Study shows many larger growers sell directly to grocery stores, restaurants

By MATEUSZ PERKOWSKI

Capital Press

The local food industry is much larger than commonly estimated and, in terms of sales volume, is dominated by larger farmers, according to a USDA study.

Estimates of local food sales have traditionally been based on direct-to-consumer market channels, like farmers' markets and roadside stands. Under this model, local food sales were estimated at $1.2 billion to $1.3 billion a year.

However, this method omitted farms that engage in "intermediated" sales of local food, such as growers who sell their crops to restaurants and grocery stores.

When such sales are taken into account, estimated sales of local food increase roughly fourfold, to $4.8 billion, according to the USDA's study.

Although that figure only represents about 2 percent of total farm sales in the U.S., it should be noted that most farm production is focused on commodity crops and livestock, the study said.

The study found that among food crop producers, about 40 percent sell through direct and intermediated channels.

"It should be viewed as an important part of what goes on," said Larry Lev, an economist at Oregon State University who studies direct marketing and local food systems.

The USDA's study, written by Sarah Low and Stephen Vogel of the Economic Research Service, has shed new light on these topics, he said. "Everybody was wandering around with limited information about the local food market."

By including data about intermediated sales, the USDA study found that large farmers -- those with annual revenues higher than $250,000 -- sell about 70 percent of the $4.8 billion worth of food marketed locally.

Small- and medium-sized growers are the "public face" of the local food market, because -- in terms of farm numbers -- they dominate direct-to-consumer channels, the study said.

Though only about 5 percent of farmers who market their crops though such channels are considered large, they actually generate the majority of sales -- particularly in "intermediated" channels, the study said.

This finding makes sense, given the expectations of grocery stores, restaurants and similar food buyers, said Lev. "You have to have the scale, you have to have the consistent quality."

Farmers' markets and similar venues provide smaller farmers with the highest profit margin per unit of crop, while grocery stores allow larger farmers to move greater volumes, he said.

Many farmers are able to benefit from both arrangements. According to the study, about 20 percent of all farms that sell into the local market use both direct and intermediated channels.

Lev gives the example of a strawberry grower that sells to grocery stores during the peak production season, but focuses on farmers' markets when crop volumes are lower.

"It's the combination of the two that allows them to be very successful," he said.

More online

To read the USDA's study, "Direct and Intermediated Marketing of Local Foods in the United States," go to www.ers.usda.gov and click on the "Publications" tab at the top of the screen, then follow the "ERS research reports" link.