Ecotrust: mid-size producers are key to regional food system vitality

Ecotrust recently released a comprehensive report on regional food systems that spotlights the key role played by mid-sized producers, those that are too big to survive by selling primarily at farmers’ markets or to CSAs, but too small to compete in commodities markets.  They call it “Ag of the Middle,” and it includes those operations that sell to restaurants and retailers and could benefit greatly by improved infrastructure that would help them reach institutions and distributors.  The 250-page “Food Infrastructure Gap Analysis” includes a big-picture look at the current food supply chains, discussions of the very different infrastructure needs and hurdles facing different types of producers, and new perspectives for those seeking to invest in regional food in ways that move the whole system forward. While this report focuses on Oregon, the analysis and recommendations are applicable to any region. Of particular note are separate chapters looking at the particular challenges and opportunities in six different product categories: chicken, beef, pork, small grains, storage crops, and greens.

Click through for some of our top takeaways from this valuable report.

First, here’s their graphical representation of Ag of the Middle (AOTM), which tends to include firms with annual revenues of $250,000 to $700,000:

ag of middleSM

The report looks not just at the “ag” side of the equation, but also at retailers who hit ceilings on growth or in finding enough local food for their mid-sized needs.  It addresses a wide range of glitches in the current system, such as restaurants whose former local suppliers now sell their entire output to distributors, and grass-fed ranchers whose production cycle is too seasonally-specific or not quite large enough to qualify for contracts from larger buyers.  You can check out a 15-page Executive Summary of the report here, or download the full 250-page report from this page.  Following are several nuggets from the Executive Summary that especially caught our eye:

  • Institutions may pose a unique opportunity to act as anchors for regional food economies. The study explores institutional demand and offers perspective on leveraging such facilities to equalize access to differentiated food by low-income and vulnerable populations.
  • While it may seem counterintuitive given that humans have been farming in some form for ten thousand years, the differentiated regional food and agriculture sector characterized by Ag of the Middle production and values-based supply chains looks like an emerging market: highly fragmented, lacking consistent data and information, and dependent on personal relationships.
  • It has also been described as highly collaborative and supported by local communities (perhaps most notably in a January 2015 report to Congress on Trends in US Local and Regional Food Systems by the USDA Economic Research Service). This culture of collaboration is important because it has significant implications for the type of investments, capacity development, and support useful in growing the sector.
  • Explore interdependencies among sectors. The “food system” is a misnomer in many ways. The system is actually a collection of dozens of discrete industries, most of which do not cross over from one to another. Ag of the Middle producers and processors may offer opportunities to solve multiple problems at once. (note: the example of this included in the Executive Summary is especially exciting)

Of special interest to resilient investors will be the sections that discuss investing in regional food systems, which fit well with how we think about these issues, especially in valuing social and environmental returns, community wellness and resilience, and workin with others to enhance one’s effectiveness as well as experience and lessons for future action (regional Slow Money groups are an obvious option in this regard; see also the regional organizations highlighted in this recent overview from Green Money Journal):

Adopt a collaborative mindset. As noted earlier in this report, collaboration has become a hallmark of regional food system development, which seems both in tune with and energized by the generational changeover currently happening across all industry sectors in the US. The approach seems well suited to food system investing also.

Whereas profit serves as an efficient organizing principle, and provides a simple scorecard, as a singular objective it has also contributed to the creation of many food products and related offerings which generate strong financial results, but deleterious health, community and environmental impacts. The addition of social and/or environmental targets in impact investing facilitate the incorporation of wellness (individual, community and of the natural resource base) into evaluations of success, however also result in multifaceted solutions and a need for multi-dimensional measurement.

Given the increased complexity, it may make sense to pursue a portfolio approach that is broader than one’s own portfolio. In other words, by partnering, co-investing or collaborating with like-minded investors, multiple solutions to overcoming key challenges can be tested in a coordinated and transparent fashion, and the learning shared, to achieve the greatest possible impact. Furthermore, collaboration allows each investor to prioritize the opportunities most aligned with his or her objectives, confident in the knowledge that other investors in the collaborative network will focus on other pieces of the puzzle.

Ecotrust also put together one of those catchy modern scrolling-graphics pages that tells the tale an “aspiring impact investor” trying to get a handle on how s/he might be most useful in this sector.  Check that out here for a somewhat lighter introduction to their main themes.

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