Farmers are banding together to form food hubs and compete against the big players

It may be late April, but Barry Thoele is only a few days from harvesting his first batch of romaine lettuce in central Minnesota. Using huge plastic-wrapped greenhouses called "high tunnels" on his hydroponic farm, Thoele will raise and sell about 420 heads of lettuce each week from early May to December, in addition to spinach, basil, strawberries and other produce.

That's far too much for the local farmers markets, Thoele said, but that's OK.

"Most of this is already spoken for, between the hospitals and the school districts," he said.

Thoele is part of a relatively new food distribution model called a food hub.

The hubs purchase and aggregate locally grown produce in one place, or hub, so it can be sold and delivered to institutions. They have become popular because of the increasing consumer demand for fresher food in school cafeterias, retirement homes, hospitals and large restaurants.

But institutions don't have time to buy food from a dozen or more separate farms with different invoice systems and delivery dates, so the hubs simplify matters by becoming a single, go-to source.

Paul Hugunin, supervisor of the marketing division at the Minnesota Department of Agriculture, said food hubs seem to be "building steam" in the state. "Food hubs and distributors are changing the business model, and it's showing that local food is not a fad," he said.

Helping food hubs along have been state and federal programs, such as Minnesota's value-added grant program that has provided capital for farmers to develop new products, expand marketing opportunities and increase sales.

Because most food hubs are relatively new, they take many forms and vary considerably in annual sales and earnings.

A national survey of 107 food hubs in 2013 showed that nearly two-thirds of them were less than five years old, and were a mix of for-profits, nonprofits and cooperatives. One-third had revenue of less than $200,000, and another third received between $200,000 and $1 million.

University of Minnesota Extension researchers reported last year that there were 16 food hubs under consideration in Minnesota, but only a handful were up and running.

One of them is Sprout, a nonprofit founded in 2012 near Brainerd.

Jones began selling to the Brainerd School District in 2010 through its farm to school program that brings local food and agricultural education to schools.

"Knowing that one farm couldn't produce enough food for a school system that does 5,000 meals a day, I started working with other farmers to help fill that demand," she said.

The result was Sprout, which by last year was supplying five area school districts, three hospitals, an assisted-living facility and several restaurants with more than 100,000 pounds of produce from 47 growers. Jones said demand from schools drops when classes adjourn after May, but is more than offset by increased restaurant orders for local produce when tourists and cabin owners flood into the Brainerd lakes area for the summer.

Hugunin said there are several models of food hubs that are popping up in Minnesota.

In Fergus Falls, the Fresh Connect food hub began a pilot program last September, and in its first three months sent 34,000 pounds of food to a dozen school districts, one hospital, a nursing home and a nursery school.

"It's a food hub, but it's not starting from scratch," said Hugunin. "The cooperative already had customers, distribution routes and logistics management capabilities, but they're responding to demand from their customers to provide them with local foods."

In Mankato, the Minnesota Valley Action Council launched a food hub last July. The council is a nonprofit community action agency that serves nine counties. Like Sprout, it has received start-up grants from government programs and private foundations.

Jim Gehrke, the council's awareness coordinator, said the food hub intentionally began small and shipped 20,000 pounds of produce last year to customers that included Gustavus Adolphus College in St. Peter. It also created a community supported agriculture (CSA) program where individual subscribers purchase and pick up food weekly.

This year, the hub expects to deliver 200,000 pounds of food to many more customers, including the Mankato, Waseca and Owatonna school districts, and to quadruple its CSA program, Gehrke said. The hub handles 40 different fruits and vegetables, he said, but the "high-demand commodities" are apples, peppers, onions, cucumbers, cabbage, carrots, squash, melons, tomatoes and lettuce.

Purchasing locally grown food will keep dollars from flowing out of the state, Gehrke said, and put them in the pockets of community growers.

Kevin Edberg, executive director of Cooperative Development Services, said it's an "open question" whether most food hubs will succeed economically. The 30-year-old nonprofit based in Madison, Wis., helps existing and new cooperatives launch new business ventures, analyze markets, manage accounting systems and plan for growth.

"My concern is that there is an over-exuberance of talk, particularly among nonprofits and sometimes growers, about the realities of solving the [food] distribution question," he said. "Frankly they haven't done the numbers, and I don't know that they've done the analysis correctly."

Edberg said he's all in favor of having local food more readily available at retail stores and institutions, but some food hubs he has seen — for-profit and nonprofit — are trying to make it on a scale of tens of thousands or at best a couple hundred thousand dollars a year in sales. To be fully self-sustaining economically, he said, a minimum of $1.5 million to $2 million in annual sales — and more likely closer to $4 million — would be needed to pay the ongoing expenses of decently paid staff, a delivery truck and adequate storage.

At Sprout in Brainerd, Jones is on the hunt for more customers because she has growers eager to scale up production. The food hub also is building new storage and refrigeration space at the former Crestliner boat building factory in Little Falls. That will be equipped with a new processing area, she said, where produce can be cut, chopped, peeled and perhaps eventually frozen for customer specifications. Further ahead are plans for Sprout to diversify and include local meats, cheeses and dairy products.

"People have an emotional connection to local foods, and that's why it has expanded the way that it has," Jones said. "They understand that they're supporting their local farmers and as more and more consumers continue to demand it, that's what's brought more institutions to the table to say, 'Yes, we can do this.' "