By on May 5, 2016
Over the last few years, the agriculture industry has gotten pretty tech savvy. Farmers use mobile technology to manage inventory and billing, check the weather, see exactly where their livestock is grazing, and even predict crop yields—not to mention staying connected to customers through social media.
On the sales front, a number of of startups—including Farmigo, Full Circle, Barn2Door, and Good Eggs—have been working to connect customers to local and organic food that comes direct from producers. Their approaches differ slightly, but they all essentially give farmers and other food producers an online marketplace to sell their wares. Several even go the last mile and arrange for the product’s delivery, while a few leave distribution in the hands of the producer.
Online sales of local food is a hot and crowded—saturated, some say—segment of the larger tech boom. Investors have poured $1.65 billion into more than 100 farm e-commerce companies serving mainly small to midsized producers, according to AgFunder.
But are these e-commerce and food delivery startups actually making it any easier for small and sustainably-minded producers to make a living?
On one end of the spectrum, some farmers say they just don’t want to engage with technology. Laura Hewitt, who farms in Sheshequin, Pennsylvania, puts a premium on the personal connection she’s established with the customers to whom she delivers her garlic or chicken. It’s unlikely she will register with one of the e-commerce upstarts, and says she worries “we are becoming disconnected from people.”
But for those farmers who have tried it, the answer is complicated. On the one hand, farmers’ markets have begun to plateau and many producers looking to sell directly to consumers need multiple revenue streams. Selling through one of these sites can also serve as a marketing device. On the other hand, some farmers are still wondering whether the investment on their end will pay off, and whether they might be turning over their hard-earned customers to other, larger businesses.
“Generally, I think these platforms are convenient for the consumer, but maybe at the cost of convenience, relationship, and profit to the farm,” says Craig Jensen, a Rindge, New Hampshire farmer who tried an e-commerce site for wholesale ordering. “But even with a nonprofit supporting the delivery, it was just too inconvenient,” he says.
A Tough Landscape
Many e-commerce startups connect consumers directly with small farms, which comprise only around 8 percent of all U.S. farms, according to the United States Department of Agriculture (USDA). The USDA reported that between 2007-2012, farms selling directly to consumers were more likely to stay operational than those that weren’t, but direct-to-consumer operations also tended to have a harder time scaling upthan other farms.
Rachel Greenberger of Food Sol—a food entrepreneurship “action tank” at Babson College—says both the skepticism and dissatisfaction from farmers about online direct-to-consumer channels may stem from companies not solving for what many small and mid-sized producers actually need.
“Whether we’re talking about grocery delivery or about meal kit delivery services or anything in between, a lot of the money that’s going to these services is coming out of the tech industry,” she says. “These investors understand technology and are comfortable with it; they don’t necessarily understand food.”
What is needed, she says, is a middle supply chain that integrates local food producers into the existing mainstream food economy, a service many food hubs currently offer.
Jeff Cole of Mass Farmers’ Markets says that despite the very real risks such technologies present, “any business must change with ever-changing conditions going on around it or face obsolescence and closure.”
“These technologies are just one of many things farmers must look at, carefully evaluate, and make a decision about,” he adds.
A number of the earlier farm-to-table tech companies, like Farmigo and Good Eggs, set out to make procuring local food more convenient for consumers by building a completely new food chain. Both companies allow customers to buy from local producers, then arrange for the packaging and delivery of the products—Farmigo to community drop-off points and Good Eggs to just about anywhere.
Financially, this model proved too difficult for Good Eggs to do while scaling up to multiple cities, and last summer the startup shut down its three operations outside San Francisco, laying off 140 employees.
Growing the Market for Local? Or Flooding it?
Many farmers are adopting online strategies because they feel they have few other options. Johnny Parker, who runs the mid-sized, multi-site Edible Earth Farm outside Pittsburgh, says he started listing his produce on Farmigo in late 2014 for the 2015 season after seeing the farm’s community supported agriculture (CSA) revenue plummet.
He says that for the six seasons he’s been farming, CSA memberships have comprised upwards of 80 percent of his gross revenues. Then last season he had a difficult time signing up new CSA members. He projects that CSA income will comprise just 55 percent of his gross revenues in 2016. The reason? Parker, who was a university director of systems and software development before turning to farming, blames the glut of fresh food delivery services that “popped up seemingly overnight,” offering produce to consumers at slimmer margins and with more variety than many local CSAs.
Still, last season, Parker decided to outsource his CSA operation to Farmigo—one of the companies he blames for cutting into his profits after it went from providing existing CSAs with online ordering software to creating its own online local food marketplace called Farmigo Communities—and he began growing a little of everything to cater to a choosier consumer.
