Missouri Alternatives Centers Bimonthly Electronic Newsletter 800-433-3704 "AG OPPORTUNITIES" July-August 1999 (Vol 10 No 1) * Small Farms * New Family Farms * Agricultural Alternatives "Home Made" - The Paradigms and Paradoxes of Changing Consumer Preferences: Implications for Direct Marketing (by Desmond A. Jolly, Ph.D., Agricultural Economist, Dept of Agricultural and Resource Economics & Director of Small Farm Program, University of California-Davis - reprinted with permission) Changes in agricultural policies, decreases in the competitive structure of agricultural markets and the increasing dominance of non-farm activities in the food chain, have put smaller and moderate-scale agricultural operations at risk. Large operations can, because of their volume of sales, earn respectable incomes. However, smaller operations that have to rely on commodity production will, in the new policy and economic environment, face a daunting challenge. That challenge is reflected in the record low percentage of the retail cost of various commodities that accrue to farmers. As shown below, the farm share of retail prices for various commodity groups range from approximately 7 percent in the case of cereals and baked goods to 46 percent for eggs. The average farm share is 18-21 percent for fresh and processed fruits and vegetables. ***************************************************************** Farm value as a percentage of retail price for domestically produced foods, 1987 and 1997 ----------------------------------------------------------------- Items 1987 1997 Percent ----------------------------------------------------------------- Livestock products: Meats 47 37 Dairy 42 32 Poultry 45 41 Eggs 54 46 Crop Products: Cereal and bakery 8 7 Fresh fruits 26 18 Fresh vegetables 31 18 Processed fruits/vegetables 24 19 Fats and oils 18 21 ----------------------------------------------------------------- (Source USDA, Agriculture Fact Book, 1998) ***************************************************************** Farmers respond to the income challenge in a number of ways: some expand their operations if conditions are favorable to that option, others choose low cost production systems, still others cease farming, while some choose to alter their product lines to focus on specialty crops, niche markets and direct marketing. Direct marketing is increasing opportunities for small and moderate-scale producers and may offer viable options for sustaining family farming in the United States. But direct marketing is not a panacea for all farms of this type. Opportunities and constraints will vary according to the location of the farm, the age, skills, experience and entrepreneurial abilities of the operator, access to information, technologies and markets. Where the factors are conducive, direct marketing, in particular direct marketing to consumers, offer advantages of integrating farm and non-farm activities and incorporating the revenues typically attributed to off farm agents into the farm revenue stream. A cursory review of empirical evidence related to consumer preferences for direct markets helps to provide a map as to prospects for these marketing options. For some options the data is sketchy or anecdotal. But a number of studies can be drawn on to indicate the prospects for direct markets. Prospects for Direct Markets - The Theory and the Evidence Farmers utilize a variety of direct marketing options including -- roadside and farm stands, farmers markets, U-Pick, consumer subscription or CSA's, mail order, Internet, and others. We will only touch on a few of these options here. We know that demographic and psychographic factors have reconstructed and is reconstructing the marketplace in multiple ways, some favorable and some inimical to farm direct marketing. The high levels of urbanization remove consumers spatially from producers and enhance prospects for indirect sales such as those facilitated by wholesalers and retailers. The high and increasing proportion of adults in the workforce favor systems that economize on search time and time spent on shopping. It also favors consumption away from home and use of more convenience - prepared foods. Needless to say, these do not immediately favor farm direct sales. It favors larger supermarkets and food processing companies, and is reflected in the small and declining share of the farm share in retail food expenditures. On the other hand, consumer surveys have, for the past two decades, shown changes in consumer interest in achieving more healthy lifestyles including consumption of healthier diets. USDA, health professionals and popular publications have been advocating increased consumption of fresh fruits and vegetables, and more "natural" products, less fat, less sugar and salt, and more complex carbohydrates. Additionally, some consumers have become more demanding of improved flavor in foods. These latter psychographic factors are more favorable to direct markets. Moreover, an increasing proportion of consumers evidence a concern for the "family farm" and the preservation of agriculture and open