Defining and Assessing the Farm Direct Marketing Channels in Ontario: An assessment tool for Ontario farmers.

Transcription

1 Defining and Assessing the Farm Direct Marketing Channels in Ontario: An assessment tool for Ontario farmers. Melanie Lang Department of Marketing and Consumer Studies Andreas Boecker Department of Food, Agriculture and Resource Economics University of Guelph Canada

2 Defining and Assessing the Farm Direct Marketing Channels in Ontario: An online assessment tool for Ontario farmers ABSTRACT The goal of the research and development project was to develop an assessment tool that would help the producer or group of producers to assess the economic feasibility of a direct marketing venture prior to investing in it. This tool provides information about best practices for the specific direct marketing activity, and where possible and meaningful, reasonable ranges for costs and returns. Key words: farm direct marketing, channel assessment, data collection, best practices, dissemination activities 2

3 Defining and Assessing the Farm Direct Marketing Channels in Ontario: An assessment tool for Ontario farmers Identifying the gaps in farmers skills for direct marketing Canadian farmers have been confronted with declining income over the past decade. Growing international competition has reduced margins in the commodity channels through which the vast majority of farmers have been marketing. As an opportunity to escape the price competition in the commodity markets, farmers have started to embrace the growing local food movement in Canada and sell directly to the consumer. While an increasing number of urban and rural consumers are reaching out to farmers for a local food supply, there are still numerous barriers to overcome to fully exploit this local food marketing potential. One is that farmers who have been trained and educated over the past decades to excel in efficient production typically lack the business skills for direct marketing. Another is the absence of any experience-based benchmarks for successful performance of marketing activities for planning purposes. In response to the need for improving these skills and making such benchmark or anchor point information available to farmers in Ontario, the provincial ministry has funded a research and development project. The object is to develop a support tool that will provide farmers with information and planning resources to guide them in starting up or expanding and improving their own direct-marketing farm product sales business. Additionally, the project aimed to produce two types of support materials: a) Cases studies to highlight and illustrate best practices in farm direct marketing; b) Business planning tools for specific direct marketing channels and comparatives with wholesale marketing. During the course of the project, a number of barriers to data collection, analysis, and to the dissemination of results were identified that required innovative approaches to respondent recruitment. Given that the general mindset of the Ontario farming community is to share insights and experiences, enticing respondents was not a challenge. In the sections that follow, this research and development project will illustrate how farmers were recruited and motivated to participate in an in-depth and very specific data collection process; without financial compensation. Other discussion points will examine the structure and format of the online tool, and finally, the decision about which information concerning best practices and benchmark figures the tool will make available to farmers. Overview of Farm Direct Marketing Channels Marketing channels can be divided into two broad groups, direct and non-direct. While direct marketing means that the producer sells the product directly to the end user, non-direct marketing means selling a product to a buyer who is not the ultimate consumer. There are a number of different direct marketing models that could be included in the analysis. From a preliminary scan of select academic, professional and government publications, the following basic direct marketing models/channels can be discerned: 3

4 - Pick your own - On farm market and/or Roadside stand - Farmers or Weekly Market - Delivery services/online store - Community-supported Agriculture (CSA) - Local restaurants that communicate the farm of product origin to consumers An essential part to this study was to collect information on current marketing practices of Ontario farmers to identify the best practices in farm product marketing. The project also aimed to identify information needed for better decision-making in direct marketing. These broader data collection objectives were complemented by the above mentioned specific data collection on a particular aspect of the direct marketing operation of the participant s own choosing. This required three data collection steps. First, in a 30 to 45 minute entry survey the participant was asked to describe the current operation, the previous season s marketing activities, the record-keeping and planning practices, and key challenges and successes of the past year. This survey provided the research team with an overview of the products marketed and marketing channels used in the sample. Second, between one and three months after the entry survey, farmers were asked to identify a particular aspect or area of their marketing operation on which they wished to gather more detailed information for improved decision making. Since this part of data collection was expected to be most cumbersome and time consuming, the research team offered assistance to farmers through making graduate and undergraduate students available for data collection. The collected data, e.g. on assessing the viability of selling through one or more farmers markets, was then analysed by the team. Finally, one month after completing the detailed data collection process, participating farmers were asked to complete a 45 to 60 minute exit survey, which addressed best practices, particular cost and revenue information, challenges and successes from the current season and information needs for improved decision making. Challenges in Data Collection Given the customized nature of the project, having a standardized data collection process was inappropriate and ineffective. A generic data collection method would provide insufficient insight about processes and actual practices, as such, the project required customize log sheets, in-depth interviews, follow-up inquiries and working closely with farmers and their staff to ensure an accurate reflection of their operation. As the outcome of the research project would suggest, detailed accounts of various operations and direct marketing channels were needed to provide an account of best practices. The methods traditionally used for these purposes, as outlined by a research group at Cornell, were time consuming and affected farmers willingness to participate. As such, and under further guidance, it was decided to customize the log sheets to ensure the greatest potential of completion (Sample Log Sheet found in Appendix 1). The log sheets were seen as an additional expense that required staff hours to complete, although the breakdown of the operational activities also helped to provide the researchers (and the farmers) with an actual breakdown of costs per activity. Given that there was no financial compensation provided, farmers were 4

