Food Hubs: Mission-Driven Local Food Systems in the Fifth District

Introduction

It is challenging for small, local farms to participate in today’s industrial-scale food supply chains, even as buying locally sourced food becomes increasingly important to Americans. A joint publication between the Federal Reserve and the U.S. Department of Agriculture explores regional food systems as viable alternatives to mainstream supply chains and a means for connecting communities to nearby producers.

Regional food systems are food supply chains that operate within local geographies and have an explicit mission to serve community farmers and consumers. Food hubs are one type of regional food system that strive to improve local communities not only by supporting small businesses, but also by offering community-strengthening services. Food hubs tend to participate in activities targeted to low- and moderate-income (LMI) populations, like improving individuals’ food security and increasing their access to farm-fresh produce.

This issue of Community Scope seeks to better understand the economic impact of regional food systems through an examination of the food hub model. The article also offers examples of how regional organizations impact Fifth District communities.

Local Food and Local Markets

In the 20th century, technological and supply chain advances shifted grocers to industrial-scale models. Suppliers now ship goods from large producers in one part of the country to warehouses across the nation. Products are aggregated and distributed from the warehouses to local supermarkets where consumers purchase final goods. This remote model reduces costs and thus reduces prices for consumers. However, smaller producers typically lack the capacity and infrastructure to participate in this type of supply chain.

Although large retailers and national restaurant chains continue to use remote supply chains, demand for locally produced foods has been rapidly increasing in the United States for over a decade. Consumers may prioritize buying locally for reasons that include freshness and quality, transparency of food source or economic/environmental goals.

Local buying has become more popular. Direct sales, defined as transactions directly between producer and consumer, of edible farm products increased from $505 million annually in 1997 to $2.8 billion annually by 2017 – a 454% increase.¹ In those 20 years, direct sales improved from 0.3% of all food sales in America to 0.7%.

The surge in local food popularity is also reflected in consumer opinion surveys. According to a 2014 survey of food shoppers overall, 87% of respondents considered the availability of locally grown produce and packaged goods “very” or “somewhat” important when choosing their primary grocer.²

Supply chains have diversified to meet the rising interest in and demand for local food. As a result, food systems of various structures and functions between producers, processors and consumers have permeated conventional food markets across the nation. The number of direct-to-consumer (DTC) markets, including farmers markets and community-supported agriculture (CSA) programs, is growing. The United States Department of Agriculture’s (USDA) Agricultural Marketing Service listed 8,755 farmers markets in the nation in 2019, up from 2,863 in 2000.³ Seventy percent of farms marketing foods locally used DTC channels only, while the other 30% used a combination of DTC and intermediated supply chains.⁴ Food hubs are an example of the intermediated supply chain that provides an alternative to remote large-scale food supply chains.

Food Hubs

Food hubs act as intermediaries to connect small farms to large markets while also providing capital-intensive resources such as warehousing and processing space or delivery trucks.⁵ Food hubs enable farms to reach wholesale, retail or institutional markets that they would not be able to reach individually.

Typically, food hubs manage aggregation and distribution for farmers at a regional facility. After accumulating sufficient volume, food hubs market to buyers including grocery stores, schools, restaurants and even directly to consumers. The number of operating food hubs nationwide grew from 56 to 360 between 2000 and 2017.⁶

In a value chain, raw goods are passed through chain participants and transformed into value-added products that are then sold to the consumer. The USDA uses the term “food value chains” to describe food supply systems that add tangible benefits to each chain participant through shared social goals. Indeed, food hubs are often multidimensional organizations that promote economic and environmental stewardship while delivering operational benefits to the local food system and frequently providing local communities with needed services.

In 2013, the University of Michigan and Winrock International created the biennial Food Hub Survey in order to observe and study the behaviors, successes and downfalls of food hubs. Four years later, 131 food hubs responded to the survey nationwide. As a whole, food hubs are becoming an increasingly established sector. Collectively, 1,887 paid staff across the nation were employed by food hubs in 2017, with a median of six workers per organization.

The percentage of food hubs relying on unpaid staff decreased to 41% in 2017 from 83% in 2013. As food hubs grow, their financial viability improves. Further, older hubs reported scaling their businesses to supply larger customers. Over time, food hubs are becoming more financially sustainable, with an increasing share of their revenues coming from sales. Respondent food hubs earned revenue from a variety of sources including sales (primarily), foundation and government grants, donations and non-sales services or fees.