“If you can’t beat them, join them,” he says.
Susan Ujcic and Annie Salafsky, who together run Helsing Junction Farm, a farm and CSA south of Seattle, Washington, had a similar experience. When Farmigo was in the business of developing CSA software, it “really helped [their] business,” Salafasky says. The CSA became “more streamlined” and the software provided “a lot of great features” such as automatic revenue reports and other data do-dads that simply weren’t available elsewhere.
But the farmers say they were disappointed, when, after being Farmigo’s loyal customer for several years, the company (backed by $26 million in funding) “came into the market we’ve developed over the past 25 years and started competing with us.”
As Farmigo founder Benzi Ronen sees it, Farmigo’s customers are not his competitors; on and offline retailers like Safeway, Walmart, Instacart, and Amazon are. “Based on research we conducted, there is a large number of people who aspire to buy from CSAs and farmers’ markets, but are not able to do so,” he says. “Farmigo Communities was designed to become an alternative to going to the supermarket, while delivering on the benefits of local food.”
But in the strict sense, Farmigo Communities does compete with its CSA customers. It sells locally grown food in the same markets: Seattle, Northern California, New York, and New Jersey, so far. These are many of the same places where traditional CSAs are expanding and natural markets for the company to enter, in part because the cities have already shown that they want such services. And Farmigo buys from many of the same farms and suppliers that CSAs do. But, Ronan contends, Farmigo had to move beyond providing software to other CSAs because there’s simply not enough growth in that market.
A More Farmer-Centric Model?
Some of startups that are newer to the market appear to put the focus even more on farmers than their predecessors—while attempting to solve for some of the logistics hurdles that got Good Eggs in financial trouble. In 2013, Farmstr was an early entrantinto the e-commerce and delivery space. But in late 2014, founder Janelle Maiocco shut it down because the venture-funded startup found the economics of owning warehouses and delivery trucks—and managing other “last-mile” logistics—“too expensive for us to offer a low-cost solution” for farmers, consumers, and her business.
In an example of what she calls “failing forward,” Maiocco quickly hatched a plan to start a company that would focus on providing the technology for producers to sell their products, rather than on distribution and delivery. Barn2Door, founded in March 2015, serves as a matchmaker between farmers and customers who could be down the street or across the country.
The producer pays a $10 monthly fee for the e-commerce site, sets his or her own prices, and Maiocco says Barn2Door takes nothing from the transaction. This prevents the “markups of 60 to 80 percent” she says customers sometimes see on other e-commerce sites. Once a sale is made, producers arrange with the buyer to get the food.
“It might be, ‘meet me at the boat,’ or ‘I do home delivery in these two zip codes,’ or ‘I’ll drop a farm box at these locations.’ It might also be direct shipping cross-country,” Maiocco says.
But for some producers, this mode may not be particularly efficient either, because it can mean responding to orders on a case-by-case basis.
For farmers who want to sell their food direct to consumers in larger quantities, distribution is often still a big logistical and financial barrier. Take Rachel Kasa of Casa Rosa Farms in Capay Valley, California. She has had a positive experience selling her produce and meats on Farmigo, Good Eggs, and Full Circle, but she says she wouldn’t be able to access these providers if she didn’t belong to a food hub, which handles all the last-mile delivery and distribution logistics.
“The food hub delivers to the tech company’s warehouse, which then delivers the items to the consumers,” she says.
Websites that don’t solve for those last-mile logistics, in other words, may not be solving for one of most producers’ biggest pain points, says Greenberger of Food Sol.
“Tech companies come in and want to say ‘we’re connecting farmers to the consumers,’” she says. “But from a business point of view, they haven’t connected them because the bag of apples hasn’t changed hands.”
Complicating matters is the fact that, despite growth in online grocery shopping in recent years, 80 percent of us still buy our apples in-person, from a physical location. Supermarkets, Greenberger says, are still “incredibly efficient.” That industry—with its legions of faithful consumers, all set in their ways—will be a tough one to disrupt, she says, unless these online companies can find a way to band together to create a truly competitive online grocery, thereby pooling the risk.
As unlikely as that is to happen, no high-tech solution may ever be enough to convince New Hampshire farmer Craig Jensen that connecting online is as beneficial as connecting offline and face-to-face.
“When we work directly with our local co-op or small restaurant we can, in a conversation, both state our needs and try to be flexible,” he says. “The e-commerce that we’ve had available just isn’t as flexible.”
Originally Posted: civileats.com