space. On a priority basis, one would expect, then, that the prospects for direct markets in exploiting these consumer niches are quite positive. To what extent is this supported by the evidence. Data on Consumer Patterns and Preferences In a study of "Ohio Consumer Opinions of Roadside Markets and Farmers' Markets", Rhodus et al. (1994) found that, among other things: * Over 88% of Ohio households believe they receive higher quality produce directly from the farmer * 90% of the respondents indicate a preference "to buy their fresh fruits and vegetables directly from the farmer, whenever possible; * 55% of Ohio's households shopped at a roadside market in the August 1992 to August 1993 period; 29 percent had shopped at a farmers' market, and 40% of these had shopped at this venue four or more times. * Respondents perceived produce quality, produce freshness, and produce prices to be better at roadside and farmers' markets than at supermarkets, but supermarkets were perceived superior in terms of convenient location to home, variety of produce, consistent supply, store promotions, and convenient location to work. * For those respondents who did not shop at roadside markets, reasons included - not convenient/far away (45%), takes too much time (12%), not open the hours I want (4%), prefer supermarkets (18%), raise my own vegetables (18%) and too expensive (4%). * Farmers' markets were perceived as not convenient by 60% of the households surveyed. * 55% of households would shop at roadside markets, and 58 percent would shop at farmers' markets if they were conveniently located. Another study of a Maine farmers' market clientele provides further support for the positive view of the prospects for direct markets. Kezis et al. (1999), in their study of the Orono Farmers' market found that quality, support for local farmers, and atmosphere were very significant to patrons. ***************************************************************** Most Important Reasons for Shopping at the Orono Farmers' Market ----------------------------------------------------------------- Reason Percent ----------------------------------------------------------------- Quality of the products 72.5 Support local farmers 59.6 Friendly atmosphere 38.2 Health & food safety concerns 29.8 Convenience 13.5 Good price 10.7 Variety 8.4 Good service 5.0 Consistency 2.2 ----------------------------------------------------------------- *N=178: excludes those who were visiting the market for the first time ***************************************************************** Consumers also indicated a willingness to pay more for produce at the farmers market than for similar produce at a supermarket, with 72 percent indicating a willingness to pay an average of 17 percent more for farmers' market produce. And nearly half of weekly patrons reported spending upwards of $10.00 per visit. Data from an as yet unpublished California survey conducted in San Diego County, CA, in 1998, confirm the trend toward enhanced consumer preferences for direct markets. The next table shows the relative familiarity with and use of alternative direct marketing methods from a survey of 436 consumers. With respect to the factors that favor their patronage of farmers' markets the responses ranked in order of frequencies are as follows: ***************************************************************** Factors Favoring Patronage of Farmers' Market Count Percent ----------------------------------------------------------------- Freshness 399 92.0 Quality 379 87.0 Taste 339 76.0 Locally Grown/Produced 308 71.0 Help local farmers 259 59.0 Nutritional value 211 48.0 Atmosphere 201 46.0 Best value for money 177 41.0 Convenience 164 38.0 Price 157 36.0 Know grower 62 14.0 Others 34 8.0 ----------------------------------------------------------------- (a) Consumers could choose multiple responses (b) Rounded to nearest percent (Source: Lobo et al. Unpublished study of San Diego Farmers' Markets: Consumer Preferences and Shopping Patterns) ***************************************************************** The top four attributes were identified in the survey as Quality, Freshness, Taste, and Help Local Farmers/Locally Grown. Approximately equal proportions of the sample - about a third perceived prices to be higher or lower than supermarket prices. However, 73 percent perceived quality to be superior to supermarket produce, a surprising finding given the proximity of supermarkets in California to production areas. Two thirds of the respondents would prefer items to have a San Diego grown label and a half indicated a willingness to pay more for San Diego grown products. Data from the 1997 Annual Report of the Southland Farmers Market Associates indicated per farmer per market day sales ranged from a low of $141 to a high of $894 - with an average per market day sales of $438. This is not an insignificant amount of revenue, particularly when considered in the context of farmers selling at more than one or even multiple markets. The summary of annual sales for the 19 markets in the Southland Farmers' Market