Although food & agriculture is Michigan's #2 industry, the state struggles with farm viability. The average...

  
 

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Although food & agriculture is Michigan's #2 industry, the state struggles with farm viability. The average Michigan farm recorded around $30,000 in net profit in 2012, and over half of farms reported net losses (USDA-NASS 2017 Census of Agriculture). In Southwest Michigan, 2% of Farmland and 12% of farms shuttered between 2012 and 2017. This decline was similar to the preceding period from 2007 to 2012. There is little reason to expect a trend change when the 2022 USDA census data becomes available in 2024. These statistics infer that the remaining Michigan farms will eventually increase in size, allowing for expanded distribution of Michigan produce locally and nationally, specifically when combined with diverse product mixes and innovations. Notwithstanding Michigan's climate, well-suited for tree fruits, berries, and tender vegetables, the top crops in the region are corn and soy. The last two crops accounted for $448 million, one-third of the Southwest Michigan region's $1.27 billion in agricultural sales for 2012. Specialty crops, which include vegetables, fruit, and nuts, require less processing before consumption. These products are the most likely ones to end up in local/regional supply chains. However, specialty crops account for less than 12% of the region's agricultural sales. Southwest Michigan has a booming farmer's market segment with direct-to-consumer sales. Food processing, distribution, and exports are also performing well. But, Michigan's infrastructure is lacking in supporting mid-size food production, processing, and distribution. This "missing middle" echelon of the food business is critical for farms looking to grow beyond direct-to-customer sales. Historically, BHFM provided this "missing middle echelon" for smaller growers' go-to-market strategy. Located on a 50-acre site between Berrien County's fruit belt and Chicagoland, it was built to provide a marketplace for in-person, real-time produce sales. Currently, most transactions have moved online, and clients' trucks directly load produce at larger growers' farms, leaving the physical marketplace underutilized. At the same time, when marketplace activities move online, it reduces the opportunities for smaller or new growers to connect with potential customers. Therefore, one of this project's challenges is how this value chain component, i.e., the (physical) infrastructure, can be reimagined to support the next generation of specialty crop transactions. Detroit's Eastern Market Corporation and VH are well-established food hubs in Michigan. Food hubs draw on historic cooperative markets, like BHFM, but with a focus on selling in local markets, maintaining the product's source identification, and addressing community food security. However, food hubs struggle to adequately scale their operations to the level required for serving larger retailers and institutional customers. Consequently, food hubs' ability to support farm growth is limited. As such, this project seeks to determine growth strategies that will ultimately benefit the grower partners. Localizing and shortening food supply chains is a prerequisite for the economic, operational, and environmental improvements needed to strengthen local and regional (and national) food market systems. For Michigan growers, easier market entry and continuing profitable market participation are critical for sustainable growth. Because this is a national issue, significant government subsidies and other resources are available for local and regional food market systems. These resources surpass the capacity of the currently fragmented food hub and farm-to-institution or farm-to-table organizations' infrastructure to scale up. However, grant-funded programs such as "10 Cents a Meal" and "Double Up Food Bucks" (especially in Grocery Stores) and the new "Local Food Purchase Assistance Cooperative Agreements" and "Local Food for Schools Cooperative Agreements" make millions of dollars available for purchasing Michigan products. Notwithstanding government funding, the current fragmented local food hub infrastructure thus limits the growth capacity of each system. There is a noted need for coordination in market distribution between food hubs to accommodate growth and innovation in Michigan's food distribution and marketing channels. Additionally, final mile delivery from aggregation points to retail outlets is challenging even where food hubs are present. And finally, the capacity for fresh-cut, minimal value-added processing needs to grow because food service customers (institutions) demand prepared products. This project explores the viability of combining three established Michigan regional food hubs along the I-94 corridor. The client's first objective is achieving economies of scale while maintaining value-add activities, such as source identification, traceability, revenue sharing favoring the growers, and customer service. Simply put, this project aims to scale up local and regional food distribution from where it stands today. Additional objectives include adding to the fresh-cut processing capacity at VH in Kalamazoo and DEMC, offering more kitchen- and retail-ready products, and adding product differentiation and marketing opportunities. Finally, the proposed network model must allow adding other food hubs. In conclusion: First, phase 1 investigates current market conditions from the perspective of the consumer and value chain partners. Second, the developed insights into the commercial opportunities and existing channel structures determine the optimal design for effective and efficient food service and retailing channel management by the collaborative food hub. Third, the proposed design must be customer-centric, aimed at increasing demand and brand equity development through effective channel design and impactful, integrated market communications. Fourth, assume that practical research questions will arise and need answers before we can answer the more abstract research questions driving this project, such as: 1) Can we obtain recent Southwest Michigan agricultural sales data? Much has happened since 2012. 2) What is the consumer perception of locally grown produce? What are the consumer segments that have an affinity, and to what degree are they willing to pay more? 3) What attributes (rational and emotional) drive relevance, affinity, and willingness to pay more for local produce? 4) What do growers think of the new hub proposal? Are growers motivated to organize into cooperative organizations? What are the benefits for growers, and what would it yield for growers? What are "fears?" Benchmark other coops/growers assoc with the context of the proposed collaborative hub. 5) 6) How do retailers view the locally grown produce opportunity? Is it a growth driver? Have they allocated more space? How do they merchandise? 7) How is local produce physically merchandized now, and what would be the ideal state? 8) Will the client need to engage other market intermediaries? 9) What is the scope and timing of entry? 