Episode 15 - Selling with Strategy: Choosing the Right Market for Your Farm

Choosing where to sell your products is one of the most important business decisions a producer can make. In this episode, host Dr. Ahlishia Shipley talks with Dr. Becca Jablonski, faculty member at Cornell University and agricultural and food systems economist, about the many market opportunities available to producers. Together, they explore direct-to-consumer marketing, intermediate markets, and the realities producers should consider when selecting a marketing pathway. Drawing from her research, Dr. Jablonski shares practical insights to help producers make informed decisions about where to take their products to market, while highlighting how investments in local and regional food systems can create new opportunities for agricultural businesses.

Transcript

Ahlishia Shipley 0:00

You're listening to the FARM Champion Podcast, where we champion farmer and rancher success. In each episode, we sit down with a FARM Champion, a trusted professional committed to helping producers navigate the business side of agriculture. If you're a farmer, rancher, or agriculture professional working to build a stronger, more resilient operation, you're in the right place. I'm Dr. Ahlishia Shipley, your host. So I imagine many of us have stopped at a roadside produce stand or chosen a restaurant that features locally grown food just because we want to support local farmers and feel more connected to where our food comes from. But as consumers, it might seem like a simple experience, but behind every one of our purchases, that farmer is making an important decision about the best place to sell their products. So today we're going to explore those decisions about market pathways. And to walk us through all of that, I'm joined by Dr. Becca Jablonski, a faculty member at Cornell University and an agricultural and food systems economist. Through her vast and, I have to say, impressive research, she helps us to better understand the business decisions that strengthen farm businesses, food systems, and rural communities. Dr. Jablonski, welcome to the FARM Champion Podcast.

Becca Jablonski 1:24

Thanks so much for having me.

Ahlishia Shipley 1:26

So before we jump into today's conversation, I would love to start with you. What first sparked your interest in studying food and agricultural policy and how they actually impact farm resilience and profitability in also local and regional food systems?

Becca Jablonski 1:41

Well, let's see, the journey I would say takes me back to when I had just finished my master's degree when I was looking for a job, and I was very fortunate to get hired by Cornell Cooperative Extension of Madison County. And I was the first agricultural economic development specialist for the county. It was during a time where Cooperative Extension was transitioning to these sorts of positions. And so I was in the center of the state and I was so lucky because there was a board that oversaw this particular position, which was basically a who's who of farmers and technical assistance providers, bankers, right? Economic developers, county commissioners. And it was just a really great group. And so they gave me a few months because I was very new to both ag economic development and also to Central New York or to New York in general. And they gave me a few months to go around and meet with different people in the region. And I got to just ask them, you know, what are the things that would make a difference to your business, right? What would help to make your business more economically viable? Make it so that you're going to be here or your next generation is going to be here. And it was a really great experience because there's some things that are sort of harder to impact, right? So as an ag economic development specialist, you can't change milk prices, for example, right? But you can think about some of these opportunities in developing better infrastructure or in developing different types of market access, in thinking about where is there already demand, especially for products that can garner some kind of premium and what needs to exist to make those opportunities work for farmers in the area. And so that really got me started on my journey. And I got to spend uh four years in that role before going on to my PhD to study these things in an even more sort of wonky kind of way.

Ahlishia Shipley 3:17

Thank you for sharing that. As I prepared for today's conversation, I realized that many of us have a lot of experience buying directly from a producer, but we may not have an actual name for that type of market or that type of marketing and how it fits into the bigger picture of how we get our food. So I want to start there with local food markets and how they fit into the bigger picture of a local or regional food system.