5 instead offered customized assessments of their marketing and channel offerings. Although the direct benefit to the farm for participating was seen as small compared to the cost of time. As a means to address the challenges, the farmers were offered data collection and analysis that would be of direct value to their operation, and in return, the information would be used to support the online assessment tool and identification of best practices. Being mindful of the end user helped to identify specific channels and dissemination approaches that would complement the information. Additionally, individual case studies were written to profile and highlight the specific operations and their preferred farm direct marketing practices. The cases studies also served as a method of disseminating best practices related to specific types of operations (size, scale, focus) and their audience. Throughout each case study, the writers were truthful about best practices and procedures while offering a full range of expected costs and inputs. Providing these figures on a spectrum was necessary in order to be representative of our entire Ontario audience, which also accounted for fluctuations in annual costs. Writers were also conscious of anonymity when referring to names of participating farms and their actual operational numbers. Each case was written in collaboration with the farmer to ensure an accurate representation of their challenges and key outcomes that could be used as a learning tool for other farmers. All of the farmers had final authority when deciding which details were included and which would be best used under an anonymous name. Methodology Recruiting of participating farms through newsletters of organizations involved in direct and alternative marketing by farmers started in June 2010, with data collection commencing in July 2010, and terminating in June In total 17 farms are in the sample, eleven of which have agreed to participate in in-depth projects on a particular aspect of their direct marketing enterprises. Looking at farm acreage to distinguish between different categories of participants, three of the farms have less than 50 acres and nine enterprises have between 50 and 150 acres, while the remaining five farmers operate on more than 150 acres. The average acreage is 209 acres, with a range of 6.5 acres to 1200 acres per operation. To get a rough idea of their expert knowledge they were asked how long their farming respectively their direct marketing has been operational. The responses are summarized in Figure 1, showing that six of the 17 respondents have been operating their farm for more than 20 years. 5

6 Farm Operation Direct Marketing 10a 10-20a >20a Figure 1: Number of years farming and direct marketing operations have been active. Just above half of participants started selling directly to customers during the past ten years, while four have been selling direct for 20 years or more. With an average of 16 years in farming and 12 years in direct marketing, the sample is probably for a shorter period in the farming business than the Ontario average but more experienced in direct marketing than the average Ontario direct marketer when considering that farm direct marketing only took off in the past ten years. This specialization in direct marketing is supported by the fact that ten of the 17 participants started their direct marketing operation in the same year as their farming operation. Marketing The marketing channels are divided into two broad groups, direct and non-direct. While direct marketing means that the producer sells the product directly to the end user, non-direct marketing means selling a product to a buyer who is not the ultimate consumer. The following table shows, among other things, the number of farmers using the different channels. Thirteen out of 17 operations market their products through an on-farm market or a roadside stand, eight farmers use farmers markets, and nine farms sell their goods to a restaurant or a processor, e.g. a slaughterhouse. Eleven producers use online ordering, delivery service and retailers. Further, community-supported agriculture (CSA), catering, pick your own, elevators, wholesale market, institutions, Co-operatives different other marketing channels were mentioned, like ordering per phone or drop in, organizing events or Tourism shop-consignment. Typically, farms use between one and three outlets per channel on average. One of the participating farms is delivering, through distributors though, to 500 retailers, thus increasing the average number of outlets for this channel dramatically. Overall, the 17 farms in the sample market their products through a total of 46 direct and 29 indirect marketing channels and, not counting the extreme number of retail stores supplied by one farm, a total of 77 direct and 45 non-direct outlets. 6

