ORGANIZATIONAL STRUCTURES TO FACILITATE SMALL FARMERS IN LOCAL FOOD DISTRIBUTION Tuesday, May 25, 2010, 2:30-4:00 PM Eastern. Welcome & Opening Remarks LeAnn Oliver, Deputy Administrator for Co-op Programs
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Collaboration is a recursiveprocess where two or more people or organizations work together in an intersection of common goals — for example, an intellectual endeavor that is creative in nature—by sharing knowledge, learning and building consensus. From Wikipedia
Institutions –schools, hospitals, restaurants
Local Government- public health officials
There is a common need within the group that is a broader than the farmers’ needs
The goal is to develop a local food distribution system to provide healthy food to consumers.
Kaiser Permanente’s Medical Center’s with farmers markets -A collaboration with local farmers markets organizations, hospital, non profits
In some cases, a cooperative is formed in collaboration with other organizations.
A non profit was formed first to promote locally grown agriculture: Central Coast Grown
Their philosophy is that everyone benefits from good, healthy, locally-grown foods. They benefit, our children benefit, schools and hospitals benefit, retailers benefit, the local economies benefit, and the environment benefits.
A non profit agricultural education program is collaborating with San Diego County School District, Farm Bureau, Occidental College’s Center for Food and Justice, California Center for Cooperative Development and local farmers to develop a local distribution system that will deliver foods to schools and institutions.
County initiative to purchase locally grown food is driving this collaborative effort that involves San Mateo County Farm Bureau, county health officials, and agricultural non profit formed to benefit local farms.
“collaboratives”, can be defined for this discussion as non-profit organizations, acting as marketing agents for farmers to sell directly to local institutions.
Example Growers Collaborative systems set up in the Bay Area, Central Coast, and Ventura.
Farmers do not want to take the risk or have the “economic incentive” to form a marketing corporation.
Consumers/institutions do not want to take the risk or have the authority to start a buying corporation.
Economic goals are not the primary force behind collaborative efforts.
Larger role of nonprofit or public institutions in organizational efforts
Grants usually required for start-up costs
CAFF Director of Policy and Programs
Jim Churchill, an Ojai citrus grower, was delivering fruit to Juanamaria Elementary School in Ventura in one of the first farm to school efforts
He wanted a more organized approach to aggregating and delivering local produce
CAFF agreed to sponsor the project and administer grants
First grants in 2004, including a 2-year USDA VAPG of $210,000
Interviewed all local distributors asking if they would deliver local produce and they all said no
Asked growers if they wanted a cooperative or some ownership and they all said no
So created a non-profit distribution entity: old trucks picked up and delivered, took title to produce, used local food bank’s cooler
In 2006, started another hub in Davis to deliver to Sacramento and the San Francisco Bay Area with 2-year USDA VAPG of $215,000. Also started some sales from Fresno.
Shifted to for-profit LLC, seeking private investment
By early 2008, monthly sales of combined hubs averaged $85,000, or over $1 million per year
Bon Appetit Management Co.
Dreamworks, Getty Museum, Biola University, Intel…and 25 more
Schools, such as Ventura USD
Hospitals, such as Kaiser Permanente
Universities, such as Stanford, UC Berkeley, UC Davis
The Fruit Guys, who deliver to corporations
A company providing organic school meals
Undercapitalized, like many small businesses. Private investment did not materialize.
Could not increase sales sufficiently to cover fixed costs, so CAFF constantly covering losses
Too much seasonal variation in local to be stand-alone distributor
But was a successful demonstration project, allowed many institutions to source local produce and to demand it from their mainstream distributors
The produce distribution industry then realized that they needed to find ways to access local produce to satisfy this demand, and that is the process going on now across the country
CAFF’s solution is to shift GC to a series of aggregation hubs and work with conventional produce distributors.
CAFF is working hand-in-hand with private companies to establish local food aggregation hubs at strategic locations throughout California. They will be staffed and operated by professional food distribution entities.
These aggregation hubs will sell to mainstream food distributors, thereby significantly impacting the regional infrastructure for local food while maintaining a fiscally sustainable model.
Growers Collaborative Bay Area opened for business in November 2009. GCBA is currently doing business with several mainstream distribution companies, including Fresh Point, San Francisco Specialties, and Daylight Produce.
Work with more farmers
Access more trucks & capacity
Access more customers
Get more source-identified local food into more retail & food service operations
The Growers Collaborative hub aggregates product:
The hub collects, identifies, and sells local food.
CAFF works in the value chain on either side of the aggregation hub, stimulating both increased supply from local family farmers and increased demand from mainstream distribution companies.
CAFF grower outreach
CAFF consumer education
currently in operation
estimated to open June 2010
GC Santa Rosa
planning grant submitted
GC Central Coast
GC Los Angeles
estimated to open June 2010
GC San Diego
Marketing and Outreach
Bloomington Cooperative Services
Bloomingfoods Market and Deli
Board Member - Local Growers Guild
The Local Growers Guild is a cooperative of farmers, retailers and community members dedicated to strengthening the local food economy in Southern Indiana through education, direct support and market connections.
Mission:The Local Growers Guild creates a local foods system that provides quality food to communities through direct markets and retailers; preserves the viability of family farms; improves the quality of life for growers; makes food issues visible; and promotes practices that preserve and protect the Earth.
Two part-time staff
Low wages, no benefits
Grassroots origins with volunteers
Collaborative effort with many players
• creating an enduring structure with resources to maintain and grow the organization
• engaging members at three levels (grower, retailer, community), and helping them be committed champions of the local foods movement
• recognizing funding opportunities and being prepared to act when they arise
• responding to member diversity, expectations and needs
The Local Growers Guild received seed money from Bloomingfoods in 2005 when the food co-op received an equity windfall from the
Blooming Prairie Cooperative
Warehouse after it was sold to
natural foods distributor
UNFI (United Natural Foods, Inc.)
