In the most recent USDA online magazine Amber Waves, Nigel Key indicated that, “The market for local foods continues to expand in the United States. Farm operations with direct-to-consumer (DTC) sales of food increased from 116,733 to 144,530 between 2002 and 2012. Consumers have more opportunities to purchase food directly from producers, with 8,268 farmers’ markets operating in 2014, up 180 percent since 2006. DTC marketing—where producers engage with consumers face-to-face at roadside stands, farmers’ markets, pick-your-own farms, onfarm stores, and community-supported agricultural arrangements (CSAs)—is a substantially different business model from traditional marketing and is one that could help some farmers survive and prosper in a risky and competitive business environment.
“This article [“Local Foods and Farm Business Survival and Growth“] compares the farm business survival and growth rates of farms with DTC sales to those who market through traditional channels, such as grain distributors, processors, and wholesalers. Data show that farmers with DTC sales are more likely to remain in business than other farms but increase in size (measured by sales) more slowly. These differences in survival and growth rates could be explained by attributes of DTC marketing that result in different debt-to-asset ratios, farm income risk, and labor requirements, or possibly by differences in off-farm employment opportunities or preferences for farm versus nonfarm work.”
The USDA article pointed out that, “What is it about DTC marketing that seems to enhance farmers’ chances of remaining in business? One advantage for DTC farms may stem from having lower rates of machinery purchases and land ownership than farms using traditional marketing. According to data from the 2012 Census of Agriculture, farmers who marketed directly to consumers owned $20.82 worth of machinery per dollar of sales, compared with $31.10 for those who marketed through traditional channels. And farmers selling directly to consumers owned $240 worth of land per dollar of sales, compared with $309 per dollar of sales for other farmers. Because they did not need to purchase as much machinery and land to achieve a certain level of sales, farmers with direct sales did not need to leverage as much of their wealth to obtain financing. Furthermore, Census data reveal that farmers with direct sales had annual interest payments of only $7.85 per $1,000 of owned assets, compared with $10.55 for farmers with no direct sales. A lower debt-to-asset ratio should indicate a better ability to repay loans and has been associated with a lower risk of small business failure.”
Concluding, the Amber Waves article explained that: “Higher survival rates and slower growth for farms with direct-to-consumer sales may also stem from different attitudes toward farm versus nonfarm work. Researchers have found evidence that nonfinancial benefits from self-employment may encourage small business owners to remain in business despite earning less income. There is also evidence that the nonfinancial benefits to farming (e.g., greater autonomy, independence, and lifestyle factors) are substantial. It is possible that farmers who sell directly to consumers derive greater nonfinancial benefits from their work—perhaps they enjoy interacting with their customers. This would provide a greater incentive for them to remain in business even with lower business expansion possibilities.”