Association for 1997 ranged from a low of $47,437 for partial year's sales, to a high of $3,599,629. It should be noted that the Southland markets are in the Los Angeles Basin. Clearly, these operations go beyond the uninformed perception of farmers' markets as inconsequential "mom and pop" operations. Many have emerged as serious marketing and economic institutions. And by no means do they appear to have exhausted their potential. Certainly feasibility analysis and planning, as well as progressive management will determine the outcomes of specific markets. The bottom line, however, is that consumer lifestyles and preferences are supportive of further development of farmers' markets as sites for exchange of values between consumers and producers. Mail Order The busy lifestyles of many middle income households and the appeal of foods and farm products for ceremonial purposes offers potential for utilizing mail-order and electronic commerce as marketing options for farmers. The business skills and marketing infrastructure needed to support mail order or electronic commerce are probably at least different, if not more complex than for roadside stands or farmers' markets. But some operations will be favorably endowed with these skills. Others can be developed. But there is clearly a potential market. According to Consumer Reports (1996), in 1995, 6.4 million Americans ordered food by mail. Products sold included: nuts, fruits, preserves, cheeses, meats and fish, baked goods, and confectionery. While, according to Consumer Reports, product quality and service was highly variable, consumers appeared willing to pay considerably more than supermarket prices for the convenience and "panache" of ordering through the mail. Since many of these items are sent as gifts to friends, business and personal acquaintances, consumers avoid the time to shop, package and ship the products. Moreover, value is added by virtue of the product having some added identity as provided by a label or some valued source of origin - like a family farm. The typical price differentials between mail order products and supermarket prices for comparable products are typically substantial. Paradoxes in Consumer Trends A key paradox of evolving patterns of consumer preferences is that as disposable incomes increase in inverse proportion to discretionary time, preferences for "home made" products which either evoke comforting feelings of nostalgia or romantic images of home and hearth motivate much consumer spending. This explains why many large food processors and fabricators including Campbell's Soup Company and many others go to great lengths in developing products and labels that convey this image of a romantic peasant society and cottage industry production. Not only is this true for foods, it extends to handicrafts such as quilts, Shaker furniture, hand loomed woolen sweaters, and the like. Hence, the nostalgia for "authentic" products offers niches for direct market, for fresh and value-added products from small and moderate scale farms. But producers will need to combine "authenticity" with up-to-date practices in regard to product safety, warranties, service and customer relations. Another paradox of consumer trends is the increased consumption of "fast food" and convenience foods by lower income consumers. Conclusions and Implications This paper suggests that there is still rich potential for improving the performance and prospects for family farming through direct marketing alternatives. These alternatives demand many more entrepreneurial skills and abilities than traditional marketing alternatives. Many of these skills can be transferred to farm entrepreneurs. They could also benefit from exposure to methods of conducting market research and accessing pertinent sources of consumer information. These include topics that can be addressed by USDA and its partners through applied research and education. Activities and new initiatives now being implemented by the Agricultural Marketing Service are justified by the potential pay off for family farmers. MU Extension helps organize focus team on Sustainable Food and Farming Systems The University of Missouri has joined with the state Department of Agriculture and Lincoln University to form the Sustainable Food and Farming Systems Focus Team, which will develop programs to help small-scale farmers and rural communities survive and prosper. "Until now, the emphasis for small farming and rural communities has been crisis management," said Joan Benjamin, one of six members of the team's leadership council. "We want to find ways to create a sustainable system, to offer them alternatives not just so they can survive, but so they can thrive." Benjamin, interim co-coordinator of the MU Sustainable Agriculture Extension Program, said a primary goal is to bring together producers, consumers, marketers and Extension educators. "One of the first steps is to bring farmers on to the team and find out what they want us to do," she said. Small farms, she noted, make up 80 percent of the farms in Missouri. "It's a long-term view," said