Small farms are becoming big business. One reason is an innovation called food hubs.
Food hubs aren’t exactly new: a few have been around for 20 years. But lately, they’ve been growing like zucchini in August: two-thirds have been in business less than five years, one-third less than two years. Not only are there more of them. They’re getting bigger, and doing more, and becoming more important to agriculture, in the Midwest and around the country.
My guess is that they contribute to a phenomenon that we noted in a recent posting on this blog – that the number of mid-size farms, defined as farms with sales of $100,000 to $500,000 per year, is growing. These are the so-called family farms that had been vanishing, as U.S. agriculture became big business and the so-called mega-farmers bought up smaller farms and put them out of business.
That’s changing, and food hubs may be one reason.
That’s good. But before small-farming advocates break out their locally-grown wine, they should consider that food hubs have the same relationship to small farmers that Cargill and other huge agribusinesses have to mega-farmers. They’re middlemen, marketers, packagers, influencing if not controlling this corner of the American farm economy.
The U.S. Department of Agriculture defines a food hub as a business “that actively manages the aggregation, distribution and marketing of source-identified food products primarily from local and regional producers to strengthen their ability to satisfy wholesale, retail and institutional demand.” (Two solid surveys of food hubs can be found here and here.)
There are about 222 of these food hubs around the country. They have two sets of customers. One are local farmers, mostly within 400 miles or less, who raise fruits, vegetables, meat, poultry, eggs and other produce but who don’t have the means, time or interest to get this food to market. The other set are the outlets that need the food – restaurants that like to use local produce, small grocery stores, K-12 school food services, and the like. Large supermarkets can be good customers, too, even if they get most of their food from further away through the big agribusiness suppliers.
The food hubs, then, take in food from farmers and deliver it to restaurants and other users. But they do more than that. Most store, refrigerate and deliver food. Others process it through canning, chopping and other processes. They’ve become brokers, branders for private labellers, marketing advisers, providers of insurance to farmers, legal counselors, even lenders to farmers who want to grow.
What they don’t do, so far as I can find out, is to provide inputs to farmers. They don’t sell seed, pesticides, baby chicks, farm equipment or other basic supplies to farmers. Apart from their size, this seems to be the big difference between food hubs and an agribusiness giant like Cargill, which contracts with big farmers to sell them the seed and fertilizers in the spring and to buy their crops in the fall.
I doubt the food hubs would appreciate the comparison to Cargill, or that niche farmers would like being mentioned in the same breath with their 2,000-acre brethren. But as locally-grown food becomes more important to urban foodies and as top-end restaurants seek the freshest ingredients, niche farmers and the hubs who serve them are going to get bigger and more commercial.
Incidentally, food hubs do some distribution in farmers’ markets, but this is a small part of their business. Urban shoppers generally know niche farmers only through their farmers’ markets. Most vendors at these markets bring their own food to market, handling the distribution and sales themselves. But the time and cost of serving these markets is becoming increasingly onerous, especially as farmers realize that other outlets, especially restaurants, pay more and will happily deal with food hubs.
Food hubs can also take on many of the services that restaurants and other customers require, including consistent quality control.
No food hub will knock Cargill out of the Fortune 500 any time soon. But they routinely deal with dozens or hundreds of farmers, and nearly one-third have annual revenues of $1 million or more: a recent survey found that 6 percent of the food hubs bring in $14 million or more per year, and one made $75 million. About half are for-profit businesses, a third are non-profits and the rest are coops or other forms of business. A recent survey found one food hub with more than 150 employees.
Most of the farmers served by food hubs are in the small to mid-size category, with total income of $500,000 or less. This category is growing, partially through the work of the food hubs, whose goal, after all, is to help niche farmers earn more.
So far, food hubs remain strictly local. But the history of agriculture makes it likely that both the hubs and their farmers will grow bigger, consolidate and, eventually, get national ambitions.