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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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Presentation Transcript
  • Welcome & Opening Remarks
    • LeAnn Oliver, Deputy Administrator for Co-op Programs
    • Tom Stafford, Chair, Research Advisory Committee, Co-op Programs if LeAnn is late from concurrent meeting
  • Overview of California Collaborative Projects
    • Karen Firestein, Business & Cooperative Specialist, USDA Rural Development, Davis, CA
  • CAFF’s Growers Collaborative: Evolution of Local Produce Distribution
    • David Runsten, Director of Policy and Programs, Community Alliance with Family Farmers, Davis, CA
  • Cooperative Possibilities: Local Growers Guild
    • Ellen Michel, Marketing and Outreach, Bloomingfoods Cooperative, Bloomington, IN
  • How Do They Differ: Co-ops, C-Corps, LLCs, Nonprofits, L3Cs, CMGs
    • Stephanie M. Smith, Esq., Senior Legal Advisor for Cooperative Programs, USDA Rural Development
  • Open Discussion on Organizational Structures Needed to Facilitate Small Farmers in Local Food Distribution
    • LeAnn Oliver, Deputy Administrator for Co-op Programs, Moderating
overview of california collaborative projects
Overview of California Collaborative Projects

Karen Firestein, USDA Rural Development,

Cooperative Specialist, Davis, CA

[email protected]


what is a collaberative
What is a Collaberative?

Collaboration is a recursiveprocess where two or more people or organizations work together in an intersection of common goals — for example, an intellectual endeavor[1][2] that is creative in nature[3]—by sharing knowledge, learning and building consensus. From Wikipedia

who are the collaborators
Who are the collaborators?


Non profits

Institutions –schools, hospitals, restaurants

Consumer groups

Local Government- public health officials


why are they being considered
Why are they being considered?

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

coast grown
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.

tierra miguel foundation
Tierra Miguel Foundation

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.

san mateo county project
San Mateo County Project

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.

what is a food collaborative
What is a Food Collaborative?

“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.

why are they different
Why are they different?

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.

why are they different1
Why are they different?

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 s growers collaborative evolution of local produce distribution

CAFF’s Growers Collaborative: Evolution of Local Produce Distribution

Dave Runsten,

CAFF Director of Policy and Programs

history of caff s growers collaborative

History of CAFF’s Growers Collaborative

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

history of caff s growers collaborative1

History of CAFF’s Growers Collaborative

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

Customers included:

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

obstacles and outcomes

Obstacles and Outcomes

Undercapitalized, like many small businesses. Private investment did not materialize.

Could not increase sales sufficiently to cover fixed costs, so CAFF constantly covering losses

Trucking inefficient

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.

ag gre ga tion the collecting of units or parts into a mass or whole

ag·gre·ga·tion: the collecting of units or parts into a mass or whole

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 aggregation hubs will
Growers Collaborative aggregation hubs will:

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

publishes weekly product availability lists receives productidentifies and labels productprocesses orders from distributors

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

GC hub

CAFF marketing

CAFF consumer education

      • Conducts outreach to new grower suppliers
      • Markets the aggregation hub to mainstream distributors
      • Develops and distributes marketing materials for use by distributors’ salespeople
      • Trains distributors’ salespeople to sell local food to retail and food service operations
      • Develops and distributes marketing materials for use by customers in the retail environment
      • Grows consumer demand for local food through ongoing consumer education programs, including Buy Fresh Buy Local.
GC Bay Area

currently in operation

GC Sacramento

estimated to open June 2010

GC Humboldt

under discussion

GC Santa Rosa

planning grant submitted

GC Central Coast


GC Los Angeles

estimated to open June 2010

GC San Diego


cooperative challenge the local growers guild of southern indiana

Cooperative Challenge:The Local Growers Guildof Southern Indiana

Ellen Michel

Marketing and Outreach

Bloomington Cooperative Services

Bloomingfoods Market and Deli

Board Member - Local Growers Guild

the local growers guild
The 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.

accomplishes a lot with very limited budget
Accomplishes a lot with very limited budget

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

cooperative principle 6 cooperation among cooperatives
Cooperative principle #6: Cooperation among cooperatives


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

Co-op retail supporter

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.

a grower s perspective a growing crisis
A Grower’s Perspective:A Growing Crisis

“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.”

Knowledge gaps:




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.

Our Co-operative and Collaborative Challenge:

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

infrastructure for

local foods

how do they differ co ops c corps llcs non profits l3cs cmgs

HOW DO THEY DIFFER: Co-ops, C-Corps, LLCs, Non-Profits, L3Cs, CMGs

U.S. Department Of Agriculture (USDA)

Stephanie M. Smith

Senior Legal Adviser for Cooperative Programs

USDA Rural Development

Washington, DC

business organizations
Business Organizations

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.

various types of organizational options
Various Types of Organizational Options

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

what do they have in common

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







how do they differ

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







how do they differ ownership structure
How Do They Differ: Ownership Structure

Co-ops - Member/Patrons

C-Corps - Stockholders

LLCs - Member/Shareholders

Non-Profits - Nobody

L3Cs - Member/Shareholders

CMGs - Member/Patrons/Shareholders

how do they differ organizational structure
How Do They Differ:Organizational Structure

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

how do they differ investment costs
How Do They Differ:Investment Costs

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

how do they differ purpose
How Do They Differ: Purpose

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

how do they differ legal liability for individual owner member
How Do They Differ: Legal Liability for Individual Owner/Member

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

how do they differ financial structure
How Do They Differ: Financial Structure

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

how do they differ profits gains structure
How Do They Differ: Profits/Gains Structure

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

how do they differ individual entity tax structure
How Do They Differ:Individual/Entity Tax Structure

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

a note on l3cs and cmgs
A Note on L3Cs and CMGs…

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.


You may contact Stephanie M. Smith at (202) 690-1411 or [email protected] for more detailed information about this presentation.

Thank you.

discussion on organizational structures to facilitate small farmers in local food distribution
Discussion on Organizational Structures to Facilitate Small Farmers in Local Food Distribution
  • Are collaborative marketing groups needed to facilitate local food distribution?
  • What form of collaboration works best?
  • What are the drawbacks?
  • Should it be different for larger farmers?
  • Does a regional approach vs. local change the discussion?
next scheduled discussion meeting
Next Scheduled “Discussion Meeting”
  • Tuesday, June 29, 2010
  • 2:30 – 4:00 PM Eastern
  • Discussion About Raising Equity or Near Equity Capital from Non-Members for A New or Expanding Cooperative
    • To be determined, Coastal Enterprises, Inc.
    • Christina Jennings, Northcountry Cooperative Development Fund
    • Mary Griffin, National Cooperative Business Association