Hidden costs for local farms

PHILADELPHIA — Say you're a produce farmer near Philadelphia. You don't have Nebraska-size land, so instead of making money on high volume, you grow enough tomatoes, sweet corn, or apples to sell at your own farm store, or to swap with other local farmers who, like you, also run a retail shop.

Then supermarkets come to your door. The same ones that, for years, had stopped buying local produce because they simply stocked whatever their distributors sent from faraway warehouses. Now, they say, their customers want local. They offer to buy your crops in bulk and sell them with a "local" label, alongside the rest.

Easy money, you might think. A way, even, to unload extra produce at peak harvest that otherwise might have gone rotten.

But what may seem like an alluring opportunity is, in reality, a double-edged sword, say some growers with farm stands popular in their communities, who have come to realize that they are paying a hidden price for even modest deals with deep-pocketed supermarkets.

One farmer, Pete Flynn, eliminated his wholesale business entirely this year. His own produce was selling at a nearby Wegmans, under his farm's name, but at prices below what he was charging in his own little store.

The well-heeled customers driving into his Westtown Township, Pa., farm market in Land Rovers and BMWs asked time and again: "Why should I buy here when I see your stuff a few miles away for less?"

Flynn, who works 200 acres for his Pete's Produce Farm, sized up supermarket deals this way: "They're really good for the local farmers who don't retail in their market."

His business is not the only one wrestling with the costs and benefits of the growing interest in local produce among supermarket chains.

Linvilla Orchards in Delaware County has business relationships with a few supermarkets, but it is wary of the industry's penchant for "loss-leading," in which markets sell certain highly marketable items at prices lower than what they pay wholesale. They take a loss on apples but make up for it by attracting customers who will buy other stuff, too, once they come through the door.

"That's not great," said Ron Ferber, senior manager of the 110-acre Linvilla farm and retail store in Media, Pa., which is wholesaling more this year to Giant supermarkets.

Loss-leading is always in the back of a farmer's mind: "It's certainly a strong consideration. "… We're not excited about that," Ferber said.

For those farmers whose business is heavily focused on retailing what they grow, it's a calculation being done with greater frequency, as consumers ask for more and more local produce, and supermarkets respond by making wholesale-buying decisions that reflect it.

Ferdinand Wirth, an associate professor of food marketing at St. Joseph's University with a focus on agriculture, said the swell in shoppers' demand for local produce seemed to begin after the Sept. 11, 2001, attacks, as perceptions about safety became a bigger part of people's lives.

Surveys have pointed to two forces driving the consumer clamor for locally grown food, Wirth said.

"They believe they want to support local businesses, support the local community, keep their money there, help their neighbor out, that kind of thing," he said. Also, a spate of food-contamination problems in recent years fueled a perception "that locally grown foods are fresher and of higher quality."

Consumer demand for local goods further intensified as a result of federal country-of-origin laws, which require major retailers of perishable products to identify where their products come from. The law became mandatory for seafood in April 2005 and for produce in September 2008, Wirth said.

Some might expect the resultant rise in demand from supermarkets, with their vast buying power and customer reach, would be greeted as good news by small farmers, whose struggles are well-known.

When Flynn first began supplying Wegmans in nearby Downingtown, Pa. about six years ago, business was strong all around. Even with the competition, his farm stand's business was holding up well.

But sales fell 20 percent between 2008 and 2009 and have been flat ever since, thanks to the poor economy. It's more important than ever to keep retail margins healthy. That means saying no to supermarkets.

"We were approached by Giant," Flynn said, "and we were approached by Whole Foods" — just last spring, an offer he declined, knowing the chain would be opening a store in nearby Glen Eagle, Pa.

For several decades, Wegmans has made an effort to stock fresh-picked produce because it's a customer draw and helps support farmers in the communities where it has stores. Despite its sometimes-aggressive pricing, the Rochester, N.Y., chain has not run into trouble keeping up a steady supply, said Dave Corsi, vice president of produce and floral.

"We've been operating this program for over 25 years," Corsi said, "and we've had over 500 growers partnering with us for a long period of time now, and we haven't found it challenging for too many growers."

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