Growing food hubs still overwhelmingly report that adding value to supply chains is integral to their mission. A large majority of surveyed hubs reported that enabling smaller producers to reach large markets and ensuring fair pricing for supply chain participants were parts of their mission. Improving human health and promoting environmentally sustainable production practices are also important to many food hubs.⁷ The survey found about half of respondents accepted SNAP (Supplemental Nutrition Assistance Program) benefits and three-quarters offered food donation to local food banks and pantries in 2017. These activities in particular positively impact LMI populations’ access to fresh, local foods.

Despite some advances in the sector, some hubs still face economic or operational viability challenges. More food hubs expressed fears over slowing demand for their products in 2017 than in past years. The majority found it difficult to balance supply and demand due to lack of adequate product, too few customers or working with suppliers that do not commit to the food hub model.⁸

Impact on local economy

Local food chains are often assumed to benefit the local economy. For example, purchasing from local producers keeps sales and revenues in the local economy and creates jobs, including those associated with the supply chain like trucking or warehousing. Three studies, highlighted below, tested the validity of the claim that local food systems are economically beneficial.⁹

In Comparing the Structure, Size, and Performance of Local and Mainstream Food Supply Chains, King et al. compare major grocery supply chains (remote supply chains) with intermediary and direct suppliers. The study finds that more revenue is kept in the local economy through more direct supply channels.¹⁰ Producers in major grocery chains retain somewhere between 12% and 60% of revenues. Meanwhile, producers kept 36% to 50% of revenues in intermediated supply chains and between 38% and 80% in DTC chains.

In direct channels, consumers were willing to pay a premium for local and fresh produce, so suppliers set prices higher than the commodity price. Producers selling directly to consumers must absorb marketing costs including packing, transportation and retailing, which prevents them from earning 100% profit from their sales. Essentially, all revenue earned is retained by the local economy in the studied direct-supply cases.

The intermediated supply chain, which includes food hubs, mitigates some of the challenges faced by direct suppliers, like marketing and insufficient volume to satisfy large orders. The structure of intermediated supply chains mimics mainstream channels where partnerships grow among reliable packer shippers, distributors, processors and cooperative organizations with a committed effort to support local food production. In all studied cases, intermediary supply chains reduced or eliminated producer marketing costs. The authors also found that successful local food supply chains provide infrastructure to help additional producers enter the market.

The regional growers in this study retained more profits through the use of direct or intermediated markets. Additionally, these two models encourage entrepreneurship, which can attract and assist other small producers once established.

Intermediated food supply chains can create opportunity for producers and can also foster linkages to other markets within their communities. Two papers explore the relationship between local food systems and local economies. In the first study, the authors test whether increased demand for food hub products results in an increase in demand for the goods and services that the food hub purchases to run its business.

In Assessing the Economic Impacts of Regional Food Hubs: the Case of Regional Access, Schmit et al. collect data on a New York food hub, Regional Access, LLC (RA), which services the state and commits to promoting local communities. The authors concluded that 57% of RA’s total expenditures are local. This includes purchased foods, employee compensation, retail store and gas station expenditures and automotive equipment costs.¹¹

D.C. Central Kitchen
Washington, D.C.

D.C. Central Kitchen was founded in 1989 and today employs community development strategies to reduce poverty in the nation’s capital. D.C. Central Kitchen trains and employs out-of-work adults in the culinary trades. In addition to its workforce development arm, the nonprofit commits to reducing food waste, increasing access to nutritious foods for vulnerable communities and supporting local farmers and producers. D.C. Central Kitchen is focused on adding value to its supply chain through community service activities rather than technical or operational assistance to producers or suppliers (groups that donate unused but safe food).

Community services: improving food and job access

D.C. Central Kitchen has served more 1,700 individuals through their “Culinary Job Training” program. This intensive 14-week program trains adults in the food service industry. Donors provide students with full scholarships for the training, and D.C. Central Kitchen provides two additional years of postgraduation support. Graduates of the program can be hired as full-time staff by D.C. Central Kitchen or find jobs with restaurants, hotels, schools, hospitals or corporations with whom D.C. Central Kitchen has developed strong partnerships. Further, trainees prepare for industry certifications that will propel them once they graduate and enter the job market. In addition to providing culinary arts education and career readiness, D.C. Central Kitchen incorporates financial education and self-empowerment sessions for its students to better prepare them for life after graduation.

Through a separate initiative, the food hub prepares and distributes meals to local institutions, including schools and homeless shelters, by using recovered foods that would otherwise be wasted. The food is recovered from local farms or grocery stores, who cannot sell their entire stock or have slightly damaged or misshapen produce. In 2018, more than 800,000 pounds of recovered food produced 3.2 million meals. This service saved money for more than 80 other nonprofits and service providers in the city who no longer needed to cover the price of purchasing and preparing meals for clients.

