Creating a clear understanding with buyers
Many small farming operations are expanding their customer base through diversification. This diversification is not only in products offered, but also in the types of markets where growers place these products. Tapping into these diverse markets means that growers need to manage a broader range of buyer relationships than ever before. Although formal, written contracts are still not standard practice in small produce operations, growers and buyers do often find a need to create agreements that move beyond a simple handshake.
Champlain Orchards, in the Champlain Valley of Vermont, has structured its business around a high diversity of markets. Owners Bill Suhr and Andrea Scott sell their primary product, apples—along with a variety of additional goods, such as peaches, berries, pies and cider—around the Northeast. Their market outlets range from conventional supermarkets to community supported agriculture to online ordering.
It’s a challenge to keep up with the changing ventures. Suhr looks around from behind the counter of a newly constructed farmstand. “Like this farmstand,” he says, “I don’t know how this works. . . there’s a credit card machine that I need Andrea to use, I don’t know where the key is to get the wines … it’s kind of neat, actually, there are these great new things on my own farm and somebody else knows how to do them.”
Building the agreements that guide these “great new things” is a balancing act. Suhr runs through the factors every agreement must address: price, production standards (such as organic or conventional), volume, delivery time and delivery location. Then, he needs to weigh the security of a well-defined contract against the flexibility of being able to bring his product to the market that offers the best prices. He will also commit time to new ventures that are innovative in building a “buy local” or “buy regional” customer base. If he is successful, all of these elements will add up to a strong buyer relationship cultivated across the seasons.
Suhr’s approach to thinking through purchase agreements is common for small produce growers, according to Steve Paddock, the agribusiness specialist at Vermont’s Small Business Development Center. Agreements tend to be tailored to individual buyer/seller relationships. The focus is to find a good match across many different attributes. Marketable attributes may include locally grown, organic, environmentally friendly, heirloom, branded by grower’s name, marketed by the grower and price.
“The producer needs to match up with the ideal customer who values the attributes he is best able to offer … when there is a match between ideal producer and ideal customer there isn’t usually a formal contract,” Paddock says.
All contracts follow from a verbal agreement between two parties and there are many reasons why some agreements never move to a written form. For example, they may be continuing years of previous practice, be so straightforward that no one feels a need to write roles down, or reflect the parties’ interest in remaining as flexible as possible to respond to immediate market conditions.
One common reason to have an unwritten agreement is when a supplier is a secondary account that fills in when another source falls through. Champlain Orchards has many of these types of arrangements. Suhr calls some distributors and retailers every few days to find out if they need his product.
“I’d call every day, but they would think I was annoying … I’m the new kid on the block, and that means that a lot of the time I’m picking up a shortfall,” Suhr explains.
Sometimes Champlain Orchards can be both a secondary account, stepping in to cover a gap, and a primary account for the same buyer. Hunger Mountain Co-op in Montpelier, Vt., has long-standing in-season relationships with Shelburne Orchards and Scott Farm. These two producers are their primary apple source in summer and early fall. However, Champlain Orchards was early in developing apple storage facilities for the purpose of targeting the “local food” market in the winter months. It is the primary account for Hunger Mountain during that time.
Champlain Orchards’ role as a wintertime apple provider is also an example of how the flexibility to utilize several sources of fresh produce has helped Hunger Mountain build up its local food offerings. Because Hunger Mountain can call in back up supplies, it is comfortable accepting the risk that a new provider won’t be able to meet the store’s need for consistent, large quantities. If something went wrong with Suhr’s new wintertime storage, Hunger Mountain would simply bring in different apples, starting with local substitutes, then moving progressively farther out through the region.
Good faith agreements
Even with strong verbal agreements, many buyers will move to putting something in writing, even if it’s not a legally binding document. The need for these good faith agreements increases with the development of new business models in which extra clarity is needed between buyers and sellers.
Community supported agriculture (CSA) is a simple example of written agreements that explain a new way of doing business. In CSAs, customers subscribe to receive regular shares of a farm’s output over an entire season, a different arrangement than stopping by a farmstand when they need to pick up some fresh produce. The Champlain Orchards CSA agreement is simply a brochure that explains how a CSA works, the types of products customers can expect and directions to the pickup spots, followed by a form where the customer selects their share size, pickup location and payment plan.
