Farmers Markets: Harvesting Dollars Is Not So Easy
Senior Editor, CNBC
Farmers markets—those tented outposts that sell products directly to customers—are popping up across the U.S. as often as a new crop of corn.
But making a profit—for themselves and their suppliers—is a growing concern.
"Currently we operate at a deficit," says Robert LaValva, director of the non-profit New Amsterdam Market in Manhattan. "To meet our costs we hold fundraisers and seek donations, and rely on volunteers and a minimally paid staff."
LaValva turned a one-day food event in 2005 into the New Amsterdam, which now averages about 1,000 customers a week with some 70 vendors during its summer-fall season.
"This is not uncommon what we do to survive," LaValva says. "That's because markets take time to grow and become self sufficient."
Local fresh food markets in the U.S. are multiplying. According to the Agriculture Department, there were just 1,755 farmers markets in 1994. Now, there are about 6,100—mainly due to the increased demand for fresher foods. California has the most markets—580—with its year- round mild weather and abundant farm land.
But analysts say the growing numbers don't reflect the effort needed to make a fresh food market economically viable.
"Just to get a market going is a major undertaking," says Dan'l Mackey Almy, founder of the Fresh Produce Organization, a group that focuses on raising the profile of fresh food.
"A successful market requires good foot traffic, decent weather and an abundance of available products," Almy explains. "It can be a challenge to find areas that are equipped with this perfect combination."
Most markets are on their own financially. The federal government has provided funding to help expand and improve farmers' markets and roadside stands since 1976, with the intent of helping the farming community and to get Americans "access to locally grown fresh food," according to the department's web site.
But the amount from the department has always been small and remains so—$10 million for the next two years. Local governments, even in tough budgetary times, might be more willing to help, say industry members.
"We were awarded $25,000 last year from the New York City council for some specific programs, and this helped cover some of our costs," LaValva says. "But we have high rent and the market costs more to produce than what we earn in stall fees from vendors."
Farmers, too, find dollars difficult to cultivate at local markets, according to analysts.
"There's a limited number of farmers who can take their produce, meat and dairy products to market efficiently and make a profit," says Gene Grabowski, an executive at Levick Strategic Communications and a former vice president of the Grocery Manufacturers of America. "The average amount spent by a consumer at a market is just $17.50."
Farmers that make up the 'fresh food' movement face higher costs because they avoid cheaper commercial fertilizers and pesticides and use more labor intensive harvesting measures.
Add transportation costs, fees for market space, and permits, and it can get expensive to be part of the 'buy local' movement.
"Farmers get good profit margins because they deliver directly to the consumers," says Pat Conroy, Vice Chairman and U.S. Consumer products leader at the consulting firm Deloitte. "But they don't see a lot of profits overall because of the small scale they sell at. They need $600 a day to make it viable. That's not easy."
Small farmers—the largest group of producers for local markets—average only $49,000 a year in income, according to the Department of Agriculture. And most have other ways to make money besides farming.
The latest U.S.D.A. statistics show that vendors—those who sell at local markets—have average sales of just $1,070 a month.
That means a good business sense is as necessary as a green thumb, says Karen Karp, of Karp Resources, a consulting firm to the food and restaurant industries.
"It takes a certain kind of farmer to succeed at local market selling," Karp argues. "Beyond being good growers, they have to be good merchandisers and innovators."
And they are forced to deal with a certain amount of red tape, Karp adds.
"One New York inspection agency required that cheese at a market be pre-packaged before being sold even though there was no incident of food safety," Karp explains. "One farmer found that to pre-cut the cheese into smaller amounts cut down on his profits to a certain percentage of customers."