Laura Bergman, MU Sustainable Agriculture Program manager. Other members of the leadership council include Mary Hendrickson, MU Extension rural sociologist; Debi Kelly, Missouri Alternatives Center; Judy Grundler, Missouri Department of Agriculture; and K.B. Paul, Lincoln University small farms specialist. "We've got a lot of farmers that have been left out of the dominant food system, and a lot of consumers that feel left out, too," Hendrickson said. "We're going to try to establish that direct link between farmers and consumers, things like farmers markets and community food circles. There are a lot of things out there. We need to provide the infrastructure for them to work well." The council and MU administrators are establishing a 24-member advisory council and the 26-member Focus Team. Both panels will include representatives of state agencies, environmental groups and farm organizations. "The sustainability of Missouri's agriculture is a priority," said Tom Payne, dean of the MU College of Agriculture, Food and Natural Resources. "This fact calls for added emphasis under the current farming crisis. The newly formed Sustainable Food and Farming Systems Focus Team will provide that emphasis." Benjamin said the team will bring together disparate elements to help create sustainable communities. "There are people who want to buy from local farmers, and there are local farmers who want to find out what consumers need and respond to that. We can help bring them all together." Sustainable farming has become a crucial area of interest to many Missourians" said Ron Turner, University of Missouri executive vice-president and director of Outreach and Extension. "This focus team demonstrates the university's strong commitment to Missouri farmers and rural communities, as well as to consumers and the environment." Contacts: Joan Benjamin (573) 884-3794 Mary Hendrickson (573) 882-7463 Debi Kelly (573) 882-1905 *** In the News *** Five health, consumer, and other public interest groups asked the US Food and Drug Administration to ban the use of certain antibiotics to fatten farm animals. Scientists have said that the use of antibiotics to promote animal growth increases the prevalence of bacteria that are resistant to antibiotics' effects, and jeopardizes human health. Adding antibiotics to livestock feed can lead to antibiotics resistance in foodborne pathogens, which can make cases of food poisoning difficult to treat or even deadly, according to the Center for Science in the Public Interest, one of the groups which signed the petition to the FDA. The other groups are the Environmental Defense Fund, Food Animal Concerns Trust, Public Citizen's Health Research Group, and Union of Concerned Scientists. For more than 40 years, ranchers and growers have fed low levels of penicillin, tetracycline, and other antibiotics to poultry, cattle, and pigs to speed their growth and to cut costs, according to the Center. In the past two years, the World Health Organization and the Centers for Disease Control and Prevention have called for ending the use of several antibiotics for growth promotion in livestock. The groups' concerns are shared in Europe, where the Soil Association of England has released a report revealing "statistics on the enormous increases in use of the most common antibiotics such as penicillin, despite the supposed efforts of successful governments to curtail it. And it reveals some of the failures in the regulatory system which are leaving the human population exposed to the increasing risk of drug-resistant disease." In its magazine Living Earth (January-March, 1999), the Association calls for a ban on all non-medical uses of antibiotics in agriculture. The USDA's Agricultural Marketing Service (AMS) has established a voluntary, fee-for-service program to verify that organic certification agencies in the United States comply with the requirements of the International Organization for Standardization, facilitating exports of US organic agricultural products to the European Union. Effective in June the program will verify that state and private organic certifying agencies are operating third-party certification systems in a consistent and reliable manner, enabling their acceptance on an international basis. The new program does not provide for national standards governing the marketing of organically produced agricultural commodities or products, and differs substantially from the proposed National Organic Program. To be assessed under this program, an organic certifying agency would submit an application requesting such assessment from AMS and also submit to AMS for review and evaluation, a manual documenting the organic certifying agency's quality system and certification procedures used to certify organic producers and handlers. There are currently 11 state and 33 private organic certifying agencies providing certification for organic agricultural products in the US. The rule announcing the program is available on the web at http://www.access.gpo.gov/nara (Alternative Agriculture News, July 1999) A new website, Vegetative