Mike Hamm - Does size matter?
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Food hubs are businesses that aggregate and market regional food. Their numbers have grown from 107 in 2013 to 151 in 2015. Food hubs suppliers and customers are almost entirely regional. Food hubs help small and medium agricultural operations and strive to increase community food access and health outcomes. The average operating expense ratio for food hubs was 0.88 in 2015, down from 1.09 in 2013. Current fruit and vegetable production will need to vastly increase, with projections of needing over 5.6 million small farms by 2020 and over 7 million by 2050, to meet increased demand if consumption rises in line with dietary guidelines.
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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.