7 Channel Number of farms using this channel Average number of outlets per channel used Channel ranking by sales by farm 1 st 2 nd 3 rd On-farm market / road side stand 13 1, Pick your own 4 1,0 1 Direct Marketing Farmers market 8 2,0 3 3 CSA 3 1,7 1 1 Online ordering 7 1,0 Delivery service 6 3,2 1 Catering 4 1,0 Others 1 1, Elevators 4 1,5 1 1 Non-direct Marketing Processors 6 1,2 1 Wholesale market 3 2,0 Retail 6 102,2 1 2 Restaurants 7 1,8 1 Institutions 1 1,0 Co-operatives 2 1,0 Others 0 1,0 Table 1: Descriptive statistics for marketing channels used. One of the questions in the Entry survey asked which three channels contribute most to sales. The most mentioned channel is the on-farm market. To eight farms, it is the one channel generating most revenue. This is followed by farmers market, which is specified as the highest sales one three times and three times at second position. While CSA, pick your own, delivery service, elevator, processors, retail, restaurants and special other channels are numerated a few times the remaining channels seem to play a minor part. Among the non-direct channels, elevators, processors and retail stores are important for revenue generation. The ultimate goal of the research and development project was to develop a tool that would help the producer or group of producers to assess the economic feasibility of a direct marketing venture prior to investing in it. This tool provides information about best practices for the specific direct marketing activity, and where possible and meaningful, reasonable ranges for costs and returns. However, to successfully implement this research and development project, three barriers needed to be overcome. 7

8 First, the development of the tool structure and format was presented as an outcome of coupling the acknowledgement that potential users of this tool differ greatly in their use of information technology with the requirement to provide farmers with an easy start and quick results. This was necessary to not deter them from using and exploring the tool by overwhelming data input requirements from the beginning and provide them with the flexibility of different format preferences ranging from a printed manual, an online tool or Smartphone applications. With respect to the identified components of a direct marketing business plan, the research team examined the necessary business figures that lending organizations utilize when assessing the risk of these types of business ventures. Knowing what benchmark figures and desirable inputs are sought strengthened the recommended strategies. Second, this paper highlights the importance of providing participating farmers, who share their success stories and are willing to engage in considerable data collection efforts, with an immediate benefit from supplying this data. This was achieved by offering them to have data collected and analysed on a particular part or aspect of their direct marketing operation of their own choosing. This allowed the research team to collect very specific data over an extended period of time and provides a direct benefit of improved information to the participating farmers. Finally, building on the first two objectives, the project requires an effective knowledge and technology transfer (KTT) strategy, engaging producer groups and tapping into an existing network structure of workshop leaders of the provincial ministry s Grow your farm profit program. Throughout the data collection process, an assessment tool was being developed to help create and assess varying enterprises. Collectively, the information gathered helped to provide an overview of the expected costs associated with the different operations and their respective direct marketing activities. All of the information gathered was compiled and calculations were imbedded to allow the user to customise the cost inputs and see the effect of returns. As was pointed out above, eleven farms agreed to participate in in-depth projects from which 13 case studies could be generated. These are grouped in four clusters, as shown in Table 2 below. It is also evident that the case studies cover a broad array of different topics. 8

9 Cluster (number of farms) Meat (3): From farm-gate sales to on-farm store. Produce (3): Farmers Markets Entry strategy and expanding into other channels On-farm processing (3): Costing analysis Event Marketing (3): Challenges in implementation and performance assessment Types of project Business plan for on-farm store Investment evaluation for on-farm store Cost of marketing analysis across marketing channels Cost of marketing analysis across marketing channels In-depth analysis of performance in one marketing channel In-depth analysis of performance in one marketing channel Efficient tracking of time spent in processing and marketing Costing tool and margin analysis Costing tool and margin analysis Assessment of marketing through off-farm events Generation and implementation of new event ideas Making demand for agri-tourism and on-farm sales less weather dependent Lifestyle farming (1) Enterprise budget for honey production and marketing Table 2: Clusters of case studies for best practices. Dissemination of Results Channel analysis Once the data collection process was complete, energies were then directed at identifying ways in which to communicate the identified best practices and learning outcomes of the study. Close working relationships with the Ontario Ministry of Agriculture helped to identify and ensure broad exposure of the findings were achieved. It was important to be mindful when disseminating insights and instructional details that the identity of the participating farm operation was not revealed. The farmers provided a tremendous amount of information and insight into their operation and discussed many illustrative details and examples to the research team. The case studies will be published by the Ontario Ministry of Agriculture and will also be used academically as a teaching tool within related marketing courses. Of specific mention are the workshops available to Ontario farmers where these cases studies will be most likely used. The Growing Your Farm Profits (GYFP) workshops are an obvious vehicle to deliver the tool to the producers. GYFP is delivered by trained workshop leaders through the Ontario Soil and Crop Improvement Association (OSCIA) with regular scheduled workshops throughout the fall and winter. The best time for the GYFP workshop leaders to meet is the late summer or early fall, which coincides with the timing of the availability of both the completed cases and prototype of the online assessment tool. Additionally, the Ontario Ministry of Agriculture delivers the Quest For New Farm Value workshops, which focus on planning for direct sales and value added businesses, and run during the winter months. The trainers for Quest are a mix of Ministry business management staff and private sector trainers. Given the variety of commodities that are profiled in the study, the results and case studies will be made available through a wide channel base. Increased awareness of the online assessment 9