The multifarm Food Hub CSA at the Intervale Center in Burlington uses a more complicated form of agreement to contract with growers, including Champlain Orchards, to supply its shares.
The Food Hub is a particular variation on a CSA, in which a central manager builds each share from preseason arrangements with local growers. Aggregating multiple farm sources ensures balanced offerings in each week’s delivery and predictable quantities, because another grower can step in if one comes up short. Sona Desai, the Food Hub manager, handles distribution, marketing, customer relations, branding and co-ordination among the growers.
Suhr is glad for Desai’s role coordinating CSA-style sales in Burlington. Her coordination begins each winter when she develops projections of how many subscribers she will have in the upcoming season. Based on these projections, she estimates what quantities she will need and maps those allotments by week across the growing season. Farmers receive their assignment during preseason growers’ meetings. Desai adjusts assignments after customer recruitment is complete.
The written agreement outlining each party’s role describes the method of assigning orders, Food Hub’s obligations in receiving and properly storing food, needed documentation of liability insurance, the policy toward shipments that contain unmarketable goods and a release clause for conditions beyond either party’s control.
Desai explains: “The handshake agreement seemed a little bit loose for me; in the first year, I was a little nervous whether farmers could come through, and the written contract seemed too rigid for the flexibility needed in this system … a good faith agreement is very simple. The farmer agrees to make every attempt to make projected totals from the crop planning meeting and agrees to deliver at this location, at this time.”
Paddock compares any agreement to prepurchase crops to an “employment-at-will type of agreement … in that situation I’d recommend an MOU (memorandum of understanding). While it wouldn’t be a legal document, it would give the buyer some comfort that the provider has the capacity to deliver.”
Growing to specifications
One traditional advantage shared by all CSAs is high flexibility in what each week’s share contains. Some shares simply reflect a percentage of the farm’s production. In the Food Hub, Desai has the options of switching which share week a product arrives in or replacing that product with a different item, as long as the basic diversity of products and share size remains consistent. Other buyers don’t have the same level of flexibility, and growers must agree to more specific standards.
Commonly seen standards are inspection-based labels such as “organic.” In other cases, the buyer sets standards for their specific needs. Eden Ice Cider is an example of this type of buyer.
Albert and Eleanor Leger established Eden Ice Cider in 2007, becoming one of the first U.S. producers of traditional ice cider. Their startup process began with Eleanor visiting different orchards to find an orchardist who was a good fit not only in production methods, but also in personality. She needed someone who would go beyond delivering apples to engage in a working relationship.
“With Bill, I’m not just buying apples; I’m also buying storage for them for a certain period of time and custom pressing, a specific amount by varieties [pressed] separately … and transportation,” Eleanor explains.
Each August, she brings Suhr a spreadsheet describing exactly what ciders she needs. They will go back and forth until the end of November, finalizing those specifications. Sometimes she will require a significant change in production. For example, when the belt press being used at Champlain Orchards wasn’t providing the exact quality the ice cider needed, Eleanor worked with Suhr to purchase new equipment and adjusted the prices she paid accordingly.
Given the nature of the working relationship with Champlain Orchards, Eleanor never really considered a formal contract. The details of their work are always changing to respond to new conditions, and “the minute the world changes, a contract is just something that’s there to be renegotiated.”
Champlain Orchards’ final goal in any written agreement is to set the foundation for a good relationship with their buyer. Their buyers have the same philosophy.
Kari Bradley, general manager at Hunger Mountain Co-op, explains, “we don’t have contracts per se … we have long-standing arrangements with people, some people we’ve been working with for 20 years … we form a relationship with mutual understanding.”
“For me, I’m in a long-term relationship,” says Eleanor. “A feeling of integrity is more important than any contract.”
Desai is looking toward the future with the growers participating in the Food Hub: “Farmers see a lot of potential in the growth of this business, and they see it’s worth investing time in now … and in the future they will have some equity.”
“It’s along the lines of ‘good fences make good neighbors’; your ability to sell is going to be built on integrity and building trust,” says Paddock.
Contracts do address specific questions of price, delivery and product specifications. Ultimately, though, the most important thing an agreement provides is guidelines that smooth out potential road bumps for growers’ relationships with their buyers.
The author, a new contributor to Growing, is an agricultural development coordinator for the Vermont Agency of Agriculture. She was previously the director of the Creative Communities Program at the Vermont Council on Rural Development and an organizer for the Central Vermont Localvores.