Practice Design Application (VegSpec), can actually help you design an agroforestry practice. This site, www.plants.usda.gov/, provides practice design technology and automates design for tree planting, farmstead windbreaks, and field windbreaks as well as several grass practices. It can assist you with selection of plants that are suitable for a specific soil and climate. There is also plant attribute information that can assist you in selecting plants that are beneficial for wildlife. The web site requires a recent net browser. (Inside Agroforestry, Spring 1999) The natural oil that gives peaches their perfume also kills fungus and other pests in the soil, and could replace the pesticide methyl bromide. The peach compound is manufactured synthetically and has been screened by researchers at the ARS. "When it proved effective, they developed a new approach for applying it onto soil using granules of activated charcoal saturated with the fragrant chemical," according to the article. "Not only does the peach essence kill off pathogens like Fusarium oxysporum, Rhizoctonia solani, Pythium aphanidermaturm, and Sclerotinia minor, the researchers found, but it seems to favor other, beneficial organisms in the soil that then continue to muscle out the unwanted pests." The use of methyl bromide, which damages the Earth's ozone layer, is required to end in 2005. *** In Print *** A series of 21 factsheets on various aspects of small farming is available at no charge from the Univ of MD Cooperative Extension. The resources, developed by Terry Poole, covers areas such as basic soil and plant fertility, cover crops, enterprise development and marketing. Available from Frederick County Office, 330 Montevue Ln, Frederick, MD 21702, 301-694-1594. They can also be found on the web at: http://www.agnr.umd.edu/users/frederick/pubs/ *The Economics of Organic Grain and Soybean Production in the Midwestern United States* New study shows farm profits from organic cropping systems can equal or exceed profits from conventional rotations in the Midwest. Wallace Institute, 9200 Edmonston Rd, #117, Greenbelt, MD 20770-1551, 301-441-8777. Also available online at the Institute's Web site, http://www.hawiaa.org. $15.00. *The Natural Foods Market: A National Survey of Strategies for Growth, Executive Summary (FREE)* Results from over 300 interviews of food industry businesses, including farmers, manufacturers, wholesalers and retail supermarkets. Analyzes current trends and major obstacles as well as successful business strategies in natural foods market. Full report $50.00 for non-profits and $150 for businesses. Available from Wallace Institute, 9200 Edmonston Rd, #117, Greenbelt, MD 20770-1551, 301-441-8777. *Swine Sourcebook: Alternatives for Pork Production* Comprehensive guide for sustainable swine production, incl. hoop structures, Swedish deep bedding, pasture systems, low antibiotic use, and marketing. Univ of MN College of Agriculture, Distribution Center, 20 Coffee Hall, 1420 Eckles Ave, St Paul, MN 55108-6069, 1-800-876-8636, $19.50. *Marketing Sustainable Agriculture: Case Studies and Analysis from Europe* Highlights successful marketing initiatives and analyzes why they are successful. Based on tour of six countries and symposium in fall 1998. Institute for Agriculture and Trade Policy, 2105 First Ave South, Minneapolis, MN 55404, 612-870-3411, vtran@iatp.org, $15.00. *** On the Calendar *** Sept 4-6 20th World Sheep Fiber Arts, Wildflower & Herb Festival, Bethel, MO. Call 660-327-4158 Sept 9 Hundley-Whaley Farm Field Day, Albany, MO. Sept 9 FFA Day, Southwest Research Center, Mt Vernon, MO. Sept 10 Southwest Research Center Field Day, Mt Vernon, MO. Sept 14-16 USDA's Rangeland, Pasture & Forages National Program Workshop, Kansas City, MO. Call 301-504-4636. Sept 18 From Farm to Fork: Reclaiming Our Food System From Corporate Giants, Bloomington, MN. Call 612-623-3666. Sept 17 Forage and Beef Day, Wurdack Farm, Cook Station, MO. Sept 23-27 Annual International Bedding Plants Conference and Trade Show, Denver, CO. Call 800-647-7742. Sept 22 Thompson Farm Field Day, Spickard, MO. Sept 24 Horticulture and Agroforestry Research Center Field Day, New Franklin, MO. Sept 24-25 Midwest Forest Industry Show, Cape Girardeau, MO. Call 573-634-3252. Sept 26 MO Organic Assn Monthly Educational Meeting: Cover Crops, Columbia, MO. Call 573-657-1177. Oct 2-3 MO Botanical Gardens' Best of Missouri Market, St. Louis, MO. Call 314-577-9400. Oct 9-10 MO State Beekeepers Assn Annual Fall Meeting, Tan-Tar-A. Call 314-398-5014. Oct 12-15 National Small Farm Conference: Building Partnerships for the 21st Century, St Louis, MO. Call 202-401-4900 or 573-681-5550. Oct 15 Tree Farm 50th Anniversary Event, Salem, MO. Call 314-519-9300. Oct 24 MO Organic Assn Monthly Educational Meeting, Columbia, MO. Call 573-657-1177. -------------------------------------------------------------------- University Extension does not discriminate on the basis of race, color, national origin, sex, religion, age, disability or status as a Vietnam-era veteran in employment or programs.