10 tool will be included in newsletter articles that Ontario Ministry of Agriculture staff submit and coordinate. In order to reach audiences focused on the produce market, the information with be made available at the Ontario Fruit and Vegetable Growers Association's annual conference to help target the fruit and vegetable producers and marketers. Additionally, when targeting nontraditional producers such as meat and honey, the Ontario Ministry of Agriculture has several new members from the non-traditional sectors with associations such as Bee Keepers and Cattlemen's Associations. Of important mention is the need to ensure that the information is distributed through the appropriate channels, whereby collaborating with the various stakeholder groups and communications vehicles though communication transfer activities. Collectively, all parties are generally forthcoming with sharing knowledge and best practices of their operations and see the value in contributing their experiences and tips to the farming community. Given the uniqueness of each operation featured throughout the research study, it can be difficult to replicate all of the learned activities. Discussion of Results Upon completion of the project, 17 farms participated in the study, although not all of the farms were highlighted in a case study. The length of the data collection process was largely dependent on the size of the operation as well as the complexity of number of marketing channels used. Analyzing the information, in combination with the interview with the farmer, helped to ascertain the type of customized business plan / marketing plan recommendations we would be customizing for their needs. Typically, and on average, farms use between one and three outlets per marketing channel. One of the participating farms were delivering through a distributor to 500 retailers, thus increasing the average number of outlets for this channel dramatically. Overall, the farms in the sample, market their products using a total of 38 direct and 26 in-direct marketing channels, using a total of 54 direct and 41 non-direct outlets. The primary focus of the research and development project was to provide the farm directmarketing community with information about best practices and benchmark figures for planning and self-assessment purposes. The information gathered is presented in a number of categories, such as, pricing, customer acquisition and retention, or channel strategy differentiating between primary and secondary channels. Once the tool has been disseminated and trials have occurred, two important areas of feedback from farmers will help assess the success of this project: a) How they have rated the outcome of the particular analysis chosen by the farmers with regard to its impact on marketing decision-making. b) How the participating farmers have rated the tool s usefulness. 10

11 Implications and Conclusion Assessing the farm-direct marketing channels of Ontario farms will greatly enhance the effectiveness, competitiveness and availability of Ontario farm fresh commodities to consumer markets. The development of the marketing assessment and planning tool will aid farmers to ascertain the level of costs and investments needed to successfully enter into direct marketing activities. Being fully aware of the risks and implications will ensure farmers are more adequately informed about the different marketing channels available and the necessary tactics to ensure the appropriate channels are matched to their specific commodity and targeted consumer group. 11

12 Appendix 1: Sample log sheet for turkey producer UofG/FARE Farm Direct Marketing Study; FARM 9067 Log sheet for Marketing-related activities Please record times (to nearest 5 minutes)* Week: Activity Pack into/take out of freezers Sales call/ personal meeting On-farm store/sales** Restaurants** Wholesale** Baileys** Large Personal Account(s) Staffing on- farm store Selling to end consumers outside of store hours Delivery Other: Keeping track of quantities and sales: Quantity/$Sales Product Quantity/$Sales Quantity/$Sales Quantity/$Sales Quantity/$Sales Quantity/$Sales Turkey- Whole Bird pounds pounds pounds pounds Drumsticks Wings Breast Ground Soup parts Tenderloins Thighs Chicken Whole Bird