D.C. Central Kitchen offers several programs that seek to improve access to healthy foods for lower-income populations. For example, it provides fresh and local foods for 12 public schools in the Washington, D.C., area. The hub creates and delivers nutritional meals made from at least 50% local ingredients sourced from more than 30 local farms. Serving 3,600 kids in 2018, D.C. Central Kitchen is ensuring that low- to moderate-income school kids have access to quality, nutritious meals.

As another example, D.C. Central Kitchen partners with 71 small corner stores within low-income neighborhoods in a program called “Healthy Corners.” Healthy Corners sells fresh produce as well as prepared portions (cut fruit, for example) to these small retailers that often struggle to source and sell these products at affordable prices. Healthy Corners aggregates local fresh food and sells it to corners stores while providing infrastructure, such as refrigeration and shelving, marketing assistance and customer engagement to encourage sales.¹⁹

The Healthy Corners venture began with an initial investment from the city departments of Health and Small and Local Business Development. Over time, the program has gained support from the private sector including foundations, health care companies and food retailers. By 2012, the mix of public, private and revenue funding was more evenly distributed than it was when the project began.

Chesapeake Harvest
Easton, Maryland

Established by the nonprofit Easton Economic Development Corporation in 2016 to manage the sale of source-identified local food, Chesapeake Harvest connects producers to wholesale, retail and institutional opportunities within 200 miles. Chesapeake Harvest focuses on strengthening the regional agricultural sector by promoting environmental sustainability, increasing agricultural employment on the Eastern Shore and providing education and infrastructure to producers. Chesapeake Harvest makes up for lower density (and thus less demand) in the Eastern Shore by capitalizing on heavy demand in the densely populated regions surrounding Easton, including the Washington, D.C., area.

Operational and technical services: supporting producers and local industries

Chesapeake Harvest provides free workshops and educational information about food certification programs such as Good Agricultural Practices (GAP), Food Safety Modernization Act (FSMA) or Produce Safety Rule. They also provide on-farm risk assessments and information on best practices.

Chesapeake Harvest capitalizes on partnerships with existing industry to increase revenues for itself and local businesses. They partner with two local companies, Homestead Gardens and Tidal Creek Growers, to sell Chesapeake Harvest branded starter plants to home gardeners.

Community services: environmental stewardship

Chesapeake Harvest recognizes the Chesapeake Bay as a major economic asset to the states that surround it and therefore shows preference to growers that practice production methods that sustain a healthy bay. To advance its environmental sustainability mission, Chesapeake Harvest also supports philanthropies and foundations with the same mission. 

The food hub practices sustainability themselves: Their starter plants are free of plastics and are potted in biodegradable containers so as to reduce the potential for litter pollution entering the Chesapeake Bay.

Conclusion

Food hubs seek to benefit every link in the supply chain. To meet this commitment, they work to improve outcomes for small producers by providing marketing, branding, transportation, business management and food storage. Nearly half of Fifth District food hubs also provide educational resources for producers.

Food hubs often have social or environmental missions that distinguish them from other intermediated supply chain models. For example, in the Fifth District, food hubs offer services that benefit LMI populations and improve their access to food. Thirty-three of the 40 food hubs in the region donate food goods, including fresh produce, to local food banks or pantries. Fifteen food hubs accept or match SNAP benefits, and three accept WIC benefits. Some food hubs deliver healthy options into areas of poor food access through specific programs like Local Harvest’s Fresh Farmacy, mobile markets or neighborhood corner stores – as D.C. Central Kitchen does. On the Eastern Shore of Maryland, Chesapeake Harvest entwines its environmental mission of protecting the Chesapeake Bay with its role connecting small producers to markets.

Food hubs provide a way for communities to maintain resources locally. Evidence suggests that they add more value to the local economy than other means of food sourcing and even provide a net benefit to the full economy. In addition, they help local farms flourish and provide resources to low-income communities. Although the promise and impact of regional food systems continue to evolve, food hubs should continue to be explored as a way to support not only healthy food practices, but our rural and smaller communities as well.

About the Author

Surekha Carpenter is an associate research analyst with the Federal Reserve Bank of Richmond.

Acknowledgements

A special thanks to Jennifer Giovannitti and Shannon McKay. Thanks to staff at the Federal Reserve Bank of Richmond for comments and suggestions.