Lessons for Local/Regional Foods to be Learned from Conventional Food Systems
Posted on 09/03/2009 at 12:00 AM by Christa Hartsook
Blog entry written by Ray Hansen, Iowa State University Extension, Value Added Agriculture Program director
There is no denying that the interest in building local and regional food systems has reached critical mass as evidenced by the continued growth of Farmers' Markets and CSAs and the shift in USDA policies to recognize and promote local food systems initiatives.
Despite the rapid growth and virtually limitless amount of positive media that has been bestowed on these initiatives, local food entrepreneurs must treat this industry as a business. Survivors in this business, will be those entrepreneurs that take the time to establish their position in the food chain based on sound business principles.
One would be hard pressed to find a successful business owner of any type that would deny that it is critical to intimately know the competition. And for that reason, it is important for participants in the local food sector to look closely at what has made the current U.S. food system one of the strongest in the world. It is through this evaluation process that an entrepreneur can determine what components of the system can or must be replicated, and where current deficiencies might enable a new business to fill a void. Through this process, the ultimate goal should be to clearly define realistic market demographics and then develop a business strategy of appropriate scale and profitability.
So what do we know about the current conventional food system?
For starters we know that maximizing efficiencies in every aspect of production, processing and transportation the current U.S. food system has been able to maintain one of the cheapest and safest systems in the world, while helping feed an ever increasing world population. We also know that the U.S. consumers have demanded that their food selection be highly diversified and convenient. In two sentences we can summarize the four pillars of the current food system – cheap, safe, diversified and convenient. Local/region food entrepreneurs must be prepared to compete against these factors when the local foods honeymoon is over and consumers decide just how committed they are to their personal relationship with their food system.
It is unrealistic to assume that the local foods initiative will be immune to these competitive pressures so strategies need to be proactive rather than reactive to these ‘real’ constraints. Let’s look at the implications of just these four.
- Price: There may be incidences where locally sourced items may be able to compete strictly on price, but for most local food products, the advantage lies in focusing on distinguishable quality attributes and pricing the product according to the actual value of the attributes plus the cost of goods. Having a well defined marketing and pricing strategy is critical to business success because making changes in pricing strategies post -production will directly impact market share and therefore have a ripple effect on the accuracy of everything from financial projections all the way back to production estimates. Get the target market and marketing strategy clearly planned out on paper early in the process– then focus on executing the planned strategy.
- Safety: Bottom line; there is no margin for error. Every effort must be made to ensure the safety of food products being sold. A clear understanding of applicable local, state and federal regulations is critical to a sound safety program. Additionally, there needs to be adequate documentation to prove that regulations are being met. Of equal importance, there should be no implied statements of quality, safety or health benefits made that cannot be substantiated. In addition to regulatory requirements there will likely be wholesale and or retail safety and policy regulations that need to be met as well. When it comes to safety in food system ‘risk management’ is much more affordable than ‘risk mitigation.’
- Diversification: Diversification serves as an excellent insurance policy for production and marketing risk. This is not to imply that a good business model has a dozen items or more to choose from. In fact, sometimes doing just one thing right is the best strategy. The point here is that in a competitive market arena – it is advantageous to be able to create options or choices for the customer. This can be accomplished by exploiting differences as part of a marketing strategy. Diversification can also be achieved by expanding markets through implementing creative marketing strategies such as cooperative marketing or cross marketing.
- Convenience: Only a liar would say that they didn’t appreciate things that make their life easier. In many respects, the local foods movement has been given a free pass on this purchasing criteria so far. But in time, this may change and entrepreneurs might be obligated to adapt and adjust their marketing strategies to maintain customer loyalty. At times it is easy to start believing the ‘local foods’ movement is all about “the food” but that is a fatal trap because it is ultimately and always will be about “the customer.” The value of convenience is just as important to any customer, no matter if their purchase is by the handful or the semi-load.
To address these issues and other related topics AgMRC at www.agmrc.org is positioned to help entrepreneurs make business decisions that will keep their businesses competitively positioned in the food marketplace. Resources are located throughout the website to help with business development planning, understanding market trends, developing marketing strategies and identifying resources that help with everything from meeting safety rules and regulations to packaging and labeling. Case studies and networking tools help keep users in touch with changes in the industry. And just like the local foods movement AgMRC will continue to grow and adjust to meet the needs and expectation of our customers.
Categories: Local/Regional Foods