Becca Jablonski 3:44

Yeah. So maybe I'll even take a step further back than that if that's okay. You know, when I think about local and regional food markets and sort of why they matter, we have commodity markets that really benefit farmers or ranchers that can take advantage of economies of scale, right? And so they can produce products at low costs. And so those markets work really well for them. They're high volume, low margin markets. But for small and mid-scale farms or for beginning operations, right, that are just starting to get going, they really need some kind of premium for what they're producing. And so the benefit of local and regional food markets, but it's not just local and regional food markets, it's also thinking about value-added sales, for example. The benefit of those is that the consumers are generally willing to pay some kind of premium or or and the farmer captures additional some of the supply chain characteristics and they get some additional margin from that product, right? So they're doing more of their marketing or processing or distribution. And again, there's some kind of benefit that the farmer receives, like a financial premium for that. And so what I like about those local and regional food markets is it's a way to support those operations that maybe are not able to compete in those conventional, sort of more traditional commodity operations and spaces.

Ahlishia Shipley 4:58

Thank you for explaining kind of the difference between the market for a commodity item and for a non-commodity item. And I can definitely attest to consumers paying a premium because I pay a lot of money for my microgreens. And so I can, I can understand that. And I would love also for us to get into kind of how consumers drive markets in local and regional food systems. So when you zoom out, what are the different types of ways that producers can get into a local market? I realize there's a few pathways. So could you share some more with us about that?

Becca Jablonski 5:35

Yeah, so there's not a single definition like from the federal government of what a local and regional food market is, what they are. I tend to work with the USDA's Economic Research Service definition, which talks about these two different types of markets. There's direct to consumer markets, where a farm sells their product directly to the end consumer at places like farmers markets, which you brought up at the beginning, could be through a roadside stand, right? Something like that. There's also intermediated markets. And those, it's a smaller share of total farms across the US that sell through those markets, but they actually represent the biggest areas of growth within local regional food markets and also where the majority of local and regional food sales go. So within intermediated markets, there's two primary types of intermediated channels. There's direct sales to retailers, so like grocery stores. And then there's also sales through intermediaries. So that would be things like a food hub, right? A food hub is a local food aggregation and distribution business, which are this values-based business that they want to preserve the identity of the farm and generally provide some kind of premium to that farm for that value identification. So the reason that I haven't brought up some other places that I think have gotten a lot of press recently, like institutional sales, right? So sales to schools, for example, we've had a big push around farm to school, is that the vast majority of those sales run through intermediate markets, right? So those are captured there. So we had about 7 billion in sales that went through sales to retailers, direct to retailers, and about 7 billion that went uh to intermediate markets in 2022. So those are kind of the types of markets that we think about. And I think stepping back to the farm, one of the things that especially when we do our technical assistance or beginning farmer training programs, that we really try to encourage farmers to think about is why a particular market makes sense given their comparative advantage. And I think one thing that happens, particularly for farms that are truly new farms, so they're not multi-generation beginning farmers, they're they're truly first generation farming, is that they may see the farmer's market that's closest to where they live and think, okay, well, I really want to farm. I'm gonna sell through that market. But that market may not actually be the right place for them to sell their products based on, again, what their comparative advantage is. And so spend a lot of time in these programs. There's a great beginning farmer program that I was fortunate to be a part of for several years that was started by my colleagues Martha Sullins, Adrian Card, and Dawn Thilmany out of Colorado State University. And it really focused on the marketing piece. Because so many farmers start farming because they love growing broccoli. They're so passionate about it. And that marketing piece kind of comes second.

Ahlishia Shipley 8:11

That is really fascinating, kind of like what it is that a farmer actually needs to assess in terms of where they're going to sell their product because there may be a saturation of broccoli in their in their particular area. So, what does that look like? Kind of like the work that a producer needs to undertake or or delve into understand about which market is best. Like what is it that they actually need to do?

