By Robert Egger
Over the last 20 years, thousands of small farmers and urban growers have entered the marketplace via a vast network of farmer’s markets. Located in every corner of America, these markets have helped sustain these fledgling eco-businesses, while also reinvigorating the community’s connection to our country’s agrarian past.
At the same time, an even greater number of nutrition-based, social enterprises, B-Corps and, “upcycle” companies have opened with the goal of purchasing locally grown foods to produce healthy snacks, meals, juices, and supplements. This “maker movement” represents a powerful, emerging economic force that prioritizes local purchasing, fair wages, environmentally sustainable practices, and reinvested profits.
At virtually every food-system and social impact summit held across the country, attendees hear about the virtues of local food systems, yet this network’s growth and impact has been limited by their inability to find a reliable middle market… one that is in-between the small scale of most farmers markets and the large volume required by major retailers like Whole Foods. The perfect fit for many of these businesses would be in contracting, or sub-contracting, with local governments for contracts to provide healthy meals and snacks to schools, summer meal programs, senior centers, hospitals, and even prisons
“At virtually every food-system and social impact summit held across the country, attendees hear about the virtues of local food systems, yet this network’s growth and impact has been limited by their inability to find a reliable middle market.”
These contracts aren’t small potatoes. In 2017, the state of New Mexico (where I live) released a study that tracked how food contracts are awarded. New Mexico has never been an economic powerhouse, yet they award over $128M in food service contracts annually, and the study showed only $17M, or 11% of these contracts, were awarded to in-state businesses.
That’s because these opportunities are thwarted by two impractical and unfair barriers: low-bids and rebates.
“These opportunities are thwarted by two impractical and unfair barriers: low-bids and rebates.”
Most citizens are unaware of, and most legislators don’t question, the time-honored concept of awarding contracts based on low-bid. From big cities to cash-strapped small communities, low-bid would appear to make economic sense, until you dig into the unseen costs. This model rewards businesses that rely on cheap, processed foods (often shipped in from great distance), and low wages, which leaves local communities footing the bills for rapidly escalating, diet-related healthcare costs, as well as the need for charities, which provide the food, clothing, childcare, and social programs that minimum wage earners often require.
More importantly, because multi-national food companies like Sodexo, Aramark, and Compass dominate the market, most profits are quickly exported to satisfy distant shareholders.
Perhaps more insidious is the practice of rebates, which are basically under-the-table kickbacks. Because they aggregate thousands of contracts, these mega-companies can squeeze food manufacturers to sell them food for the lowest amount possible, while also demanding volume discounts. Theoretically, these companies are mandated to split these discounts with government contractors (most often school districts), who use them, like they did with soda machine revenue in years past, to bolster their anemic budgets
“These mega-companies can squeeze food manufacturers to sell them food for the lowest amount possible, while also demanding volume discounts.”
But contracts rarely have language that mention rebates. They are kind of an unspoken “bonus” that most contractors expect, but most social entrepreneurs aren’t aware of, or never factor in when developing a food contract bid. Most strive to be both health-conscious and competitive on price, hence the explosion of social businesses that buy lower priced, cosmetically imperfect fruits and produce, which allows them to keep their per-meal price low. But at the end of day, they don’t get the contract (the screening of which is often based on secretive selection processes) because rebates create a false sense of economic stability for government agencies that can be addictive - to the point where they simply can’t, or won’t, get by without them.
“Rebates create a false sense of economic stability for government agencies that can be addictive - to the point where they simply can’t, or won’t, get by without them.”
This dual disadvantage makes it all but impossible for any small business to compete, or for local governments to reap the rewards of supporting the local food system. Here are a few suggestions to help us past this barrier.
1. Mandate that city agencies buy local foods. The Center for Good Food Purchasing “provides a metric-based, flexible framework that encourages large institutions to direct their buying power toward five core values,” which includes prioritized purchasing of locally grown foods. The Center has helped cities across the US adopt Food Purchasing Acts, which have amazing potential to open the door for local businesses, particularly if the metrics are mandated by legislatures. Without verifiable, mandated compliance, many city or institutional employees will work to circumvent these purchasing requirements, or run interference for long-time contract holders to keep the rebate money flowing.
2. Prioritize contracts to local, socially conscious businesses. In 2016, the L.A. County Board of Supervisors passed a Social Enterprise Preference Program, which is “designed to increase contracting opportunities for enterprises whose primary purpose is to enhance Los Angeles through economic, social, and environmental sustainability.” Like the Good Food Purchasing Act, the Preference Program seeks to replace low-bid with “best value,” so that government agencies get both a solid price and the economic impact of good wages for workers, products purchased locally, and profits reinvested back into community.
3. Forbid Rebates. Simply put, rebates are nothing more than institutionalized bribes that create an economically insurmountable barrier for local businesses. Most taxpayers would recoil if they found out that cities routinely colluded with multi-national food companies to limit the ability of local businesses to compete. Or that they knowingly serve nutritionally suspect, processed foods to our children or aging parents because of kickbacks… yet that’s the case in most cities across America. In fact, New York and the District of Columbia have even sued food service companies, complaining that they didn’t get their fair share of kickback monies. Progressive legislators should forbid this practice, or at the very least, make the process 100% transparent, so that voters understand how their tax dollars are being spent, and their loved ones health is being jeopardized by this corrupt reliance on cheap foods.
“Rebates are nothing more than institutionalized bribes that create an economically insurmountable barrier for local businesses.”
It’s time we recognize that local food contracts are big business and that city and state funds are best spent, and reinvested, locally.
About the author
Robert Egger was the CEO of DC Central Kitchen, Campus Kitchens and the L.A. Kitchen. He is also the author of "Begging for Change" and a Founding Board Member of Jose Andres' World Central Kitchen.
** This article has been sourced from the FS6 community for the purpose of educating readers on the topic of food system change. The views and opinions expressed here are those of the author and do not necessarily reflect the official position of Food System 6.
For more resources on the changing food system, check out the FS6 blog.
FS6 is a nonprofit based in the San Francisco Bay Area whose mission is to support impact-driven entrepreneurs as they transform how we grow, produce, and distribute food. The organization runs a comprehensive accelerator program that mentors entrepreneurs by coaching them through a wide range of business and organizational needs. FS6 also works to educate stakeholders on the unique capital needs as it relates to redefining the food system.