10) Will it be more economical to engage integrated market intermediaries or manage different service providers to control the customer and consumer experience? Although food & agriculture is Michigan's #2 industry, the state struggles with farm viability. The average Michigan farm recorded around $30,000 in net profit in 2012, and over half of farms reported net losses (USDA-NASS 2017 Census of Agriculture). In Southwest Michigan, 2% of Farmland and 12% of farms shuttered between 2012 and 2017. This decline was similar to the preceding period from 2007 to 2012. There is little reason to expect a trend change when the 2022 USDA census data becomes available in 2024. These statistics infer that the remaining Michigan farms will eventually increase in size, allowing for expanded distribution of Michigan produce locally and nationally, specifically when combined with diverse product mixes and innovations. Notwithstanding Michigan's climate, well-suited for tree fruits, berries, and tender vegetables, the top crops in the region are corn and soy. The last two crops accounted for $448 million, one-third of the Southwest Michigan region's $1.27 billion in agricultural sales for 2012. Specialty crops, which include vegetables, fruit, and nuts, require less processing before consumption. These products are the most likely ones to end up in local/regional supply chains. However, specialty crops account for less than 12% of the region's agricultural sales. Southwest Michigan has a booming farmer's market segment with direct-to-consumer sales. Food processing, distribution, and exports are also performing well. But, Michigan's infrastructure is lacking in supporting mid-size food production, processing, and distribution. This "missing middle" echelon of the food business is critical for farms looking to grow beyond direct-to-customer sales. Historically, BHFM provided this "missing middle echelon" for smaller growers' go-to-market strategy. Located on a 50-acre site between Berrien County's fruit belt and Chicagoland, it was built to provide a marketplace for in-person, real-time produce sales. Currently, most transactions have moved online, and clients' trucks directly load produce at larger growers' farms, leaving the physical marketplace underutilized. At the same time, when marketplace activities move online, it reduces the opportunities for smaller or new growers to connect with potential customers. Therefore, one of this project's challenges is how this value chain component, i.e., the (physical) infrastructure, can be reimagined to support the next generation of specialty crop transactions. Detroit's Eastern Market Corporation and VH are well-established food hubs in Michigan. Food hubs draw on historic cooperative markets, like BHFM, but with a focus on selling in local markets, maintaining the product's source identification, and addressing community food security. However, food hubs struggle to adequately scale their operations to the level required for serving larger retailers and institutional customers. Consequently, food hubs' ability to support farm growth is limited. As such, this project seeks to determine growth strategies that will ultimately benefit the grower partners. Localizing and shortening food supply chains is a prerequisite for the economic, operational, and environmental improvements needed to strengthen local and regional (and national) food market systems. For Michigan growers, easier market entry and continuing profitable market participation are critical for sustainable growth. Because this is a national issue, significant government subsidies and other resources are available for local and regional food market systems. These resources surpass the capacity of the currently fragmented food hub and farm-to-institution or farm-to-table organizations' infrastructure to scale up. However, grant-funded programs such as "10 Cents a Meal" and "Double Up Food Bucks" (especially in Grocery Stores) and the new "Local Food Purchase Assistance Cooperative Agreements" and "Local Food for Schools Cooperative Agreements" make millions of dollars available for purchasing Michigan products. Notwithstanding government funding, the current fragmented local food hub infrastructure thus limits the growth capacity of each system. There is a noted need for coordination in market distribution between food hubs to accommodate growth and innovation in Michigan's food distribution and marketing channels. Additionally, final mile delivery from aggregation points to retail outlets is challenging even where food hubs are present. And finally, the capacity for fresh-cut, minimal value-added processing needs to grow because food service customers (institutions) demand prepared products. This project explores the viability of combining three established Michigan regional food hubs along the I-94 corridor. The client's first objective is achieving economies of scale while maintaining value-add activities, such as source identification, traceability, revenue sharing favoring the growers, and customer service. Simply put, this project aims to scale up local and regional food distribution from where it stands today. Additional objectives include adding to the fresh-cut processing capacity at VH in Kalamazoo and DEMC, offering more kitchen- and retail-ready products, and adding product differentiation and marketing opportunities. Finally, the proposed network model must allow adding other food hubs. In conclusion: First, phase 1 investigates current market conditions from the perspective of the consumer and value chain partners. Second, the developed insights into the commercial opportunities and existing channel structures determine the optimal design for effective and efficient food service and retailing channel management by the collaborative food hub. Third, the proposed design must be customer-centric, aimed at increasing demand and brand equity development through effective channel design and impactful, integrated market communications. Fourth, assume that practical research questions will arise and need answers before we can answer the more abstract research questions driving this project, such as: 1) Can we obtain recent Southwest Michigan agricultural sales data? Much has happened since 2012. 2) What is the consumer perception of locally grown produce? What are the consumer segments that have an affinity, and to what degree are they willing to pay more? 3) What attributes (rational and emotional) drive relevance, affinity, and willingness to pay more for local produce? 4) What do growers think of the new hub proposal? Are growers motivated to organize into cooperative organizations? What are the benefits for growers, and what would it yield for growers? What are "fears?" Benchmark other coops/growers assoc with the context of the proposed collaborative hub. 5) 6) How do retailers view the locally grown produce opportunity? Is it a growth driver? Have they allocated more space? How do they merchandise? 7) How is local produce physically merchandized now, and what would be the ideal state? 8) Will the client need to engage other market intermediaries? 9) What is the scope and timing of entry? 10) Will it be more economical to engage integrated market intermediaries or manage different service providers to control the customer and consumer experience?