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Building a Foundation for Markets through Value Chains

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This article comes from the NOFA/Massachusetts 2013 May Issue Newsletter

By Hannah Blackmer

Presenter: Joe Maxwell

Smaller-scale producers are constantly in need of ways to compete with big industrial agriculture and agro-corporations in the market. Some producers have found ways to skirt the stereotypical supermarket by reaching out directly to consumers through CSAs or farmers' markets. Other producers have found great success in that stereotypical supermarket by creating value chains, a form of co-operative.

Through value chains, producers can find sustainability through market access with products that are differentiated from those presented by agro-corporations. A value chain is a network of businesses that brings farm produce and products to consumers. Each step in the process, from farm production to processing, distribution, and retail, comprises a link in the chain.

Aggregating small- and middle-sized producers and processors creates a body that can successfully compete with agro-corporations. Furthermore, value chains help other small businesses sustain business. Value chains can be a large or small aggregate, but generally those involved in the chain are small to medium scale.

Producer Organized Delivery Systems (PODS) are the building blocks of value chains, and are organized to deliver efficiency at each stage of the chain. PODS are usually separated by region, but can also be divided by differentiation and commonalities. PODS can be built with multiple producers, and each unit has a “lieutenant” who organizes the amount of produce to be delivered each week. Producers share the load, dependent on their size and production ability. Additionally, upon entering their PODS, a producer locks in a certain percentage of what their production will increase or decrease by, depending on the total the co-operative needs to produce that year.

Producers in all PODS grow and shrink together at their own percentage; PODS increase or decrease production as a unit. Transportation costs are a key factor in recognizing PODS’ cost viability. Transport of a farm product can be one of the largest and most inefficient expenditures in any production-to-consumer layout.  By utilizing PODS, small-scale farmers can pool together to share the cost of transporting their goods, whether it is to processing, manufacturing, or point of sale.

The primary objective of a value chain is to connect the two end points in the relationship of food production and consumption while developing a sustainable regional food supply that has differentiated itself with responsible, humane practices. It is important not to lose the “family farm” appeal and the humane or responsible practices used; differentiation is critical for value chains. Today, differentiation comes in many forms, including local, antibiotic-free, organic, sustainable, and humane. These buzz words are continuing to become increasingly pertinent in the consumer world, and provide small producers with an edge agro-corporations lack.

Before forming a value chain, it is important to familiarize yourself with the general outline of co-operative development. A co-operative begins as a common interest, which must first prove to be feasible for operation in order to move on in the development process. A feasibility study will determine the relative success or failure, which then can be converted into a business plan. The business plan is followed by an equity drive, the final step before launch. It is crucial to raise more money than you think you will need; projects always come upon financial snags, so over-estimate on the budget and raise a little extra.

Following the co-operative development outline, value chains can form through the subsequent order of events. First, create an aggregate by developing criteria for participation. In this way you define what your aggregate wants to represent, and can set your standards based on market opportunity. Once you have defined your criteria, you can identify participating producers, distributors, manufacturers, retailers, and any other needed parties. Second, you must differentiate your product and maintain consistency. Consistency is key to transparency, which is a foundation for successful value chains. Because they are built with long-term strategic relationships, a lack of transparency may facilitate distrust between participating links, including your customer base.

Finally, you must take your product to market. Find your selected market and/or customer before you launch or you run the risk of having a product with no buyers. A successful marketing program is key to creating a market for yourself; without one you run the risk of not reaching your consumers or creating a buzz around what you offer.

Hiring a professional to develop a marketing scheme for you may seem expensive at the outset, but will save you headaches in the future. Remember that the marketing cost will be shared between the producers in your value chain, just as with costs in transportation. In the same vein, you must nail-down the supply chain, connecting with manufacturers, transportation, and retail outlets while developing a set relationship and expectations. As a capstone to finally launching your product and ensuring a sustainable future, make sure to provide excellent customer management. In the long run, customers must be pleased with the products you offer in order to warrant you a competitive place in the market.

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