Becca Jablonski 8:39

Well, I think in the best case scenario, a farmer really thinks through that prior to starting production, right? They think about why is there a market opportunity? Why does, you know, Joe Schmo want to buy this product and why are they willing to pay a premium for it? And if they can do that, right, they're doing their sort of marketing planning prior to starting production, it can really help them to think through exactly what they're producing, how they're producing it. Like, for example, do they need to be a certified organic? Right. What are the benefits for them of maybe using certain types of production practices or growing certain kinds of variety that may result in reduced yields, right? All of those kinds of decisions, of course, are defined by production and sort of the asset base of the resources, but it's also defined by what that market wants. And so we're really trying to encourage farmers to think about that from the onset. But otherwise, you know, if you're assuming you're already growing something, we really try to get farmers to think about what is their particular comparative advantage, right? Something that enables them to have this sort of sustained and identifiable differentiation. So for example, maybe they're growing on a super small plot of land and they just can't grow past that, right? There's no land available for purchase or rent. We see this especially with a growing number of urban or periurban farms. In those cases, they really need to get the highest dollar, right, that they can possibly get per unit of output and capture those margins, right? And so for them, it might make sense to go more of the direct to consumer route. But for folks that maybe can actually get access to a little bit more land, there may be some opportunities where maybe part of what they're doing is selling through commodity markets. Indeed, we find that the vast majority, about 70% of farms that sell through local and regional food markets, also sell through commodity markets, right? So that they can move the volume that they need to achieve certain kinds of economies of scale to reduce their per unit cost of production, but then they can get some kind of premium for some smaller portion, right? That enables them to really increase their profitability. So thinking about what is that market channel mix, how does that resonate with managing risk, right? So there's all of these really key things to think about in terms of marketing. Marketing is hard, but it's a really key component of selling through and taking advantage of these local and regional food markets.

Ahlishia Shipley 10:50

Thank you. Could you speak to the trade-offs between maybe going through the direct-to-consumer route or going through an intermediated market? So I would love for you to dive into that a little bit.

Becca Jablonski 11:02

Yeah. So in the direct-to-consumer markets, you're generally taking on these additional supply chain functions that I mentioned. And so if you think about the potential to get the highest value per unit of sales, it's probably through those markets. The thing is that you have additional costs and skills that are needed when you take on all of those additional supply chain pieces, right? And so even though you may get the most per unit, right? The highest value per unit, you may not be the most profitable because there's all of these additional expenses. Or you may not be that great at making cheese, for example, if you're a dairy farm, right? Or you may not be that great at marketing your product at a farmer's market. Maybe you don't like talking to people. And so those are some of the things you really have to think about on the direct-to-consumer side, plus the fact that labor is going into each of those pieces, right? And especially as I live in New York State, you know, we have passed labor and overtime labor bill, right? Labor is very expensive. It's hard to get labor. And then when you're able to get it, right, it's very expensive. And so I think one of the key things that I encourage uh farmers to really think through. And at Cornell, I teach farm business management and ag finance. So I'm trying to train my students, the next generation, to really think about those costs and those expenditures on an enterprise basis. So a lot of times farmers do a great job in tracking sales by those different market channels, but not necessarily expenses. But you need to know that to really know where your profit centers are. So that's one thing. For the intermediated markets, what you want to think about for those markets is that as we find that farms that are selling through local and regional food markets get larger, they're spending a larger share of their total variable expenses on labor. So that means that these farms, right, that are able to sell through these intermediate markets, they still need a lot of labor to do these things, right? They're still building these relationships. I can't tell you the number of businesses I've talked to who feel like they have the solution, the tech solution for local and regional food markets, and it's some kind of online platform. But I have never seen an online platform that is capable of removing all of that sort of communication and marketing that actually really needs to take place. With those intermediated markets, you can generally move a larger volume of product and you can work with businesses that have a comparative advantage in some of those distribution logistics. All of that's great, but you're gonna get a per unit value that you bring in is gonna be a little bit less. And so you need to think about can you actually bring your production cost down a little bit to be able to actually be able to sell at a price that those businesses will be able to resell your product for.

Ahlishia Shipley 13:33

Thank you for explaining it in that way. And I think it hits on a through line with a lot of the form champions that I've talked with is that it's not just about growing the crop. Those are two separate skills, actually growing a crop and being able to market it. And so you brought in a lot of different things in terms of what you take on when you're dealing with either two of these markets. Also, it is a relationship business. And that is something that is echoed through like everyone that I talk to, that relationship connection is something that's vitally important in the food and ag business.

