From Los Angeles to New York, Portland to Seattle, the growth of the local food movement has reached critical mass. As much as the farm-to-table trend has driven the rise in popularity of farmers’ markets and local fare, you may be surprised to learn that it has not really benefitted small farmers.
Local Food Movement – Good or Bad?
The discussion of the benefits on local farming started in 2008 and came to a head in 2011 when The Local Farms Food and Jobs Act, a bill that would grant $200 million to local farm programs, was passed. The introduction came at a time where the world’s population had hit 7 million. Coupled with new conversations on global warming, it shed light on the amount of food we would have to produce in order to sustain our world’s population growth. People were left to question if Malthus’s predictions on running out of food would come true.
Rethinking the Food Buying Process to Drive Scale and Growth
While the conversation above is a much larger one than two paragraphs can cover; let’s face it, the interest in locally grown food is great, but it comes with large-scale environmental impact that we are simply not prepared to deal with. What is clear is that agriculture needs something to provide balance so that farms can grow food, companies can acquire it and people can buy it.
Enter Azoti, a technology platform manages the food supply chain end-to-end, ultimately hoping to change how large food buyers interact and purchase produce from smaller farmers. In food and hospitality, most businesses currently order food from their contracted distributors who then buy local; local large farms. The small farmers participate on a sporadic basis at most. Working with smaller, higher quality vendors has proved challenging, there’s a price premium for small producer’s products; it’s also hard for buyers to directly from small growers because they are then required to manage safety certifications individually and integrate each vendor into their forecasting. One large producer does this for them.
Azoti.com understand all the supply chain’s needs from buyer – distributor – farmer. The platform enables buyers to circumvent the challenges of ordering general and specialty produce from smaller farmers as the platform processes the order as one whole; buyers can set their forecasts with small farmers during the offseason allocating funds as little as 5 percent of their order value to crops acquired from small farmers. Five percent of $1M may not seem like much, but to small farmers it is as predictability is just as important as volume. Azoti.com does not deliver any food. They partner with regional food hubs or contracted distributors which source from nearly 20 nearby farms. “Current U.S., farmers markets and Community Supported Agriculture shares (CSAs) are barely sustaining for small farmers – they’re suffering,” Dave Ranallo, founder of Azoti. “With our platform, there will be less need for them to rely on CSAs or selling at farmers’ markets –– we can help them scale predictably.”
Dave believes that Azoti.com can increase quality produce distribution and create much more variety for food buyers, ultimately allowing all parties involved to profit. Currently, the startup has partnerships with two of the largest food distributors in Ohio and is steadily growing. For farmers interested in becoming part of their community, the average onboarding process for a small farm is only two weeks. The company believes it is attacking an entire supply chain in order to capture a larger piece of the competitive food landscape. In their eyes, whoever can solves this local puzzle first will be way ahead.
Will Azoti Succeed Where Others Have Failed?
When Dave and his team started working on Azoti four years ago, they leveraged the macro trends happening in health, economic and wellness to develop their platform. From their research, they saw the need to mobilize and decentralize farmers on a global scale as the benefits are too many to list. Dave and his team asked themselves, “How do we support the small farmers while allowing everyone to sustain themselves financially?”
In order to be successful they raised venture capital to be able to build a SaaS model allowing them to analyze how food sales channels work. With the funds raised from NCT Ventures, REV1 Ventures and the Sustainable Agriculture Fund, they conducted extensive research on profitable food revenue models. They soon discovered that CSAs and food subscriptions were not sustainable in the long term.
“Most people don’t cook from home,” Dave said. “(And) if they are willing to pay a premium for local, they want to select which tomato or which cucumber goes in their box.” Leveraging the platform allows restaurants and food service companies like Aramark, Sodexo and Compass Group to provide quality, local food their customers are willing to pay for! To test the hypothesis that consumers really did want to eat local food but not in a CSA delivery style, Azoti.com designed pre-paid workplace farmers markets that launched in 2015. The turnkey program for HR & Wellness Teams allowed employers to pre-buy a fixed amount of produce and run markets where workers pay discounted rates. That resulted in 20 to 40 percent participation and thousands for the small farmers.
CSA’s on the other hand only had a 1% participation rate. Dave shared, “While consumers say they want to change the way they do eat, few do it because they can’t change their behavior.” Even with the one percent who participated, Dave feels that the amount of food put too much pressure on people to eat it all the time each week. “Too much waste” or “too much food” was their #1 issue over the past two years. Undeterred, the subscription model implemented allowed them to understand how the food supply chain works. Azoti.com is continuing their subscription service for an eCommerce and supply chain management SaaS model that creates win-win-win scenarios for all stakeholders.
As an analyst, what I find even more interesting is that Azoti says that their platform is anti-fragile, meaning that economic stressors improves their system. If organizations that purchase food from Azoti vendors are gone tomorrow, they can simply shift the food buyer power elsewhere without harming the farmers.
How to Balance Consumer Demand and Food Production
In my opinion, by Azoti decentralizing the food supply chain by creating a centralized hub for transactions, they are helping the world avoid some of the negative consequences generated by consumer demand.
Whether you want to obtain organic apples from Washington, potatoes from Idaho or bananas from South America, you have to consider how you are going to do that without increasing the costs of goods grown in regions they grow best in. Unfortunately, you cannot do that. Where something is grown often provides larger yields of the product. To move it elsewhere further increase costs. Networking small farmers in a manner that food companies can get produce and meat from its native source solves a major access problem over an indefinite period of time.
In the end, leveraging the technology that has been developed to create systems such as Azoti helps us make better agribusiness systems; making good food continually obtainable for consumers, and growing businesses large or small. What’s more, it is also a perfect example of how the sharing economy and technology are challenging and circumventing age old institutional, government policy.