than on paper.
9 out of 10 hubs worked to increase small farms access to markets. Two thirds of hubs work to increase good environmental and animal welfare production practices, improving community health, and/or paying their employees a fair wage.