Becca Jablonski 14:07

Oh, I mean, that's even true in large-scale produce markets, right? That the relationships there are so important. And, you know, one other key thing that I forgot to touch on is that as you start to move into those intermediated markets, there's a lot more regulatory pieces that you need to be considering, right? So food safety regulations, right, become more um stringent. You're also thinking about because you're further removed from your customers, that that's when more maybe organic certifications or other kinds of certifications come into play to provide that verification in a way that a consumer can't go to you directly and ask, are you farming in this kind of way that's important to my values?

Ahlishia Shipley 14:41

I want to zoom out a little bit because a lot of your work really extends beyond these kind of individual marketing decisions to the policies and investments that kind of shape the environment that producers actually do sell their products in. So, from your perspective, could you share about how investments in things, like you mentioned food hubs and processing and really looking at the infrastructure around a regional food system, how that does create opportunity for producers?

Becca Jablonski 15:12

Yeah, so especially since COVID, there have been historic investments in sort of middle of the supply chain infrastructure. And the rationale behind this, I think, especially from the federal government, was that if we want to have a resilient quote unquote supply chain, that we want to have businesses that can pivot more easily or that are going to be smaller and work with a larger number of these smaller farms, right? I think that a lot of this stemmed from if you saw a closure of one of the big meat processing facilities, that that represented, you know, a few percent of total hogs that were slaughtered in the US. And therefore you saw some empty shelves. Now, there's some debate among economists about the extent to which small-scale infrastructure is actually more resilient. And I'm going to put that aside for right now, because I don't think that's the focus of today's talk. What I will say is that we've been trying to do some evaluation of what the impacts of these investments are. We have plans to do a lot more in the future. What we see in terms of associations right now, which isn't causal, is that for farms that are using some of that middle of the supply chain infrastructure, they sell through intermediated markets, they have value-added sales, that those participation in those kinds of activities is associated with higher likelihood of survival or higher likelihood of success, essentially meaning that they both survive, they continue to exist in business, and that they grow. And so, you know, that's at least some preliminary evidence of the importance of this infrastructure. But the caveat is that that's true. What we see in terms of the associations for farms up to about a million dollars in gross cash farm income on average. There are some commodities a little bit different. So what this says is that there seems to be this importance of this infrastructure, this value-added opportunity for these small and mid-scale farms. And we think it's because of many of the reasons I said previously about the fact that once you're larger and you can take advantage of economies of scale, the sort of traditional commodity markets work well for those operations, right? And so I think local and regional food systems are really about creating opportunities for those beginning farms, those farms that are interested in trying to sort of scale up or for whatever reason have either made the values decision or because their land that can't be expended or whatever are going to stay in sort of that small and mid-scale range. One other thing I wanted to highlight is that I've also been doing a bunch of work in looking at the demand side in terms of municipal policies that are meant to increase demand for locally grown products. So, like farm to school is an example, farm to prisons, right? So farm to hospital, all those kinds of programs, food is medicine. And the jury's really still out about what the impact of those programs are for farms. So we can see more that there's other kinds of benefits around school meals, but what is the additional benefit of local? We're still really trying to figure that out and think through it. But you can see why municipalities are really interested in leveraging that purchasing because it's really significant, right? That our municipalities collectively are spending a lot of money on food.

Ahlishia Shipley 17:59

And this is why I love the extension model, because what you're saying really shows the value of your line of research, like actually how it impacts decisions that are made by producers, by school districts, by cities, by states. And you're also saying that there's still much more research that can be done to show the impact of these types of initiatives on a particular community and on a farm.