Full circle: distribution challenge
Bloomington Cooperative Services
is a member-owned mutual benefit corporation whose
purpose is to expand and sustain the cooperative business model.
We promote community involvement, consumer education, and the
benefits of member-ownership.
Bloomingfoods Market and Deli
is a member-owned grocery providing Southern Indiana with healthful,
high quality, and environmentally sound products at a fair price. We promote
locally grown, nutritious and non-chemically produced foods. We emphasize
consumer education, community involvement, and excellent customer service.
The bottom line: We know that our customers want
(and need) more local, organic, sustainable food.
“We are suffering from the loss of knowledge and the missed opportunity of competitive innovation regarding how food works on anything but a large, national/international distribution model.”
Growing Crisis is also a Health CrisisCustomers and growers tell us:
The agricultural products that are subsidized and supported are not the ones that consumers desire in order to make an impact on their health or on the health of the environment.
Retaining valuable skills from agricultural past, including the ability to cooperate:
best of the past
Becoming more successful technological innovators, at small, urban, rural and suburban (local) scale:
best of the future
Building a new
U.S. Department Of Agriculture (USDA)
Stephanie M. Smith
Senior Legal Adviser for Cooperative Programs
USDA Rural Development
Most business organizations form legal business entities to validate their business activities with the federal, state and local governments; and the general public.
The Internal Revenue Service (IRS) is able to tax these business activities of the particular business organization according to the very characteristics and purpose of the legal business entity created.
Cooperatives (Co-ops) are organized by the people who use its services and whose benefits are derived and distributed equitably on the basis of use
C-Corporations (C-Corps) are organized for-profit entities to distribute wealth to employees and shareholders
Limited Liability Companies (LLCs) are organized for-profit entities for a single business purpose
Non-Profit Organizations (Non-Profits) are organized solely to provide programs and services that are of self-benefit
Low Profit Limited Companies (L3Cs) are organized to bridge the gap between non-profit and for-profit investing
Collaborative Marketing Groups (CMGs) are organized to directly market and distribute products on behalf of farmers as either a co-op, corporation or LLC
They all provide goods and services
They all are recognized by the IRS for tax paying purposes, if applicable
They all are organized via state statutory laws
They all have an ownership or management structure
They all operate under a particular goal, mission or purpose
Each organization is taxed differently by the IRS based on the organization’s unique characteristics
The ownership or management structure is not equally structured
Each business organization is structured with different goals or purposes in mind
Co-ops - Member/Patrons
C-Corps - Stockholders
LLCs - Member/Shareholders
Non-Profits - Nobody
L3Cs - Member/Shareholders
CMGs - Member/Patrons/Shareholders
Co-ops - Board of Directors elected by patron members
C-Corps - Board of Directors elected by shareholders
LLCs - LLC Members
Non-Profits - Board of Directors
L3Cs - L3C Members
CMGs - Board of Directors elected by patron members, shareholders or LLC members
Co-ops - One share/fee to establish membership
C-Corps - One share of stock
LLCs - At discretion of LLC members
Non-Profits - Membership fee
L3Cs - At discretion of LLC members
CMGs - Based on their chosen business entity
Co-ops - To meet member needs for goods or services, market members’ products and earn a return on member investment
C-Corps - To earn a return on owner investments
LLCs - To earn a return on members’ investments; to provide employment for members
Non-Profits - To provide services or information
L3Cs - To provide a structure that facilitates investments in socially beneficial, for-profit ventures
CMGs - To provide a structure for farmers to work together over an extended time period to market their agricultural products
Co-ops - Limited to members’ investment in the cooperative
C-Corps - Limited to shareholder’s investment in the corporation
LLCs - Limited to LLC member(s)’ investment in the LLC
Non-Profits - Limited to assets of the organization
L3Cs - Limited to L3C member(s)’ investment in the L3C
CMGs - Based on the chosen business entity’s limitations
as stated above
Co-ops - Retained profits; sale of shares to members and outside investors
C-Corps - Retained profits and sale of shares to investors
LLCs - LLC members’ investments and retained profits
Non-Profits - Grants, individual contributions, fees for services
L3Cs - L3C members’ investments and retained profits
CMGs - Based on the chosen legal entity
Co-ops - Members in proportion to their use; preferred shareholders in proportion to investment, up to 8%
C-Corps - Shareholders in proportion to investment
LLCs - LLC members in proportion to investment or by agreement
Non-Profits - Retained within the organization
L3Cs - L3C members in proportion to investment or by agreement
CMGs - Based on the chosen business entity
Co-ops - Members pay on qualified allocated profit and cash received; Co-op pays on nonqualified and unallocated profits
C-Corps - Shareholders pay individual capital gains rate on dividends; C-Corp pays corporate rate on profits
LLCs - LLC members pay individual rate, or can elect to be taxed as a corporation
Non-Profits - Not Applicable
L3Cs - L3C members pay individual rate, or can elect to be taxed as a corporation
CMGs - Based on the chosen business entity
L3Cs- L3Cs are considered hybrid for/non-profits, but are not tax exempt charities unless they meet the IRS’s 501(c)(3) requirements. As late as August, 2009, there are currently 8 jurisdictions to recognize L3Cs to include, Vermont, Illinois, Michigan, Wyoming, Utah, Maine, the Crow Nation and the Oglala Sioux Tribe.
CMGs- CMGs may be formally established business organizations or informal associations. Some CMGs are based on significant investments in processing and distribution facilities, while others rely on the human capital embodied in their members’ ideas and the social capital embodied in their collaborative spirit. See University of Minnesota Extension Services discussion on CMGs.