If you are a farmer, rancher, grocer, processor, etc., and you have specific needs and hurdles that you feel like need to be addressed, please email us at email@example.com and/or add to our “haves/needs” document here.
Summary of Needs
In the wake of the COVID-19 pandemic, we are seeing a variety of challenges emerge for the farmers, ranchers, processors, and producers that are working across US agriculture to keep our country fed. As “shelter-in-place” mandates stir up consumer worries and instigate stockpiling across the country, small-mid sized farmers and ranchers are coming face-to-face with a variety of challenges across inventory, infrastructure, and cash flow. Overall, there is a lot of pressure on the supply chain at this time - and more on the horizon. It is our goal at FS6 to aggregate information and to identify the gaps in support; we need to work together to realign resources in support of those that are working to feed the American population and to help those that are focused on raising food locally, sustainably, and humanely to weather the challenging times ahead.
In summary of the details expanded upon below, FS6 has identified the following core areas as opportunities for support, as we try to mobilize resources to the frontlines of this crisis:
1) Mismatched supply/demand + Inventory support:
The most immediate need is for network support to connect farmers and ranchers who are losing sales to restaurant closures, with those that are short on inventory for grocery and DTC. This also means support in redirecting and mobilizing food workers into the areas that are strained for labor.
2) Cash flow:
The need for cash-flow into the industry is crucial right now. This includes increasing cash flow for advanced processing, capital for processors, and financial support for the farmers and ranchers who are risking taking on debt as we head into a recession. If you are a vendor who has the capacity to renegotiate your contract terms so that farmers and ranchers get paid upon delivery, this is a great way to infuse cash into the industry right now. If you are an investor or grantor, think about providing funding support to keep payments moving and on time.
The infrastructure needs are twofold. First and foremost, we need to be finding support to keep processing facilities open so that the supply chain stays active and functional. What this means will vary from plant-to-plant but it could look like:
Second, there are infrastructure needs associated with the Direct to Consumer (DTC) platforms and delivery pipelines that need to be built quickly to meet the needs of the current situation. This can take many forms, depending on the needs of each farmer but it includes:
For the many small farmers and ranchers that sell primarily into the restaurant industry, things have come to a screeching halt over the past week. Producers are losing accounts; inbound products are not moving out through those channels. This stands in stark contrast to those with a grocery or DTC focus, who are seeing exponential demand increases day-over-day. Grocery channels, particularly grocery delivery, are overwhelmed to the point that they are struggling to fill orders. We have received reports of grocery partners offering to purchase any and all back stock from the ranchers and aggregators in their system, or offering to hand off customers to farmers and processors directly so that they can start making their own sales and deliveries. Solutions are needed to alleviate the highly-stressed distribution and delivery infrastructure. Those who do not already have direct to consumer (DTC) infrastructure in place are being encouraged to develop it, and those with an existing direct-to-customer pipeline are struggling to keep up with the demand for product. Ranchers, farmers, and distributors are sharing resources to help each other quickly build out e-commerce and delivery infrastructure, or expediting the implementation of tools that already exist.
On the animal agriculture side, processing infrastructure is one of the most important and most vulnerable links in the supply chain. Small-scale custom cut houses seem to be the most impacted. Many of the small-to-midsized processors have sold their current supply and are now trying to source more animals to process. To be clear, this is a challenge related to a mismatch in supply and demand, rather than a lack of animals in the system. A top priority will be to provide financial resources to the processing manufacturer now so that they can stay in business for the next wave of the coronavirus outbreak cycle - active processing infrastructure is vital to a healthy supply chain and food availability.
“The processor we’re working with now is a pretty big (mid-sized) processor in the midwest. We give them a decent amount of business but still aren’t their main supplier. When they call looking for business, that is really scary.” - Anonymous Rancher + Aggregator
Concerns + Challenges
In light of the challenges summarized above, ranchers, producers, and processors are facing the following categories of concern
As outlined earlier, there is a need to bridge the gap between farmers and ranchers who have lost their business to restaurant closures and need to bolster their sales; and those that are selling into grocery or DTC, whose systems are overwhelmed and are looking for product to push. Many of the smaller restaurant-direct producers are seeing sales drop 50-80% as the supply chain falters. As processing plants feel the impact of these changes, some of them are shutting their doors - thereby shutting down a crucial resource right as demand is increasing in other parts of the supply chain.