Becca Jablonski 18:25

Ultimately, for like municipalities or decision makers, right, I really encourage them to think about what is the goal of those policies. And, you know, sometimes we try to bring too many things together. Like sometimes it's not possible to have these sort of silver bullet solutions where kids are better off, communities are better off, farmers are better off, right? And we need to think about okay, this policy is designed to create market opportunities for beginning farmers. If we want to do that, if that's the goal of this policy, what is the best way to do that?

Ahlishia Shipley 18:54

So one approach is not really a one size fits all type of endeavor. One of the goals of the show is to connect producers not only with trusted expertise like we find with you, but also with practical resources. So as we start to kind of wrap up a conversation, are there specific tools or some educational resources that you would recommend to producers to help them evaluate different marketing pathways?

Becca Jablonski 19:21

Yeah, so um I mentioned before about the importance of tracking expenses by market channel, right? And I think for farms that are selling through local and regional food markets, especially because most are selling through multiple types of markets, really tracking those expenses is so important in decision making. And especially as I work with like really savvy, successful, uh, let's just say apple orchards in the region, you know, I'm in New York State. You know, you watch, they are making decisions about labor down to the field. They're tracking everything, right? And they are making decisions about that. They just have great information. I worked with uh the University of Minnesota's Center for Farm Financial Management several years ago. They had some funding from the US Department of Agriculture, and they've developed some cool tools to actually do some of this sort of whole farm decision making. Now, again, it requires a lot of upfront investment on the farm side to track that information. But I think once you have it, you really are fortunate, right? You can make better decisions that are much more likely to serve you well in making those kinds of decisions to set your business up for success. So, you know, whatever the tool is that you use, I can see again, we're talking to the Apple Orchards in the region, they're using these really sophisticated now new technologies being developed to support like labor tracking, right? So thinking about how does AI, machine learning, right, these different types of software available enable you to get better information that is usable for you, right? We have an overload of data right now. So you need data that's actually actionable for your operation. And if you have questions about that, right, come talk to me or other farm champions, right, that can help you to think through how to actually make use of that kind of data to make good decisions on the farm.

Ahlishia Shipley 20:59

I appreciate you putting it that way because it kind of comes back to the fact that producers, they're not only producers, but they have to be very savvy business owners. Dr. Jabolansky, throughout your work, you've met producers at different stages along their business journey. And so when you think about the ones who have built really strong, resilient businesses over time, what is the thing that you think they seem to have in common?

Becca Jablonski 21:28

Yeah, and I think this resonates with the rest of what we talked about today, right? They they don't just stay in that churn. There's so many of these, especially smaller operations, beginning operations that I've met with. And let's talk about that they're in this churn, right? They're they've got their heads down, they're working their tails off, right? To try to just keep the farm going. But if you're always doing that, right, you can't lift your head up to really think about some of those big picture, sort of business planning. What is your comparative advantage? Why are you selling through these kinds of markets? Are there ways to get more efficient in terms of labor? Should you really be growing as many varieties of whatever it is or be as diversified as you are? Are you diversified in the right ways in terms of market channel? Are you taking advantage of the right kinds of insurance programs, right? Why are you doing this one, not this one, right? When should you be borrowing money? All of these things take a lot of picking your head up and thinking about sort of the the holistic business. And so that churn, I I totally get why farms get into it. But I think those folks that are successful are always thinking about three years down the road, five years down the road, and how are they going to get their business there in a way that shows the kind of growth, but also with the kind of values, right, that they want to see in that business into the future.

Ahlishia Shipley 22:37

Thank you for sharing that. So it seems that what sets those producers apart are vision and being able to look at the big picture. I appreciate you being here with us so much. Your research, it just is vitally important because it seems like it's really helping local and regional food systems and producers make really precise decisions about the investments that they're going to make and the decisions that they're going to make at the individual level. So I really appreciate you being here to share your expertise. To explore tools and resources that support farm business success, please visit agftap.org and learn how to connect with a FARM Champion in your area. And please don't forget to follow and subscribe to the FARM Champion Podcast wherever you get your podcast. Until next time!