Local Farmers can Sell Staples for a Profit, but at a Cost According to Agricultural Study

For farmers boasting local staples, there is hope. According to recent reports, they can make a profit selling their produce directly to local businesses. However, the key is not letting possible new costs deter their loyalty to organic greens.

"We found that the farmers who really made a conscious decision to sell local and who made more of a commitment tended to do better than those who are just testing the waters with local direct selling," said Amit Sharma, associate professor of hospitality management, Penn State.

Findings suggest that farmers face a number of higher costs when selling to local restaurants and shops, including those that are not associated with national chains. These added costs include money for additional marketing and transportation and delivery costs.

Costs can also increase when local businesses require special packaging, according to Sharma, who worked with Catherine Strohbehn, extension specialist and professor of apparel, events and management, Iowa State University; Rama B. Radhakrishna, professor of agriculture and extension education, Penn State and Allan Ortiz, lecturer, University of Costa Rica.

However, farmers can manage most of the costs, Sharma said.

"For some farmers, it may seem like making a web site, for example, is a monumental task," Sharma said. "But, it actually may be easy to make a web site, or even hire someone to create one for very little money."

However, farmers can gain additional revenue by raising prices and improving sales margins, according to researchers.

"The local foods movement is huge and retailers are wishing to meet the desires of their customers," Sharma said. "Other research conducted by our team has found that 40 percent or more of people will pay a premium for identified local ingredients."

Most local outlets can charge a slightly higher price for goods, giving farmers a premium on products sold to those businesses. Selling produce themselves, instead of through a distribution company, may also improve margins for the farmers, since they are not losing revenue to the distributor.

The study consisted of farmers who identified their local growers' directory and were then asked about direct and indirect costs of their operations, including production, storage, packaging, marketing, transportation and delivery in the Midwest.

Sharma expect some farmers to seize the opportunities to sell to the local market. Other farmers will pass because of the perceived costs, extra work and multiple requirements of the different restaurants.

The researchers recently reported their findings in the Journal of Agriculture, Food Systems and Community Development.