The growing popularity of food hubs is creating new market opportunities for entrepreneurs.
A food hub is a wholesale distribution network that connects small and medium-sized producers of local food to large-scale food companies, institutions, schools and other buyers. They might buy fresh produce and goods from a wide variety of family farms and artisanal foodmakers, and sell them directly to consumers, restaurants and grocery stores, or through distributors like Sysco and Compass Group. The centralized system aggregates products from many small suppliers and makes larger, more efficient deliveries to customers of all sizes.
Food hubs are just beginning to sprout in Illinois to meet a hearty appetite among consumers for fresh, local food, says Kathy Nyquist, founder and principal of New Venture Advisors LLC, a Chicago firm that works with entrepreneurs and others to launch businesses in the local food and sustainable agriculture arena. She’s moderating a panel discussion on food hubs and produce procurement next week at the three-day Good Food Festival & Conference in Chicago, organized by FamilyFarmed.org. Three of the four panelists are operating different types of food hubs and will discuss how they work.
The Illinois state government is getting behind this trend, too, by supplying some expertise and funding mechanisms. To give that sector a boost, the Illinois Department of Commerce and Economic Opportunity recently released a new tool kit and guidelines for creating food hubs. Ms. Nyquist and Jim Slama, president of FamilyFarmed.org, were among the guidelines’ key authors.
FamilyFarmed.org and New Venture Advisors have collaborated to help start food hubs in Illinois, Wisconsin, Virginia, and soon in Northern California. Three were launched in 2011 and six more are in development for later this year and into 2013.
Crain’s met with Ms. Nyquist this week to learn more about food hubs and why local entrepreneurs should pay attention to this trend.
Crain’s: Can new food hubs in Illinois make a difference in connecting local food producers with consumers that want those products?
Kathy Nyquist
Ms. Nyquist: In Illinois, consumers spend $14 billion (annually) on fruits and vegetables alone. The data is a little squishy, but we estimate that only 6 percent of this is grown in the state. It’s a small fraction of the total. Yet national grocery and restaurant associations report that the large majority of consumers want locally produced food. We have heard from hundreds of buyers and growers who say food hubs remove the main barriers to increasing local food production and procurement. Illinois needs a network of food hubs large and small that connect growers with local customers. It barely exists.
Crain’s: Where are these food hubs already established in Illinois? How many Illinois farmers and other small businesses are already participating in these networks?
Ms. Nyquist: We helped two Illinois food hubs launch in 2011 and will help four to five new food hubs launch this year. These and a few previously existing hubs are brick-and-mortar facilities located across the state, operating at varying scales and providing a variety of services. They are probably connected to about 30 Illinois farms and artisans, and many of these will be exhibiting at the Good Food Trade Show and Festival on March 16-17.
Crain’s: Why are food hubs a great way to increase access to local foods?
Ms. Nyquist: They make it easier for producers to sell to local customers and for customers to buy local food. If producers spend less time selling to customers and making deliveries, they can spend more time in production. We know a lot of farmers who would be quite happy to NOT get up at 3 a.m., drive 100 miles to the farmers market and stand in the rain for five hours.
If buyers don’t have to spend time finding and managing multiple small suppliers, they will buy more local food. And sometimes food hubs bridge scale differences: We have a national food system designed for large tractor-trailers but many small- to mid-size producers don’t have the docks or trucks to plug into that system. The food hub takes care of all of this.
Crain’s: Do you have any estimates of projected growth of food hubs in Illinois in the next few years?
Ms. Nyquist: It will be strong if the Illinois Department of Commerce and Economic Opportunity keeps at it. DCEO believes local food can be an economic engine for Illinois. They just released the business planning guide, which we helped author and publish. They also formed the USDA/DCEO Food Hub Partnership to make it easier for entrepreneurs to access state and federal funding for food hub development. DCEO Director Warren Ribley is speaking next week in Chicago on a panel with Colleen Callahan from USDA Rural Development at the Good Food Financing Conference on March 15.
Crain’s: Are there other aspects of the food hub trend where entrepreneurs can get involved?
Ms. Nyquist: There’s a big need for more processing kitchens in Illinois, and that’s a great opportunity for entrepreneurs. A lot of artisanal foodmakers are relying on farmers markets and french markets for distribution and they’ll max out at a certain point in time. So if you have a great spaghetti sauce or sausage recipe and need a larger certified kitchen for production, you’ll probably have to look way outside your region. Sort of ruins the idea of local.
When we studied the Illinois market for processing, we found that access to a local commercial kitchen would have a significant positive impact on farmers and local enterprises such as artisanal foodmakers, independent restaurants and natural food stores. The kitchen would help them expand existing efforts, enter new lines of business and grow their revenues.
Crain’s: What other parts of the country already have successful food hubs established?
Ms. Nyquist: The U.S. Department of Agriculture counted 170 food hubs in 2011. We mapped locations for about 100 of these and see the strongest networks in coastal California, New England, the mid-Atlantic and a ribbon stretching from Chicago to Minneapolis.
Still there’s so much opportunity. Our national food system is composed of thousands of processors and distributors grossing millions. We just visited an impressive food hub in Minneapolis with almost $20 million in sales, which is about the average for fruit and vegetable distributors in the U.S. This can be replicated.