One of the key players in the effort to keep the supply chain running through this crisis is cash-flow. Small-to-midsize farmers, ranchers, and processors rely on on-time payments to keep their business running. When restaurants are no longer able to pay, they create a domino effect on suppliers that can affect the whole system. At this time, payments need to be met and support is needed - whether from government or donors - to front these payments so that farmers aren’t struggling as they take on debt.
There is some frustration among farmers and ranchers that are having to divert product from higher-margin restaurant relationships to retail margins, which can sit around 15%. DTC is the most profitable option (looking at around 40% margins), but building that infrastructure and customer base, if you don’t already have it, is a huge challenge.
On the other side of the coin, for the farmers and ranchers that are experiencing a boom in sales, inventory management and forecast modeling is a core challenge. These players are walking the line between meeting the demands of the market, without leaving themselves vulnerable and overstocked when the surge dies down. In the words of one of our producers, “when the party’s over, you don’t want to have 5-parties worth of food left over.” To add insult to injury, the inevitability that these sales-boom cycles will end in a recession means that everyone is being advised to keep cash-stores on-hand, rather than using existing cash to increase production that could help them meet the demands of the current crisis. This challenge is amplified for specialty producers who are worried that demand for their product will drop after the first wave of panic passes.
The producers we are talking to with DTC and grocery outlets are moving product so quickly that they have no inventory in stock - every batch that is produced is gone that day. However, for the animal agriculture world, given the time-bounds of this crisis, the solution cannot be to raise more animals - it takes ~18 months to get a new producer on board, longer to certify them, and even longer to get processing infrastructure built and certified, if it comes to that. The general consensus is that we need to work with what we have now to get these farmers and processors inventoried and cash-flush.
There is a huge need around supporting the infrastructure that keeps our food supply running. Looking back at processing and slaughter facilities, there are major concerns for further economic failures around small-midscale process capacity, packing, and distribution. If a processing plant shuts down, it’s not as easy as just going to the neighbors - these relationships have a bespoke element to them, as they need to be set up to support the kinds of animals or products that each given rancher is bringing in. And the distance between facilities means that, if one shuts down, you are forced to send ranchers even further to process, taking up valuable time and resources (currently, the average time traveled to slaughter is 6.7 hours). For example, we spoke to a Kansas-based rancher who is looking at plants in Iowa, Oregon, and Tennessee as the backup solution for the farmers in their network.
The challenge for many processing plants is that, having lost most if not all of their restaurant/wholesale business, they are having to adjust for a huge change in throughput. Although retail is booming, they are looking at smaller portions, less tonnage, and increased processing needs for home consumers. Across the board, we are seeing plants have to lay off ~60% of their workforce while, on the other side of their business, value-added processing and products are on system overload. Aggregators who are seeing massive PO cancellation from distributors like Sysco and US Foods are working overtime to make good on the orders they have put in with farmers but are seeing a bottleneck in processing and distribution capacity as plants try to accommodate for the needs of the retail market. Perhaps the greatest challenge in all of this is the breakdown of inbound and outbound logistics - many plants are finding that, even if they can get these retail products made, they are unable to mobilize it. The LTL logistics, USDA cold storage capacity, and delivery infrastructure is not set up to handle this input and solutions are desperately needed.
On the DTC side, the infrastructure needs are focused on building the technology solutions that can support the rapid increase in demand; the marketing infrastructure to inform consumers about the expanded option; and, most importantly, the delivery infrastructure to get product from door-to-door. Farmers and aggregators are having to consider either partnering with existing delivery companies and working together to ramp up hiring for additional staff; or investing in their own internal delivery distribution, which is a costly and time-consuming endeavor. Either way, the question about whether or not to invest in this expansion of services - for a crisis that will likely only last a few months, and will likely be followed by a downturn in demand - is a complicated one. However, if they can get it up and running, it is a great way for farmers to get much-needed cash in the bank.
“We are not high-touch delivery guys but is that who we need to become? Should we be investing in building relationships for this?"
Food System 6
Food System 6 (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.